FINRA fines Robinhood: Many themes will be relevant for Neo-Brokers (regardless of jurisdiction)
01 May 2025
The US Financial Industry Regulatory Authority (FINRA) announced on 07 March 2025, that it had fined Robinhood Financial and Robinhood Securities (collectively, Robinhood) $26 million for violating numerous FINRA rules. Robinhood Financial was also ordered to pay $3.75 million to its customers.
Below, we highlight the key issues and consider how some of the underpinning regulatory issues resonate with what we are seeing in other jurisdictions, including the UK, EU and Australia.
Key failures: what went wrong?
Failure to establish and implement reasonable AML and market abuse programs
Robinhood failed to establish and implement reasonable Anti-Money Laundering (AML) programs, leading to failures in detecting, investigating, or reporting suspicious activities including manipulative trading and suspicious money movements. Key issues included:
- Inadequate policies and procedures to detect and report suspicious transactions. For example, FINRA notes that for a period of time, Robinhood's monitoring tools to identify prearranged trades effectively excluded low-priced securities, even though such securities may present a heighted risk for manipulation.
- A deficient customer identification program, resulting in thousands of accounts being opened without reasonable identity verification.
- Inconsistent monitoring for suspicious account takeover events, despite the firm's AML procedures identifying necessary reviews.
Execution: Inaccurate disclosures on "collaring"
Robinhood Financial provided customers with inaccurate or incomplete disclosures regarding its practice of “collaring” market orders. "Collaring" involves converting market orders, stop orders, and trailing stop orders into limit orders to prevent executions at significantly different prices and ensure customers do not exceed their buying power. However, FINRA found that the disclosures made to customers about this practice were often unclear or inaccurate. Robinhood Financial agreed to pay $3.75 million in restitution to customers whose market orders were collared and cancelled, and who then re-entered their orders and received executions at an inferior price.
Operational Failings
Robinhood Securities failed to supervise its clearing technology system adequately. The firm did not respond reasonably to red flags indicating processing delays due to increased demand in the system. In January 2021, the clearing system experienced severe latency due to a surge in trading volume and volatility, impacting Robinhood Securities' clearing operations and the firm's ability to satisfy regulatory obligations.
Social media / communications
Robinhood Financial failed to reasonably supervise and retain records of social media communications promoting the firm that were posted by paid social media influencers. Some of these communications included statements that were promissory or not fair and balanced, and thus misleading to investors. For example, influencers posted communications claiming that Robinhood Financial was completely free without disclosing that other fees may apply (FINRA notes one influencer stated Robinhood Financial was "100% free. Not even kidding.").
Reporting failures
Robinhood Securities submitted over 17,200 inaccurate or incomplete blue sheets (securities trading information) to FINRA, affecting more than 216.4 million transactions. The firm also failed to report or inaccurately reported hundreds of millions of fractional share trades and millions of reportable events to the Consolidated Audit Trail (CAT).
Other
Other notable violations noted by FINRA include:
- Improperly rejecting customer requests to transfer entire accounts via the Automated Customer Account Transfer Service (ACATS) to another broker-dealer;
- Failing to supervise the delivery of account statements, trade confirmations, and the firm's Form CRS; and
- Executing over 33,000 trades during approximately 1,200 trading halts and two market-wide trading halts.
What's happening elsewhere in the world?
Jurisdiction | Overlapping themes with FINRA fine |
UK | The themes identified in this fine will resonate to those active in the UK. In particular, the FCA recently began a consumer duty thematic review which is looking at the following:
Separately, the AML and market abuse findings are in line with FCA's expectations. The importance of an effective market abuse risk assessment has been at the top of FCA's list over the last few years and their recent Money Laundering through the Markets paper shows the link between market abuse and financial crime more generally. The regulatory expectations in the UK are equally high. |
EU | MIFID III The EU is preparing for the rollout of MiFID III, a significant update to the retail investment framework aimed at enhancing investor protection and ensuring fair, transparent, and efficient financial markets. The introduction of new rules surrounding "finfluencers" and record-keeping requirements is likely to place additional obligations on firms, particularly in the area of social media marketing. The EU’s focus on these issues reflects the growing scrutiny of influencer-driven financial advice and the need for clear, traceable marketing practices within the retail investment space. MLD 6 Regulation As a related point, the EU is also bringing in enhanced requirements with respect to AML in the form of MLD 6. We therefore expect this to continue to be an area of heightened regulatory supervision. |
Australia | AML/CTF Updated AML/CTF obligations began in Australia on 31 March 2025. This makes substantial changes to a reporting entity's obligation to perform a money laundering and terrorism financing (ML/TF) risk assessment. AML/CTF therefore continues to be a high-profile topic. Programs that do not detect and report suspicious transactions and poor systems in place to identify customers have already led to a high volume of fines. Even before the AML/CTF legislative changes, AUSTRAC (Australia's AML/CTF regulator) has obtained significant high-profile monetary fines for AML/KYC failures including a record-breaking AUD 1.3 billion fine. Online trading providers ASIC has been keeping under review online trading providers with a series of public statements, including identifying misleading or deceptive statements as a key concern (REP 778). ASIC is concerned around fee disclosure and marketing 'zero cost' or low cost brokerage options. ASIC has also focussed on the role of social media influencers, or finfluencers, providing guidance on their role. It has also fined licensees for breaching its obligations when it failed to provide appropriate oversight of its authorised representatives and CARs, which is often the arrangement online brokers have. Given the significant oversight of ASIC in this space and the various public statements, the activities identified by FINRA are increasingly unlikely to be dealt with informally by ASIC. |
Other authors: Greg Patton, Senior Associate and Nathan Hall, Solicitor Apprentice.
