46 added · 21 removed between the two most recent 10-Ks. The risks a company starts — or stops — disclosing are often the story.
Newly disclosed
Through our clients’ accounts, fraudsters may seek to engage in unauthorized securities transactions or money movement involving, for example, wire transfers, automated clearinghouse (ACH) transactions, debit cards, and checks, as well as fraudulent or unauthorized new account openings.
Increasing sophistication in artificial intelligence and broad public availability of such technologies, including to organizations and individuals seeking to commit fraud, has resulted in increased risk of external fraud by enhanced or novel techniques, including those involving impersonation to gain access to client accounts or convince clients to initiate fraudulent transactions.
Failure or breach of our or third-party service providers’ systems, cybersecurity controls, or operational processes could result in loss of client digital assets, which may not be recoverable in full or at all.
When these outflows outpace excess cash on hand and cash generated by maturities and paydowns on our investment and loan portfolios, as we experienced in 2022 and 2023, we may need to rely on increased levels of higher-cost funding, which could be subject to limitations on availability and additional regulatory requirements.
Litigation and arbitration claims include those brought by our clients and the clients of third-party advisors whose assets are custodied with us.
In 2026, the Company anticipates it will begin offering expanded client access to trading in digital assets including spot trading in select cryptocurrencies.
The risk of fraud for financial institutions has significantly increased in recent years, in part because of the proliferation of new technologies and the increased sophistication and activities of organized crime and hackers, and other parties.
Any of these parties may attempt to fraudulently induce employees, clients, vendors, or other third parties to disclose sensitive information that could lead to the misappropriation and use of clients’ user names, passwords or other personal information to gain access to our clients’ financial accounts.
In some instances, clients may knowingly authorize or initiate transactions under false pretenses, misuse payment channels, submit fraudulent checks or ACH items, or provide misleading information to facilitate fraudulent transfers or trading activity.
Such insider misconduct may involve misappropriation of Company or client assets, misuse or theft of Company or client information, insider trading, operational sabotage, circumvention of internal controls, or other actions that could harm the Company or our clients.
We continue to take steps to implement new controls, strengthen capabilities in how we authenticate our clients, and enhance monitoring protocols to help prevent and detect fraud and ultimately protect our clients, but the ways that fraudulent activity is attempted are continuously evolving.
Our margin, options and futures business has materially increased in recent years as a result of market-driven factors and overall growth of our business including growth in our trader client base, and market liquidity represents an increased risk.
No longer disclosed
We are also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. - 18 - THE CHARLES SCHWAB CORPORATION Litigation and arbitration claims include those brought by our clients and the clients of third-party advisors whose assets are custodied with us.
In recent years, the SEC has proposed a number of new rules, such as its equity market structure proposals, that would require sweeping changes in industry operations and practices, thereby increasing uncertainty for markets and investors.
Our margin, options and futures business has materially increased in recent years as a result of our Ameritrade acquisition, and market liquidity represents an increased risk.
We are subject to litigation and regulatory investigations and proceedings and may not be successful in defending against claims or proceedings.
Though the Company may benefit from a rising interest rate environment, a rise in interest rates may cause our funding costs to increase if market conditions or the competitive environment induces us to raise our interest rates to avoid losing deposits, or replace deposits with higher-cost funding sources without offsetting increases in yields on interest-earning assets, which can reduce the benefit of higher market interest rates to our net interest revenue, as we experienced in recent years.
When these outflows outpace excess cash on hand and cash generated by maturities and paydowns on our investment and loan portfolios, as they have in recent years, we may need to rely on supplemental funding, such as advances under Federal Home Loan Bank (FHLB) secured credit facilities, borrowings under repurchase agreements with external financial institutions, issuances of brokered certificates of deposit (CDs), or other sources of funding, which have higher costs and could be subject to limitations on availability.
Instances of fraud might negatively impact our reputation and client confidence in the Company, in addition to any direct losses that might result from such instances. - 15 - THE CHARLES SCHWAB CORPORATION Our investment management operations may subject us to fiduciary or other legal liability for client losses.
Such a finding may also damage our reputation and our relationships with our regulators and could restrict the ability of institutional investment managers to invest in our securities. - 17 - THE CHARLES SCHWAB CORPORATION Legislation or changes in rules and regulations could negatively affect our business and financial results.
In addition, the FDIC recently proposed amending the brokered deposits framework setting forth its conditions for when broker-dealers, such as CS&Co, that place deposits with depository institutions through brokerage sweep arrangements qualify for the primary purpose exception from the definition of a deposit broker.
The U.S. federal banking agencies have recently proposed rules regarding regulatory capital and long-term debt, and compliance with these proposed rules may result in increased costs and reduce our net income.
We also face risk related to external fraud involving the misappropriation and use of clients’ user names, passwords or other personal information to gain access to our clients’ financial accounts.
In addition, to access new FHLB advances or roll over existing advances, our banking subsidiaries must maintain positive tangible capital, as defined by the Federal Housing Finance Agency (FHFA).