The Financial Conduct Authority has fined Charles Schwab UK £9m for failing to protect client assets, carrying out a regulated activity without permission and making a false statement to the FCA.
The breaches all affected retail investors, which the FCA said require the greatest level of protection, and took place between August 2017 and April 2019, according to a press release issued on Monday morning.
FCA executive director of enforcement and market oversight Mark Steward said: “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.”
According to the FCA, Charles Schwab failed to properly protect client assets because: it 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; and did not maintain a resolution pack, which would help to ensure a timely return of client assets in an insolvency.
Additionally, 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.
The firm also made a false statement, inaccurately informing the FCA that its auditors had confirmed that it had adequate systems and controls in place to protect client assets.
Charles Schwab UK breached principles 10 and 11 of the Principles for Business, rules in the FCA’s Client Assets Sourcebook, and section 20 of the Financial Services and Markets Act 2000, the FCA said.
The firm was initially fined £12.8m but qualified for a 30% discount. The asset manager’s UK arm had revenues of £7.2m in 2018.
