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JPM failed to segregate client cash

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The FSA has fined JP Morgan Securities £33.32m for failing to segregate up to £15.6bn of client money properly.

Under FSA rules, businesses are required to keep client money separate from the firm’s money in segregated accounts with trust status.

This helps protect client money in the event of the company’s insolvency.

Between November 1, 2002 and July 8, 2009, JPMSL failed to segregate the client money held by its futures and options business with JP Morgan Chase Bank.

The oversight occurred following the merger of JPMorgan and Chase. Instead of being held overnight in a segregated money market account, JPMSL’s F&O client money was kept in an unsegregated account with JPMCB.

The error remained undetected for almost seven years. During this time, the client money balance held by the F&O business varied bet-ween £1.3bn in December 2002 and £15.6bn in October 08.

The FSA took into account that the misconduct was not deliberate and that the firm reported itself when it discovered the situation. The company worked constructively with the regulator during the investigation and agreed to settle early. In doing so it qualified for a 30 per cent discount.

The FSA has established a new unit to strengthen its capabilities in the area of client money. This consists of teams responsible for specialist supervision, policy, data analysis and risk management.

FSA director of enforcement and financial crime Margaret Cole says: “The FSA has repeatedly emphasised the importance of ensuring 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. We have several more cases in the pipeline.”

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