The FCA has fined Charles Schwab UK over a raft of compliance and safeguarding failures, including making a false statement to the regulator.
The broker has been hit with a £8.96m penalty for failures that ranged from not adequately protecting client assets to carrying out a regulated activity without permission.
A change in Charles Schwab’s UK business model between August 2017 and April 2019 led to client money being transferred back to the firm’s US affiliate.
However, firm and client money, across both UK and US clients, was held in one general asset pool, which meant clients’ assets under UK rules were not sufficiently protected.
The FCA found that Charles Schwab UK:
- did not have the right records and accounts to identify its customers’ client assets.
- did not undertake internal or external reconciliations for its customers’ client assets.
- did not have adequate organisational arrangements to safeguard client assets.
- did not maintain a resolution pack, which would help to ensure a timely return of client assets in an insolvency.
The breaches meant that the UK branch also did not have the permissions to safeguard and administer custody assets that would have been required – so was in effect conducting a regulated activity without permission.
The firm failed to notify the FCA of the breach when applying for the correct permission, and falsely told the FCA that its auditors had confirmed that it had adequate systems and controls in place to protect client assets.
While no clients were left worse off, the FCA still would have fined the UK branch £12.8m, but this was eventually reduced by 30 per cent because Charles Schwab agreed to settle.
FCA executive director of enforcement Mark Steward says: “Charles Schwab UK failed to get the correct permissions from the FCA; then failed to be open with us and, finally, failed to put in place the necessary safeguards to ensure, if required, there could be an orderly return of client assets.
“As we saw with Lehman Brothers and subsequent cases, a lack of client asset protections can easily lead to increased costs to consumers and funds being trapped for long periods of time.
“Firms, including newly-established businesses or firms coming into the UK from overseas, are responsible for ensuring they comply with our rules, and are expected to make sure they have the right protections in place.”
