In a snafu that spanned seven years up until July 2009, J.P. Morgan Securities inadvertently kept client money held by its futures and options business with JP Morgan Chase Bank funds.
Under FSA rules, firms are required to keep their clients' money separate from the company's via segregated trust accounts. That rule was designed to protect clients' money should their institution fail and, in this particular case, billions of dollars were at stake.
FSA's director of enforcement and financial crime, Margaret Cole, had this to say:
"JPMSL [J.P. Morgan Securities] committed a serious breach of our client money rules by failing to segregate billions of dollars of its clients' money for nearly seven years. 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, JPMSL failed to do so. 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."
J.P. Morgan Securities discovered and reported the error to the FSA after learning money belonging to its futures and options clients had been held in an unsegregated account with JPMorgan Chase Bank. The error arose following the JPMorgan and Chase merger. During the seven year stretch that began in December 2002, the clients' balance varied between $1.9 billion and $23 billion, according to the FSA.
The FSA noted that J.P. Morgan immediately fixed the problem after its discovery, and none of its clients sustained a loss as a result of the error. Nonetheless, this revelation isn't likely to sit well with clients, some of whom have already given the firm's parent, J.P. Morgan Chase (JPM), a thumbs down since its acquisition of Washington Mutual, at one time the biggest savings and loan in the U.S.