Robinhood has reached a settlement after an investigation found “operational and technical failures” hurt retail investors.
Robinhood came under the spotlight after platform outages in March 2020 left hundreds of thousands of investors unable to make trades.
The brokerage will pay $10.2 million in penalties.
State securities regulators from Alabama, California, Colorado, Delaware, South Dakota, New Jersey, and Texas led the investigation.
A String Of Failures
As well as platform outages, the investigation found shortcomings in the broker’s review and approval system for margin and options accounts, ineffective monitoring and reporting tools, plus inadequate customer support protocols which left clients unable to make trades as the price of stocks fell.
These shortfalls relate to operations between early 2020 and 2021.
In line with the settlement, Robinhood must give access to a FINRA-mandated compliance report in one year. The broker has enlisted an independent compliance consultant to make recommendations.
Robinhood must certify to Alabama that it has implemented the compliance recommendations or enacted more effective measures.
“Robinhood Repeatedly Failed To Serve Its Clients”
NASAA President, Andrew Hartnett, commented on the findings: “Today’s multistate agreement represents states at their best – working together for the benefit of Main Street investors.”
Hartnett added: “Robinhood repeatedly failed to serve its clients, but this settlement makes clear that Robinhood must take its customer care obligations seriously and correct these deficiencies.”
Robinhood did not admit or deny the findings. However, the company did cooperate with the investigation.
Not The First Fine
Robinhood has been hit with multiple fines in recent years. The US Securities & Exchange Commission (SEC) secured a $65 million payment relating to claims that the firm mislead customers.
The Financial Industry Regulatory Authority (FINRA) also hit the platform with a $70 million fine for failing to protect investors.
In addition, 2021 saw the brand’s crypto branch reach a $30 million settlement with the New York State Department of Financial Services (NYDFS) for regulatory violations.
Ultimately, the business practices of Robinhood have been found to hurt customers. With multiple regulators taking action against the firm, traders are advised to consider alternatives to Robinhood:
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