NY Dept. of Financial Services’ first enforcement action against a crypto company, and what it means for crypto trading

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. 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 certification of compliance. 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 into Robinhood in 2020. During the investigation, DFS found that Robinhood lacked adequate staff and resources to monitor its transactions, even as transaction volume across the enterprise increased by over 500%. It was discovered that beginning in 2019, Robinhood used a manual transactions monitoring program that could not keep up with the growing transaction volume.  

While the use of the manual transaction monitoring system was not a ‘per se’ violation, the DFS stated that Robinhood should have transitioned to an automated system as the amount of daily transactions grew. DFS pointed specifically to a substantial backlog in process alerts. The DFS’ order should be construed as a message to other crypto companies, encouraging them to ensure that their compliance programs are proportionate to their size and scope.

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