3 - 4 minute read
Robinhood, the commission-free trading app that has become a favorite among younger investors in the US, has been hit with a $10.2 million penalty by the North American Securities Administrators Association (NASAA) for “operational and technical failures that harmed main street investors.” The company will be paying the penalty to multiple state regulatory agencies as a settlement over issues that caused the platform to temporarily go out in 2020.
NASAA’s investigation lasted for over a year and was conducted alongside state securities regulators from Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas, who found that Robinhood had numerous deficiencies. The violations at the time included negligent dissemination of inaccurate information to customers, failure to have a reasonably designed customer identification program, failure to supervise technology critical to providing customers with core broker-dealer services, failure to have a reasonably designed system for dealing with customer inquiries, failure to exercise due diligence before approving certain option accounts, as well as failure to report all customer complaints to FINRA and state securities regulators, as may be required.
Robinhood has neither admitted nor denied the findings, but they will be paying the penalty. In addition, the company will be retaining an independent compliance consultant and providing access to a FINRA-ordered compliance report to settling states. In a year, Robinhood will confirm to Alabama, the leading state, that it has complied with the recommendations of the consultant or taken steps to effectively address the recommendations.
With the rise of retail trading and the influx of newer traders interested in cryptocurrencies, Robinhood has been at the forefront of the democratization of investing. With the company’s crypto-friendly platform, it has also enabled younger traders to participate in cryptocurrency trading. Recently, Robinhood announced that it’s launching a new crypto wallet on Apple’s mobile operating system with support for popular digital assets such as meme token Shiba Inu (SHIB), top altcoin Ethereum (ETH), and layer-2 scaling solution Polygon (MATIC).
Advice for Traders
Traders should take note of the penalties that Robinhood has to pay as a reminder that all trading platforms should have reliable and functioning technology. Platforms should also ensure that their technology is critical to providing customers with core broker-dealer services. An unstable platform can harm traders by causing them to lose money or miss out on profitable trades. Additionally, traders should make sure to report any complaints they have about a trading platform to FINRA and state securities regulators. This is important because it is required to ensure that regulators are aware of any problems that are occurring and can take action to rectify them.
