The North American Securities Administrators Association (NASAA), the group that represents all state securities regulators plus provinces in Canada and states in Mexico, has announced a penalty of $10 million assessed on Robinhood (NASDAQ:HOOD). Under the terms of the settlement, Robinhood neither admits nor denies the findings as set out in the States’ orders.
NASAA states that Robinhood must pay this penalty following an investigation by state securities regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota, and Texas. The transgression by the trading platform is allegedly for “failures with respect to the retail market.”
NASAA references the platform outages Robinhood experienced in March 2020. NASAA adds that prior to March 2021, there were “deficiencies” in the approval process for options and margin accounts, as well as insufficient customer service and escalation protocols. These shortcomings created situations where some investors were unable to trade shares even while the value was sinking.
NASAA President Andrew Hartnett said the multi-state agreement represents states working together for retail investors.
“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,” said Hartnett.
NASAA bulleted out the grievances, including a lack of providing a system to deal with customer inquiries, dissemination of inaccurate information and a failure to report customer complaints to FINRA as well as state regulators.
Robinhood is expected to provide access to a FINRA-ordered compliance implementation report to settling states. At the same time, Robinhood has retained an independent compliance consultant who has made recommendations for remediation.
Next year, Robinhood will need to attest to the state of 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.
“Today’s agreement reflects the ongoing efforts by state securities regulators to protect investors and make sure that they are treated fairly by financial services firms,” said Joseph P. Borg, Director of the Alabama Securities Commission.
Borg did state that securities regulators found no evidence of willful or fraudulent conduct by Robinhood and that Robinhood fully cooperated with the investigation.
