JPMorgan fined $348M by OCC, Fed over trade surveillance lapses

The Treasury Department’s Office of the Comptroller of the Currency (OCC) issued a $250 million penalty against the bank Thursday, while the Federal Reserve Board announced a fine of nearly $98.2 million as part of a consent order, both related to JPMorgan’s alleged failure to surveil “billions” of transactions on 30 trading venues.

JPMorgan, which disclosed the impending fines in a regulatory filing in February, said it had “self-identified that certain trading and order data through the CIB (corporate and investment bank) was not feeding into its trade surveillance platforms.” The bank said then that it was in advanced negotiations with a third, unnamed regulator regarding the matter.

The details: Since at least 2019, JPMorgan’s trade surveillance program “operated with certain deficiencies that have compromised its effectiveness,” said the OCC. The program had “gaps in venue coverage” and was “without adequate data controls required to maintain an effective program,” the agency said.

The Fed said it identified problems with the surveillance program occurring over nearly a decade, from 2014-23.

Both the OCC and Fed said the alleged failures led the bank to engage in unsafe and unsound banking practices.

In its order, the Fed prohibited JPMorgan from onboarding new trading venues without receiving “prior written nonobjection from the Reserve Bank.”

Compliance considerations: The bank must conduct its own assessment of its trade surveillance program and submit a report to the Fed within 120 days.

The OCC ordered the bank to form a compliance committee, with at least three independent board members, that will submit a written progress report that includes a description of the corrective actions needed to achieve compliance with the order, specific corrective actions undertaken, and the results and status of the corrective actions.

In addition, the Fed ordered the bank to hire an independent consultant to assess the effectiveness of its trade surveillance program. The consultant will be required to submit a report to the Fed within 120 days of being retained. The consultant will review:

• The firm’s policies and procedures for effective surveillance of its trading activities;
• Oversight of the trade surveillance program by the board of directors or a committee;
• Controls for maintaining accurate and complete inventories and risk assessments of all trading venues;
• Effective automated data reconciliation processes;
• Measures to ensure trade surveillance scenarios and parameters are reasonably calibrated to detect market misconduct;
• Measures to ensure routine and annual monitoring, testing, and assessments of the trade surveillance program; and
• Measures to address the instances of nonsurveilled trading activity identified in the bank’s report on its trade surveillance program.

Bank response: The bank cooperated with the regulators’ respective investigations but did not admit or deny the agencies’ findings.

A spokesman for JPMorgan referred comment back to the bank’s February disclosure, saying in an emailed statement: “As we disclosed last month, we self-identified the issue, significant remedial actions have been taken and others are underway, and we have not found any employee misconduct or harm to clients or the market in our review of the previously uncaptured data. We do not expect any disruption of service to clients as a result of these resolutions.”