Charles Schwab 2010 Annual Report Download - page 25

THE CHARLES SCHWAB CORPORATION
establishment of minimum leverage and risk-based capital requirements for insured depository institutions, and requires the SEC to
complete studies and develop rules regarding various investor protection issues.
The legislation also establishes a new independent Consumer Financial Protection Bureau, which will have broad rulemaking,
supervisory and enforcement authority over consumer products, including mortgages, home-equity loans and credit cards. States will
be permitted to adopt stricter consumer protection laws and state attorney generals can enforce consumer protection rules issued by
the Bureau.
The legislation gives the SEC discretion to adopt rules regarding standards of conduct for broker-dealers providing investment advice
to retail customers. The various studies required by the legislation could result in additional rulemaking or legislative action, which
could impact our business and financial results.
The changes resulting from the legislation may impact the profitability of the Company’s business activities, require changes to
certain of its business practices, impose upon the Company more stringent capital, liquidity and leverage ratio requirements or
otherwise adversely affect the Company’s business. These changes may also require the Company to invest significant management
attention and resources to evaluate and make necessary changes.
The Company’s industry is characterized by aggressive price competition.
The Company continually monitors its pricing in relation to competitors and periodically adjusts trade commission rates, interest rates
on deposits and loans, fees for advisory services, and other fee structures to enhance its competitive position. Increased price
competition from other financial services firms, such as reduced commissions to attract trading volume or higher deposit rates to
attract client cash balances, could impact the Company’s results of operations and financial condition.
The industry in which the Company competes has undergone a period of consolidation.
The Company faces intense competition for the clients that it serves and the products and services it offers. There has been significant
consolidation as financial institutions with which the Company competes have been acquired by or merged into or acquired other
firms. This consolidation may continue. Competition is based on many factors, including the range of products and services offered,
pricing, customer service, brand recognition, reputation, and perceived financial strength. Consolidations may enable other firms to
offer a broader range of products and services than the Company does, or offer such products at more competitive prices.
The Company faces competition in hiring and retaining qualified employees, especially for employees who are key to the
Company’s ability to build and enhance client relationships.
The market for quality professionals and other personnel in the Company’s business is highly competitive. Competition is particularly
strong for financial consultants who build and sustain the Company’s client relationships. The Company’s ability to continue to
compete effectively will depend upon its ability to attract new employees and retain existing employees while managing
compensation costs.
Technology and operational failures could subject the Company to losses, litigation, and regulatory actions.
The Company faces technology and operating risk which is the potential for loss due to deficiencies in control processes or
technology systems of the Company, its vendors or its outsourced service providers that constrain the Company’s ability to gather,
process, and communicate information and process client transactions efficiently and securely, without interruptions. This risk also
includes the risk of human error, employee misconduct, external fraud, computer viruses, distributed denial of service attacks,
terrorist attacks, and natural disaster. It could take several hours or more to restore full functionality in the event of an unforeseen
event which could affect the Company’s ability to process and settle client transactions. Extraordinary trading volumes could cause
the Company’s computer systems to operate at an unacceptably slow speed or even fail. The Company’s business and operations
could be negatively impacted by any significant technology and operational failures. Moreover, instances of fraud or other
misconduct, including improper use or disclosure of confidential client, employee, or company information, might also negatively
impact the Company’s reputation and client confidence in the Company, in addition to any direct losses that might result from such
instances. Despite the Company’s efforts to identify areas of risk,
-10 -