Robinhood pulls cash account after reg backlash

US share trading app Robinhood has rolled back its recently-announced current account after a stern warning from regulators.

Launched last week, the Checking & Savings account was due to start mailing out it first debit cards - issued by Sutton Bank - in January. The firm promised users no minimum balance, no monthly, overdraft or foreign transaction fees, with a three per cent interest rate on deposits.

The small print stated that the account consisted of separate balances held within a Robinhood brokerage account, meaning the funds would not be subject to Federal Deposit Insurance Corporation insurance (FDIC), but would be protected by Securities Investor Protection Corporation (SIPC).

However, Robinhood neglected to ask for the regulator's approval, prompting the SPIC president Stephen Harbeck to report the company to the Securities and Exchange Commission (SEC), stating: "Money that is doing nothing but earning interest looks like a loan; we do not protect loans to a broker-dealer.”

In the wake of this, Robinhood removed any mention of the account from its website and deleted tweets regarding it. In a message to users, co-founders Baiju Bhatt and Vlad Tenev offered no apology, but attempted to clear up the confusion.

“As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously,” they wrote in a company blog. “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.”

The company's free stock-trading model currently has six million users and a $5.6 billion valuation five years after starting up.

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