The U.S. Financial Industry Regulatory Authority (“FINRA”) recently announced that it reached a $29.5 million settlement with Robinhood Financial and Robinhood Securities to resolve allegations that the companies violated numerous securities laws and FINRA rules, including those related to anti-money laundering. According to FINRA, both firms failed to establish reasonable AML programs, which led to their failure to investigate or report suspicious activity, including instances where customer accounts had been hacked by third parties. Additional allegations include Robinhood Financial’s failure to establish a reasonable customer identification program (“CIP”), which resulted in the opening of thousands of accounts that had not been reasonably verified. Robinhood Financial also allegedly provided customers with inaccurate or incomplete disclosures involving the order handling practice of “collaring,” in which the company automatically converted certain market orders to limit orders. FINRA reported that, from August 2016 to June 2021, more than 8.7 million collared market orders were either not executed or were canceled, resulting in at least $3.75 million in customer losses. For this reason, $3.75 million of the settlement funds will be paid as restitution to customers who suffered losses associated with this practice.
The firms signed a letter of acceptance, waiver and consent (“AWC”) with FINRA in which they agreed to pay the monetary penalty and consented to the entry of FINRA’s findings without admitting or denying the allegations. According to the AWC, both companies and their parent company, Robinhood Markets, Inc. have undertaken extensive remedial measures to address the issues identified by FINRA, including substantial enhancements to their AML program. The AML program enhancements include upgraded technology, new procedures for investigating and reporting suspicious activity, a new system for tracking and managing investigations, and the hiring of more experienced managers for critical roles such as AML surveillance and AML investigations.
Robinhood Financial and Robinhood Securities also made individual program improvements. According to the AWC, Robinhood Financial retained an independent consultant to review seven areas of its business and the adequacy of its compliance programs. As a result, the firm made a number of program enhancements, including improvements to its CIP and certain changes to its collaring practice and related disclosures. According to the AWC, Robinhood Securities’ program enhancements included improvements in the supervision of the firm’s clearing broker technology, which was used to clear trades for Robinhood Financial.
FINRA News Release | FINRA – Letter of Acceptance, Waiver, and Consent (AWC)