Robinhood Crypto – the cryptocurrency-focused unit of the online brokerage firm – has been slapped with a $30 million fine by the New York State Department of Financial Services (NYDFS).
The department alleged on Tuesday that Robinhood violated both anti-money laundering and cybersecurity regulations, by neglecting to certify adequate programs for each. As a result, the company will also be forced to retain an independent consultant to ensure it is compliant with NYDFS regulations.
Robinhood’s Regulatory Shortcomings
As detailed by the Wall Street Journal, the regulator found “significant failures” in Robinhood’s oversight of its compliance programs. It both failed to allocate the necessary resources to those programs as the firm grew and failed to foster a “culture” of compliance.
For one, the NYDFS stated that Robinhood had an insufficiently staffed Bank Secrecy Act and anti-money laundering compliance program. Furthermore, it did not make appropriate upgrades to its transaction monitoring system to match its growing size, transaction volume, and customer profiles.
Regarding its cybersecurity program, Robinhood allegedly followed policies that did not align with NYDFS virtual currency and cybersecurity regulations. The regulator said it even lacked a dedicated phone number on its website for receiving customer complaints, making for inadequate consumer protection
The department uncovered these shortcomings as part of an investigation disclosed by Robinhood in a filing with the Securities and Exchange Commission last year. The brokerage initially expected to pay a penalty of $10 million, but raised those expectations to $30 million in July 2021.
Tuesday’s settlement marked the regulator’s very first enforcement action within the cryptocurrency sector.
“DFS will continue to investigate and take action when any licensee violates the law or the Department’s regulations, which are critical to protecting consumers and ensuring the safety and soundness of the institutions,” said NYDFS superintendent, Adrienne A. Harris, in a statement.
Kraken Under Investigation
Similarly, the popular cryptocurrency exchange Kraken is also being investigate for sanctions violation by the US Treasury department. The latter alleges that Kraken serviced sanctioned Iranian users, and was expected to levy a significant fine against the exchange as of last week.
Money laundering and illicit finance in crypto have been top of mind for US regulators in 2022. However, the Treasury Department clarified in March that the use of digital assets in such schemes “remains far below that of fiat currency and more traditional methods,” in a yearly report on the matter.