The Financial Industry Regulatory Authority fined J.P. Morgan Securities $1.25 million for failing to conduct timely or adequate background checks on approximately 8,600—or 95 percent—of its non-registered employees.
Federal securities laws require broker-dealers to fingerprint employees “working in a non-registered capacity who may present a risk to customers based on their positions,” FINRA stated. “Fingerprinting helps firms identify if a person has been convicted of crimes that would disqualify them from being associated with a firm, absent explicit regulatory approval. Federal banking laws require banks to conduct similar checks on banking employees using a more limited list of disqualifying events.”
FINRA found that from January 2009 through May 2017, J.P. Morgan did not fingerprint approximately 2,000 of its non-registered employees in a timely manner, preventing the firm from determining whether those employees might be disqualified from working at the firm.
In addition, the firm fingerprinted other non-registered employees, but limited its screening to criminal convictions specified in federal banking laws and an internally created list. In total, the firm did not appropriately screen 8,600 individuals for all felony convictions or for disciplinary actions by financial regulators.
FINRA also found that four individuals who were subject to a statutory disqualification because of a criminal conviction could associate, or remain associated, with the firm during the relevant period. One of the individuals was associated with the firm for 10 years, and another for eight years.
“FINRA member firms play an important gatekeeper role in keeping bad actors from harming investors,” Susan Schroeder, executive vice president of FINRA’s Department of Enforcement, said in a statement. “Firms have a clear responsibility to appropriately screen all employees for past criminal or regulatory events that can disqualify individuals from associating with member firms, even in a non-registered capacity.”
In determining the appropriate monetary sanction, FINRA considered J.P. Morgan’s cooperation in self-reporting and undertaking a plan to address the violations. In settling this matter, J.P. Morgan neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.