U.S. senators write to regulators on Robinhood's botched
checking plans
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[December 21, 2018]
By Katanga Johnson and Anna Irrera
WASHINGTON/NEW YORK (Reuters) - A
bipartisan group of U.S. senators sent a letter to regulators on
Thursday expressing concern that financial technology startup Robinhood
may not be offering full transparency to its customers over the botched
launch of its new cash management service.
The senators asked for an update on how regulators "carefully monitor
fintechs who, intentionally or not, blur financial products for a
competitive advantage."
"Indeed, robust competition should not come at the expense of customer
clarity, and every effort should be made not to mislead customers," said
the letter, addressed to the heads of the Securities and Exchange
Commission, the Federal Deposit Insurance Corporation and the Securities
Investor Protection Corp.
The letter was sent by Republican senators John Kennedy and Jerry Moran
and Democratic senators Doug Jones, Brian Schatz, Jack Reed, Robert
Menendez and Mark Warner.
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A Robinhood spokesman declined to comment.
Last Thursday Robinhood announced that it was launching a "checking and
savings" service paying 3 percent interest and said customer deposits
would be insured by SIPC for up to $250,000. A day after the
announcement, the CEO of SIPC, an industry nonprofit created by Congress
to help recover customer assets when brokerages go under, told reporters
he did not believe the fund would actually insure Robinhood's accounts.
In response Robinhood altered the product's name on its website to "cash
management" and removed references to SIPC insurance. A blog from the
company's founders did not clarify whether the new service would be
insured.
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![](../images/122118pics/busine21.jpg)
Robinhood co-founders and co-chief executives Baiju Bhatt and
Vladimir Tenev pose in this undated photo provided by Robinhood in
Menlo Park, California, U.S. on December 13, 2018. Robinhood/Handout
via REUTERS
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"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," the letter said.
"As of December 20, over 850,000 people have signed up for the wait list
for Robinhood's new service, and some of these individuals may have
signed up before Robinhood retracted its SIPC insurance claim."
Robinhood, which is valued at $5.6 billion, is best known with young
consumers for its commission-free stock trading app. Like other fintech
startups, it has been trying to branch out into other financial
services, such as deposits.
The issues it faces over its new cash management service highlight the
regulatory gray area that many fintech startups operate in as they seek
to take advantage of digital technology to challenge traditional
financial institutions.
(Reporting by Katanga Johnson and Anna Irrera; Editing by Dan Grebler)
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