Financial technology startup Robinhood is re-launching a new savings account plan that came under withering scrutiny from regulators, and drew accusations about potentially misleading investors.
In a blog post released Friday, Robinhood’s founders acknowledged that its new plan, which aimed to offer no-fee checking and savings accounts with no minimums, ATM fees, penalty charges or foreign transaction fees, “may have caused some confusion.” The plan was announced with great fanfare this week, but immediately came under fire from Wall Street and federal officials.
As a result, “we plan to work closely with regulators as we prepare to launch our cash management program, and we’re revamping our marketing materials, including the name,” wrote Baiju Bhatt and Vlad Tenev, the start-up’s co-founders and Co-CEOs.
Robinhood’s brokerage accounts are covered by SIPC insurance, which protects up to $250,000 of cash in the case of a broker’s failure. But there is a big distinction from bank accounts, which are covered by FDIC insurance.
The head of the Securities Investor Protection Corp. told CNBC on Friday that the start-up didn’t contact his office ahead of the product launch, and to his knowledge Robinhood had not contacted the SEC, either.
SIPC President and CEO Stephen Harbeck told CNBC he had contacted the commission’s trading and markets division about it.
“The fine print of the website says the offering is NOT a bank account, so the regulatory oversight of this offering is likely more thin,” UBS said on Friday, noting bank regulators would likely want to know more about anti-money laundering safeguards in place and capital levels.
“There’s a risk that bank regulators could take issue with an entity with 3 million accounts presenting itself as offering banking products but avoiding the regulatory scrutiny that would go along with it,” the bank added.