The Financial Conduct Authority (FCA) has fined JP Morgan International Bank (JPMIB) GBP3,076,200 for systems and controls failings relating to its provision of retail investment advice and portfolio investment services.
The 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 did not have sufficient information and oversight tools to identify and address these deficiencies. Although no detriment to customers has been identified to date, 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 (e.g. 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; and
• Communications to confirm client suitability profiles were not always sent to the client (as required by JPMIB’s own policy).
In addition, JPMIB did not ensure that there was adequate risk and compliance monitoring and 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 the firm’s systems and controls. Its report found a number of deficiencies, including most of those set out above. JPMIB subsequently took prompt action to resolve the issues and improve its systems, including carrying out the Skilled Person’s recommendations. It also undertook a significant overhaul of its suitability processes.
Tracey McDermott, director of enforcement and financial crime, says: "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. 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."
