Alexis Kestler
Let me walk you through the reasons behind Robinhood‘s requirement for users to provide their SSN during account signup. Here‘s the deal: Robinhood needs your personal Social Security Number (SSN) to follow securities regulations, prevent fraud, determine suitable investments for you, and unlock full use of their app‘s features.
But handing over an SSN understandably makes many people hesitant. Your SSN is confidential for good reason – it can enable identity theft if fallen into the wrong hands.
In this detailed guide, we‘ll explore Robinhood‘s justification for gathering SSNs, how they protect your data, and the upsides of providing it. You‘ll learn all about:
- SEC rules for investment account registration
- Anti-money laundering regulations
- Determining appropriate investment risks
- Benefits you get by giving Robinhood your SSN
- How Robinhood keeps your personal data secure
Let‘s get to it!
The Rise of Robinhood
First, a quick intro to Robinhood for anyone unfamiliar with the platform. Robinhood is an online brokerage that offers commission-free trading of stocks, ETFs, options, and crypto.
Founded in 2013, Robinhood has skyrocketed in popularity due to its user-friendly mobile app interface and zero trading fees model. The company now has over 22 million user accounts with around $80 billion in assets.
Robinhood has been a GameChanger for retail investing and crucially expanded access to the stock market. The average Robinhood user is 31 years old, versus an average age of 55 for clients of legacy brokers like Charles Schwab.
This new wave of millennial and Gen Z investors have also fueled the rise of "finfluencers" on social media and increased interest in trading from home.
But with great growth comes great responsibility. As a SEC-registered broker-dealer, Robinhood must comply with strict regulations for investment platforms.
SEC Rules Against Anonymous Investing
The Securities and Exchange Commission (SEC) requires financial services companies like Robinhood to know who their customers actually are.
SEC Rule 17a-3(a)(17) mandates registered brokers maintain records of each customer‘s:
- Name
- Tax identification number
- Address
- Date of birth
For individuals, your tax ID number is your Social Security Number (SSN). The SEC prohibits brokers from allowing anonymous investing through unregistered accounts.
This rule supports the SEC‘s mission of protecting investors and maintaining fair and orderly markets. Requiring SSNs prevents fraud, enhances transparency, and holds both brokers and traders accountable.
As an SEC-registered broker-dealer, Robinhood must collect users‘ SSNs upfront to comply with securities regulations. No SSN, no official Robinhood account.
More on Broker-Dealer Registration
The Securities Exchange Act of 1934 established registration requirements for broker-dealer firms to legally trade securities in the U.S.
To become a registered broker-dealer, a firm must join a self-regulatory organization like the Financial Industry Regulatory Authority (FINRA) and meet their standards.
Registration involves disclosing business operations, insider holdings, employee rosters, and other details to regulators. Firms must also demonstrate sufficient capital reserves and adequate compliance procedures.
Ongoing reporting provides transparency for regulators and investors. It also allows disciplinary action against firms who engage in fraud or violate securities laws.
Anti-Money Laundering Regulations
Collecting SSNs also enables Robinhood to comply with anti-money laundering (AML) regulations enforced by agencies like FINRA and the U.S. Treasury.
Money laundering involves disguising the origins of money obtained illegally to make it appear legitimate. Estimates suggest up to 5% of global GDP (~$2 trillion) is laundered annually.
High-profile money laundering scandals like those involving HSBC, Standard Chartered, and ING have led to increased AML regulations over the past decade.
AML rules require financial institutions to:
- Verify customer identities upon account opening
- Monitor transactions for suspicious activity
- Report red flags like large cash deposits
This "know your customer" (KYC) due diligence is mandatory to prevent money laundering and terrorist financing.
To fulfill KYC requirements, Robinhood must collect identifying info like your:
- Full name
- Date of birth
- Address
- Social Security Number
Having your SSN enables background ID verification and tracking of your deposits/withdrawals. This allows Robinhood to detect and report suspicious account flows to regulators.
Determining Suitable Investments
Another reason Robinhood requires SSNs is to evaluate suitable investments based on a customer‘s profile and risk tolerance.
Brokers have a duty to recommend only suitable investments aligned with a customer‘s situation. This suitability rule prevents brokers pushing overly risky products on less sophisticated investors.
While Robinhood doesn‘t provide personalized advice, collecting info like your SSN still helps them assess account activity against your background. This supports their goal of giving every investor equal access to financial markets.
For example, knowing your SSN enables checking it against public record databases. This can reveal useful background like your:
- Age
- Employment status
- Income level
- Credit score
- Existing debts or assets
With these datapoints, Robinhood can better evaluate your ideal risk profile. They can also flag overly speculative trading that may exceed your means or experience level.
Although Robinhood doesn‘t forbid specific trades, having your SSN allows for this prudent suitability oversight.
Benefits of Supplying Your SSN
Providing your SSN unlocks full use of Robinhood‘s commission-free investing platform, including:
- Withdraw your money to a linked bank account
- Upgrade to Robinhood Gold for enhanced buying power
- Trade stocks, ETFs, options contracts, and cryptocurrencies
- Receive tax documents to file capital gains/losses
- Get assigned an account number to track your trade history
Without a verified SSN, you‘d have read-only access and limited functionality. So although giving out your SSN may feel uncomfortable, it‘s required to properly use Robinhood‘s services.
Is Robinhood Safe to Provide My SSN?
Trust and security are crucial when handling sensitive personal data like SSNs.
Robinhood utilizes encryption, firewalls, and other security controls to protect your information. Here‘s a comparison of some key safety practices:
| Security Measure | Robinhood | Industry Standard |
| SSN Encryption | Encrypted at rest and in transit | Encryption at rest required |
| Customer support authentication | Account number or email only | Name, address, SSN often used |
| SEC Rule 17a-4 archiving | Meets 3-2-1 data backup rule | Recommended, not required |
| Employee background checks | Required for all employees and contractors | Not universally required |
You can dig into more details in Robinhood‘s security overview page.
Based on their robust controls to secure sensitive data, I am comfortable entrusting my SSN to Robinhood. I also use a strong unique password and two-factor authentication for added protection.
The Takeaway
At the end of the day, Robinhood requires your Social Security Number to meet legal obligations as an SEC-registered broker-dealer and prevent fraud. While providing sensitive data brings reasonable concerns, Robinhood seems to meet high standards for data protection and security.
Supplying your SSN also enables Robinhood to evaluate suitable investment risks tailored to your profile. Most importantly, it unlocks full access to Robinhood‘s powerful commission-free trading platform.
So although handing over your SSN may initially feel worrisome, Robinhood‘s regulatory duties and security measures make this a necessary step to unleash the full benefits of their investing app!
