JPMorgan Securities has agreed to pay a $1.25 million fine and review certain of its systems and procedures to settle allegations it failed to properly look into the histories of thousands of employees.
Specifically, the Financial Industry Regulatory Authority (Finra) alleges in a recent letter of acceptance, waiver and consent (AWC) that JPMorgan Securities from January 1, 2009 through May 2017 failed to conduct timely or adequate background checks on roughly 8,670 – or around 95 percent – of its non-registered associated persons.
The firm settled the action without admitting or denying wrongdoing. A JPMorgan Chase spokesperson says in a statement: ‘We self-reported this matter and are pleased it’s now behind us. We are committed to having appropriate controls to comply with regulatory requirements.’
‘Finra member firms play an important gatekeeper role in keeping bad actors from harming investors,’ Susan Schroeder, executive vice president of the self-regulatory organization’s (SRO) department of enforcement, says in a statement on the settlement. ‘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.’
Finra member firms are required to fingerprint most associated persons before or when they become associated, and must review the results as part of their background check to determine, among other things, whether a prospective associated person has previously engaged in misconduct that subjects him or her to statutory disqualification, officials note in the AWC.
The fingerprint results provide information about a prospective associated person’s criminal background, and firms must also obtain other background information to determine whether that person is subject to certain serious, but non-criminal, findings or sanctions imposed by a financial regulator, the officials write.
The broker-dealer did not fingerprint 1,880 of the 8,610 until after the start of a remediation process and did not fingerprint another 156 until after they began to work for the firm, Finra alleges. JPMorgan Securities timely fingerprinted the remaining 6,634 associated persons, but screened them under Section 19 of the Federal Insurance Deposit Act and an internally created list of crimes, according to the SRO. It failed to screen any of the 8,670 for some types of felony convictions or regulatory actions, Finra adds.
In addition, the SRO alleges, at least four people who were subject to a statutory disqualification were allowed to associate, or remain associated, with the brokerage during the period at issue. One of these four remained associated with the firm for 10 years after a disqualifying event; another remained associated for eight years after a disqualifying event and was later rehired and associated for an additional six months while subject to disqualification, according to Finra.
The firm was also unable to rescreen and therefore determine whether another 391 were subject to statutory disqualification because when it conducted its reviews their associations had ended or they were on leave, the SRO says.
JPMorgan Securities’ failure to fingerprint or properly screen the 8,670 associated persons during the time at issue arose from its lack of a necessary supervisory system or procedures covering all individuals who became associated with the firm in a non-registered capacity, Finra says.
The broker-dealer’s written supervisory policies and procedures for fingerprinting focused on individuals who were, or intended to become, registered, officials write in the AWC. For the most part, they say, onboarding of JPMorgan Securities’ non-registered associated persons was handled by JPMorgan Chase.
The policies and procedures in general did not address methods for identifying JPMorgan Securities non-registered associated persons or the need to screen them under Securities Exchange Act standards, Finra alleges. The SRO also says JPMorgan Securities failed to enforce its written procedures requiring that all employees be fingerprinted before joining the firm.
Officials write that, in determining the appropriate monetary sanction, Finra took into account the firm’s co-operation in self-reporting and undertaking to remedy its alleged violations.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
