/regulation & compliance

News and resources on regulation, compliance, legal and governance issues for banks and fintechs.
Robinhood to pay $70m in Finra settlement

Robinhood to pay $70m in Finra settlement

The Financial Industry Regulatory Authority (Finra) has fined Robinhood $57 million and ordered the trading app to pay approximately $12.6 million in restitution, plus interest, to thousands of "harmed customers".

Finra says that Robinhood hurt customers by giving them misleading information, by suffering systems outages in March 2020, and by approving thousands of customers to trade options even when it was not appropriate.

Robinhood has emerged in recent years as one of fintech's biggest success stories, garnering millions of users and a multi-billion valuation.

However, this has been accompanied by a series of controversies: In December it was hit with a $65 million fine by the SEC for misleading customers about payment for order flow practices, while Massachusetts securities regulators have filed a complaint over gamification strategies designed to attract inexperienced investors.

In its decision, Finra says that, despite Robinhood’s self-described mission to “de-mystify finance for all,” the firm has at times negligently communicated false and misleading information to its customers.

This has covered a host of critical issues, including whether customers could place trades on margin, how much cash was in customers’ accounts, how much buying power or “negative buying power” customers had, the risk of loss customers faced in certain options transactions, and whether customers faced margin calls.

Finra cites one case where a customer who had turned margin “off,” took his own life in June 2020, leaving a note expressing confusion as to how he could have used margin to purchase securities because, he believed, he had not “turned on” margin in his account.

Second, Finra has found that since Robinhood began offering options trading to customers in December 2017, the firm has failed to exercise due diligence before approving customers to place trades.

The company relied on algorithms to approve customers for options trading, with only limited oversight by firm principals but "often approved customers to trade options based on inconsistent or illogical information".

Jessica Hopper, EVP, head, department of enforcement, Finra, says: “The fine imposed in this matter, the highest ever levied by Finra, reflects the scope and seriousness of Robinhood’s violations, including Finra’s finding that Robinhood communicated false and misleading information to millions of its customers.”

In settling the matter, Robinhood neither admitted nor denied the charges, but consented to the entry of Finra’s findings.

Comments: (0)