FCA imposes £8.96M fine on Charles Schwab UK for safeguarding and compliance failures
The UK Financial Conduct Authority (FCA) today announces the imposition of a fine of £8.96 million on Charles Schwab UK Ltd (CSUK) over the firm’s failure to adequately protect client assets, carrying out a regulated activity without permission and making a false statement to the FCA.
The breaches occurred between August 2017 and April 2019, after CSUK changed its business model. Client money was swept across from CSUK to its affiliate Charles Schwab & Co., Inc. (CS&C), a firm based in the United States.
The client assets, which were subject to UK rules, were held in CS&C’s general pool, which contained both firm and client money and which was held for both UK and non-UK clients. Customers affected by the breaches were all retail customers, who require the greatest level of protection.
CSUK failed to arrange adequate protection for its clients’ assets under UK rules. Specifically, the firm:
- 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.
CSUK carried out a regulated activity without permission, the FCA says. The firm did not at all times have permission to safeguard and administer custody assets, and failed to notify the FCA of the breach when applying for the correct permission.
Furthermore, CSUK made a false statement to the FCA. Without making adequate enquiries to check whether this was correct, the firm inaccurately informed the FCA that its auditors had confirmed that it had adequate systems and controls in place to protect client assets.
The firm took remedial action at various points after discovering the breaches. There was no actual loss of client assets and CSUK stopped holding client assets from January 1, 2020.
CSUK agreed to settle the case and qualified for a 30% discount. The financial penalty would otherwise have been £12,804,600.