Robinhood, a brokerage app popular among millennials, announced the launch of a new low-interest checking and savings product yesterday, but not everyone seems thrilled.
Today, the Securities Investor Protection Corporation (SIPC), which insures the company’s brokerage accounts in the event of company failure, spoke out to say it does not, in fact, insure checking and savings accounts or any cash that is not meant for the direct purpose of investing.
“SIPC protects cash that is deposited with a brokerage firm for one limited purpose . . . the purpose of purchasing securities,” Stephen P. Harbeck, president and CEO of SIPC, wrote via email. “Cash deposited for other reasons would not be protected. SIPC does not protect checking and savings accounts since the money has not been deposited for a protected purpose.”
In an interview with Bloomberg, Harbeck further expressed concern for the new product, saying he reached out to the Securities and Exchange Commission to confirm whether or not his perspective—that the checking and savings funds would not be protected—was correct.
SIPC spokesperson Kristen McCaughan noted that while Robinhood is an SIPC member firm, and its customers would be protected in the event the company failed, “The firm does have some lines of business that I believe fall outside the broker-customer relationship,” she said. Unless the cash in member accounts is for the express purpose of investing, it would not be covered. Additionally, SIPC only provides protection in the event that Robinhood fails.
In a blog, posted late Friday night, Robinhood released a statement in reaction to the “confusion” around its recently announced product. “As a licensed broker-dealer, we’re highly regulated and take clear communication very seriously. 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 page reads. The post did not mention SIPC or Harbeck’s comments and asked readers to “stay tuned for updates.”
Fast Company reached out to Robinhood in hopes the company could elucidate the matter. We have yet to receive a response.