Robinhood fined $30M by NYDFS for allegedly violating regulations

The New York State Department of Financial Services (NYDFS) has imposed a fine of $30 million on the crypto-focused branch of the online brokerage firm Robinhood, Robinhood Crypto, for allegedly violating regulations related to cybersecurity, anti-money laundering, and consumer protection.

Notably, Robinhood, which signed an agreement to buy UK-based crypto platform Ziglu in April, is currently facing troubles amid the crypto winter. On Tuesday, the department alleged that the exchange violated both AML and cybersecurity laws by neglecting to certify necessary programs for each. As a result, Robinhood will also be required to hire an independent consultant to make sure it complies with NYDFS rules.

The regulator discovered “significant failures” in Robinhood’s management of its compliance systems, according to a report by the Wall Street Journal. It failed to both create a “culture” of compliance and allocate the required resources to such programs as the firm expanded.

For instance, according to the NYDFS, Robinhood’s AML and Bank Secrecy Act compliance program lacked adequate staff. Additionally, it did not improve its transaction monitoring system appropriately to reflect its expanding size, transaction volume, and user profiles.

Robinhood failed to follow NYDFS rules

According to allegations, the cybersecurity strategy by Robinhood adhered to practices that were not in alignment with the virtual currency and cybersecurity standards set forth by the NYDFS. Moreover, without a specific phone number on its website to address customer complaints, the regulator claimed its consumer protection was insufficient.

In the course of an investigation that Robinhood reported in a filing with the Securities and Exchange Commission last year, the department discovered these weaknesses. The company initially expected to pay a $10 million fine, but in July 2021, it increased those projections to $30 million.

The agency took its first enforcement action against the cryptocurrency industry on Tuesday with the latest settlement. NYDFS superintendent Adrienne A. Harris stated:

“DFS will continue to investigate and take action when any licensee violates the law or the Department’s regulations, which are critical to protecting consumers and ensuring the safety and soundness of the institutions.”