Financial
Industry Regulatory Authority (FINRA) has ordered Robinhood (NASDAQ: HOOD) to pay $29.75
million for multiple regulatory violations, including anti-money laundering
(AML) failures and inadequate supervision of its trading systems during
critical market events, namely meme-stock frenzy from the COVID-19 era.
Robinhood Hit With $29.75
Million FINRA Penalty for Compliance Failures
The
settlement announced last week requires Robinhood Financial to pay $3.75
million in restitution to customers affected by its order “collaring”
practices, while both Robinhood Financial and Robinhood Securities will pay a
combined $26 million fine for widespread compliance deficiencies.
“Today’s
action reminds FINRA members that compliance with core regulatory obligations
remains critical to safeguarding and serving all investors,” said Bill St.
Louis, Executive Vice President and Head of Enforcement at FINRA, noting that
innovative financial services must still adhere to fundamental regulatory
requirements.
It is worth noting that this is the second fine imposed by FINRA on Robinhood in the past four years related to the app’s actions in March 2020. During that time, trading outages occurred due to speculation on meme stocks such as GameStop, leaving retail investors unable to trade.
Late on Friday evening (timing not by accident), FINRA announced an agreement with Robinhood to end numerous regulatory probes for nearly $30 million.
This is the second such agreement in less than 4 years. Back in 2021, Robinhood paid nearly $70 million to end various…— August Iorio (@august_iorio) March 9, 2025
„FINRA had the opportunity to do the right thing and hold Robinhood accountable for all of its negligence that led to the trading restrictions that harmed so many people, but it took the easy way out, only holding Robinhood accountable for its clearing technology failures from that period,” commented on X (former Twitter) August Iorio, the securities arbitration attorney.
Moreover, the penalty
and settlement come at a time when another American institution, the U.S.
Securities and Exchange Commission (SEC), has
closed a year-long investigation into the company’s activities, signaling a
potentially significant shift in the country’s regulatory approach.
Multiple Violations Across
AML and Trading Systems
FINRA’s
investigation uncovered multiple serious violations across Robinhood’s
operations. The firms failed to establish adequate anti-money laundering
programs, missing red flags related to manipulative trading, suspicious money
movements, and account takeovers by hackers. Robinhood Financial also opened
thousands of accounts without properly verifying customer identities.
During the
meme stock trading frenzy of early 2021, Robinhood Securities failed to
adequately supervise its clearing technology system despite warning signs of
processing delays. The system ultimately experienced severe latency in January
2021 as trading volume surged, hampering the firm’s ability to meet regulatory
obligations.
“The
clearing system experienced severe latency due to a surge in trading volume and
volatility, which impacted Robinhood’s clearing operations,” FINRA stated
in its findings.
The
regulator also found that Robinhood Financial misled customers about its
practice of “collaring” market orders by converting them to limit
orders. This resulted in some orders being canceled, forcing customers to
resubmit trades that ultimately executed at worse prices. The $3.75 million
restitution will compensate these affected customers.
Additionally,
the online broker failed to properly supervise paid social media influencers
who promoted the platform with statements FINRA deemed “promissory or not
fair and balanced, and thus misleading to investors.”
Pattern of Regulatory
Issues Amid Financial Success
The
settlement comes just two months after
Robinhood paid $45 million to the SEC for violations of securities laws,
including failure to preserve electronic customer communications between 2020
and 2021.
Both
Robinhood entities consented to FINRA’s findings without admitting or denying
the charges and agreed to certify that they have remediated the issues
identified in the settlement .
The
regulatory action comes despite Robinhood’s record financial performance in
late 2024, when
it reported $916 million in net income on over $1 billion in revenue, with
crypto trading becoming an increasingly significant part of its business.
Financial
Industry Regulatory Authority (FINRA) has ordered Robinhood (NASDAQ: HOOD) to pay $29.75
million for multiple regulatory violations, including anti-money laundering
(AML) failures and inadequate supervision of its trading systems during
critical market events, namely meme-stock frenzy from the COVID-19 era.
Robinhood Hit With $29.75
Million FINRA Penalty for Compliance Failures
The
settlement announced last week requires Robinhood Financial to pay $3.75
million in restitution to customers affected by its order “collaring”
practices, while both Robinhood Financial and Robinhood Securities will pay a
combined $26 million fine for widespread compliance deficiencies.
“Today’s
action reminds FINRA members that compliance with core regulatory obligations
remains critical to safeguarding and serving all investors,” said Bill St.
Louis, Executive Vice President and Head of Enforcement at FINRA, noting that
innovative financial services must still adhere to fundamental regulatory
requirements.
It is worth noting that this is the second fine imposed by FINRA on Robinhood in the past four years related to the app’s actions in March 2020. During that time, trading outages occurred due to speculation on meme stocks such as GameStop, leaving retail investors unable to trade.
Late on Friday evening (timing not by accident), FINRA announced an agreement with Robinhood to end numerous regulatory probes for nearly $30 million.
This is the second such agreement in less than 4 years. Back in 2021, Robinhood paid nearly $70 million to end various…— August Iorio (@august_iorio) March 9, 2025
„FINRA had the opportunity to do the right thing and hold Robinhood accountable for all of its negligence that led to the trading restrictions that harmed so many people, but it took the easy way out, only holding Robinhood accountable for its clearing technology failures from that period,” commented on X (former Twitter) August Iorio, the securities arbitration attorney.
Moreover, the penalty
and settlement come at a time when another American institution, the U.S.
Securities and Exchange Commission (SEC), has
closed a year-long investigation into the company’s activities, signaling a
potentially significant shift in the country’s regulatory approach.
Multiple Violations Across
AML and Trading Systems
FINRA’s
investigation uncovered multiple serious violations across Robinhood’s
operations. The firms failed to establish adequate anti-money laundering
programs, missing red flags related to manipulative trading, suspicious money
movements, and account takeovers by hackers. Robinhood Financial also opened
thousands of accounts without properly verifying customer identities.
During the
meme stock trading frenzy of early 2021, Robinhood Securities failed to
adequately supervise its clearing technology system despite warning signs of
processing delays. The system ultimately experienced severe latency in January
2021 as trading volume surged, hampering the firm’s ability to meet regulatory
obligations.
“The
clearing system experienced severe latency due to a surge in trading volume and
volatility, which impacted Robinhood’s clearing operations,” FINRA stated
in its findings.
The
regulator also found that Robinhood Financial misled customers about its
practice of “collaring” market orders by converting them to limit
orders. This resulted in some orders being canceled, forcing customers to
resubmit trades that ultimately executed at worse prices. The $3.75 million
restitution will compensate these affected customers.
Additionally,
the online broker failed to properly supervise paid social media influencers
who promoted the platform with statements FINRA deemed “promissory or not
fair and balanced, and thus misleading to investors.”
Pattern of Regulatory
Issues Amid Financial Success
The
settlement comes just two months after
Robinhood paid $45 million to the SEC for violations of securities laws,
including failure to preserve electronic customer communications between 2020
and 2021.
Both
Robinhood entities consented to FINRA’s findings without admitting or denying
the charges and agreed to certify that they have remediated the issues
identified in the settlement .
The
regulatory action comes despite Robinhood’s record financial performance in
late 2024, when
it reported $916 million in net income on over $1 billion in revenue, with
crypto trading becoming an increasingly significant part of its business.
This post is originally published on FINANCEMAGNATES.
