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Regulatory Sanctions

JPMorgan Fined Over Failed Due Diligence for Thousands of Non-Registered Employees

November 23, 2017

JPMorgan Securities agreed to pay $1.25 million to settle FINRA charges that it failed to conduct timely or adequate background checks on thousands of its non-registered associated persons over an 8+ year period. In determining the monetary sanction, FINRA considered JPMorgan’s cooperation in self-reporting and undertaking a plan to address the violations.


BACKGROUND.    JPMS, based in New York, NY, has been a FINRA member since 1936. It is part of a larger financial enterprise, JP Morgan Chase Holdings, and conducts a full-service brokerage business that includes, among other things, sales and trading„ research and underwriting services. JPMS has approximately 35,000 associated persons. The firm has no relevant disciplinary history.


FINRA FINDINGS.    From January 2009 through May 2017 (the “Relevant Period”), JPMS failed to conduct timely or adequate background checks on approximately 8,670 - or around 95% - of its non-registered associated persons.


  • JPMS did not fingerprint 1,880 of the 8,670 associated persons until after the start of its remediation process.


  • JPMS did not fingerprint another 6,634 associated persons, but conducted a screening that was limited to criminal convictions specified in federal banking laws and an internally created list.


  • JPMS failed to screen any of the 8,670 for some types of felony convictions or regulatory actions, as required under the Exchange Act.


  • At least 4 persons who were subject to a statutory disqualification because of a criminal conviction were allowed to associate, or remain associated, with the firm during the relevant time period. One of the 4 individuals was associated with the firm for 10 years; another for 8 years.


  • JPMS was unable to determine whether another 391 associated persons were subject to a statutory disqualification because when JPMS conducted its review their associations had ended or they were on leave.


Federal securities laws require broker-dealers ... to fingerprint certain associated persons working in a non-registered capacity who may present a risk to customers based on their positions. Fingerprinting helps firms identify if a person has been convicted of crimes that would disqualify them from being associated with a firm, absent explicit regulatory approval. Federal banking laws require banks to conduct similar checks on banking employees using a more limited list of disqualifying events.


[For further details, click on FINRA AWC #2016049305401.]