FINRA Fines Charles Schwab & Co., Inc. $2 Million for Net Capital Deficiencies 

The Financial Industry Regulatory Authority (FINRA) announced today that it has censured and fined Charles Schwab & Co., Inc. $2 million for net capital deficiencies and for related supervisory failures. The net capital deficiencies occurred on three separate dates in 2014, and ranged from $287 million to $775 million.

FINRA found that on three occasions between May 15, 2014, and July 1, 2014, Schwab was net capital deficient up to $775 million. The deficiencies arose because on each of those dates, Schwab had inflows of cash that exceeded the amounts it could invest with existing facilities, so instead, Schwab transferred $1 billion to its parent company for overnight investment. Schwab’s Treasury group approved the $1 billion transfer as an unsecured loan under a revolving loan agreement without consulting its Regulatory Reporting group as to how these transfers would impact the firm’s net capital position. Schwab did not have procedures in place requiring its Treasury group to consult with its Regulatory Reporting group regarding the potential effect of its actions on net capital, nor were Schwab’s supervisory systems, including written procedures, reasonably designed to prevent the Treasury group from entering into unsecured transfers with affiliates that could result in a net capital deficiency.

Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said, “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.”

The investigation was conducted by the Department of Enforcement and the Department of Member Regulation Risk Oversight & Operational Regulation.

In settling this matter, Schwab neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.

Read more Regulatory Fines here

Source: FINRA

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