Financial regulators have ordered Robinhood Financial, an application company that facilitates investors to trade on the stock market, to pay $70 million in fines and restitutions for misleading its customers and for supervisory failures that led to the application crashing during times of high market volatility.
The Financial Industry Regulatory Authority, FINRA, announced Wednesday that Robinhood was fined $57 million and would also pay $12.6 million in restitutions and interest to customers, amounting to the largest penalty ever issued by the regulatory group, according to a Financial Industry Regulatory Authority press release.
- “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,’” Financial Industry Regulatory Authority’s enforcement chief Jessica Hopper said in the statement.
- “The fine imposed in this matter, the highest ever levied by FINRA, reflects the scope and seriousness of Robinhood’s violations, including FINRA’s finding that Robinhood communicated false and misleading information to millions of its customers,” Hopper added.
- Financial Industry Regulatory Authority is a nongovernment, not-for-profit organization that is authorized by Congress to oversee brokers, broker-dealers and regulate trading, according to the FINRA.org and Investopedia.
JUST IN: We have fined Robinhood $57 million and ordered the firm to pay approximately $12.6 million in restitution, plus interest, to thousands of harmed customers.— FINRA (@FINRA) June 30, 2021
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What did Robinhood do to lead to such a big fine?
According to FINRA, its investigation found that Robinhood “negligently communicated false and misleading information” to the software’s users. The regulatory body also said it was penalizing the financial software company because Robinhood’s application “experienced a series of outages and critical systems failures” between 2018 and 2020 and crashed in early March 2021 “during a time of historic market volatility.”
- Those application crashes, caused by supervisor failures, led to Robinhood users losing huge amounts of money, and up to tens of thousands of dollars for individual customers, FINRA alleged.
- “In settling this matter, Robinhood neither admitted nor denied the charges, but consented to the entry of FINRA’s findings,” the regulatory organization said in its statement.
Robinhood says it’s getting better
- “Here at Robinhood, we take our responsibilities to our customers very seriously,” the trading application company wrote.
Robinhood said it was expanding their customer support resources with additional representatives and new support sites across the country, had enhanced educational tools and improved the operability of its trading application.
- “For example, we’ve taken steps to address the root causes of the March 2020 outages, reduce the risk of future outages, and increase the resilience of relevant systems, including by increasing system redundancy, better distributing load on Robinhood’s systems, and deploying a risk-based testing system,” it wrote.