TRG Treasury Fpo

Charles Schwab & Co. has been fined $2 million for capital deficiencies and related supervisory failures, the Financial Industry Regulatory Authority said Monday.

Finra found that on three occasions between May 15 and July 1 last year, Schwab was net capital deficient by up to $775 million because the company had cash inflows that exceeded the amounts it could invest with existing facilities. As a result, Schwab transferred $1 billion to its parent company for overnight investment, which the company's Treasury group approved as an unsecured loan under a revolving loan agreement, according to Finra.

Schwab didn't have procedures in place requiring its Treasury group to consult with its regulatory reporting group, nor were Schwab's supervisory systems reasonably designed to prevent the Treasury group from entering into unsecured transfers with affiliates that could result in a net capital deficiency, the regulator said.

"Communication between risk functions within a firm is essential" and "Schwab failed to coordinate across its various business units which ultimately led to the firm's net capital deficiencies," said Finra enforcement official Brad Bennett. "Maintaining adequate net capital is critical to the protection of customer assets," Mr. Bennett added.

Schwab neither admitted nor denied the charges.

"We regret that our procedures didn't flag the overnight cash transfers in 2014," a representative for Schwab said, adding that the company self-identified the matter, reported it immediately, and has "put in place revised procedures and processes to assure it will not happen again."

Write to Lisa Beilfuss at lisa.beilfuss@wsj.com

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(END) Dow Jones Newswires

August 24, 2015 11:51 ET (15:51 GMT)

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