UK regulator the Financial Conduct Authority (FCA) has fined JP Morgan International Bank (JPMIB) £3.07m for systems and controls failings relating to its provision of retail investment advice and portfolio investment services.
The FCA, one of two UK watchdogs that replaced the Financial Services Authority (FSA) from 1 April 2013, said JPMIB’s failings persisted for two years and were not corrected until the FCA brought them to the firm’s attention in the course of its thematic review into wealth management firms and the suitability of their advice. The FCA identified a number of issues with JPMIB’s processes and an inability to demonstrate client suitability from its client files.
During this period, JPMIB’s senior management lacked sufficient information and oversight tools to identify and address these deficiencies. Although no detriment to customers has yet been identified, the failings exposed customers to the risk that they would be given incorrect advice and inappropriate investments.
Among the issues identified by the FCA were:
• Client files which were not kept up to date, or that did not retain important client suitability information such as client objectives, capacity for loss and investment experience.
• A computer-based record system that did not allow sufficient information to be retained.
• Suitability reports that failed adequately to contain a statement of the client’s demands and needs, explain why the investment was suitable to meet those needs or indicate any disadvantages of the investment.
• Communications to confirm client suitability profiles were not always sent to the client, despite being required by JPMIB’s own policy.
The firm also failed to ensure that there was adequate risk and compliance monitoring oversight of its business. While some issues were identified by monitoring, they were not adequately addressed until after February 2012.
After the FCA identified potential failings at JPMIB, it instructed the firm to appoint a skilled person to conduct an assessment of the adequacy and effectiveness of its systems and controls. A report found a number of deficiencies, including those shown above. JPMIB subsequently took prompt action to resolve the issues and improve its systems, including carrying out the skilled person’s recommendations, while also overhauling its suitability processes.
“No matter who they are, customers of wealth managers should be able to expect the firm to keep complete, up to date client records so that they can give the right advice,” said Tracey McDermott, the FCA’s director of enforcement and financial crime. “In this case the firm did not have complete records, nor did its management have the information they needed to recognise this.
“Firms which fail to keep the right records expose their clients to the risk of inappropriate investments and have no way of checking whether their advice has been appropriate.”