Charles Schwab 2015 Annual Report Download - page 30

THE CHARLES SCHWAB CORPORATION
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in short-term interest rates, and decreases in securities valuations negatively impact the Company’s results of operations and
capital resources.
Extensive regulation of the Company’s businesses affects the Company’s activities and may subject it to significant
penalties.
As a participant in the securities, banking and financial services industries, the Company is subject to extensive regulation
under both federal and state laws by governmental agencies, supervisory authorities and SROs. Such regulation continues to
grow more extensive and complex, the costs and uncertainty related to complying with such regulations continue to increase,
and regulatory proceedings continue to become more frequent and sanctions more severe. The requirements imposed by the
Company’s regulators are designed to ensure the integrity of the financial markets, the safety and soundness of financial
institutions and the protection of clients. These regulations affect the Company’s business operations and impose capital,
client protection and market conduct requirements.
In addition to specific banking laws and regulations, the Company’s banking regulators have broad discretion in connection
with their supervisory and enforcement activities and examination policies and could require CSC and/or Schwab Bank to
hold more capital, increase liquidity or limit their ability to pay dividends or CSC’s ability to repurchase shares. The banking
regulators could also limit the Company’s ability to grow, including adding assets, launching new products, and undertaking
strategic investments, could limit Schwab Bank’s ability to accept deposits swept from the client brokerage accounts and
could prevent the Company from pursuing its business strategy.
Despite the Company’s efforts to comply with applicable legal requirements, there are a number of risks, particularly in areas
where applicable laws or regulations may be unclear or where regulators could revise their previous guidance. Any
enforcement actions or other proceedings brought by the Company’s regulators against the Company or its affiliates, officers
or employees could result in fines, penalties, cease and desist orders, enforcement actions, suspension or expulsion, or other
disciplinary sanctions, including limitations on the Company’s business activities, any of which could harm the Company’s
reputation and adversely affect the Company’s results of operations and financial condition.
While the Company maintains systems and procedures designed to ensure that it complies with applicable laws and
regulations, violations could occur. In addition, some legal/regulatory frameworks provide for the imposition of fines or
penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though systems and
procedures reasonably designed to prevent violations were in place at the time. There may be other negative consequences
resulting from a finding of noncompliance, including restrictions on certain activities. Such a finding may also damage the
Company’s reputation and its relationships with its regulators and could restrict the ability of institutional investment
managers to invest in the Company’s securities.
Legislation or changes in rules and regulations could negatively affect the Company’s business and financial results.
New legislation, rules, regulations and guidance, or changes in the interpretation or enforcement of existing federal, state and
SRO rules, regulations and guidance, including changes relating to mutual funds, broker-dealer fiduciary duties and
regulatory treatment of deposit accounts may directly affect the operation and profitability of the Company or its specific
business lines. The profitability of the Company could also be affected by rules and regulations that impact the business and
financial communities generally, including changes to the laws governing taxation, electronic commerce, client privacy and
security of client data. In addition, the rules and regulations could result in limitations on the lines of business the Company
conducts, modifications to the Company’s business practices, increased capital requirements or additional costs.
Financial reforms and related regulations may affect the Company’s business activities, financial position and
profitability.
There have been extensive changes to the laws regulating financial services firms as a result of the enactment of Dodd-Frank
and the adoption by the federal banking agencies of regulations implementing Dodd-Frank and other reforms such as Basel
III. Among the changes that are most likely to impact the Company’s business and financial results are: increased capital,
liquidity and reporting requirements; increased deposit insurance assessments; the establishment of the CFPB, which has
broad rulemaking, supervisory and enforcement authority over consumer financial products; the requirement for Schwab
Bank (and CSC starting in 2017) to conduct annual capital adequacy stress tests; and discretion given to the SEC to adopt