JP Morgan fined £33m by Financial Services Authority

FSA, levying its largest-ever fine, called on the City to take note of its crackdown on compliance


Simon Bowers
The Guardian.co.uk
3 June 2010


The JP Morgan Chase building in New York City. The UK arm has been fined £33m by the FSA. Photograph: Chris Hondros/Getty Images


JP Morgan has been fined £33m by the Financial Services Authority – the largest-ever fine from the regulator – for basic compliance failures which meant the bank had not protected client money by segregating it from its own funds over a seven-year period.

The fine relates to failure to protect up to $23bn (£15.64m) of client money which was held by JP Morgan's futures and options desk. "Had the firm become insolvent at any time during this period, this client money would have been at risk of loss," the FSA said.

The regulator warned that it had several similar cases in the pipeline and called on the City to sit up and take take notice of its compliance crackdown. It is understood that several blue-chip financial institutions have yet to respond to requests from the FSA to provide assurances on client fund segregation.

"Firms need to raise their game as the FSA's focus on this area will continue to intensify," said Sally Dewar, the FSA's managing director of risk.

The JP Morgan fine comes as administrators to failed Wall Street bank Lehman Brothers find themselves dealing with a mountain of legal actions from large clients who claim the firm illegally "co-mingled" their money with the bank's own funds.

The resulting chaos has been identified as one of the main reasons why the collapse of Lehman in September 2008 sent such powerful shockwaves through the financial system.

Ever since, regulators around the world have been pressuring institutions once regarded as "too big to fail" to get their houses in order, particularly in separating client and bank resources.

It is estimated that assets of more than £50bn owned by London-based firms, predominantly hedge funds, are held by the big investment banks through their broker dealers.

Be afraid?

The FSA, which chancellor George Osborne wants to break up, has been pressuring firms to act on client fund segregation or face draconian consequences. It is part of chief executive Hector Sants's "be afraid" message he set out in a speech a year ago when he said: "There is a view that people are not frightened of the FSA. I can assure you that this is a view I am determined to correct. People should be very frightened of the FSA."

The FSA said compliance failures at JP Morgan Securities Ltd (JPMSL) occurred between November 2002, following the merger of JP Morgan and Chase, and July 2009.

Margaret Cole, FSA director of enforcement and financial crime, said: "JPMSL committed a serious breach of our client money rules by failing to segregate billions of dollars of its clients' money for nearly seven years. The penalty reflects the amount of client money involved in this breach.

"This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules. Firms need to sit up and take notice of this action – we have several more cases in the pipeline."

The JP Morgan fine would have been as high as £48m had the bank not co-operated with the FSA. The fine took into account that misconduct was not deliberate and that the bank acted promptly to resolve the issue.

http://www.guardian.co.uk/business/2010 ... 33m-by-fsa