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Latest Financial News


[ 2010-06-04 ]

Investment Bank fined £33.3m for client funds error
London (UK) – 04 June 2010 – The Times - The Financial
Services Authority has fined JP Morgan £33.3 million — its
largest ever financial penalty against a company — for
failing to keep clients’ money in a separate account.

The error went undetected for seven years and, if the bank
had gone bust during that time, clients could have lost
their money. the FSA said.

Banks’ treatment of clients money has been in the spotlight
since the collapse of Lehman Brothers. Thousands of clients,
including many hedge funds, saw their funds trapped in the
failed bank and as a consequence themselves went bust or
suffered severe liquidity problems.

The FSA said yesterday that during the period between
December 2002 and October 2008 JP Morgan client balances
fluctuated between $1.9 billion (£1.3 billion) and $23
billion.

The fine is equivalent to 1 per cent of the average amount
of money that was not properly separated. The penalty was
reduced by 30 per cent from £47.6 million because JP Morgan
“worked constructively” with the regulator during the
investigation.

The fine is being levied against JP Morgan Securities
(JPMSL) over money held in its futures and options business.
The error occured after the merger of JP Morgan and Chase.

The FSA has in the past couple of years stepped up its
pressure on banks, asset managers and stockbrokers over
their treatment of clients’ money.

It has created a special task force to investigate practices
in this area and has written to chief executives of
financial firms and their auditors warning them to be much
more vigilant. Firms are meant to keep clients’ money
separate at all times and maintain legal agreements and
paperwork to a high standard so that they know what clients
funds they are holding at all times. These funds can be in
the form of money or other investments such as securities.

Margaret Cole, FSA director of enforcement and financial
crime, said: “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.”

Sally Dewar, FSA managing director of risk, said: “It is
crucial that firms are compliant with the FSA’s client money
and assets rules. The creation of a specific unit (within
the FSA) means that firms need to raise their game as the
FSA’s focus on this area will continue to intensify.”

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