Robinhood's halted foray into banking prompts lawmaker scrutiny

Bipartisan group of Senate Banking Committee members asks the SEC and FDIC to review the firm's offering

Dec 21, 2018 @ 9:00 am

By Bloomberg News

A bipartisan group of U.S. senators wants financial regulators to examine whether Robinhood Financial misled its customers by offering what seemed to be checking and savings accounts but were really investment accounts.

Senate Banking Committee lawmakers sent a letter to the Securities and Exchange Commission and the Federal Deposit Insurance Corp. asking them to review Robinhood's announcement last week that it was offering special accounts that would pay high interest and include features associated with traditional banking.

Robinhood's effort -- technically a repurposed brokerage account -- was quickly put on hold after the head of the Securities Investor Protection Corp. made clear that his agency wouldn't backstop the product. SIPC provides up to $500,000 of insurance on brokerage accounts to protect against the loss of cash and securities.

"We are concerned that rebranding Robinhood's original announcement to cash management may simply be a way to circumvent regulatory scrutiny without offering full transparency to its customers," senators including John Kennedy of Louisiana, Jerry Moran of Kansas, Jack Reed of Rhode Island and Mark Warner of Virginia wrote in the Thursday letter. Mr. Kennedy and Mr. Moran are Republicans, while Mr. Reed and Mr. Warner are Democrats.

The letter, which argued that "robust competition should not come at the expense of customer clarity," requested a response from the SEC and FDIC by Jan. 31.

Robinhood's plan was to launch a version of the traditional bank account with a sky-high interest rate of 3%. The firm, which is best known for its no-fee stock trading app, which is popular with millennials, faced a storm of criticism for selling the product as Robinhood Checking & Savings and claiming that customer money would be protected by SIPC.

The senators also commended SIPC for "quickly and publicly explaining these accounts would not be insured."

More than 850,000 people have signed up to use the new Robinhood service. The accounts have since been rebranded as a "cash management" service.

(More: Robinhood launches self-built custody and clearing service)

0
Comments

What do you think?

View comments

Most watched

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print