FCA fines Charles Schwab UK almost £9m over compliance failures

The UK's Financial Conduct Authority has fined Charles Schwab UK £8.96m for failing to adequately protect client assets and making a false statement to the regulator.

The customers affected by the breaches were all retail customers, who require the greatest level of protection, the FCA said, adding that the penalty was for Charles Schwab UK Ltd (CSUK) carrying out a regulated activity without permission and making a false statement to the watchdog.

It noted that the breaches, which occurred between August 2017 and April 2019, affected retail customers and drew comparisons to behaviour at collapsed bank Lehman Brothers in 2008 which triggered the financial crisis.

"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," said Mark Steward, executive director of Enforcement and Market Oversight at the FCA.

The regulator said CSUK neither had the right records and accounts to identify customers’ client assets, nor did it have adequate organisational arrangements to safeguard them.

It added that Schwab did not have permission to safeguard and administer custody assets at all times, and failed to mention the breach when applying for the correct permission.

The firm falsely informed the FCA that its auditors had confirmed it had adequate systems and controls in place to protect client assets, the watchdog said, adding there was no actual loss of client assets.

CSUK agreed to settle the case and qualified for a 30% discount, without which the penalty would have been £12.8m.

"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," Seward said.

(Writing by Frank Prenesti. Editing by Michele Maatouk)