A Charles Schwab Corp unit has agreed to a $2 million civil fine for three instances in which it failed to keep sufficient cash on hand, Wall Street's industry-funded watchdog said on Monday. The Financial Industry Regulatory Authority (FINRA) also censured the brokerage unit, Charles Schwab & Co, Inc, which it said had deficient net capital on three separate dates in 2014, ranging from $287 million to $775 million.
Industry rules require that firms keep certain amounts of "net capital," or cash on hand, at all times in order to pay their obligations amid market fluctuations. The amounts depend on numerous factors, such as a firm's size and securities it trades. The problems in Schwab's case stemmed from a series of unsecured loans the brokerage unit made to its parent company after receiving substantial client funds late in the day that it was unable to invest, according to the settlement.
Schwab neither admitted nor denied FINRA's allegations. "We regret that our procedures didn't flag the overnight cash transfers in 2014," Schwab spokesman Greg Gable said in a statement. "We made the transfers to the parent company in an effort to mitigate the Broker Dealer's risk of over-concentrating cash at any one institution where it had overnight investing arrangements. The money transferred from the Broker Dealer was safely with the corporate parent at all times," he said.