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Screenshot of a breaking news alert e-mail from Q2 2017
The Financial Industry Regulatory Authority (FINRA) announced on Monday that it has censured and imposed a fine of $2 million on Charles Schwab & Co., Inc., the broker-dealer subsidiary of Charles Schwab Corp (NYSE:SCHW), for net capital deficiencies and for related supervisory failures.
FINRA said in its announcement that the net capital deficiencies occurred on three separate dates between May 15, 2014, and July 1, 2014, and ranged from $287 million to $775 million. The deficiencies occurred because on each of those dates, Schwab had inflows of cash that surpassed the amounts the company could invest with existing facilities.
Schwab transferred $1 billion to its parent company for overnight investment and Schwab’s Treasury group approved the transaction as an unsecured loan under a revolving loan agreement without consulting its Regulatory Reporting group on the potential impact on the firm’s net capital position. FINRA notes that Schwab did not have procedures in place requiring its Treasury group to consult with its Regulatory Reporting group in such a case.
Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, commented:
“Communication between risk functions within a firm is essential. In this case, Schwab failed to coordinate across its various business units which ultimately led to the firm’s net capital deficiencies. Maintaining adequate net capital is critical to the protection of customer assets.”
In settling the matter, Schwab neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
To view the official announcement by FINRA, click here.