Trading app Robinhood drops margin investing in UK launch

By Thomson Reuters Mar 18, 2024 | 7:03 PM

By Elizabeth Howcroft

LONDON (Reuters) – Trading platform Robinhood has “paused” its plan to lend to UK-based customers to allow them to make leveraged trades pending further talks with regulators, as it launches its UK business, the company said.

Robinhood, which launched its UK arm on Tuesday, had planned to offer margin investing, a risky form of trading in which customers borrow money to make bigger trades.

A page about margin investing on Robinhood’s UK website said on Monday that the company charged 12% interest on the loans and could offer the product due to a “regulatory exemption” which meant Robinhood UK was not required to assess customers to see if margin investing was appropriate for them.

By Monday evening, this page was listed as unavailable in the UK.

“Margin investing is paused as we continue to discuss with the regulator,” a spokesperson for Robinhood said, without giving details or specifying the regulator.

A spokesperson for the UK’s Financial Conduct Authority, which oversees the UK financial services industry, declined to comment on the exemption or whether it remained in place for Robinhood.

Robinhood, which surged in popularity among U.S. retail investors during the 2021 meme stock trading frenzy, had scrapped previous plans for a UK launch in 2020, before announcing a second attempt last November.

The UK arm will allow customers in the UK to buy U.S. stocks, but not stocks of companies listed elsewhere.

It will not charge commission fees or FX fees on trades, and will offer interest rates of 5% on customers’ uninvested cash, the company said.

Robinhood’s UK CEO Jordan Sinclair declined to comment on when the UK arm was expected to become profitable or what its top sources of revenue would be, although he said that it would reflect revenue in the U.S., and could include a subscription product and income from interest on cash.

The parent company reported a surprise quarterly profit for the last quarter of 2023. The biggest driver of revenue was net interest revenues, of which the largest components were interest received on corporate cash and investments ($71 million), followed by interest received on customer’s margin balances ($66 million), according to Q4 results.

Robinhood listed on the U.S. stock market in 2021 and, after an initial jump, its shares have since fallen nearly 50% as the retail trading frenzy cooled.

(Reporting by Elizabeth Howcroft; Editing by Tommy Reggiori Wilkes and Josie Kao)