Robinhood’s Crypto Division Hit With $30 Million Fine by New York’s Top Regulator

Key Insights:

• NYDFS found that the company was in violation of regulations for virtual currency, money transmitters, transaction monitoring and cybersecurity.
• Robinhood’s crypto unit must hire an independent consultant to evaluate the firm’s compliance efforts.
• The company has announced that it is laying off nearly a quarter of its staff.

Robinhood, a U.S. stock trading app that boasts over twenty million users, has been fined by the New York State Department of Financial Services (NYDFS) for alleged violations related to anti-money laundering, cybersecurity and consumer protection laws.

The $30 million fine is specifically linked to Robinhood’s cryptocurrency trading unit and is a result of “serious deficiencies” within its “compliance function across multiple areas”.

Cybersecurity Failures

The announcement was made by NYDFS superintendent Adrienne Harris who confirmed that Robinhood Crypto will pay a $30 million penalty to the state for failing to maintain adequate cybersecurity measures and violating aspects of the Bank Secrecy Act (BSA), as well as Anti-money Laundering (AML) obligations.

According to NYDFS’s consent order, an examination of Robinhood Crypto conducted between January and September 2019 found that it was in violation of the department’s regulations for virtual currency, money transmitters, transaction monitoring and cybersecurity.

As a result, the company’s crypto unit is required to hire an independent consultant to evaluate the firm’s compliance and remediation efforts.

Another concern was that the company failed to provide a dedicated phone number on its website that enabled customers to submit complaints as part of a supervisory agreement. What’s more, NYDFS alleges that Robinhood Crypto’s anti-money laundering program was “inadequately staffed” and relied on a manual system for monitoring transactions even as its user base grew exponentially.

As well as the critical failures in its cybersecurity program, regulators claim that a lack of management and oversight alongside a “failure to foster and maintain an adequate culture of compliance” led to a series of violations that warranted a hefty fine.

In addition, Robinhood has announced that it is laying off nearly a quarter of its staff citing economic conditions and the recent crypto market crash. The news comes as the company reported a second-quarter net revenue decline of 44%.

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