Robinhood Canceled Launch in Uk

Robinhood Market Inc, the online brokerage with its only branch in the United States, announced that its much-hyped UK launch would no longer hold. On Tuesday, the company released a statement that partly reads that  “a lot has changed in the world over the past few months” hence it had “made the difficult decision to postpone our UK launch indefinitely.”

Following the cancellation of the launch, the company sent an email to more than 260,000 persons on its UK waiting list informing them of the recent development. According to a news report, if the UK launch had been successful, it would have marked the first expansion of the company outside the United States. The company announced that the launch has been postponed indefinitely and did not disclose when it would hold.

The company's email partly reads. “Our efforts are currently best spent on strengthening our core business in the U.S. and making further investments in our foundational system.”

The company's announcement came after N26, German digital banks stopped its operation in the UK because the country has made the decision to leave the European Union. It also followed the Robinhood's $320 million extra addition to its Series F funding a week ago. Currently, the app is valued at $8.6bn

Robinhood is a well known online brokerage, especially among young people. It is known as a platform that is set  “on a mission to democratize finance for all.” However, since the outbreak of the coronavirus, the company has been struggling with a series of financial crises, part of which has made investors stop trading in the company's stock during the days of volatile stock. In fact, just last month the company faced a lot of scrutiny following the death of Alex Kearns, a 20 years old customer who was believed to have committed suicide after losing more than $700,000 trading options. 

In response to the news, Robinhood founders said in a blog post that the company would work on ways to bolster option customer protections. The news also triggered reactions from some members of Congress, who wrote to the company on July 13 that “By seeking to cultivate a customer base of relatively inexperienced investors, you have also taken on an especially great responsibility to make sure your customers are protected and always provided with clear and accurate information,” said the group of six Democratic lawmakers, including Senators Richard Durbin (D., Ill.) and Tammy Duckworth (D., Ill.). “Robinhood must do better.”

 A spokesperson for the company said the company's focus is on its US markets: “As a company, we are refocusing our efforts on strengthening our core business in the US. We know many people in the UK were excited to invest through Robinhood, and we regret that we cannot deliver our product to UK customers in 2020.

The person added: “Although our global expansion plans are on hold for now, we’re committed to democratizing finance for more people around the world. We look forward to the day when we can bring this mission to the UK.”

About Robinhood

In 2013, Vladimir Tenev and Baiju Bhatt founded Robinhood as an online brokerage company. Since then, the company has attracted more than 13 million customers. Before the establishment of Robinhood, Tenev and Bhatt both graduated from Stanford University and both worked for Wall Street before later becoming part of a new generation of technology entrepreneurs.

Having garnered enough experience from Wall Street, both men started offering low-cost services to Main Street clients. Upon establishing Robinhood in 2013, they said, on their sites, that the aim of the company is to reduce the gap between the rich and the poor through easy access to the stock market. 

However, ever since its establishment, the company has faced a lot of controversies because of its dependence on payment for order flow. Payment for order flow is a practice often used by brokerage firms. It involves customers making their orders to buy or sell securities to high-speed-trading firms that execute them in exchange for cash payments.

In fact, by the first quarter of 2020, it was revealed that Robinhood has collected more than $91 million from customers who are interested in the US stock and options. Although most countries allow brokerage firms to operate the payment for the order flow technique, some have banned the practice based on fraud and controversies. 

Last year, Robinhood helped online brokers to remove commission from stock trade. Some of the online brokers that benefited from this gesture include Charles Schwab Corp., E*Trade Financial Corp., and TD Ameritrade Holding Corp.

According to the UK Financial Conduct Authority, the payment for order flow technique is against the UK rule. In a report in 2014, FCA maintained that Such “arrangements create a clear conflict of interest between the firm and its clients, are unlikely to be compatible with our inducements rule and risk compromising compliance with best execution rules.”

Although this is partly believed as the reason for the UK launch cancellation, a report revealed that FCA has given Robinhood a go-ahead last year.