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November 23, 2021

Robinhood Gets a $30 Million Fine on Anti-Money Laundering Probe on Its Crypto Business

By Timothy Shields.

Robinhood Crypto, the cryptocurrency arm of Robinhood Markets Inc., may be in significant trouble with the New York State Department of Financial Services (NYDFS), as per its recent S-1 filing.

Robinhood says it expects to pay a $30 million settlement to NYDFS after the department’s 2020 probe on anti-money laundering and cybersecurity-related issues. The company has been found to be in violation of numerous regulatory requirements.

Notwithstanding the monetary penalty, Robinhood will likewise be required to engage a monitor, to prevent further violations.

The Recent $30 Million Fine

In July 2020, the online trading app said that the New York Department of Financial Services said Robinhood’s crypto unit had various matters requiring consideration. These matters are essentially centered on anti-money laundering and cybersecurity-related violations. Anti-Money Laundering and Know Your Customer statutes are stem largely from the 2001 Patriot Act. They place burdens on businesses to be able to positively know who their customer is and the source of their funds.

In March, an ensuing examination by the Consumer Protection and Financial Enforcement division of the NYDFS discovered alleged infringements of anti-money laundering and New York Banking Law requirements, including the inability to provide a compliant anti-money laundering program. 

Other violations include cybersecurity and virtual currency requirements, which include a deficiency in policies and procedures regarding risk assessment, a lack of sufficient incident response and business continuity plan, and a deficiency in application development security.

Robinhood Crypto said it had reached a settlement with respect to said claims, subject to conclusive documentation. Thus, it expects to pay the fine of $30 million and to engage a monitor to avoid future infringements.

This $30 million NYDFS fine is the most recent in a line of money-related punishments demanded against Robinhood by regulators. 

Previous Monetary Penalties

As mentioned, this isn’t Robinhood’s first multi-million dollar punishment corresponding to its business operations.

Last December, the organization consented to pay a $65 million settlement with the SEC for misleading its clients about income sources and neglecting to fulfill its obligation of best execution for client trades.

Also, last June, Robinhood consented to pay a $70 million fine to the Financial Industry Regulatory Authority (FINRA). This is due to allegations that the brokerage firm misled a large number of clients, supported ineligible traders for risky techniques, and didn’t oversee innovation that kept millions out of trading. The said amount is the largest fine ever issued by FINRA for neglecting to secure and protect its customers.

The total of $165 million one-time fines Robinhood has been requested to pay address 32% of the organization’s first-quarter income of $522 million. 

Takeaway

The penalties suffered by Robinhood only show that compliance with State rules and regulations should not be taken lightly. It has a high cost to pay. Consequently, New York regulators direct monetary firms to promptly maintain anti-money laundering programs, including confirming client data, responding to law enforcement demands, and regulating transactions for risks. The State rules also require that such organizations work out digital protections or cybersecurity defenses and alternate courses of action to limit the aftermath of cyberattacks.


Timothy Shields is a Partner at Kelley Kronenberg, focusing his practice on Technology, Data Privacy, and Social Media Representation.

Contact Timothy Shields at:
Phone: 833-830-HELP (4357)
Email: tshields@kklaw.com

DISCLAIMER: This article is provided as a courtesy and is intended for the general information of the matters discussed above and should not be relied upon as legal advice. Neither Kelley Kronenberg, nor its individual attorneys or staff, are responsible for errors, omissions and/or typographical errors – always seek competent legal counsel.