The FSA has levied its largest ever fine of £33.32m on J.P. Morgan Securities for client money breaches over a seven-year period.
The regulator says J.P. Morgan Securities was guilty of an error in which it failed to protect client money by segregating it appropriately.
Between 1 November 2002 and 8 July 2009, the company failed to segregate the client money held by its futures and options business (F&O) with JPMorgan Chase Bank.
Instead of being held overnight in a segregated money market account, J.P. Morgan Securities F&O client money was held in an unsegregated account with JPMorgan Chase bank. This error remained undetected for nearly seven years.
Under the FSA's client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. This helps to protect client money in the event of the firm's insolvency.
The error occurred following the merger of JPMorgan and Chase.
During the seven year period, the client money balance held by the F&O business of JPMSL varied between $1.9bn in December 2002 and $23bn in October 2008. Had the firm become insolvent at any time during this period, this client money would have been at risk of loss, the regulator said.
FSA director of enforcement and financial crime Margaret Cole says:"J.P. Morgan Securities committed a serious breach of our client money rules by failing to segregate billions of dollars of its clients' money for nearly seven years. The penalty reflects the amount of client money involved in this breach.
"Despite being one of the largest holders of client money in the UK, J.P. Morgan Securities failed to [safeguard client's money]. This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules."
She says firms should "sit up and take notice of this action", and warns the FSA has several more similar cases in the pipeline.
J.P. Morgan Securities self-reported the issue when they discovered it and immediately remedied the situation, the FSA says.
No clients suffered any losses as a consequence of the segregation error, nor was there any incorrect financial reporting by the firm for the period 2001-2008.
The size of the penalty is equivalent to 1% of the average amount of unsegregated client money held by J.P. Morgan Securities with JPMorgan Chase bank, according to the FSA.
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