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UK Regulator Slaps Record $49 Million Fine on JP Morgan

Thursday, 03 Jun 2010 07:33 AM

 

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J.P. Morgan Securities Ltd. was fined a record 33.32 million pounds ($49 million) on Thursday for mishandling clients' funds, the largest penalty ever handed out by Britain's financial services watchdog.

The Financial Services Authority said the size of the fine should send out a strong message to firms to take more care with clients' money, warning that it has more cases in the pipeline.

The regulator said that J.P. Morgan Securities failed to segregate the client money held by its futures and options business with JPMorgan Chase Bank N.A. for more than six years between November 2002 and July 2009.

Instead of being held overnight in a segregated money market account, J.P. Morgan Securities' client money was mistakenly held in an unsegregated account with JPMorgan Chase.

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 to protect the client funds if the firm goes bankrupt.

"The FSA has repeatedly emphasized the importance of ensuring that client money is adequately protected," said Margaret Cole, the FSA's director of enforcement and financial crime. "Despite being one of the largest holders of client money in the U.K., JPMSL, failed to do so."

"Firms need to sit up and take notice of this action — we have several more cases in the pipeline," she added.

J.P. Morgan's penalty would have been even higher, except it qualified for a 30 percent discount after agreeing to an early settlement with the regulator.

The FSA said the penalty also reflected the amount of client money involved. It is equivalent to 1 percent of the average amount of unsegregated client money held by J.P. Morgan Securities with JPMorgan Chase.

During the period in question, the client money balance held by the futures and options business of J.P. Morgan Securities varied between $1.9 billion and $23 billion. Had the firm become insolvent at any time during this period, that client money could have been lost.

However, the FSA said it also took into account the fact that the misconduct was not deliberate and JP Morgan reported itself to regulators and took immediate action to remedy the situation. No clients suffered any losses and there was no incorrect financial reporting during the 2001-2008 period.

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