JP Morgan Securities Fined $49 Million

UK Says Firm Failed to Properly Protect Client Funds
JP Morgan Securities Fined $49 Million
In what is being called the largest fine ever imposed on a financial services firm in the UK, the Financial Services Authority (FSA) has fined JP Morgan Securities Ltd (JPMSL) $49 million for failing to protect client money by segregating it appropriately. The FSA is the UK government's financial services industry regulatory agency.

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.

'Serious Breach'

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.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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