A Charles Schwab Corp unit has agreed to a $2 million civil fine for failing to keep sufficient cash on hand to meet capital requirements on three separate days last year, Wall Street's industry-funded watchdog said on Monday.
The sanction is the largest ever imposed by the Financial Industry Regulatory Authority for net capital deficiencies, a Finra spokeswoman said. The regulator also censured the brokerage unit, Charles Schwab & Co., Inc.
The capital deficiencies took place between May 15 and July 1, 2014, and ranged 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 at Schwab were caused by its treasury department's failure to tell its regulatory reporting group about plans to move $1 billion to the parent company from the broker on each of the three days, according to Finra. In each case Schwab received substantial client funds late in the day that could not be deployed to its banks, according to the settlement.
Schwab neither admitted nor denied Finra's allegations, including a finding that its supervisory systems were not properly designed.
"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,” he said. “The money transferred from the Broker Dealer was safely with the corporate parent at all times.”
The firm identified the problem and reported it to Finra, Gable said.