Robinhood experienced massive growth during the pandemic. It had had 5.1 million cumulative net funded accounts by the end of 2019, 12.5 million cumulative net funded accounts by the end of 2020, and 22.7 million cumulative net funded accounts by the end of 2021. Based on the Securities and Exchange Commission’s action against Robinhood, the firm had a lot of growing pains. There is a whole menu of problems in the order. (It goes on for 24 pages.)
I’m currently focused on the Anti-Money laundering failures.
Robinhood had surveillance in place, but it was poorly designed. It generated a large number of false positives, artificially increasing the number of alerts for review. As the number of accounts grew, the alerts surged and Robinhood’s AML group failed to promptly review the flood of alerts.
By the end of 2020, Respondents had accumulated a backlog of more than 10,000 potentially suspicious transactions that had been flagged for review in order to make a SAR-filing determination but remained unresolved beyond the 45-day deadline in Respondents’ internal policies. At that point, Respondents were filing SARs an average of 198 days after initially flagging a transaction for investigation.
Rapid growth in accounts and transactions without commensurate growth in AML systems and personnel.
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