New York Department of Financial Services’ First Enforcement Action Against a Crypto Firm and What It Means for Crypto Trading

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On August 2, the New York Department of Financial Services issued a $30 million consent order against Robinhood Crypto LLC, a wholly owned subsidiary of Robinhood Markets Inc., which offers cryptocurrency trading. The DFS order states that Robinhood failed to maintain a compliant anti-money laundering program, an appropriate transaction monitoring system, and a compliant cybersecurity program. It also states that Robinhood submitted an improper compliance certification. In addition to the monetary penalty, Robinhood is required to maintain an independent consultant and provide updated reports to DFS for 18 months.

DFS began its investigation of Robinhood in 2020. During the investigation, DFS found that Robinhood lacked adequate staff and resources to monitor its transactions, even as the volume of transactions in the company increased by more than 500 %. It was discovered that as of 2019, Robinhood was using a manual transaction monitoring program which could not keep up with the growing volume of transactions.

While using the manual transaction monitoring system is not a violation “in itself,” DFS said Robinhood should have moved to an automated system as the number of daily transactions increased. DFS specifically pointed to a large backlog in process alerts. The DFS order should be interpreted as a message to other crypto companies, encouraging them to ensure that their compliance programs are commensurate with their size and scope.

DFS found Robinhood Crypto’s compliance programs to be deficient based on principles already well known to the financial services industry, however, this action was notable as it is the first in which these principles have been applied to crypto trading. Superintendent Adrienne Harris confirmed that DFS will continue to take steps to ensure that DFS-licensed virtual currency companies comply with anti-money laundering and cybersecurity regulations.

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