J.P. Morgan Securities’ disclosure failures and poor WSPs cost it a $1.1 million FINRA fine
The written supervisory failure discussed in this blog was not a first-time event for J.P. Morgan Securities LLC. This week the Financial Industry Regulatory Authority (FINRA) announced it had censured and fined J.P. Morgan Securities $1.1 million for failing to disclose 89 internal reviews or allegations of misconduct by registered reps and associates over a six-year-period. In 2009, FINRA censured and fined a predecessor firm Chase Investment Services Corp. $150K for failing to make 118 regulatory disclosures of the same.
Is a lack of written supervisory procedures worth $1.1 million?
Of course not. Nonetheless, from January 2012 to April 2018, J.P. Morgan Securities failed to disclose at all, or failed to disclose in a timely fashion, 89 internal issues with registered reps and associates that included misappropriation of customer and company funds, borrowing from customers, forging or falsifying documents, unauthorized trades, unsuitable recommendations and other suspicious activity.
Moreover, when it did file, J.P. Morgan Securities filed the required information with FINRA, on average, more than two years late. This delay prevented or slowed FINRA and other regulators, member firms, and the public from learning about these allegations. The delays also prevented FINRA from pursuing potential disciplinary actions against 30 former J.P. Morgan Securities’ over whom FINRA’s jurisdiction had expired prior to the disclosure. Thirty-six of the registered representatives had left J.P. Morgan Securities for other FINRA member firms also before the required information was disclosed.
According to Susan Schroeder, executive vice president of FINRA’s Department of Enforcement, the lack of disclosure represented a failure by J.P. Morgan Securities in its “responsibility to their fellow member firms, to FINRA and other regulators, and the investing public to disclose allegations of serious misconduct.”
These failures, noted FINRA, primarily resulted from the firm’s failure to establish and maintain reasonably designed written supervisory procedures and supervisory systems to identify all instances when Form U5 disclosures were necessary.
Does it matter if RIA separations are voluntary or involuntary?
It does if one of the termination issues was the result of an allegation or internal review.
The firm’s disclosure failures, according to the FINRA filing, resulted primarily from J.P. Morgan Securities’ failure to establish and maintain reasonable supervisory systems and written supervisory procedures. Instead, FINRA found that during the period in question, the firm’s Registration Group was responsible for making Form U5 filings. J.P. Morgan Securities’ team regularly notified the group of the registered representative’s termination if the termination was “involuntary” or if the rep had been “permitted to resign.” However, there were no written supervisory procedures to adequately notify the Registration Group that a rep had “voluntarily resigned but was the subject of an internal review or allegation; or was the subject of an internal review that began following the rep’s termination.
In addition to the $1.1 million fine and the censure, J.P. Morgan Securities will also certify in writing that it has implemented supervisory systems and written supervisory procedures to address these errors in question.
Who is watching your WSPs?
J.P. Morgan Securities now has FINRA overseers. What about you? Who is watching your watchers? That’s where Patrina comes in. We’ve built our business based on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective and comprehensive 8-module compliance solution, and compliant data capture & file storage, records archiving, and designated third-party services specifically designed for the financial services community. Be smart. Be covered.