JPMorgan Chase Bank, National Association

FCA action

fines

2

in fines

£359.8m

most recent

November 2014

• Fined £222.17m on 11 November 2014

  The Financial Conduct Authority (the FCA) imposed a financial penalty of £222,166,000 on JPMorgan Chase Bank N.A. (JPMorgan) of 25 Bank Street, Canary Wharf, London,, E14 5JP. The FCA's action took effect on 11 November 2014 and a copy of the Final Notice, which sets out the reasons for the action is displayed on the FCA's website and can be accessed via the following link: http://www.fca.org.uk/static/documents/final-notices/final-notice-jpm.pdf The foreign exchange market (FX market) is one of the largest and most liquid markets in the world. Its integrity is of central importance to the UK and global financial systems. Over a period of five years, JPMorgan failed properly to control its London voice trading operations in the G10 spot FX market, with the result that traders in this part of its business were able to behave in a manner that put JPMorgan's interests ahead of the interests of its clients, other market participants and the wider UK financial system. The FCA expects firms to identify, assess and manage appropriately the risks that their business poses to the markets in which they operate and to preserve market integrity, irrespective of whether or not those markets are regulated. The FCA also expects firms to promote a culture which requires their staff to have regard to the impact of their behaviour on clients, other participants in those markets and the financial markets as a whole. JPMorgan's failure adequately to control its London voice trading operations in the G10 spot FX market is extremely serious. The importance of this market and its widespread use by market participants throughout the financial system means that misconduct relating to it has potentially damaging and far-reaching consequences for the G10 spot FX market and financial markets generally. The failings described in the Final Notice undermine confidence in the UK financial system and put its integrity at risk. JPMorgan breached Principle 3 of the FCA,s Principles for Businesses in the period from 1 January 2008 to 15 October 2013 (the Relevant Period) by failing to take reasonable care to organise and control its affairs responsibly and effectively with adequate risk management systems in relation to G10 spot FX voice trading in London. References in the Final Notice to JPMorgan's G10 spot FX trading business refer to its relevant voice trading desk based in London. During the Relevant Period, JPMorgan did not exercise adequate and effective control over its G10 spot FX trading business. JPMorgan relied primarily upon its front office FX business to identify, assess and manage risks arising in that business. The front office failed adequately to discharge these responsibilities with regard to obvious risks associated with confidentiality, conflicts of interest and trading conduct. The right values and culture were not sufficiently embedded in JPMorgan's G10 spot FX trading business, which resulted in it acting in JPMorgan's own interests as described in the Final Notice without proper regard for the interests of its clients, other market participants or the wider UK financial system. The lack of proper control by JPMorgan over the activities of its G10 ot FX traders in London undermined market integrity and meant that misconduct went undetected for a number of years.JPMorgan's control and risk functions failed to challenge effectively the management of these risks in the G10 spot FX trading business. JPMorgan's failings in this regard allowed the following behaviours to occur in its G10 spot FX trading business: (1) Attempts to manipulate the WMR and the ECB fix rates, alone or in collusion with traders at other firms, for JPMorgan's own benefit and to the potential detriment of certain of its clients and/or other market participants; (2) Attempts to trigger clients' stop loss orders for JPMorgan's own benefit and to the potential detriment of those clients and/or other market participants; and (3) Inappropriate sharing of confidential information with traders at other firms, including specific client identities and, as part of (1) and (2) above, information about clients' orders. These failings occurred in circumstances where certain of those responsible for managing front office matters were aware of and/or at times involved in behaviours described above. They also occurred despite the fact that risks around confidentiality were highlighted when, in March 2012, London FX front office requested guidance from JPMorgan Compliance regarding information sharing with other banks ahead of fixes. JPMorgan was aware during the Relevant Period of misconduct associated with LIBOR / EURIBOR, which was identified in well-publicised Final Notices issued against other firms from June 2012 onwards. JPMorgan was not subject to enforcement action by the FCA for LIBOR / EURIBOR misconduct during the Relevant Period. It nonetheless engaged in a remediation programme across its businesses in response to these Notices. This included policy enhancements regarding submissions-based benchmarks. Despite these improvements, the steps taken during the Relevant Period in its G10 spot FX business did not adequately address the root causes that gave rise to failings described in the Final Notice. The FCA acknowledges the significant co-operation and assistance provided by JPMorgan during the course of its investigation. JPMorgan is continuing to undertake remedial action and has committed significant resources to improving the business practices and associated controls relating to its FX operations. The FCA recognises the work already undertaken by JPMorgan in this regard. The Final Notice relates solely to JPMorgan's conduct in its G10 spot FX trading business in London. It makes no criticism of any entities other than the firms engaged in misconduct as described in the Final Notice.

• Fined £137.61m on 25 September 2013

  On 18 September 2013 the FCA imposed a financial penalty of £137,610,000 on JPMorgan Chase Bank N.A. (the Firm) for breaches of Principles 2, 3, 5 and 11 of the FCA's Principles for Businesses. The breaches concerned failures related to trading losses in the Firm's Synthetic Credit Portfolio (SCP), a trading portfolio housed within the Firm's Chief Investment Office (CIO) in London. The Firm agreed to settle at an early stage of the FCA's investigation. The Firm therefore qualified for a 30% (stage 1) discount under the FCA's executive settlement procedures. Were it not for this discount, the FCA would have imposed a financial penalty of £196,586,000 on the Firm. The Firm breached Principle 2 by virtue of: (a) the Firm's failure to manage appropriately the trading strategy for the SCP (in the first quarter of 2012); (b) the Firm's inadequate response to the indicators of increasing risk in the SCP (in the first quarter of 2012); (c) the Firm's failure to price certain positions held in the SCP accurately and failure to prevent or detect mismarking in a timely manner (in the first quarter of 2012); and (d) weaknesses in assessing the reliability of the valuation of the SCP (in late April and early May 2012. The Firm breached Principle 3 by failing to ensure its marking and valuation processes were effective which contributed to the escalating losses on the SCP not being discovered sooner and led the Firm to restate its first quarter net income in 2012. Certain of the flaws in the valuation process were present from the start of 2007, others arose in 2011 and further flaws existed in 2012. The Firm also breached Principle 3 by virtue of its flawed approach to the measurement of risk within the SCP (from January 2012). The Firm breached Principle 5 by its failure to observe proper standards of market conduct through trading carried out on 29 February 2012. The Firm breached Principle 11 by failing to deal with the Authority in an open and co-operative way between January and 2 July 2012. A copy of the Final Notice which sets out the reasons for the action is displayed on the FCA's website and can be accessed.