Record FSA fine for JP Morgan
JP Morgan Securities has been slapped with a record £33.32 million fine from the City watchdog for failing to protect billions of dollars of client money over a six-and-a-half year period.
The accidental breach occurred following the merger of JPMorgan and Chase. Instead of being held overnight in a segregated money market account, the client money was kept in an unsegregated account with JPMorgan Chase Bank.
During the seven year period in which the error went undetected, the amount of client cash varied between $1.9 billion in December 2002 and $23 billion in October 2008.
Under FSA rules, firms must keep client money separate from the firm's money in segregated accounts with trust status. Had JP Morgan Securities become insolvent at any time during this period, this client money would have been at risk of loss.
Margaret Cole, FSA director of enforcement and financial crime, said: "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, JP Morgan Securities failed to do this. Firms need to sit up and take notice of this action - we have several more cases in the pipeline."
JP Morgan Securities qualified for a 30% discount for settling early. None of its clients suffered any losses as a result of the segregation error, nor was there any incorrect financial reporting for the period 2001-2008.
A type of derivative often lumped together with options, but slightly different. The original derivative was a future used by farmers to set the price of their produce in advance before they sowed the seeds so that after the harvest, crops would be sold at the pre-agreed price no matter what the movements of the market. So a future is a contract to buy or sell a fixed quantity of a particular commodity, currency or security (share, bond) for delivery at a fixed date in the future for a fixed price. At the end of a futures contract, the holder is obliged to pay or receive the difference between the price set in the contract and the market price on the expiry date, which can generate massive profits or vast losses.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.