JPMorgan faces first sanctions
Regulators also ordered the bank to fix breakdowns in anti-money-laundering controls that threatened to allow tainted money to move through its network. The cease-and-desist orders from the Office of the Comptroller of the Currency and the Federal Reserve came as JPMorgan, Britain's largest bank, was poised to report earnings on Wednesday and potentially issue its own report on the debacle.
The regulators identified deficiencies in several layers of the bank, such as flaws in assessing potential losses from complex trades and failures by executives to fully inform the company's board about the increasingly risky wagers.
The chief investment office was making large bets on credit derivatives from its London offices. In its order, the comptroller said the unit was "able to increase its positions, risk and, ultimately, losses, without sufficiently effective intervention by the bank's control groups".
The trading loss, now estimated at more than $US6 billion, was first disclosed in May 2012 and cost several senior executives their jobs. Neither of Monday's orders require JPMorgan to pay a fine and it did not admit or deny wrongdoing.
Frequently Asked Questions about this Article…
US banking regulators issued two enforcement actions — cease-and-desist orders — against JPMorgan Chase for failures in risk management tied to a multibillion-dollar trading loss. The orders came from the Office of the Comptroller of the Currency (OCC) and the Federal Reserve.
Regulators found multiple deficiencies: flaws in assessing potential losses from complex trades, failures by executives to fully inform the company's board about growing risky wagers, and control groups not intervening when positions and risk increased. They also flagged breakdowns in anti-money-laundering controls.
The trading loss has been estimated at more than US$6 billion. It was first disclosed in May 2012 and led to several senior executives losing their jobs.
The orders were issued by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve.
No. Neither of the orders required JPMorgan to pay a fine, and the bank did not admit or deny any wrongdoing in relation to the orders.
According to the regulators' order, the chief investment office in London was making large bets on credit derivatives and was able to increase positions, risk and ultimately losses without sufficiently effective intervention by the bank’s control groups.
Regulators ordered the bank to fix breakdowns in its anti-money-laundering controls, warning that those failures threatened to allow tainted money to move through JPMorgan’s network.
Everyday investors should note that the sanctions highlight weaknesses in risk management and corporate oversight that damaged the bank’s reputation and put its trading operations under scrutiny. The orders require corrective action, and investors may want to watch for the bank’s follow-up reports and any impact on earnings or governance changes.
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