British financial regulator FSA has imposed a record fine of £ 33.32 million pounds on U.S. investment banker JP Morgan Securities for not keeping customers’ money in a separate account as per regulations. The fine is the largest ever in the regulatory body’s history.
The Financial Services Authority (FSA) said in a statement on Thursday that it has fined JP Morgan Securities (JPMSL) £ 33.32 million pounds for failing to protect client money by segregating it appropriately.
Under the FSA’s client money rules, firms are required to keep client money in separate accounts, with trust status, for protecting the customers’ funds in the event of the firm’s insolvency, the statement added.
“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. Despite being one of the largest holders of client money in the UK, JPMSL failed to do so,” FSA director (enforcement and financial crime) Margaret Cole said.
“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,” Ms. Cole added.
However, the FSA has taken into account the misconduct was not deliberate and JPMSL disclosed the situation voluntarily when it came to light and also immediately remedied the situation.
“No clients of JPMSL suffered any losses as a consequence of the segregation error, nor was there any incorrect financial reporting by JPMSL for the period 2001-2008,” the statement added.
Between November 1, 2002, and July 8, 2009, JPMSL had failed to segregate the client money held by its futures and options business (F&O) with JPMorgan Chase Bank NA (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 and the error remained undetected for nearly seven years, it said.
During the period, the client money balance held by the F&O business of JPMSL varied between $ 1.9 billion (in December, 2002) and $ 23 billion (in October, 2008).
The size of the penalty is equivalent to one per cent of the average amount of unsegregated client money held by JPMSL with JPMCB, the statement added.
