Security & AML Issues Haunt Robinhood: Ordered to Pay $15M Fine in New York
New York state hit Robinhood with $15M fine as part of a series of penalties to be issued to the trading platform. It also sends a message of the regulatory risk of operating in the crypto sphere.
Robinhood, mobile trading platfrom is facing a total of $15 million fine from the New York State Department of Financial Services (NYDFS) over allegations related to its crypto unit’s handling of cybersecurity and anti-money laundering (AML).
The news highlights how the popular stock and crypto -buying app will face increased regulatory scrutiny as it moves to expand its fast-growing crypto offerings.
According to the SEC filing, Robinhood set aside $10 million last year related to the NYDFS action, and another $5 million in the first quarter of this year. News of the NYDFS settlement comes a week after Robinhood agreed to pay a $70 million fine — the largest of its kind — to FINRA over outages and miscommunications that the federal regulator said created “significant harm” to Robinhood customers.
The New York settlement filing doesn’t provide further details about the nature of the allegations. It only states that the NYDFS action relates to Robinhood’s crypto division — known as RHC — and is “focused primarily on anti-money laundering and cybersecurity-related issues.”
Robinhood has pointed out that the company and the New York regulator have recently reached “a settlement in principle,” and that “RHC will pay a monetary penalty and engage a monitor.”
Neither Robinhood and the NYDFS commented on the matter to the Wall Street Journal, which was first to report on the settlement on Wednesday.
While a financial penalty of approximately $15 million is not very large for a company of Robinhood’s size, the obligation to “engage a monitor” could be more troublesome. Monitors are court-appointed officials who are made privy to a company’s private operations — a measure that companies strongly dislike, and that could potentially slow Robinhood’s efforts to ramp up its crypto operations to compete other crypto exchanges.
Robinhood as part of its SEC filing recently disclosed that it held over $11 billion in cryptocurrencies for its customers, and that Dogecoin accounts for a significant portion of its trading operations – 34% of 88 billion revenue.
News of the NYDFS settlement comes a week after Robinhood agreed to pay a $70 million fine—the largest of its kind—to FINRA over outages and miscommunications that the federal regulator said created “significant harm” to Robinhood customers.
