CFTC Orders JPMorgan to Pay $75 Million for Widespread Use by Employees of Unapproved Communication Methods and Related Recordkeeping and Supervision Failures

cftc-orders-jpmorgan-to-pay-$75-million-for-widespread-use-by-employees-of-unapproved-communication-methods-and-related-recordkeeping-and-supervision-failures

Washington, D.C. — The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against JPMorgan Chase Bank, N.A.J.P. Morgan Securities LLC, and J.P. Morgan Securities plc (collectively, JPMorgan), for failing to maintain, preserve, and produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to its businesses as CFTC registrants.  JPMorgan admits the facts in the order and acknowledges that the conduct violated the Commodity Exchange Act (CEA) and regulations.

The order finds that since at least July 2015, JPMorgan employees, including those at senior levels, communicated both internally and externally on unapproved channels, including via personal text messages and WhatsApp messages. These written communications included messages related to JPMorgan’s businesses as CFTC registrants that were required to be maintained under CFTC-mandated recordkeeping requirements. None of these written communications were maintained and preserved by JPMorgan, and they were not able to be furnished promptly to a CFTC representative when requested.

The order further finds that the widespread use of unauthorized communication methods by JPMorgan’s employees to conduct firm business violated JPMorgan’s own policies and procedures, which prohibited such communications. JPMorgan did not maintain adequate internal controls with respect to business-related communications on non-approved communication methods. Some of the very same supervisory personnel at JPMorgan responsible for ensuring compliance with JPMorgan’s policies and procedures utilized non-approved methods of communication to engage in business-related communications, in violation of firm policy.

The order requires JPMorgan to pay a $75 million civil monetary penalty, to cease and desist from further violations of recordkeeping and supervision requirements, and to engage in specified remedial undertakings.

“Maintenance of complete and accurate books and records is required in order to operate in our industry, as is diligent supervision,” said Acting Chairman Rostin Behnam. “Registrants, supervisors, and compliance officers must understand these regulations and adhere to them and their firm’s guidance when conducting their business. The message of today’s enforcement action could not be more clear: the Division of Enforcement will aggressively investigate potential recordkeeping and related supervision violations, and the Commission will impose appropriate penalties for violations of these critical regulatory requirements.”

“Firm compliance with recordkeeping and associated supervision requirements is essential to the CFTC’s efforts to promote the integrity, resilience, and vibrancy of the U.S. derivatives markets,” said Acting Director of Enforcement Vince McGonagle. “Today’s enforcement action demonstrates the Division of Enforcement’s commitment to aggressively investigating and prosecuting violations of these requirements.”

Case Background

The order notes that during the course of a CFTC investigation into certain of JPMorgan’s trading, CFTC staff issued subpoenas to JPMorgan for certain communications. The Division of Enforcement learned, based on communications received from a third party, that JPMorgan traders had been using personal text messages and WhatsApp to communicate. Moreover, certain of those communications were responsive to the CFTC’s subpoenas. After CFTC staff brought the use of unapproved communication methods by certain of JPMorgan’s traders to JPMorgan’s attention, JPMorgan notified CFTC staff that the firm was aware of widespread and longstanding use by JPMorgan employees of unapproved methods to engage in business-related communications.

As a result of JPMorgan’s failure to ensure that employees—including supervisors and senior-level employees—complied with the firm’s communications policies and procedures, JPMorgan failed to maintain thousands of business-related communications in connection with its commodities and swaps businesses, and thus failed diligently to supervise its businesses as CFTC registrants, in violation of CFTC recordkeeping and supervision provisions.

Related Civil Action

The Securities and Exchange Commission (SEC) today announced entry of an order filing and settling charges against J.P. Morgan Securities LLC and imposing a civil monetary penalty for related recordkeeping and supervision violations.

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The Division of Enforcement staff members responsible for this case are James G. Wheaton, Benjamin J. Rankin, R. Stephen Painter, Jr., Steven I. Ringer, Lenel Hickson, Jr., and Manal Sultan.

Source: CFTC

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