Robinhood Financial, LLC Ordered by FINRA to Pay Record Fine
On June 30, 2021, FINRA announced that Robinhood Financial, LLC (“Robinhood” or the “Firm”) was fined $57 million and ordered to pay $12.6 million in restitution, plus interest, to affected customers. The sanctions were largely based on the Firm’s system outages in March 2020, misleading information provided to customers and the Firm’s option approval process.
Since September 2016, FINRA found that the Firm negligently communicated false and misleading information to customers. The Firm provided misleading information to customers related to placing trades on margin, customer cash balances in accounts and the risk of loss customers could face in certain options transactions. This negligence has resulted in tragic consequences. Sadly, in June 2020, a Robinhood customer took his own life due to the Firm’s errors, including displaying inaccurate negative cash balances and improper margin use.
FINRA found that Robinhood failed to conduct proper due diligence on customers that requested approval to trade options. Robinhood relied on algorithms or “bots” to approve customer option requests with limited oversight from supervisory principals. The bots utilized made errors in the option approval process, approving thousands of options requests for individuals who did not satisfy the Firm’s eligibility criteria.
Additionally, the Firm failed to supervise the technology that was relied on to accept and execute customer orders. Robinhood experienced outages from January 2018 through February 2021. The largest outages occurred on March 2, 2020, and March 3, 2020, in which Robinhood’s website and mobile application crashed, preventing customers from accessing their accounts during a time of market volatility. The Firm had a business continuity plan in place, however the plan was only limited to events that impacted the Firm’s physical location. The outage caused customers to lose tens of thousands of dollars. In response, FINRA ordered the Firm to pay more than $5 million to affected customers.
Furthermore, Robinhood was also cited for failure to report customer complaints to FINRA for the time period of January 2018 through December 2020 and for failing to have a reasonably designed customer identification program.
The fine against Robinhood is the largest financial penalty ever ordered by FINRA. Jessica Hopper, Head of FINRA’s Department of Enforcement, emphasizes the importance of Compliance with all FINRA rules and stresses that compliance is not optional and should not be sacrificed for the sake of innovation. FINRA will continue its mission to protect investors.
To read full news release from FINRA click here.