J.P. Morgan Failed to Report Internal Probes of Registered Reps—Regulator
Sometimes even financial industry giants fail to have routine compliance procedures in place.
The Financial Industry Regulatory Authority on Monday fined J.P. Morgan Securities $1.1 million for failing to timely file or update 89 Form U5 dismissal notices on registered reps who escaped perusal because they voluntarily resigned or were investigated after termination.
The disclosure lapses occurred over more than six years, with most involving reps who were employed by the broker-dealer’s affiliate bank, according to a letter of acceptance, waiver and consent that J.P. Morgan signed without admitting or denying the findings.
Finra attributed the reporting lapses primarily to a supervisory system that alerted officials responsible for U5 filings only when terminations were labeled “involuntary” or when a rep was “permitted to resign,” according to the settlement document. Voluntary terminations were processed by an operations group different from the one with registration responsibilities.
J.P. Morgan Securities’ reporting failures deprived regulators, other brokerage firms and the public of information that included allegations of serious misconduct, according to the consent letter. Thirteen involved reps who were under internal review or otherwise accused of stealing from bank customers, and five involved allegations or reviews of misappropriating bank funds.
Three dozen registered reps joined other firms before J.P. Morgan disclosed required information, according to Finra.
“Firms must live up to their responsibility as a gatekeeper and disclose allegations in a timely, accurate and complete manner,” Susan Schroeder, executive vice president of Finra’s department of enforcement, said in a prepared statement. “This disclosure responsibility is essential to providing transparency and maintaining the integrity of our industry.”
J.P. Morgan Securities disclosed relevant U5 data in 66 of the 88 cited cases only after being contacted by Finra and was, on average, more than two years late with the filings, according to the consent letter.
“We’re pleased to put this matter behind us,” a J.P. Morgan Securities spokeswoman said. “We’ve since made a number of improvements to our controls and procedures to comply with reporting requirements.”
Chase Investment Services Corp.— a J.P. Morgan Securities predecessor firm—in 2009 paid Finra $150,000 for failing to make 118 required Form U5 disclosures, the consent letter said.