J.P. Morgan Securities ("JPMS") agreed to pay a $2.8 million fine to settle FINRA charges of violating custody requirements ( Exchange Act Rule 15c3-3) and related supervisory failures.
FINRA determined that between 2008 and 2016, J.P. Morgan Clearing Corp. ("JPMCC," formerly a subsidiary of JPMS) used electronic systems to meet requirements for the possession and control of securities. According to FINRA, JPMCC maintained inadequate systems that experienced substantial design, coding and data issues. The failures of the electronic systems led to JPMCC failing to move customer securities to "good control locations," as required. As a result, on some occasions, securities that should have been segregated were not.
In addition, FINRA alleged that JPMCC did not have an appropriate supervisory system to monitor compliance with its possession and control obligations. FINRA found that JPMCC had inadequate testing procedures and failed to conduct periodic independent reviews of its possession and control processes.
In issuing the fine, FINRA noted JPMCC's remedial actions, which included engaging an independent consultant, conducting a comprehensive review and implementing new control processes.
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