NYDFS Enters into Consent Order with Robinhood Crypto for Violations of State BSA/AML Regulations | Practical Law

NYDFS Enters into Consent Order with Robinhood Crypto for Violations of State BSA/AML Regulations | Practical Law

The New York Department of Financial Services (NYDFS) entered into a consent order with Robinhood Crypto, LLC settling violations of state bank secrecy act and anti-money laundering (BSA/AML) regulations.

NYDFS Enters into Consent Order with Robinhood Crypto for Violations of State BSA/AML Regulations

by Practical Law Finance
Published on 19 Aug 2022USA (National/Federal)
The New York Department of Financial Services (NYDFS) entered into a consent order with Robinhood Crypto, LLC settling violations of state bank secrecy act and anti-money laundering (BSA/AML) regulations.
On August 1, 2022, the New York Department of Financial Services (NYDFS) entered into a consent order with Robinhood Crypto, LLC (Robinhood), settling violations of state bank secrecy act and anti-money laundering (BSA/AML) regulations. NYDFS found a failure by Robinhood to manage and oversee its compliance program.
The consent order notes that Robinhood's BSA/AML program was insufficient to be compliant with NYDFS regulations, including that Robinhood:
  • Failed to adequately staff its BSA/AML program.
  • Utilized a manual transaction monitoring process inadequate for the size, customer profile, and transaction volume of the company.
  • Did not employ sufficient cybersecurity personnel to manage its cybersecurity risks and to perform the core cybersecurity functions specified by NYDFS regulations, making its certification of compliance to the state in 2019 improper.
  • Failed to comply with the consumer protection requirement to maintain a dedicated phone number on its website for consumer complaints.
  • Violated reporting requirements under its January 24, 2019 supervisory agreement with NYDFS.
Both federal and New York state law require financial institutions to maintain effective AML programs and devise and implement systems to identify and report suspicious activity and block prohibited transactions. NYDFS found deficiencies with Robinhood's BSA/AML program and Robinhood's cybersecurity obligations during the period of 2019-2020 under the state's:
  • Virtual Currency (VC) regulation, 23 NYCRR Part 200.
  • Cybersecurity Regulation, 23 NYCRR Part 500.
  • Money Transmitter Regulation, 3 NYCRR Part 417.
  • Transaction Monitoring Regulation, 23 NYCRR Part 504.
Robinhood was granted a New York State BitLicense by NYDFS on January 24, 2019. The BitLicense, along with a New York state money transmitter license concurrently granted to Robinhood, authorized it to offer services for buying, selling, and storing Bitcoin, Ether, Bitcoin Cash, Litecoin, Dogecoin, Ethereum Classic, and Bitcoin SV to New York residents.
Under the consent order, Robinhood agrees to pay a $30 million penalty and obtain an independent consultant to evaluate its remediation efforts and compliance with NYDFS regulations.
For additional information on the NYDFS regulatory framework for VC, see Practice Notes, NYDFS Virtual Currency BitLicense Framework: Overview and Virtual Currency Business Regulation (NY State).