Finra spanks Schwab with $350,000 fine over disclosures on ETNs
Schwab self-reported the issues with disclosures related to exchange-traded notes, which occurred from January 2016 to December 2020, to Finra.
The Financial Industry Regulatory Authority Inc. last week fined Charles Schwab & Co. Inc. $350,000 for failing to fully disclose information about exchange-traded notes to thousands of customers over a period of almost five years.
From January 2016 to December 2020, Schwab sent trade confirmations to 765,000 clients that did not disclose that the exchange-traded notes were callable and that early redemption of the notes could affect their yields. As a result, Schwab violated industry rules around disclosure.
Schwab self-reported the matter and accepted the settlement with Finra without admitting or denying any of Finra’s findings.
Finra’s settlement with Schwab was released last Thursday, the same day as the regulator’s agreement with TD Ameritrade Clearing Inc., which Finra fined $500,000 for failing to disclose fully information about callable securities, including ETNs and preferred securities, to millions of customers over five years.
Schwab acquired TD Ameritrade in 2020.
“This settlement resolves an unintentional oversight about the placement of certain information on trade confirmations for a few securities,” a Schwab spokesperson wrote in an email. “While that same information was available in other materials provided to clients, including the prospectus, we promptly notified Finra over two years ago when we discovered the oversight and immediately corrected the issue.”
Over the period in which it violated the rule, Schwab used an outside or third-party vendor to provide it with redemption information about securities, including ETNs, according to Finra. Schwab then used the redemption information in the transaction confirmations it sent to customers.
However, for 183 ETNs, the vendor provided inaccurate or incomplete information about redeemable ETNs. For an additional 15 ETNs, Schwab received accurate redemption information from its vendor but inaccurately stated on transaction confirmations to clients that the ETNs were not redeemable, according to Finra.
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