FINRA Fines Robinhood $26M for Multiple Violations

Robinhood has once again come under regulatory scrutiny, as the Financial Industry Regulatory Authority (FINRA) has fined Robinhood Financial and Robinhood Securities a total of $26 million for multiple violations, including failures in supervision, misleading order execution disclosures, and anti-money laundering (AML) compliance lapses. Additionally, Robinhood Financial has been ordered to pay $3.75 million in restitution to affected customers.

Violations Leading to the Fine

According to FINRA, Robinhood committed multiple violations, ranging from misleading customer communicationsto failure in regulatory compliance and technology oversight. The key violations include:

• Misleading Order Execution Disclosures: Robinhood Financial failed to accurately disclose its practice of “collaring” market orders, which involves converting market orders into limit orders without adequately informing customers. Many customers experienced order cancellations, forcing them to re-enter trades at unfavorable prices, leading to financial losses.
• Anti-Money Laundering (AML) Failures: Robinhood failed to establish and maintain a proper AML program, which resulted in its inability to detect, investigate, or report suspicious activities such as manipulative trading, suspicious money movements, and account takeovers by hackers. Moreover, Robinhood Financial did not implement an effective customer identification program (CIP), allowing thousands of accounts to be opened without proper identity verification.
• Technology and Clearing System Failures: Robinhood Securities failed to properly oversee its clearing technology system, which is crucial for processing customer trades. During the January 2021 trading surge, the clearing system experienced severe latency, causing operational disruptions. Despite multiple warnings regarding system capacity, Robinhood did not take timely action to prevent these delays.
• Inadequate Supervision of Social Media Marketing: Robinhood Financial failed to monitor and approve social media promotions by paid influencers. Many of these promotions contained exaggerated and misleading claims, violating FINRAs fair and balanced communication standards.
• Failure to Report Trading Data: Robinhood Securities failed to accurately report trading data to FINRAs trade reporting facilities and the Consolidated Audit Trail (CAT). The firm also submitted tens of thousands of inaccurate or incomplete blue sheets, impacting over 216.4 million transactions.

Regulatory History and Settlement

Robinhood has a history of regulatory issues. The firm joined FINRA in 2013 and has since faced multiple enforcement actions. In 2021, Robinhood was fined $57 million for misleading customers, failing to properly supervise communications, and deficiencies in its customer identification program.

As part of the current settlement, Robinhood has neither admitted nor denied the charges but has agreed to FINRAs findings and will implement remediation measures. The firm must certify that it has addressed all identified compliance failures.

While Robinhood has revolutionized retail investing, its repeated violations highlight the challenges of maintaining compliance in a rapidly evolving market.

About Robinhood Financial and Robinhood Security

Robinhood Financial, LLC (RHF) was founded in 2013 and became a FINRA member the same year. It launched its commission-free trading platform in December 2014, revolutionizing retail investing by making stock trading accessible to a broader audience. The company is headquartered in Lake Mary, Florida, with multiple branch offices across the U.S.

Robinhood Securities, LLC (RHS) joined FINRA in 2017 and, since 2018, has served as the exclusive clearing and carrying firm for Robinhood Financial. RHS handles all customer accounts introduced by RHF on a fully disclosed basis. Its primary responsibility is to manage clearing operations, ensuring that trades are settled efficiently.