The New York State Department of Financial Services has fined online brokerage Robinhood Markets Inc.’s cryptocurrency trading unit $30 million for alleged violations of anti-money laundering regulations. money and cybersecurity, as part of the department’s first crypto enforcement action.
The New York State Financial Regulator said Tuesday that Robinhood Crypto LLC has failed to maintain and certify compliant anti-money laundering and cybersecurity programs. As part of the consent order, Robinhood will also retain the services of an independent consultant to assess its compliance with NYDFS regulations and its remediation efforts.
NYDFS said it found significant failures through an oversight review and subsequent investigation of Robinhood’s app. The failures, the regulator said, resulted from shortcomings in the company’s management and oversight of its compliance programs. These include the failure to foster and sustain a culture of compliance and to allocate adequate resources to programs, especially as the business has grown rapidly, which has exacerbated the issues.
Robinhood, which said in its latest quarterly report that it had approximately 15.9 million monthly active users at the end of March, first publicly disclosed the investigation and settlement with NYDFS there. is one year old in documents filed with the Securities and Exchange Commission. The company initially expected a monetary penalty of at least $10 million, then increased it to $30 million.
NYDFS said Robinhood’s Bank Secrecy Act and Anti-Money Laundering Compliance Program were understaffed and failed to transition from a manual transaction monitoring system appropriate for the size of company, transaction volumes and customer profiles. Robinhood’s cybersecurity program also failed to respond to the company’s operational risks, and its policies did not comply with the regulator’s cybersecurity and virtual currency regulations, NYDFS said.
Robinhood also failed to comply with certain consumer protection requirements by not having a dedicated phone number on its website to receive consumer complaints, NYDFS said.
“We have made significant progress in building industry-leading legal, compliance and cybersecurity programs, and we will continue to prioritize this work to better serve our customers,” Cheryl said Tuesday. Crumpton, associate general counsel of litigation and enforcement at Robinhood. “We remain proud to offer a more accessible and lower cost platform to buy and sell crypto and we are excited to continue to grow our business responsibly with new products and services that our customers want.”
The settlement with Robinhood was the first enforcement action in the cryptocurrency sector by NYDFS, which, given New York’s role as a financial center, plays an outsized role in regulation and regulation. financial application. It also comes as its new superintendent, Adrienne A. Harris, seeks to provide more guidance to the crypto industry and expand the regulator’s team on virtual currency.
“DFS will continue to investigate and take action when a licensee violates the law or Department regulations, which are essential to protecting consumers and keeping institutions safe and sound,” Ms. Harris said in a statement. communicated.
The settlement was the latest headache for the mobile investment company, which has achieved massive popularity during the Covid-19 pandemic. Robinhood’s monthly active user count fell 25% in the first quarter from last year’s quarterly peak, while its revenue fell 47%. The company shifted its focus from rapid growth to cost reduction, laying off 9% of its staff earlier this year.
Robinhood has also found itself on a collision course with regulators after SEC Chairman Gary Gensler introduced a business rules overhaul in June that could threaten part of its business model.
Write to Mengqi Sun at email@example.com
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