WASHINGTON/NEW YORK (Reuters) – A bipartisan group of U.S. senators sent a letter to the regulators on Thursday expressing concern that the financial technology startup Robinhood can not with full transparency to the customer about the failed launch of the new cash management service.
Robinhood co-founders and co-chief executives Baiju Bhatt and Vladimir Tenev forms in this undated photo of Robinhood in Menlo Park, California, USA. on 13 December 2018. Robinhood/handout via REUTERS
The senators asked for an update on how regulators “carefully monitor fintechs who, intentionally or not, fade, financial products for a competitive advantage.”
“Indeed, robust competition should not be at the expense of the 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.
A Robinhood spokesperson declined to comment.
Last Thursday, Robinhood announced that the launch of a “checking and savings” service for a fee of 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 non-profit created by Congress to help restore the client’s assets as brokers go under, told reporters that he did not believe the fund would actually ensure Robinhood accounts.
In response Robinhood changed the product name on the website of “cash management” and removed references to SIPC insurance. A blog from the founders did not clear whether the new service would be insured.
“We are concerned that the rebranding of Robinhood the original announcement of the cash management may simply be a way to circumvent regulatory burden without providing full transparency for its customers,” the letter said. “With effect from 20 December, about 850,000 people have signed up for the waiting list for Robinhood, a new service, and some of these persons may have signed up for Robinhood withdrawn SIPC insurance claim.”
Robinhood, which is valued at $5.6 billion, is best known with young consumers for the commission-free stock trading app. Like other fintech startups, it is trying to expand into other financial services, such as deposits.
The problems with it overlooks the new cash management service to highlight the regulatory gray area that many fintech startups are working as they try to take advantage of digital technology to challenge the traditional financial institutions.
Reporting by Katanga Johnson and Anna Irrera; Editing by Dan Grebler