FINRA has imposed a $26m fine on Robinhood Financial and Robinhood Securities for multiple regulatory violations, including anti-money laundering and supervisory lapses.
The US regulator also ordered Robinhood to pay $3.75m in restitution to customers affected by inaccurate disclosures and market order practices.
FINRA’s investigation found that Robinhood misinformed customers about its ‘collaring’ practice, converting market orders to limit orders.
Customers affected by the practice, who re-entered orders at inferior prices, will receive $3.75m in restitution.
The investigation further uncovered that both Robinhood Financial and Robinhood Securities failed to establish adequate anti-money laundering programmes.
The failure led to undetected suspicious activities, including manipulative trading and account takeovers by third-party hackers.
Robinhood also neglected to implement a reasonable customer identification programme, resulting in thousands of accounts being opened without proper identity verification.
Robinhood Securities inadequately supervised its clearing technology system, which cleared trades for Robinhood Financial.
In January 2021, the company’s system faced severe latency issues due to a surge in trading volume, affecting its ability to meet regulatory obligations.
also failed to comply with reporting obligations for securities trading information.
In addition, Robinhood Financial did not properly supervise or retain social media communications by paid influencers.
Some of the social media communications were misleading, containing promissory statements that lacked balance and fairness, potentially deceiving investors.
FINRA findings highlight the lack of supervisory systems at Robinhood Financial and Robinhood Securities, with several areas of non-compliance self-reported by the firms.
Both entities consented to FINRA’s findings without admitting or denying the charges and agreed to settle the charges by remediating the issues identified by the regulator.
FINRA executive vice president and enforcement head Bill St Louis said: “In recent years, the brokerage industry has continued to evolve and develop innovative services and technologies that have allowed millions of new investors to access the markets.
“Today’s action reminds FINRA members that compliance with core regulatory obligations remains critical to safeguarding and serving all investors.”
In November last year, Robinhood Markets agreed to acquire custodial and portfolio management services provider TradePMR for around $300m.
