Regulation  

London whale lands JPMorgan a £137.6m fine

According to a statement from the City watchdog, JPMorgan’s conduct “demonstrated flaws permeating all levels of the firm”, from portfolio level right up to senior management.

The FCA said this resulted in four breaches of its principles for business - Principles 2, 3, 5 and 11 - which are the fundamental obligations firms have under the regulatory system.

Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “When the scale of the problems at JPMorgan became apparent, it sent a shock-wave through the markets. Maintaining the integrity of markets is a key part of our wholesale conduct agenda. We consider JPMorgan’s failings to be extremely serious such as to undermine the trust and confidence in UK financial markets.”

Although she cited a serious failing among senior management, the FCA has not issued any enforcement action against individuals.

The breaches occurred in connection with the $6.2bn trading losses sustained by CIO in 2012. These losses arose as a result of what became known as the “London Whale” trades, and were caused by a high risk trading strategy, weak management of that trading and an inadequate response to important information which should have notified the firm of the huge risks present in the CIO’s Synthetic Credit Portfolio.

The FCA notice said that JPMorgan agreed to settle at an early stage of the FCA’s investigation, which was conducted in partnerhsip with the US Securities and Exchange Commission, as well as other US authorities.

Because it agreed to settle early, JPMorgan qualified for a 30 per cent discount under the FCA’s settlement discount scheme. Without the discount the fine would have been £196,586,000.

However, the US regulators have also moved to issue their own fines. According to the FCA, JPMorgan also agreed to settle actions brought by the SEC, which imposed a financial penalty of $200m. The SEC also required the firm to admit wrongdoing.

The US Office of the Comptroller of the Currency imposed a financial penalty of $300m and the Federal Reserve, which imposed a financial penalty of $200m.