JP Morgan Securities Fined $49 MillionUK Says Firm Failed to Properly Protect Client Funds
Under the FSA's client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. This helps to protect client money in the event of the firm's insolvency.
Over a seven-year period between November 2002 and July 2009, the FSA charges that JPMSL failed to segregate the client money held by its futures and options business (F&O) with JPMorgan Chase Bank N.A (JPMCB). The error occurred following the merger of JPMorgan and Chase. Instead of being held overnight in a segregated money market account, JPMSL's F&O client money was held in an unsegregated account with JPMCB.
During this period, the client money balance held by the F&O business of JPMSL varied between $1.9 billion up to $23 billion. Had the firm become insolvent during the seven years, the client money would have been at risk of loss.
Margaret Cole, FSA director of enforcement and financial crime, says in the FSA's statement on the record fine, "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."
The FSA says 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," warns Cole.
Once the FSA pointed out the firm's misconduct, the firm immediately fixed the error.
The fine imposed on JPMorgan is equal to about 1 percent of the average amount of unsegregated client money held by the firm. It agreed to an early settlement and received a 30 percent discount on its penalty. This enforcement comes after the FSA established a new unit to better oversee the area of client money and assets. The unit is made up of teams responsible for specialist supervision, policy, data analysis and risk management.