Release Date: 21st December 2020
To access the original FCA document, click here.
Summary
The FCA has fined Charles Schwab UK Ltd (CSUK) £8.96 million for failures in protecting client assets, conducting regulated activities without permission, and making a false statement to the FCA.
Reasons for the Fine:
CSUK’s breaches occurred between August 2017 and April 2019, following a change in its business model. Client money was transferred from CSUK to its US affiliate, Charles Schwab & Co., Inc. (CS&C), and held in a general pool with both firm and client money for UK and non-UK clients. The firm failed to ensure adequate protection for these assets under UK rules. Specifically, CSUK:
- Lacked proper records and accounts to identify client assets.
- Failed to conduct internal or external reconciliations for client assets.
- Did not have adequate organisational arrangements to safeguard client assets.
- Did not maintain a resolution pack to ensure timely return of client assets in insolvency.
Additionally, CSUK carried out a regulated activity without having the necessary permission to safeguard and administer custody assets, and did not notify the FCA of this breach when applying for the correct permission. Furthermore, CSUK made a false statement to the FCA by inaccurately informing them that its auditors confirmed adequate systems and controls were in place to protect client assets.
Key Takeaways:
- Ensure Proper Permissions: Firms must obtain the correct permissions from the FCA for all regulated activities.
- Accurate Reporting: Always provide accurate information to the FCA and verify facts before making statements.
- Adequate Safeguards: Maintain proper records, conduct regular reconciliations, and have robust organisational arrangements to protect client assets.
- Resolution Preparedness: Have a resolution pack to ensure timely return of client assets in case of insolvency.
- Compliance Awareness: Firms must be aware of and comply with FCA rules to avoid breaches and penalties.
CSUK agreed to settle the case and received a 30% discount on the financial penalty, which would otherwise have been £12,804,600. Despite the breaches, there was no actual loss of client assets, and CSUK ceased holding client assets from 1 January 2020.
Conclusion:
The FCA’s action against Charles Schwab UK Ltd underscores the importance of compliance with regulatory requirements, proper client asset protection, and accurate communication with regulatory authorities. Firms must take proactive steps to ensure they meet all FCA guidelines to maintain market integrity and protect consumer interests.
Back to the Dear CEO letter archives.