Regulation . 3 Aug 2022

Robinhood's Crypto unit Fined $30M by New York Financial Regulator

by Udit Agarwal
Robinhood's Crypto unit Fined $30M by New York Financial Regulator
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Robinhood, the struggling trading firm, is fined $30 million by New York's top financial regulators for the alleged shortcomings in the company's anti-money laundering and cybersecurity practices.

The company also laid off 23% of its employees, citing slow growth and reduced active users.

The New York Department of Financial Services (DFS) mentioned that Robinhood's crypto subsidiary had faced significant failures in complying with state financial regulations. 

“As the business started reaching the height, Robinhood Crypto faced the issues while investing its money into the resources and paying the attention towards developing and maintaining the culture of compliance,” said Adrienne Harris, Superintendent at DFS.”Such failure resulted in significant violations of the department’s anti-money laundering and cyber security regulations.’’

Robinhood is one of 31 companies that holds a BitLicense(or TrustCcharter) required in New York State to provide cryptocurrency services. 

The company disclosed the investigation and potential fine in a regulatory filing with the Securities and Exchange Commission last year.

"We have made significant progress building industry-leading legal, compliance and cybersecurity programs and will continue to prioritise this work to best serve our customers," Cheryl Crumpton told WSJ, Robinhood's associate general counsel of litigation and regulatory enforcement.

According to the New York Department of Financial Services, a supervisory exam and subsequent investigation have found issues with Robinhood's anti-money laundering policies and cyber security program.

 Robinhood also failed to update the dedicated phone number on the website for customer complaints, which violates New York's consumer protection requirements.

This current year, Robinhood Crypto has seen management turnover that includes the COO Christine Brown and Benjamin Melnick, the unit's Chief Compliance Officer. For a year, both had been in their roles.

In 2015, BitLicense was launched as the strictest and most specific state regulation for cryptocurrency. 

Harris has led the state DFS since August 2021 and has pledged to speed up reviews for the license and release for more industry guidance.