Last Updated: November 16, 2021
After years of failing to comply with security regulations, the popular investing platform Robinhood is being fined a record-breaking amount of $70 million. The fine has been set by the Financial Industry Regulatory Authority (FINRA) and announced via a statement on June 30.
Over the last few years, Robinhood has been on FINRA’s radar for multiple failures, such as not reporting tens of thousands of customer complaints, giving false and misleading information to its customers, failing to implement a solid customer identification program, and consistently experiencing outages, among others.
Robinhood has neither confirmed nor denied these charges. It has, however, consented to pay a $57 million fine and an additional $12.6 million in restitution, plus interest. According to FINRA’s Executive Vice President and head of its enforcement department, Jessica Hopper, “The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations.”
The trading platform seems eager to put this matter behind, stating, “We are glad to put this matter behind us and look forward to continuing to focus on our customers and democratizing finance for all.”
Robinhood’s Catastrophic System Failure Lost Traders a Lot of Money
Due to inadequate supervision, Robinhood has been experiencing temporary outages and system failures between January 2018 and February 2021. However, the most impactful one had the worst possible timing.
The outage in question occurred on March 2 and 3, 2020, causing Robinhood’s website and app to crash and be unavailable to its customers. Consequently, its users couldn’t access their accounts during a crucial time for the stock market, as the pandemic caused extreme uncertainty and volatility.
As expected, the outage caused massive outrage among Robinhood users whose complaints couldn’t even be addressed to the help center, which had also shut down. Although the system was eventually restored, the outage cost some customers tens of thousands of dollars.
How Is Robinhood Holding Up Today?
2021 hasn’t been smooth for the company as well. Robinhood is currently the target of a class-action lawsuit for alleged market manipulation as a result of its trading restrictions on GameStop.
Nowadays, Robinhood boasts around 2,700 customer support agents—three times more than it had during March 2020. Its efforts to improve are obvious; however, with the damage already done, Robinhood is expected to compensate for its past shortcomings. The company had anticipated a fine and set aside $26.6 for this very purpose. Still, it seems it didn’t anticipate the record-breaking fine of $70 million, which is almost triple its intended amount.
All scandals aside, Robinhood seems to be staying afloat. Sure, a $70 million fine is a big deal, but it’s a minor setback for a company with an upcoming valuation of over $30 billion. Robinhood is still widely used by over 13 million people. Due to its diverse investment offers, it caters to a wide audience—from people looking for classic investment funds for their IRAs to those seeking a platform for Bitcoin trading.
In fact, cryptocurrency trading is one of the most popular services that Robinhood offers. Many consider crypto to be the future of finance, and it has certainly popularized platforms such as Robinhood and investing in general.