JP Morgan CEO Jamie Dimon in front of a US Senate hearing in june 2012 (Photo: Reuters)
JPMorgan is facing a Financial Services Authority investigation into whether any rules were broken after the infamous 'London Whale' trader lost the bank $6.2bn in bad bets.
The FSA confirmed in an statement that it is liaising with US regulators to conduct a "formal enforcement investigation" into the trading losses, since the bad credit derivatives bets were conducted in the bank's Chief Investment Office in London. The second-largest US bank was also ordered to overhaul its risk management systems, control and practices by domestic regulators.
"Conclusions will be reached in the enforcement investigation in due course and any further appropriate action determined at that time," the regulator adds.
In tandem, the US Department of Justice and the Securities and Exchange Commission are conducting their own investigations to determine any wrong-doing.
A trader called Bruno Iksil, who reportedly dealt in huge volumes, earned himself the nickname "the London whale" - which echoes gambling terminology that refers to a "whale" being a leviathan gambler who frequently bets monumental amounts of money.
Since May 2012, JPMorgan has always referred to Iksil's credit derivative bets as legal losses.
Initially, the bank estimated $2-3bn worth of losses but the number has since risen to $6.2bn in total.
Meanwhile, the New York Federal Reserve Bank and the Office of the Comptroller of the Currency ordered JPMorgan to strengthen its risk management and auditing controls, after the London Whale loss provided a keystone example of excessive risk limits.
In June last year, Jamie Dimon and other JPMorgan senior executives faced a grilling by US lawmakers over the bank's systems and controls and what could have led to such a large trading loss.
Dimon admitted that "there was a material weakness in our internal control over financial reporting at March 31, 2012 related to CIO's internal controls over valuation of the synthetic credit portfolio."
He added in a call with investors a month later that "you can see throughout the whole crisis that we still managed to grow. We are not proud of this moment but we are proud of the company. We have learned a lot and this has shaken the company to the core."
However, after a nine-month investigation, the OCC issued a cease and desist order for JP Morgan for deficiencies in the banks' overall program for Bank Secrecy Act / Anti-Money Laundering compliance.
"The OCC found that the bank's BSA compliance program had critical deficiencies with respect to suspicious activity reporting, monitoring transactions, conducting customer due diligence and risk assessment, and implementing adequate systems of internal controls and independent testing. These findings resulted in violations by the bank of statutory and regulatory requirements to maintain an adequate BSA compliance program, file suspicious activity reports, and conduct appropriate due diligence on business and commercial banking customers," it said in a statement.
At the same time, the Federal Reserve also faulted JPMorgan's management and modeling of risks, as well as its auditing functions and the process for communicating problems to the board of directors.
"The first order requires JP Morgan Chase to take corrective action to continue ongoing enhancements to its risk-management program and its finance and internal audit functions, particularly in regard to JPMC's CIO," said the Board of Governors in a Federal Reserve System statement.
"The Board's order follows the disclosure of significant losses in a large synthetic credit portfolio that was managed by the CIO. The second order requires JPMC to take corrective action to enhance its program for compliance with the Bank Secrecy Act and other anti-money laundering requirements at JPMC's various subsidiaries."
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