Robinhood Crypto was fined $30 million by the New York Financial Regulator for violating anti-money laundering and cybersecurity rules.
Robin Hood Crypto has just been hit with a $30 million fine from the New York State Department of Financial Services (NYSDFS). Robinhood’s retail stock trading app has been the subject of controversy before and its foray into the cryptocurrency market was no exception. This time it was FOMO (Fear Of Missing Out) that got the company in trouble with the New York regulator.
Robinhood is an American fintech company that offers stock trading and investing to a small audience, offering services such as fractional stock trading, Exchange Traded Funds (ETFs), and controversial financial instruments such as margin and options trading, but is perhaps the most well-known/infamous for its role in the GameStop short squeeze in 2021. Robinhood stepped into cryptocurrency trading for select states in 2018 with the introduction of Robinhood Crypto, and as of 2021, it is now available in every state and offers several cryptocurrencies, including the favorite doge theme from Elon Musk meme cryptocurrency, Dogecoin. In 2021, the company finally announced a waiting list for its crypto wallet, marking the first attempt at making cryptocurrencies withdrawable from the platform (and thus “real property“), and in January 2022, his crypto wallet had its beta launch.
The Wall Street Journal reported on the $30 million fine by the NYSDFS, which was charged in violation of anti-money laundering and cybersecurity regulations against Robinhood Crypto. The fine was imposed on the company because the compliance department was understaffed, a culture of compliance was not fostered and transactions were still monitored by a manual system that had outgrown the company. The cybersecurity arm would not address operational risks or be in compliance with virtual currency regulations. Finally, in violation of consumer protection requirements, no phone number was provided on Robinhood’s website for consumer complaints. This combination of cuts resulted in a $30 million fine and the requirement to hire an independent consultant to evaluate the company’s compliance. Fortunately, this doesn’t seem to have a direct impact on users.
Robinhood’s Crypto FOMO
While Robinhood Crypto facilitates cryptocurrency trading and provides a recurring investment option for dollar cost calculation strategies, it is not the best option for buying and using cryptocurrencies. The company waited three years before rolling out the ability to withdraw crypto, denying users the core cryptocurrency feature that makes it all worth it, and the selection is very limited compared to dedicated crypto exchanges. With exchanges like Coinbase (US) and Binance (worldwide) offering many times more cryptocurrencies and basic withdrawal support, there is no reason to use Robinhood Crypto except for speculation. However, most people using Robinhood Crypto probably have no desire to use cryptocurrency or blockchain applications, and they probably don’t care.
Due to the cryptocurrency bull market that ran from March 2020 to November 2021 and the enormous hype that came with it, it seems that Robinhood was forced to expand and cut back quickly. By failing to upgrade its transaction monitoring system and adequately staff its compliance department, the company was able to keep up with demand, but failed to properly enforce anti-money laundering and cybersecurity regulations. Robinhood already has many controversies, including a data breach that exposed millions of emails and the temporary suspension of meme shares that resulted in thousands of deleted negative Google Play Store reviews.
Robinhood’s rapid expansion to capitalize on cryptocurrency hype has led to decisions that ultimately resulted in a $30 million fine. According to Wikipedia, Robin Hood has also been hit by a $65 million SEC investigation, a $1.25 million fine to the Financial Industry Regulatory Authority, class-action lawsuits for failing to disclose the Payment For Order Flow practices, and for market manipulation during the GameStop fiasco, and even a wrongful death case.
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