The popular trading platform Robinhood has recently been hit with a $45 million penalty for alleged securities violations. The Financial Industry Regulatory Authority (FINRA), a non-governmental organization tasked with regulating brokerage firms and exchange markets, has imposed the fine citing several regulatory violations committed by the firm.
According to FINRA, Robinhood has failed to meet the 'best execution' standards. This principle necessitates that a broker must endeavor to execute customers' trades at the most favorable terms possible under prevailing market conditions. However, Robinhood allegedly did not comply with this rule and as a result, its users did not receive the best possible prices for their trades.
Another violation pointed out by FINRA involves Robinhood's strategy of attracting new customers. The regulatory body claims that Robinhood provided false and misleading information to its customers on numerous instances. The misleading information related to subjects like whether customers' accounts were eligible for cash management, how much interest they could earn, and the execution quality of customers' orders.
However, the firm's troubles do not end here. Robinhood is also accused of failing to adequately supervise technology critical to its business operations. The platform has faced multiple outages, which have resulted in substantial harm to Robinhood's customers. This lack of proper supervision of its technology, coupled with the alleged misleading information and violation of the 'best execution' principle, has led to the hefty penalty.
Responding to the penalty, a spokesperson from Robinhood stated that the firm is investing heavily in improving platform stability, enhancing educational resources, and building out its customer support. The company is committed to learning from its past mistakes and ensuring that its customers have the best possible trading experience.
The implications of this penalty are significant, as it adds to the growing list of regulatory issues faced by Robinhood. The firm has been under increased scrutiny from regulators due to its business practices and the role it played in the GameStop stock-trading frenzy earlier this year.