The UK financial watchdog has fined Charles Schwab UK £8.96m for client money safeguarding and compliance failures after the company failed to secure the correct regulatory permissions.
In a final notice published today the Financial Conduct Authority also warned the broking giant had made a false statement to the regulator regarding its audit processes.
Charles Schwab UK is a subsidiary of US-headquartered Charles Schwab & Co, but has been authorised by the FCA since 2003 for activities including safeguarding and administration of assets.
According to the regulator the breaches occurred between August 2017 and April 2019, after CSUK changed its business model and client money was swept across from the company to its affiliate Charles Schwab & Co. in the US.
The client assets, which were subject to UK rules, were held in a general pool, which contained both firm and client money held for both UK and non-UK clients.
The FCA said Charles Schwab UK had failed to arrange "adequate protection for its clients’ assets under UK rules" and did not have the correct records and accounts to identify the funds of its retail investors.
Mark Steward, executive director of enforcement and market oversight at the FCA, warned both newly-established businesses and those coming into the UK from overseas were responsible for ensuring they complied with the regulator's rules.
Mr 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."
The FCA also accused the company of carrying out a regulated activity without permission and said it did not always have permission to safeguard and administer custody assets, but failed to notify the watchdog of the breach when applying for the correct permission.
The regulator added: "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 FCA said the firm had taken "remedial action" at various points after discovering the breaches and there was no actual loss of client assets.
Charles Schwab UK stopped holding client assets from the beginning of this year and agreed to settle its case with the FCA, thereby qualifying for a 30 per cent discount. Without this, the penalty would have stood at £12,804,600.
rachel.mortimer@ft.com
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