The New York State Department of Financial Services (NYDFS) on Tuesday handed Robinhood’s crypto trading unit a $30 million fine for alleged violations of anti-money laundering, consumer protections, and cybersecurity measures.
This marks the first time NYDFS has taken enforcement action against a crypto-centric company.
NYDFS Fines Robinhood Crypto For Infractions
According to a Tuesday report by the Wall Street Journal, the New York State Department of Financial Services imposed a fine of $30 million on Robinhood Crypto following an inquiry into the company’s compliance. According to the financial regulator, Robinhood failed to maintain proper cybersecurity measures or fulfil the required anti-money laundering obligations.
The department alleges that the company did not shift to an adequately sized transaction monitoring system even as its user base grew. Robinhood Crypto was also penalized for not providing a telephone number on its website that customers could use to submit complaints.
“As its business grew, Robinhood Crypto failed to invest the proper resources and attention to develop and maintain a culture of compliance — a failure that resulted in significant violations of the Department’s anti-money laundering and cybersecurity regulations,” posited NYDFS superintendent Adrienne A. Harris.
Robinhood disclosed the enforcement investigation by NYDFS in an SEC filing in 2021, when it saw massive growth amid a spike in demand for stocks and cryptocurrencies. As the company scaled, its issues became more prevalent.
Despite these insufficiencies, NYDFS said Robinhood had applied for a license from the regulator, claiming it was in full compliance with anti-money laundering and cybersecurity laws.
With the fine, Robinhood’s crypto trading unit becomes the first crypto-focused entity in the U.S. to be punished by the NYDFS for falling afoul of the department’s regulations for virtual currency, money transmitters, transaction monitoring, and cybersecurity.
In addition to the fine, Robinhood Crypto will also be required to onboard an independent consultant to assess its compliance with the state regulations.
Robinhood’s Crypto Push
Robinhood has supported the trading of cryptocurrencies since 2018, but it did not initially allow customers to withdraw crypto assets from the platform unless they converted them to fiat currencies.
The retail trading service delved deeper into crypto as the industry blossomed in mid-2021, eventually unveiling a unit dedicated to digital assets known as Robinhood Crypto. Robinhood also released its crypto wallet, allowing users to withdraw coins from the long-firewalled trading app.
However, Robinhood has not been able to weather the storm that has struck crypto and tech-oriented companies in recent months. The publicly-traded firm’s revenue dropped by circa 43% in the first quarter of this year. Robinhood was also forced to slash a significant portion of its workforce owing to slow growth amid economic uncertainty.