A local arm of American banking giant Charles Schwab has been fined nearly £9 million in the UK in a case that the City watchdog compared to Lehman Brothers.
The Financial Conduct Authority said Charles Schwab UK had not had the right permissions for more than a year and a half, ending in April 2019.
In August 2017 Charles Schwab changed its business model, and moved client money to an affiliate in the US.
— Financial Conduct Authority (@TheFCA) December 21, 2020
This money was meant to be subject to UK rules, but the branch failed to make sure its clients’ money was given the protection it was due under the British system, the FCA said.
It did not have the correct records to identify customer client assets, and did not have the organisational arrangements needed to safeguard assets, among other breaches.
The company also failed to tell the CMA when it realised that it had not been operating with the correct permissions.
Mark Steward, the executive director of enforcement and market oversight at the FCA, 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.
“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.”
Charles Schwab had reassured the FCA that its auditors thought that adequate systems and controls were in place. But the FCA said the banking giant had not made “adequate inquiries to check whether this was correct” before making the claim.
The penalty was reduced by 30% from £12.8 million to £8.96 million, because Charles Schwab agreed to settle.