JP Morgan Securities LLC (JPMS), a broker-dealer subsidiary of JPMorgan Chase & Co has been fined a total of $200 million by Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for violating bookkeeping laws.
JP Morgan Securities LLC (JPMS) has been fined a total of $200 million by two US banking regulators for the long-standing failures on the maintenance and preservation of communication documents.
The Securities and Exchange Commission (SEC) charged JPMS with $125 million, followed by the Commodity Futures Trading Commission (CFTC), with $75 million, making the total fines to $200 million.
"The firm's actions meaningfully impacted the SEC's ability to investigate potential violations of the Federal Securities laws," SEC said.
Gary Gensler, chairman of SEC said that since the 1930s, recordkeeping and books-and-records obligations have been an essential part of market integrity and a foundational component of the SEC’s ability to be an effective cop on the beat. “As technology changes, it’s even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight,” he said.
In the past, SEC has seen violations in the financial markets that were committed using unofficial communication channels, such as the foreign exchange scandal of 2013. “Books-and-records obligations help SEC conduct its important examination and enforcement work. They build trust in our system. Ultimately, everybody should play by the same rules, and today’s charges signal that we will continue to hold market participants accountable for violating our time-tested recordkeeping requirements,” SEC said.
JPMS admitted the facts presented by SEC and acknowledged that its conduct violated the Federal Securities laws and agreed to pay the penalty. It will implement robust improvements to its policies and improve the investing procedures to settle the matter.
The latest investigation is a sign of an ongoing battle between regulators, banks, and employees over the use of personal devices. Utilising personal and unofficial channels became critical when most of the Wall Street was working remotely during the COVID pandemic. The phone conversations and messages on official company devices and software platforms are preserved. It can be quite difficult for bank compliance departments to monitor communications on third-party applications.
JPMorgan utilised personal emails, text, and WhatsApp to discuss the bank business
JPMS admitted that from January 2018 through November 2020, its employees often communicated business deals over WhatsApp, text messages and personal email accounts. None of these records was preserved by JPMS.
JPMS further admitted that these failures were firm-wide. The supervisors including managing directors and other senior management staff who are responsible for implementing and ensuring compliance with Federal Laws also used their devices and email IDs to communicate with clients. JPMS received a summons for documents and voluntary requests from SEC in numerous investigations.
In response to the summons, JPMS acknowledged that its recordkeeping failures have prevented SEC from taking the necessary measures. It didn’t offer timely access to evidence and potential sources of information. JPMS didn’t search for relevant records on the personal devices of its employees. The company has impacted the SEC’s ability to investigate to determine the violation of the Federal Security laws.
Gurbir S. Grewal, director of division of enforcement at SEC said, “Recordkeeping requirements are core to the commission’s enforcement and examination programmes. When firms fail to comply with them, as JPMorgan did, they directly undermine our ability to protect investors and preserve market integrity”.
He added, “We encourage registrants to not only scrutinise their document preservation processes and self-report failures such as those outlined in the action before we identify them, but to also consider the types of policies and procedures JPMorgan implemented to redress its failures in this case”.
Sanjay Wadhwa, deputy director of division of enforcement at SEC said, “Today’s order reflects JPMorgan’s failures hindered several commission investigations and required the staff to take additional steps that should not have been necessary”.
“This settlement reflects the seriousness of these violations. Firms must share the mission of investor protection rather than inhibit it with incomplete recordkeeping,” he added.
SEC orders probe on other financial institutions
The penalty is one of the first major enforcement actions imposed by Gensler. SEC has announced similar inquiries across different financial institutions, as a result of the violations made by JPMS. The organisations such as JPMorgan ordered its traders, bankers and financial advisors to preserve and store bank-related messages on personal devices.