The UK’s Financial Conduct Authority has fined stockbroking firm Charles Schwab UK (CSUK) £8.96m for its failure to safeguard the assets of clients.
The lapses are said to have taken place between August 2017 and April 2019 following alteration in the firm’s business model and affected retail customers.
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The FCA said that CSUK conducted a regulated activity without permission and made a false statement.
“Client money was swept across from CSUK to its affiliate Charles Schwab & Co., Inc. (CS&C), a firm based in the United States,” the FCA said.
The watchdog accused CSUK of lacking the right records and accounts to detect its customers’ client assets and sufficient organisational arrangements to protect the assets.
The regulator also alleged that the firm did not conduct internal or external reconciliations for the assets and also lacked a resolution pack that would enable the assets’ timely return in the event of insolvency.
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By GlobalDataFCA 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.”
However, the FCA also said that the firm took remedial measures after finding out about the violations and hence qualified for a 30% discount, without which its fine amount would have been £12.8m.
The watchdog said the firm did not have permission to protect and administer custody assets at all times, and failed to notify it of the violation when applying for the correct permission.
CSUK also falsely informed the regulator that its auditors had confirmed of having sufficient controls to safeguard client assets.
However, the regulator also revealed that there was no actual loss of client assets.
From January this year, CSUK stopped holding client assets.
In response, the firm said: “Although no clients or assets were negatively impacted, we regret the errors and are pleased this matter has been resolved.”
Recently an independent investigation found that the FCA consistently failed to adequately regulate and supervise London Capital and Finance (LCF).
