Anyone who has ever tried to open a brokerage account knows the document requirements include anything and everything related to your history. Even if you have found this process tedious when opening an account with Robinhood, please read on, and you will learn why the necessity for sensitive private information like your Social Security Number (SSN) and other data.
What Is Robinhood?
Robinhood.com is a financial app that provides commission-free brokerage services. Robinhood encompasses a family of subsidiaries that include brokerage services, broker-dealers, securities trading, crypto services, spending accounts, and money transmitters.
To open an account with Robinhood, you will need to create a profile, enter your contact information, verify your identity by providing your SSN, find your account, and download the Robinhood app. You can see that, among other information, you will need to provide your Social Security Number, which is personal info of a sensitive nature.
Who Regulates Robinhood?
As a financial institution, the company falls under the jurisdiction of financial regulatory bodies like the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), the Office of Foreign Assets Control (OFAC), the Financial Crimes Enforcement Network (FinCEN), the Internal Revenue Service (IRS), and other state securities regulatory entities.
Thus, every regulatory body has specific demands in governing Robinhood. But it also means that Robinhood needs to comply with the law and the rules and regulations provided by all the regulatory bodies.
The company requires you to provide your SSN because they have to. We have listed most of the regulatory bodies that govern Robinhood (and similar financial organizations). Based on their requirements, the SSN is essential info that every new account holder needs to provide. All the Robinhood reports they submit to the governing bodies use the SSN somehow.
Compliance with the USA Patriot Act
The primary purpose why Robinhood asks for your SSN is to comply with the USA Patriot Act. This act was established in 2001, soon after the events of 9/11, and was designed to help prevent terrorism in the USA. Among other things, the USA Patriot Act governs financial institutions in preventing financial crimes and terrorist financing.
It is one of the main reasons Robinhood requires your SSN, as using it allows the government to confirm your identity and check any suspicious activity related to money laundering.
All institutions and online applications that work with money (in any way) need to comply with the Know Your Customer or KYC policy. FINRA and FinCEN established KYC, and it spread to most financial institutions worldwide. Per the KYC policy, a financial institution like Robinhood must gather essential facts about its customers or anyone acting on the customer’s behalf.
It is done to verify the identity of the customers and have a general profile of its customers. One of the main info about a customer is their SSN, which is used to identify them. Another reason the KYC policy works in favor of both parties is the option to provide financial recommendations. By having an insight into the member’s profile, Robinhood can consider the investment sustainability when granting trading privileges.
The third reason Robinhood asks for your SSN is the requirements of the OFAC regulations. OFAC applies and enforces economic and trade sanctions against persons, organizations, and countries that are considered a threat to the US national security, the US economy, and the US foreign policy.
OFAC has a public list of people, groups, companies, and organizations that have their assets blocked from entering the USA. Still, they also have a public list of US residents and companies prohibited from doing business with.
To comply with the OFAC’s requirements, Robinhood has due diligence to verify the customer’s identity and cross-reference it against the OFAC list of sanctioned entities.
SEC Requirements and Compliance
The Securities and Exchange Commission or the SEC requires all financial institutions to confirm their member’s identities. The SEC is a regulatory body that oversees the investment world and works on protecting investors. Thus, the SEC requires organizations like Robinhood to ask, gather, verify and retain private user information, including SSN.
IRS Tax Report
The most apparent reason why Robinhood asks for your personal data, SSN included, is for tax reporting purposes. The IRS requires Robinhood to provide all the investment tax information about its customers. It is done to prevent hiding investment gains and hide taxes; the SSN is used to confirm the user’s identity and check the tax returns for every user.
Is It Possible to Open a Robinhood Account with an ITIN Number?
People who are not eligible for an SSN sometimes use an alternative number called Individual Taxpayer Identification Number (ITIN). While some financial institutions allow people to use the ITIN to open an account, Robinhood does not allow this.
By providing an SSN, you confirm that you are a legal US citizen, have a permanent US address, or have a valid US visa. Only in such cases can you open an account with Robinhood.
To Wrap Up
The financial world is very complex and is heavily regulated by many entities. It is almost unbelievable how many regulations an organization like Robinhood needs to follow and how many organizations oversee its workings. Based on this, it is evident how many hoops this organization has to jump through. It becomes obvious why they require all your personal data, including your social security number.