The Financial Conduct Authority has fined JP Morgan International Bank £3.1m over suitability failings related to its retail investment advice and portfolio investment services.
Between January 2010 and February 2012, JP Morgan’s wealth management arm had around 3,000 clients, including high-net-worth individuals and sophisticated investors.
A skilled person’s report, ordered by the regulator, found there were “significant gaps in suitability information” in 22 out of 25 client cases reviewed.
The FCA found JP Morgan did not ensure front office staff recorded sufficient know your customer and suitability information from clients.
Client files often did not record or keep up-to-date suitability information such as clients’ objectives, investment experience or capacity for loss. JP Morgan also failed to record whether non-discretionary transactions were advised or execution-only.
Suitability reports failed to explain why investments were appropriate for clients or explain their disadvantages.
Missing documents from client files included initial client interview forms, due diligence reports and suitability letters. As at January 2012, there were 525 suitability letters and 44 other mandatory documents missing from client files.
JP Morgan is now carrying out a past business review. So far, of the 1,416 client cases reviewed, it has only found one case where advice was unsuitable.
The regulator sent a Dear CEO letter to wealth management firms in June 2011 after a thematic review found 14 of 16 firms posed a high or medium risk of consumer detriment. Following the review, Ashcourt Rowan was fined £412,000 by the FSA in November.
Aurora Financial Planning chartered financial planner Aj Somal says: “This case shows it is not good enough for advisers to simply know their clients. If suitability checks are not recorded, as far the FCA is concerned, they did not happen.”