60-Day Window to Strengthen Risk, Auditing, Anti-Money Laundering Controls.

[ by Melanie Gretchen ]

JPMorgan Chase must strengthen risk and auditing controls after the company lost more than $6.2 billion on botched derivatives trades last year, the Federal Reserve ordered.  To this end, the New York City-based firm has promised to improve systems to prevent money laundering.

At Issue. Regulators found fault in particular with:

• the bank’s management and modeling of risks
• its financial auditing and process for communicating problems to the board of directors

As a result, the central bank and the Office of the Comptroller of the Currency (OCC) both issued cease-and-desist orders focusing on the lender’s chief investment office, as well as broader anti-money- laundering controls.  For its part, the OCC’s order found that the bank "has an inadequate system of internal controls and independent testing" for anti-money-laundering compliance.

Going forward, JPMorgan's board has 60 days days to submit a plan to the Fed, on how it intends to strengthen oversight of risk management, internal-audit and finance functions.  One change that U.S. regulators are demanding is that the board be given more oversight into the bank's risk management function.  Further, the Board was ordered to overhaul the bank's system for compensating top executives, accounting for “adverse risk outcomes and control deficiencies.”

Meeting those "responsibilities -- and going above and beyond -- is a top priority for us.  We have already made progress addressing the issues cited in the consent orders, which contain no allegations of intentional misconduct by the firm or any of its employees."  -- Joe Evangelisti, a JPMorgan spokesperson.

For further details, go to:  [Bloomberg, 1/14/13].

[C-I Note:  The Bank's Board is scheduled to meet tomorrow to discuss the findings of an internal investigation of the London Whale Trading Loss.  It is reported that senior management, including CEO Jamie Dimon, were roundly criticized in the report.]

For further information on the internal investigation, go to:   ["Dimon & London Whale: Internal Report is Critical," posted Monday in WHO'S News.]