A City watchdog has slammed trading company Charles Schwab UK with a £8.96m fine for failing to protect client assets, carrying out a regulated activity without permission and making false statements to regulators.
“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,” said Mark Steward, executive director of enforcement and market oversight at the Financial Conduct Authority (FCA).
“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.”
The FCA stated that Charles Schwab UK failed to live up to its responsibility between August 2017 and April 2019 when lient money was swept across from Charles Schwab UK to its affiliate Charles Schwab & Co., a firm based in the United States.
The client assets, which were subject to UK rules, were held in American entity’s general pool, which contained both firm and client money and which was held for both UK and non-UK clients.
The FCA argued that Charles Schwab UK failed to arrange adequate protection for its clients’ assets under UK rules by not having the right records and accounts to identify its customers’ client assets, failing to undertake internal or external reconciliations for its customers’ client assets, not adequately establish organisational arrangements to safeguard client assets, and for not maintaining a resolution pack, which would help to ensure a timely return of client assets in an insolvency.
Moreover, the regulator claimed the firm also did not have permission to safeguard and administer custody assets, and failed to notify the FCA of the breach when applying for the correct permission.
Charles Schwab UK is also accused of having made a false statement to the FCA, 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 1 January 2020.
Charles Schwab UK agreed to settle the case and qualified for a 30% discount. The financial penalty would otherwise have been £12,804,600.
Copyright © 2018 RegTech Analyst
