Robinhood's crypto division has been slammed with $30 million fine by the New York State Department of Financial Services (NYDFS) because of the alleged violations of anti-money-laundering and cybersecurity regulations, according to The Wall Street Journal.
The Financial Services Department said significant deficiencies in the company's compliance programs were found after a supervisory examination conducted. NYDFS move is the first "crypto-focused enforcement action" by the regulator, as per Engadget.
Robinhood Fails to Comply with NYDFS Regulations
On Tuesday, NYDFS claimed that Robinhood Crypto LLC was not able to keep and certify compliant anti-money-laundering and cybersecurity programs.
The consent order stipulated that Robinhood will be required to keep an independent consultant. This consultant will assess the company's compliance with NYDFS's regulations along with its remediation efforts.
According to NYDFS, they found relevant failures through a supervisory exam. The same failures were also noted through a "subsequent enforcement investigation" of Robinhood.
The regulators said that the failures were product of the shortcomings in Robinhood's management and lapses of its compliance programs. The company failed to adopt and practice a culture of compliance.
Moreover, Robinhood failed to allocate sufficient resources to the programs, specifically since the company is growing rapidly, as per The Wall Street Journal.
In its latest quarterly filing, Robinhood declared that it has 15.9 million monthly active users as of the end of March.
The company first publicly revealed the investigation and settlement with the NYDFS a year ago. This is through the paperwork that was filed with the Securities and Exchange Commission.
Robinhood is initially expecting to pay a monetary penalty of at least $10 million but it was later increased to $30 million.
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Robinhood Says it Will Keep on Serving Customers Despite of Issues
According to NYDFS, Robinhood's Bank Secrecy Act and anti-money-laundering compliance program do not have enough workers, as per Engadget.
Moreover, the company failed to transition from a manual transaction monitoring system that was suitable for the company's size.
In addition, the cybersecurity program of the company also failed to comply with the regulator's cybersecurity and virtual currency regulations.
Because the company does not have a dedicated phone number on its website to receive consumer complaints, Robinhood also failed to meet certain consumer-protection requirements, according to NYDFS .
"We have made significant progress building industry-leading legal, compliance, and cybersecurity programs, and will continue to prioritize this work to best serve our customers," Robinhood's Associate General Counsel of Litigation and Regulatory Enforcement Cheryl Crumpton said in a statement, as cited by The Wall Street Journal.
Robinhood's settlement was the first cryptocurrency-sector enforcement action issued by NYDFS.
The decision was made as its new superintendent, Adrienne A. Harris, see to it that the agency will provide more guidance for the crypto industry.
In a statement, Harris said that DFS will keep on investigating and taking action when any licensee violates the law or the Department's regulations since this is important in order to protect consumers and to ensure the safety of the institutions.
The settlement added to the list of the mobile investing firm's problems. In the first quarter, Robinhood's monthly active user count plunged to 25% from last year's quarterly peak.
The company's revenue also dropped by 47%. With this, it has changed its focus from rapid growth to cost-cutting by laying off 9% of its staff earlier this year.
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