# State regulators fault Robinhood's wholly automated options and margin approvals

Source: https://www.bankingnewsai.com/ai-incidents/robinhood-2022-automated-options-approval-state-orders
Last updated: Oct 21, 2026

Robinhood Financial LLC · Governance finding · severity 3 of 5

Per Vermont's Department of Financial Regulation, Robinhood Financial approved customers for options and margin trading through a "wholly automated process": its algorithms compared self-reported answers with eligibility rules in near real time, no staff checked the answers, and rejected applicants could reapply immediately with different answers. In a March 2022 stipulation and consent order Robinhood paid $640,000, a settlement that also covered its March 2020 platform outages; 809 Vermont customers had been approved for options and 581 for margin. In April 2023 a multistate settlement of up to $10.2 million, coordinated through NASAA, again cited the algorithm-based approvals, which Robinhood neither admitted nor denied. The regulators described an automated system, not described as AI.

## Key facts

|  |  |
| --- | --- |
| Date | Mar 17, 2022 |
| Institution | Robinhood Financial LLC |
| Country | United States |
| AI system | Rules-based algorithm that automatically approved or rejected options and margin trading applications from self-reported answers |
| AI? | Automated system not described as AI — The system was automated, but neither the institution nor a regulator described it as AI; it is listed because it is routinely discussed as an AI failure. |
| Category | Regulatory finding (Governance finding) |
| Status | Settled |
| Severity | 3 of 5 — A regulatory finding with monetary sanctions: Vermont's March 2022 stipulation and consent order ($640,000, which also covered platform outages) and a 2023 multistate settlement of up to $10.2 million both cited the automated options and margin approvals; no customer loss figure was attributed to the approvals themselves. |

## What happened?

Vermont's stipulation and consent order (docket 21-051-S) found that when a customer applied for Level 2 or Level 3 options trading or for margin, "Respondent's algorithms automatically, and nearly instantaneously, approve or reject the application" by comparing the customer's profile and answers to eligibility questions with the firm's requirements. Apart from account equity, all of that information was self-reported, and other than age and name it was not documented or manually reviewed for accuracy or internal consistency. The order states: "The approval process for options and margin trading, including repeat applications, is entirely automated." [2]

The order found that customers whose applications were denied "are immediately able to re-apply and may be approved if they change their account profile or responses to eligibility questions", and that before April 2020 Robinhood did not run a standardized check for inconsistencies when profiles changed. Robinhood asserted that it was not required to review self-reported information manually under FINRA rules, and that it had begun monthly reviews of options customers in April 2020 and weekly sample audits in May 2021. Announcing the settlement, the Department said the "wholly automated process was inadequate to determine which investors should be approved for high level option and margin trading", and that 809 Vermont customers had been approved for options trading and 581 for margin trading. [1][2]

The $640,000 Vermont settlement, a $590,000 penalty plus $50,000 for the state's investor education and restitution fund, also covered the March 2020 outages of Robinhood's app and website, during which customers could not enter, modify or cancel orders. The order required Robinhood to review and verify the information of Vermont customers approved for options since April 2021 after re-applying with different answers, and to report "any relevant changes Respondent has made or will make to its automated approval processes". [1][2]

A multistate task force coordinated by the North American Securities Administrators Association, led by regulators in Alabama, Colorado, California, Delaware, New Jersey, South Dakota and Texas, reached a settlement of up to $10.2 million in April 2023. California's consent order found that Robinhood "relied upon an algorithm that nearly instantaneously approves or denies the customer's option or margin trading application", with no principals or staff verifying applicants' self-reported information, and that denied customers could re-submit and be approved with different answers. The same order cited FINRA's 2021 finding that the firm had relied on "option account approval bots" with only limited oversight, and faulted its reliance on automated and bulk emails for customer support. [3][4]

## Timeline

- Mar 2020 — Robinhood's app and website suffer outages during historic market volatility; customers cannot enter, modify or cancel orders. [1][3]
- Apr 2020 — Robinhood begins a monthly review of options customers to catch inconsistencies in their self-reported information, according to the state orders. [2][3]
- May 2021 — Robinhood begins weekly sample audits of customers approved for options trading in the prior week. [2][3]
- Mar 17, 2022 — Vermont's Department of Financial Regulation announces a $640,000 settlement covering the outages and the wholly automated options and margin approvals. [1][2]
- Apr 6, 2023 — NASAA states announce a settlement of up to $10.2 million; California's DFPI enters its consent order citing the algorithm-based approvals. [3][4]

## What was the impact?

- Financial: $640,000 (Vermont, including outage findings); up to $10.2 million (multistate, 2023)
- Customers: 809 Vermont customers approved for options trading and 581 for margin trading through the automated process
- Other: No loss figure was attributed to the automated approvals themselves; the Vermont settlement also covered the March 2020 platform outages. [1][4]

## How did Robinhood Financial LLC respond?

In the Vermont order Robinhood asserted that FINRA rules did not require it to review self-reported information manually, and pointed to the monthly and weekly reviews it had added in 2020 and 2021. On the 2023 multistate settlement, Lucas Moskowitz, deputy general counsel and head of government affairs at Robinhood Markets, said: "We are resolving this matter with the states and are pleased to put it behind us," adding that the settlement related to past issues the company had since invested heavily in improving. Robinhood neither admitted nor denied the states' findings. [2][3][4]

## What was the outcome?

Vermont imposed a $590,000 penalty and a $50,000 fund contribution and required a review and verification of re-applicants approved since April 2021, plus a report on changes to the automated approval processes. The 2023 multistate settlement of up to $10.2 million resolved the same approval deficiencies together with the outage, customer-service and disclosure findings, and required Robinhood to share a FINRA-ordered compliance report with the settling states. [2][3][4]

## FAQ

### What did Vermont find about Robinhood's options approvals?

Vermont's Department of Financial Regulation found in March 2022 that Robinhood's algorithms approved or rejected options and margin applications almost instantly from customers' self-reported answers, that no staff verified those answers, and that rejected applicants could reapply at once and be approved by changing them.

### How much did Robinhood pay over its automated approvals?

Vermont's March 2022 settlement was $640,000, a $590,000 penalty plus $50,000 to a state fund, and it also covered the March 2020 outages. In April 2023 Robinhood agreed to pay up to $10.2 million to a group of states over the outages, the approval process, customer support and disclosures.

### Was Robinhood's options approval system AI?

No regulator described it as AI. Vermont called it a "wholly automated process" and California said Robinhood "relied upon an algorithm"; FINRA's 2021 action called the tools "option account approval bots". These are rules that compare answers with eligibility criteria, which is why this record is classed as automation, not AI.

### Did Robinhood admit wrongdoing?

No. Robinhood neither admitted nor denied the findings in the 2023 state orders. A Robinhood lawyer said the company was pleased to put the matter behind it and had invested heavily in fixes, including 24/7 chat and phone support and stronger supervision of its technology.

## Sources

1. [DFR Reaches $640,000 Settlement with Robinhood Financial Over Platform Outages & Account Supervision](https://dfr.vermont.gov/press-release/dfr-reaches-640000-settlement-robinhood-financial-over-platform-outages-account) — Vermont Department of Financial Regulation, Mar 17, 2022 (official): "The settlement also reflects the Department's finding that Robinhood's wholly automated process was inadequate to determine which investors should be approved for high level option and margin trading."
2. [In re Robinhood Financial LLC, Stipulation and Consent Order, Docket No. 21-051-S](https://dfr.vermont.gov/reg-bul-ord/robinhood-financial-stipulation-and-consent-order) — Vermont Department of Financial Regulation, Mar 17, 2022 (official): "The approval process for options and margin trading, including repeat applications, is entirely automated."
3. [The Commissioner of Financial Protection and Innovation v. Robinhood Financial, LLC, Consent Order](https://dfpi.ca.gov/wp-content/uploads/sites/337/2023/04/Consent-Order-Robinhood-Financial-LLC.pdf) — California Department of Financial Protection and Innovation, Apr 6, 2023 (official): "Robinhood's automated account approval process allowed for customers that were denied option and margin trading to re-submit and be approved by utilizing different responses to the eligibility questions."
4. [Robinhood to pay states $10.2 million over outages prior to meme stock frenzy](https://www.investmentnews.com/fintech/robinhood-to-pay-states-102-million-over-outages-prior-to-meme-stock-frenzy/236105) — InvestmentNews, Apr 6, 2023 (news): "Robinhood Financial agreed Thursday to pay up to $10.2 million in penalties to state securities regulators over outages on its platform in 2020 and lax approval of customers for risky trading that state officials say harmed investors."

## Related incidents

- [FINRA: Robinhood's largely automated identity checks approved accounts despite red flags; $26m fine](https://www.bankingnewsai.com/ai-incidents/robinhood-2025-finra-automated-cip-approvals)

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