The British financial watchdog Financial Services Authority has fined J.P. Morgan’s London arm about $49 million for mishandling clients’ funds, the largest penalty ever delt by the FSA. J.P. Morgan was fined for mixing client money with the firm’s own funds.
J.P. Morgan kept together funds worth between $1.9 billion and $23 billion from 2002 to 2009, reports the New York Times. The regulator says the fine is meant to “send out a strong message to firms of all sizes that they must ensure client money is segregated,” and says it has more such cases forthcoming.
Mixing company money with clients’ is a “cardinal sin” according to Reuters’ Breaking Views editor Michael Prest.
“Clients money is not banks money. A golden rule in banking, and high up on the regulators list that you separate, unless the client says otherwise.
“This seems to be more widespread than people think,” says Prest, who says the FSA is investigating upwards of four or five more firms. “The thing here is that for a lot of people, segregating funds was expensive business, and they didn’t care — there was so much money to be made up until 2007, and people were willing to cut corners. They trusted their prime brokers.”
J.P. Morgan qualified for a 30 percent discount on the fine for working with the F.S.A. during the investigation and agreeing to settle at an early stage, the F.S.A. said. The investment bank reported the issue first and no clients suffered losses.