State securities regulators led by Alabama have fined Robinhood’s brokerage subsidiary up to $10.2 million as a penalty for what they called “operational and technical failures” of the firm that hurt Main Street investors. The North American Securities Administrators Association's (NASAA) settlement with Robinhood comes after a seven-state investigation of the broker-dealer’s retail market activities between early 2020 and 2021.

Robinhood Financial LLC will pay up to $10.2 million in penalties for operational and technical failures that harmed main street investors. Details: https://t.co/23UQeqNjWU pic.twitter.com/fgDDgQJhou

— NASAA (@NASAA) April 6, 2023

NASAA Accuses Robinhood of Multiple Violations

In a statement released on Thursday, NASAA said outages on Robinhood’s platform in March 2020 spurred its investigation. During this period, “hundreds of thousands of investors” relied on Robinhood’s app to trade stocks and cryptocurrencies, the regulators said.

Furthermore, NASAA said it found several lapses in Robinbood’s activities in the period before March 2021. This includes shortfalls in how the broker-dealer reviewed and approved options and margin accounts, poor monitoring and reporting tools and deficient customer service and escalation protocols. These weaknesses “in some cases left Robinhood users unable to process trades even as the value of certain stocks was dropping,” NASAA explained.

As a result of the lapses, NASAA said its order to Robinhood contained several alleged violations, such as negligent dissemination of inaccurate information to customers and failure to have 'a reasonably designed' customer identification programme.

“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,” Andrew Hartnett, the President of NASAA, noted.

Robinhood Agrees to Compliance Programme

According to NASAA, Robinhood neither admitted nor denied its findings. In addition, the membership-based regulator said that it “found no evidence of willful or fraudulent conduct by Robinhood.” In addition, the firm cooperated with the regulators’ investigations.

However, NASAA said the brokerage firm agreed to file a compliance implementation report to the state regulators involved in the settlement. On top of that, the firm has implemented remedial recommendations made by an independent compliance consultant, NASAA said, adding that the company retained the consultant’s services.

“One year after the settlement date, Robinhood will attest to the lead state, Alabama, that it is in full compliance with the FINRA-ordered independent compliance consultant’s recommendations or has otherwise instituted measures that are more effective at addressing the recommendations,” NASAA explained.

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