WASHINGTON (Reuters) – the Financial technology startup Robinhood could face investigation by U.S. regulators about the statements that the new checking and savings accounts are insured by an industry-backed protection fund.
A photo illustration of Robinhood the checking and savings accounts that are by Robinhood 13 December 2018. Robinhood/handout via REUTERS.
The uncertainty about the new services highlights the regulatory grey area, a lot of new fintech companies, as they look to the use of the new technology to gain footholds in the traditional financial services.
Robinhood, which is valued at $5.6 billion and has gained popularity with the young consumers through the commission-free stock trading app, announced on Thursday would soon be offering checking and savings services.
The company said that up to $250,000 in the accounts would be insured by the Securities Investor Protection Corp (SIPC), an industry non-profit created by Congress to help restore the client’s assets as brokers go under.
The chief executive of SIPC, told Reuters on Friday he does not believe in the fund would actually ensure Robinhood accounts and said he had raised the matter with the Securities and Exchange Commission.
“I spoke with my colleagues at the trade and markets division at the SEC, and I am sure that they will be in consultation with the firm today,” SIPC CEO Stephen Harbeck said in an interview. “I believe that, as indicated by the company, there is a number of important legal issues that they have.”
Neither Robinhood nor the SEC immediately responded to a request for comment.
Robinhood says on its website that SIPC insurance protects up to $250,000 in cash per account, should the company fail. But Harbeck said SIPC was not consulted by Robinhood before the announcement of the services, and he believes SIPC insurance does not apply.
He pointed to Robinhood the website that a customer does not need to invest, to obtain, verify, and retirement savings. SIPC insurance is designed to protect investors, he said.
“If that is true, then the money is not deposited for a protected purpose,” he said.
Reporting by Pete Schroeder; Editing by Bill Rigby