Robinhood steps back from checking and savings launch
Due to regulatory issues or “confusion”, US-based trading app Robinhood has had to put a stop to its checking and savings launch.
As reported on 14 December, Robinhood launched checking and savings. On its website, the firm said it will offer users the chance to earn 3% on their money, no fees, access to over 75,000 free ATMs, and a personalised debit card.
In addition, the plan was to let people use the app to find the closest free ATM, pay bills, deposit or mail cheques, and chat with customer support 24/7.
However, late last week, Stephen Harbeck, CEO of the Securities Investor Protection Corporation (SIPC) – a federally mandated, non-profit, member-funded, US corporation – told CNBC he had serious concerns about the plan, and contacted the Securities and Exchange Commission’s (SEC) trading and markets division about it.
The issue has “profound significance” for the financial services industry, Harbeck said.
On Robinhood’s website, it did say users need to sign up for a Robinhood account to get the checking and savings accounts. But it said users do not need to invest to use the accounts, something Harbeck said was contradictory.
That information has gone, and the previous blog post has also gone. Instead Baiju Bhatt and Vlad Tenev, Robinhood co-founders and co-CEOs, have a message.
They say the previous announcement “may have caused some confusion” and that they “plan to work closely with regulators as we prepare to launch our cash management programme, and we’re revamping our marketing materials, including the name”.
That “name” was once called checking and savings.
As Harbeck explained to CNBC, brokerage firms often offer accounts for customers to hold cash until it can be invested in securities, but those accounts aren’t meant to be strictly for savings.
Money sitting in such accounts but not intended to buy securities may not be covered by the SIPC, which insures accounts for up to $250,000 of cash in the case of a broker’s failure.
Harbeck had plenty to say as he stated that cash balances sitting in accounts collecting interest for a long period of time also skirt the SIPC rules on what’s covered in the event of a collapse.
It may fall under the category of a loan because the brokerage can take that money and invest it income-generating investments like Treasury securities.
A loan wouldn’t be covered by the fund. “We want to make sure that investors know there’s some risk there,” he told CNBC.