J.P. Morgan fined $49 million for mixing client money

The British financial watchdog Financial Services Authority has fined J.P. Morgan’s London arm about $49 million for mishandling clients’ funds, the largest penalty ever delt by the FSA. J.P. Morgan was fined for mixing client money with the firm’s own funds.

The Financial Services Authority said JPMorgan did not “adequately protect” client money held by its futures and options business. The error, which occurred after the merger of JPMorgan and Chase and remained undetected for nearly seven years, put the client funds at risk had the firm become insolvent, the regulator said.

“JPMorgan Securities committed a serious breach of our client rules by failing to segregate billions of dollars of its clients’ money for nearly seven years,” the F.S.A. director of enforcement and financial crime, Margaret Cole, said in a statement. “The penalty reflects the amount of client money involved in this breach.” JPMorgan representatives were not immediately available for comment.

J.P. Morgan kept together funds worth between $1.9 billion and $23 billion from 2002 to 2009, reports the New York Times. The regulator says the fine is meant to “send out a strong message to firms of all sizes that they must ensure client money is segregated,” and says it has more such cases forthcoming.

Mixing company money with clients’ is a “cardinal sin” according to Reuters’ Breaking Views editor Michael Prest. “Clients money is not banks money. A golden rule in banking, and high up on the regulators list that you separate, unless the client says otherwise.

“This seems to be more widespread than people think,” says Prest, who says the FSA is investigating upwards of four or five more firms. “The thing here is that for a lot of people, segregating funds was expensive business, and they didn’t care–there was so much money to be made up until 2007, and people were willing to cut corners. They trusted their prime brokers.”

J.P. Morgan qualified for a 30 percent discount on the fine for working with the F.S.A. during the investigation and agreeing to settle at an early stage, the F.S.A. said. The investment bank reported the issue first and no clients suffered losses.