Robinhood Fined $10.2M by NASAA for Operational and Technical Failures

The North American Securities Administrators Association (NASAA) announced that Robinhood Financial LLC (Robinhood), an institutional brokerage company and a subsidiary of Robinhood Markets Inc., has paid a $10.2 million fine for operational and technical failures that harmed its investors to settle with the regulator.

The settlement stems from an investigation spearheaded by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas regarding Robinhood's operational failures with respect to the retail market.

In March 2020, a two-day outage on Robinhood caused financial losses for hundreds of thousands of traders who were using the platform at the time. The investigation also found deficiencies in Robinhood's review and approval process for options and margin accounts prior to March 2021, and weaknesses in the company's monitoring and reporting tools. Besides, there were also some problems with its customer service.

NASAA listed Robinhood's violations, which include: negligent dissemination of inaccurate information to customers, including regarding margin and risk associated with multi-leg option spreads; failure to have a reasonably designed customer identification program; failure to supervise technology critical to providing customers with core broker-dealer services; failure to have a reasonably designed system for dealing with customer inquiries; failure to exercise due diligence before approving certain option accounts and failure to report all customer complaints to FINRA and state securities regulators, as may be required.

NASAA President Andrew Hartnett said: "Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies."

According to the regulator's announcement, One year after the settlement date, Robinhood will attest to the lead state, Alabama, that it is in full compliance with the FINRA-ordered independent compliance consultant's recommendations or has otherwise instituted measures that are more effective at addressing the recommendations.

The state regulator also stated "no evidence of willful or fraudulent conduct by Robinhood, and that Robinhood fully cooperated with the investigation".

"We are resolving this matter with the states and are pleased to put it behind us," said Lucas Moskowitz, Robinhood's deputy general counsel and director of government affairs. "The settlement relates to past issues that Robinhood has since invested heavily in improving, including the launch of 24/7 chat and phone support, expanding our library of educational materials, and strengthening the way we supervise our technology. We remain focused on continuing to break down barriers to the markets for those who were previously kept out.”