FINRA Orders Robinhood to Pay $70 Million for Supervisory Failures

The regulator stated that sanctions imposed represent the largest financial penalty ever ordered by them.

The Financial Industry Regulatory Authority (FINRA) has ordered Robinhood, a US leading trading platform, to pay $70 million for systemic failures on its supervisory procedures that caused ‘significant harm’ to millions of customers. According to the regulator, the platform committed such wrongdoings by spreading misleading or false information and even by having outages.

Per the order, the company should arrange a payment of $12.6 million in restitution to the thousands of customers affected by the matter, plus a $56 million fine, totaling the $70 million ordered by FINRA to pay for the damages caused. The regulator quoted the system’s outages from Robinhood in March 2020, which affected customers.

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“This action sends a clear message, all FINRA member firms, regardless of their size or business model, must comply with the rules that govern the brokerage industry, rules which are designed to protect investors and the integrity of our markets. Compliance with these rules is not optional and cannot be sacrificed for the sake of innovation or a willingness to ‘break things’ and fix them later,” Jessica Hopper, Executive Vice President and Head of FINRA’s Department of Enforcement, commented on the decision taken by the regulator.

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Moreover, FINRA stated that despite Robinhood’s self-described mission to “de-mystify finance for all,” the firm failed to provide trustful communication towards their customers, specifically during September 2016, whose misinformation led to a series of “critical issues, including whether customers could place trades on margin, how much cash was in customers’ accounts,” among others.

Robinhood Trader Suicide Case Cited

In fact, the regulator cites the case of one Robinhood customer committing suicide, who previously got turned margin off on his account. “In a note found after his death, he expressed confusion as to how he could have used margin to purchase securities because he believed, he had not ‘turned on’ margin in his account. As noted in the settlement, Robinhood also displayed to this individual (and certain other customers) inaccurate negative cash balances,” the FINRA added.

Early this month, the US Securities and Exchange Commission (SEC) published its plan to distribute $65 million in civil penalty collected from the brokerage firm for non-disclosure of the practice of ‘payment for order flow’.

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