The Financial Conduct Authority has fined JP Morgan International Bank more than £3m for systems and controls failings relating to its provision of retail investment advice and portfolio investment services.
According to the regulator, failings included:
• out-of-date client files lacking important suitability information;
• the use of an insufficient computer-based record system;
• use of suitability reports which did not adequately detail clients’ demands and needs, or explain why an investment was suitable or outline any potential disadvantages;
• client communications confirming suitability profiles were not always sent to the client, in breach of the company’s own internal policies.
The failings persisted for two years and were not corrected until the FCA brought them to the firm’s attention in the course of its thematic review into wealth management firms and the suitability of their advice.
According to the regulator, JPMorgan senior management did not have sufficient information and oversight tools during this period to identify and address these deficiencies.
Although no detriment to customers has been identified, the failings exposed customers to the risk that they would be given incorrect advice and inappropriate investments, the FCA said.
In addition, JPMorgan did not ensure that there was adequate risk and compliance monitoring and oversight of its business. While some issues were identified by monitoring, they were not adequately addressed until after February 2012.
After the FCA identified potential failings at the firm, it instructed it to appoint a skilled person to conduct an assessment of the adequacy and effectiveness of the systems and controls.
JPMorgan subsequently took prompt action to resolve the issues identified and improve its systems, including carrying out the recommendations of the report. It also undertook a significant overhaul of its suitability processes.
Tracey McDermott, director of enforcement and financial crime, said: “No matter who they are, customers of wealth managers should be able to expect the firm to keep complete, up to date client records so that they can give the right advice. In this case the firm did not have complete records, nor did its management have the information they needed to recognize this.
“Firms which fail to keep the right records expose their clients to the risk of inappropriate investments and have no way of checking whether their advice has been appropriate.”
A spokesperson for JP Morgan said: “We have fully cooperated with the FCA and have enhanced our procedures to ensure that they are compliant with regulatory requirements. As the FCA has noted in its press release, there has been no detriment to customers identified to date.”
