Charles Schwab U.K. has agreed to pay $12 million (about £9 million) to settle claims that it failed to adequately protect client assets, carrying out a regulated activity without permission and making a false statement, according to the Financial Conduct Authority.
“Charles Schwab U.K. fully cooperated with the FCA’s investigation, has addressed the issues identified, and agreed to a penalty of £8,963,200,” a U.S. Charles Schwab spokesperson told ThinkAdvisor by email Tuesday.
“Client money and assets were protected at all times in accordance with U.S. rules,” she said. “Charles Schwab UK maintains the highest standards of service, governance, and security, and although no clients or assets were negatively impacted, we regret the errors and are pleased this matter has been resolved.”
Clients impacted by the breaches were all retail customers, according to Mark Steward, executive director of Enforcement and Market Oversight at the FCA.
The company “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,” he said in a statement.
Details on the Matter
The breaches occurred between August 2017 and April 2019, after Schwab’s U.K. division “changed its business model,” the U.K. regulator claimed.
“Client money was swept across from CSUK to its affiliate Charles Schwab & Co.” in the U.S., according to the FCA.
“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,” the regulator alleged.
The regulator claimed CSUK “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” such permission.
Also, “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 FCA alleged.
“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” starting Jan. 1, 2020, the regulator said.
In agreeing to settle the dispute, CSUK “qualified for a 30% discount,” the FCA said, adding the financial penalty “would otherwise have been £12,804,600.”