UK Regulator Slaps JPMorgan With ‘Largest Ever’ Fine

The Financial Services Authority (FSA) in Great Britain yesterday fined JP Morgan Securities (JPM) £33.32m ($48.5m), in what it called the “largest ever” monetary penalty against a financial firm, “for failing to protect client money by segregating it appropriately,” according to a statement by the government regulator. According to the FSA, JPMorgan failed to keep client money in accounts independent of the firm’s own money. Specifically, according to FSA client money rules, the futures and options branch of JP Morgan Chase bank neglected to hold these funds in a segregated, overnight money market account. The oversight originally occurred two years after the merger of JPMorgan and Chase, in 2002. The error remained undetected by government regulators until 2009. “JPM committed a serious breach of our client money rules by failing to segregate billions of dollars of its clients’ money for nearly seven years,” said Margaret Cole, FSA director of enforcement and financial crime. “The penalty reflects the amount of client money involved in this breach.” During this period client money varied between $1.9bn from the beginning of the merger, up to its detection, when it reached $23bn. Had the firm become insolvent at any time during this period, the FSA claims, it would place the client money at risk of loss. Cole said the JP Morgan actions should serve as a warning and that the FSA has several more cases, such as this one, in the pipeline. The FSA recently set up a new unit to investigate financial firms’ handling of client accounts. “Firms need to sit up and take notice of this action,” she said. The FSA added the conduct of JP Morgan was not deliberate, and that no clients lost money as a result of the lack of segregation. JP Morgan cooperated fully in the investigation and in doing so, received a 30% deduction in the fine. The firm worked constructively with the FSA during the course of the investigation, the regulator said, and agreed to settle at an early stage. Write to Jacob Gaffney. The author holds no relevant investments.

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