Reports about financial systems, and financial services, come through WSJ. It stands for the Wall Street Journal. As per one of its recent reports, NYDFS has been targeting Robinhood. NYDFS has a full form – New York State Department of Financial Services. The charges leveled against Robinhood, are quite serious. There is no guarantee that other cryptocurrency marketplaces will/will not face similar situations. However, if they do, they may soon be at risk for liquidation.
What is Robinhood?
The complete title of the company, is Robinhood Markets Inc. It is a fintech organization. In other words, it deals with financial technology. This technology helps it to function as an online discount brokerage. The brokerage offers a trading platform, entirely commission-free.
The financial services platform on offer is compatible with both, the web, and the mobile. Users are free to invest in varied assets, and enter trade deals via them. The assets, include ADRs (American depositary receipts), stocks, options, and ETFs (exchange-traded funds). Then again, users may invest in specific virtual currencies. They may attain prior knowledge about these special cryptocurrencies by exploring the crypto economy. Registering on the website is easy. However, the investments they opt for, should be in alignment with their respective geographical locations.
How does the brokerage firm make money?
There are varied options that bring in the money for Robinhood. They include, stock loans, interchange fees linked to the specific debit card, premium membership fees, interest on uninvested cards, payment for order flow, and other revenue streams (smaller in comparison to the others).
The brokerage firm confronts stiff competition from various fronts. Some are discount brokerages, just like it. Then again, there are cryptocurrency exchanges, and banks. New, and well-established fintech organizations are its rivals, too. Technology platforms, and asset management companies are part of the competitive crowd, too.
Robinhood announced that it would be offering 524 million shares to the public. The founders of the company, and the CFO (chief financial officer) would be putting up another 2.6 million shares for sale. The worth of these shares, placed under the ticker of HOOD at Nasdaq, would be $55 million. Each share would be priced at $38.
NYDFS Fines Robinhood
As mentioned earlier, NYDFS and Robinhood are having problems with one another. The former has fined the online brokerage $30 million. The department under fire is the cryptocurrency trading division. The charges include suspected violation of cybersecurity standards, and anti-money laundering (AML).
Robinhood undertook some action, before it went public. It filed a report of the investigation with the SEC. The investigation had been launched by NYDFS on March 1, 2022.
NYDFS’s finance regulation outlined the charges in alignment with its first crypto enforcement action. The statement declared that the brokerage firm had failed to adhere to, and certify compliant cybersecurity and anti-money-laundering programs. NYDFS also expects Robinhood to hire a consultant. This consultant must evaluate Robinhood’s compliance. The investigator also expects this consultant to be objective in his/her evaluation.
The NYDFS had performed a supervisory examination. However, it had a follow-up investigation too. It was a subsequent enforcement exploration. The reports pointed out that Robinhood Crypto had encountered significant failures. In turn, this led to shortcomings showing up in the way the company was managed. There were oversights too, linked to the compliance programs. Obviously, it meant that the company had failed to respect the culture of compliance. There was even a failure to allocate requisite resources to the newly-launched programs. Considering that Robinhood had been undergoing rapid expansion, such failures left their mark on the company’s reputation.
To its credit, Robinhood did have a large fan base. For instance, by March end, there were around 15.9 million customers associated with the company. They were active, every month, as the report stated. The brokerage firm was quite open about the investigation undertaken by NYDFS, and its payments, as documented in a filing to the SEC, in 2021.
Other charges, include understaffing. This was evident in the AML compliance program and the Bank Secrecy Act. Similarly, transitioning from the manual transaction monitoring system, was slow. Regulations regarding consumer protection regulations were sidelined. Clients were unable to complain or make queries since a specific phone number was missing on the company’s official website.
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