The New York State financial regulator said Tuesday that
Robinhood Crypto LLC failed to maintain and certify compliant
anti-money-laundering and cybersecurity programs. As part of the consent order,
Robinhood also will be required to retain an independent consultant to evaluate
its compliance with NYDFS’s regulations and its remediation efforts.
NYDFS said it found significant failures through a
supervisory exam and through a subsequent enforcement investigation of
Robinhood. The failures, the regulator said, resulted from shortcomings in the
company’s management and oversight of its compliance programs. These include
failures to foster and maintain a culture of compliance and to allocate
adequate resources to the programs, particularly as the company grew quickly,
which exacerbated the issues.
Robinhood, which said in its latest quarterly filing that it
had about 15.9 million monthly active users as of the end of March, first
publicly disclosed the investigation and settlement with the NYDFS a year ago
in paperwork filed with the Securities and Exchange Commission. The company
initially expected a monetary penalty of at least $10 million and later
increased it to $30 million.
NYDFS said Robinhood’s Bank Secrecy Act and
anti-money-laundering compliance program was insufficiently staffed and failed
to transition in a timely manner from a manual transaction monitoring system
that was appropriate for the company’s size, transaction volumes and customer
profiles. Robinhood’s cybersecurity program also failed to address the
company’s operational risks, and its policies weren’t in compliance 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 building industry-leading
legal, compliance, and cybersecurity programs, and will continue to prioritize
this work to best serve our customers,” Robinhood’s Associate General Counsel
of Litigation and Regulatory Enforcement Cheryl Crumpton said in a statement
Tuesday. “We remain proud to offer a more accessible, lower-cost platform to
buy and sell crypto and are excited to continue to grow our business in a
responsible manner with new products and services that our customers want.”
The settlement with Robinhood was the first
cryptocurrency-sector enforcement action by NYDFS, which given New York’s role
as a financial center plays an outsize role in financial regulation and
enforcement. It also comes as its new superintendent, Adrienne A. Harris, looks
to provide more guidance for the crypto industry and to expand the regulator’s
team on virtual currency.
“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,” Ms. Harris said in a statement.
The settlement was the latest headache for the mobile
investing firm, which achieved mass popularity during the Covid-19 pandemic.
Robinhood’s monthly active user count dropped 25% in the first quarter from
last year’s quarterly peak, while its revenue dropped 47%. The company has shifted
its focus from rapid growth to cost-cutting, laying off 9% of its staff earlier
this year.
Robinhood also has found itself on a collision course with
regulators after SEC Chairman Gary Gensler in June outlined a revamp of trading
rules that could threaten part of its business model.
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