The UK Financial Services Authority (FSA) has fined J.P. Morgan Securities 33.32 million for failing to segregate client money from the bank’s own funds, making the penalty the largest ever issued from the FSA. The second largest occurred in 2004, when the FSA fined Shell 17 million for market abuse.
For seven years, between 2002 and 2009, J.P. Morgan failed to segregate client money in its futures and options business. According to FSA rules, firms are required to keep client money separate from the firm’s money in segregated accounts with trust status, in case of insolvency.
The error stemmed from the merger of J.P. Morgan and Chase Bank in 2000. From December 2002 to July 2009, instead of being held overnight in a segregated money market account, client money ranging between $1.9 billion to $23 billion was held unsegregated in the F&O business.
Margaret Cole, FSA director of enforcement and financial crime, said: JPMSL [J.P. Morgan Securities Ltd] 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 has repeatedly emphasised the importance of ensuring that client money is adequately protected. Despite being one of the largest holders of client money in the UK, JPMSL failed to do so. 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 original fine was 47.6 million; however J.P. Morgan received a 30% discount for revealing the error.