Slings and Arrows: Robinhood Is Royally Fined​


By Adelina Budulan​

The Story

Trading app Robinhood has been fined $70 million by the Financial Industrial Regulatory Authority (FINRA) for causing “widespread and significant harm” to its users, over a period of more than five years (FINRA Media Center). The app has been accused of giving users false or misleading information, failing to prevent system outages, and allowing inexperienced investors to make overly risky trades (Bloomberg). Notably, a 20-year-old user took his own life after the app inaccurately displayed to him a negative balance of more than $730, 000 (CNBC).

The fine represents the largest penalty ever ordered by FINRA. However, it is merely the latest of Robinhood’s run-ins with the law. The trading app’s business practices prompted a $1.25 million fine by FINRA in 2019, and a $65 million fine by the SEC in 2020 (Reuters). Additionally, Robinhood is facing 49 class action lawsuits and three individual lawsuits (The Guardian), as well as seven regulatory investigations (Financial Times). Despite the backlash, the company is pushing ahead with its forthcoming IPO plans, targeting a valuation of over $40 billion (Financial Times).

What it Means for Businesses and Law Firms

Robinhood’s self-proclaimed mission is to “democratize finance for all”, by giving small-time investors and laymen easy access to the stock markets (Robinhood). To this end, it offers commission-free trades and user-friendly features. Start-ups with a similar mission have cropped up in Europe: Trade Republic in Germany, Freetrade in the UK, and Bux in the Netherlands (Financial Times).

Although they may be seen as having a noble pursuit, apps like Robinhood have also attracted criticism. It has been argued that they encourage the ‘gamification’ of investing, by prompting users to associate investing with rewarding sensory details, such as colourful animations, emojis, and push notifications (Fast Company). It has also been suggested that they resemble addictive video games, rather than investment platforms with significant real-life consequences (Fast Company).

In discussing Robinhood’s exorbitant fine, FINRA’s Head of Enforcement emphasised that compliance with the rules “is not optional and cannot be sacrificed for the sake of innovation or a willingness to 'break things' and fix them later” (FINRA Media Center). This firm stance has been echoed by regulators in Europe (Financial Times). As such, it is probable that more stringent rules will materialise within the regulatory landscape in future. In this scenario, law firms would likely be called upon to help clients in the ‘neo-financial industry’ remain within the regulatory framework, whilst simultaneously retaining their ability to innovate. Law firms with long-standing expertise in financial services regulation, coupled with a forward-thinking approach to innovation, would likely be sought after.

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