US state securities regulators have imposed an up to $10.2 million penalty on the Robinhood retail trading platform. The regulators said that the penalty was imposed because of “operational and technical failures” of Robinhood that affected investors that used the platform.

State regulators impose a $10M penalty on Robinhood

The state securities regulators deliberating on the matter were led by Alabama. The settlement was reached by the North American Securities Administrators Association (NASAA) with Robinhood. The settlement comes after seven states engaged in investigations on the retail trading platform and the activities that happened at the brokerage firm between early 2020 and 2021.

NASAA released a statement on Thursday on the matter. At the time, the regulator said that the outages seen on the Robinhood exchange in March 2020 led to the investigations conducted by the regulatory body. The regulator said that when the platform suffered the outage, “hundreds of thousands of investors” relied on the Robinhood app to trade financial assets such as stocks and cryptocurrencies.

“In addition, prior to March 2021, there were deficiencies at Robinhood in its review and approval process for options and margin accounts, weaknesses in the firm’s monitoring and reporting tools, and insufficient customer service and escalation protocols that, in some cases, left Robinhood users unable to process trades even as the value of certain stocks was dropping,” the regulator said.

NASAA noted that because of the deficiencies seen on the platform, the order against the exchange contained multiple alleged violations. These violations included the negligent dissemination of inaccurate information to customers and the failure of the exchange to have a customer identification system that was “reasonably designed.”

The NASAA president, Andrew Hartnett, commented on the development and said that the Robinhood exchange failed to serve its clients properly. The executive added that the settlement clarified that Robinhood needed to pay more attention to its customer care roles and amend any deficiencies in the process.

Robinhood to cooperate with compliance program

The statement that NASAA issued on the matter said that the Robinhood exchange had neither admitted to nor denied the findings made after the investigations. The regulator also said it found no evidence of wilful or fraudulent conduct by the exchange. The exchange also worked closely with the regulators on the investigations.

The regulator also said that the broker had agreed to file a compliance implementation report to the state regulators involved in the settlement. Robinhood has adopted remedial recommendations that were made by a compliance consultant that was hired independently.

NASAA explained that a year after the settlement date that has been agreed upon, the Robinhood exchange would attest to the leading Alabama state that it was compliant with the recommendations that have been made by the independent compliance consultant that FINRA hired. The exchange will also be required to take effective steps to address the recommendations.