The New York Department of Financial Services (DFS) announced its first ever penalty against a cryptocurrency platform this week, with a whopping $30 million fine assessed against Robinhood Crypto, LLC (RHC) for what it described as “significant failures in the areas of bank secrecy act/anti-money laundering obligations and cybersecurity that resulted in violations of the Department’s Virtual Currency Regulation (23 NYCRR Part 200), Money Transmitter Regulation (3 NYCRR Part 417), Transaction Monitoring Regulation (23 NYCRR Part 504), and Cybersecurity Regulation (23 NYCRR Part 500).

Following DFS’s supervisory examination and enforcement investigation, it found that RHC’s compliance program “did not fully address RHC’s operational risks, and specific policies within the program were not in full compliance with several provisions of the Department’s Cybersecurity and Virtual Currency Regulations.”

In particular, all DFS-regulated entities must certify annually that they have complied with DFS regulations, including its cybersecurity regulations. According to DFS, RHC certified to DFS that it complied with the DFS Cybersecurity Regulations. However, DFS stated in its press release that “[D]espite these weaknesses in its transaction monitoring and cybersecurity programs, RHC improperly certified compliance with the Department’s Transaction Monitoring Regulation and Cybersecurity Regulation. Pursuant to those regulations, companies should only be certifying to DFS if their programs are fully compliant with the applicable regulation. In light of the program’s deficiencies, RHC’s 2019 certifications to the Department attesting to compliance with these Regulations should not have been made and thus violated the law.”

In addition to the monetary penalty, the settlement requires RHC to be overseen by an independent consultant that will perform “a comprehensive evaluation” of RHC’s compliance and remediation efforts in response to the violations identified by DFS.

The discovered deficiencies and subsequent penalty are reminders to DFS-regulated entities that the annual certification to DFS will be scrutinized and enforced.

Photo of Linn Foster Freedman Linn Foster Freedman

Linn Freedman practices in data privacy and security law, cybersecurity, and complex litigation. She is a member of the Business Litigation Group and the Financial Services Cyber-Compliance Team, and chair’s the firm’s Data Privacy and Security Team. Linn focuses her practice on…

Linn Freedman practices in data privacy and security law, cybersecurity, and complex litigation. She is a member of the Business Litigation Group and the Financial Services Cyber-Compliance Team, and chair’s the firm’s Data Privacy and Security Team. Linn focuses her practice on compliance with all state and federal privacy and security laws and regulations. She counsels a range of public and private clients from industries such as construction, education, health care, insurance, manufacturing, real estate, utilities and critical infrastructure, marine and charitable organizations, on state and federal data privacy and security investigations, as well as emergency data breach response and mitigation. Linn is an Adjunct Professor of the Practice of Cybersecurity at Brown University and an Adjunct Professor of Law at Roger Williams University School of Law.  Prior to joining the firm, Linn served as assistant attorney general and deputy chief of the Civil Division of the Attorney General’s Office for the State of Rhode Island. She earned her J.D. from Loyola University School of Law and her B.A., with honors, in American Studies from Newcomb College of Tulane University. She is admitted to practice law in Massachusetts and Rhode Island. Read her full rc.com bio here.