Greg Kilminster
Head of Product - Content
JP Morgan affiliates agree to $151m settlement in SEC misconduct cases
Two affiliates of JP Morgan Chase & Co, JP Morgan Securities LLC (JPMS) and JP Morgan Investment Management Inc (JPMIM), have agreed to a $151 million settlement with the US Securities and Exchange Commission (SEC). The fines stem from charges including misleading investor disclosures, breaches of fiduciary duty, and failures in best-interest recommendations.
Some context
The SEC’s investigation revealed several compliance lapses within JPMS and JPMIM. These lapses covered various areas, including joint and principal transactions, unprompted investor disclosures, and failures in adequately aligning recommendations with investors’ best interests. Each of the five separate actions, summarised below, highlights specific instances where the affiliates' actions exposed investors to unnecessary risk or failed to fully disclose potential conflicts of interest.
The affiliates did not admit or deny the SEC’s findings. However, in four of the cases, JP Morgan’s entities agreed to civil penalties and restitution payments to investors. The fifth case against JPMS did not include a penalty due to the firm’s cooperation and remedial steps taken during the investigation.
Key takeaways
- Conduit Private Funds: Misleading disclosures. JPMS agreed to a $100 million settlement, which includes a $10 million penalty and $90 million in voluntary repayments to 1,500 investor accounts. The SEC found that JPMS misrepresented the discretion a JP Morgan affiliate would have in the sale of shares within “Conduit” private fund products. This failure to act promptly on behalf of investors led to substantial losses as share values declined.
- Portfolio Management Programme: Lack of full disclosure. Between 2017 and 2024, JPMS allegedly failed to fully disclose its financial incentives for promoting its own Portfolio Management Programme over third-party options. With programme assets expanding from $10.5 billion to over $30 billion during the period, the SEC imposed a $45 million penalty, with the case highlighting conflicts of interest concerns.
- Clone Mutual Funds: Inadequate customer protections. JPMS allegedly failed to consider less costly exchange-traded fund (ETF) alternatives when recommending certain mutual funds to retail clients between 2020 and 2022. In this instance, JPMS self-reported, refunded $15.2 million to affected customers, and avoided further penalties.
- Joint transactions: Conflict of interest in fund management. JPMIM’s joint transactions advantaged an affiliated foreign fund over three US-based funds, resulting in a $5 million penalty. The SEC charged that these transactions breached protections aimed at preventing conflicts of interest.
- Principal trades: Breach of fiduciary duty. JPMIM engaged in 65 unauthorised principal trades between 2019 and 2021, breaching fiduciary standards. Although JPMS cooperated and disclosed its internal findings, the SEC imposed a $1 million penalty.
JP Morgan’s compliance departments are expected to implement stricter oversight mechanisms in response to these findings, while other financial institutions may usefully review internal compliance procedures to prevent similar risks.
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Confirmation of Payee rollout extended to hundreds of firms to combat fraud
The UK’s Payment Systems Regulator (PSR) has announced the expansion of the anti-fraud tool Confirmation of Payee (CoP) to hundreds more financial institutions, with the aim of further reducing Authorised Push Payment (APP) fraud across the UK. This development means that more than 99% of Faster Payments and CHAPS transactions now benefit from CoP’s name-checking functionality.
Some context
Launched in 2020, CoP was designed by the UK’s payment system operator Pay.UK, enabling consumers and businesses to verify the account names of recipients before funds are transferred. With APP fraud losses reaching £213 million in the first half of 2024 alone, the broader implementation of CoP is timely. Fraudsters often use APP fraud schemes to deceive victims into transferring funds to accounts controlled by criminals. CoP aims to combat this by making it standard practice to perform a name check when sending money to new accounts.
The recent expansion of CoP aligns with the PSR’s additional anti-fraud measures introduced on 7 October, which include new mandatory reimbursement rules to protect victims of APP fraud. These rules aim to streamline the reimbursement process for fraud victims and encourage banks and payment firms to reinforce their fraud prevention frameworks.
Kate Fitzgerald, Head of Policy at the PSR, emphasised the importance of CoP as a core defence against fraud, noting that “Confirmation of Payee has quickly become an essential anti-fraud tool. Since its launch in 2020, more than 2.5 billion checks have been completed.”
Fitzgerald added that the PSR is focused on “tackling fraud from multiple angles – ensuring widespread checks and safeguards, implementing strong reputational and financial incentives for industry action, and promoting better data and intelligence sharing.” She described the CoP expansion as “a crucial step in our ongoing work to protect consumers and drive fraud out of the UK’s payment systems.”
Next steps
The PSR will publish data later in 2024 detailing how fraud incidents arise, including fraud originating from social media platforms. By highlighting fraud origins, the regulator aims to increase public awareness and foster greater accountability across industries beyond the financial sector.
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PRA updates rulebook after consultation on regulatory revisions
The Prudential Regulation Authority (PRA) has published a policy statement (PS) following its April 2024 consultation (CP6/24) jointly with the Financial Conduct Authority (FCA). The statement outlines amendments to several parts of the PRA Rulebook, including finalised changes in response to industry feedback. Amendments have also been made to Binding Technical Standards (BTS) 2016/2251. These adjustments aim to refine the disclosure, reporting, and regulatory reporting frameworks as well as policyholder protection rules.
Some context
The consultation proposed amendments across multiple regulatory areas, including disclosure and reporting rules for firms subject to Capital Requirements Regulation (CRR) requirements, Solvency II firms, and entities affected by the UK’s European Market Infrastructure Regulation (UK EMIR) standards. Proposed changes also included adjustments to the PRA Rulebook glossary and the addition of new rules to enhance policyholder protection. In total, the PRA received three responses to CP6/24, with feedback mainly addressing clarifications needed on FSCS eligibility.
The FCA and PRA also jointly reviewed BTS 2016/2251, making necessary updates to align with anticipated UK EMIR amendments under the Securitisation (Amendment) Regulations 2024.
Key takeaways
- Rulebook amendments: The PRA has introduced modifications to specific areas of the Disclosure, Reporting, and Regulatory Reporting Parts of the Rulebook, with detailed changes available in the appendices. A new rule (Rule 9.5A) is also added to the Policyholder Protection Part, intended to improve protections for policyholders.
- Feedback and minor adjustments: Responses from stakeholders have resulted in the PRA making slight adjustments to clarify Rule 2.2 in the Disclosure section and to improve the wording of Rule 9.5A. These changes aim to enhance clarity without altering the policy’s substance or impact, with a cost-benefit analysis confirming that no further impacts are anticipated.
- Joint FCA-PRA changes: In collaboration with the FCA, the PRA has finalised amendments to BTS 2016/2251. The modifications focus on the technical standards related to the margin requirements under UK EMIR, ensuring alignment with the forthcoming Securitisation (Amendment) Regulations 2024.
Next steps
The new PRA Rulebook provisions will come into effect on 4 November 2024, with the revised BTS 2016/2251 standards becoming effective on 1 November 2024. Firms are encouraged to review the updated Rulebook and technical standards to ensure full compliance with the revised regulations.
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Minutes of Japan-EU Joint Financial Regulatory Forum
The fifth Japan-EU Joint Financial Regulatory Forum was held on 30-31 October in Tokyo and brought together regulators from Japan and the European Union to address a wide range of issues affecting both domestic and global markets. The agenda covered areas such as financial stability, sustainable finance, digital finance, and recent regulatory developments. Key themes discussed included the geopolitical risks affecting financial stability, particularly Russia’s ongoing conflict with Ukraine, and the implications of economic pressures like inflation and growth slowdowns.
Some context
The forum provides a platform for discussing current trends and regulatory approaches in both jurisdictions. Representatives from major European supervisory bodies, including the European Central Bank and the European Banking Authority, contributed to discussions, which covered regulatory updates and highlighted areas for increased collaboration.
The forum, which operates under the EU-Japan Economic Partnership Agreement, is a significant element of financial regulatory cooperation between the two regions. The agreement includes shared commitments on financial stability, fair and efficient markets, and investor protection.
Key takeaways
- Sustainable finance and climate resilience: Sustainable finance was a central theme, with both sides sharing updates on regulatory advancements. Japan’s Financial Services Agency (FSA) outlined its work on transition finance and its efforts to develop a sustainability disclosure standard through the Sustainability Standards Board of Japan. Similarly, EU representatives provided insights into Europe’s sustainability disclosure developments, highlighting a commitment to harmonised standards to facilitate the transition to a net-zero economy.
- Digital finance and regulatory frameworks for cryptoassets: Digital finance also featured prominently, with regulators discussing advancements in cryptoasset regulation and the role of artificial intelligence (AI) in financial services. Japan’s FSA presented recent regulatory updates in the crypto sector, while the European Commission provided an overview of the progress on its Markets in Cryptoassets (MiCA) Regulation. Both regions acknowledged the need for ongoing collaboration to manage the evolving digital finance landscape.
- Strengthening banking and insurance stability: Another major focus was on banking sector reforms and insurance regulation. Both sides discussed the implementation of Basel III reforms, with a reaffirmed commitment to global consistency in applying the framework to avoid market fragmentation. There was also a review of recovery and resolution planning, with lessons drawn from the banking turmoil in 2023. In the insurance sector, Japan presented updates on its solvency regulation, while the EU highlighted the recent developments in its Solvency II framework and related regulatory directives.
- Capital markets and asset management: Efforts to strengthen capital markets and promote Japan as an asset management hub were also discussed. The FSA shared its initiatives to enhance Japan’s capital markets, including corporate governance reforms and policies encouraging stable asset building. The European Commission provided an update on its Capital Markets Union project, covering areas such as securitisation, and addressed the shortening of settlement cycles to T+1, an area of mutual interest.
Next steps
Participants at the forum agreed to continue their close engagement on these regulatory initiatives, exploring opportunities for cooperation both bilaterally and through international platforms such as the G20 and the International Platform on Sustainable Finance. The next Japan-EU Joint Financial Regulatory Forum meeting is set to take place in Brussels in 2025, where regulators will review progress and address new developments in financial market stability, regulatory convergence, and sustainable finance initiatives.
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ESMA to take over supervision of two more data reporting providers
Following its annual assessment of data reporting services providers (DRSPs) the European Securities and Markets Authority (ESMA) has announced that two entities—Wiener Börse AG and KELER Központi Értéktár Zrt—will transition to ESMA’s direct supervision as of 1 June 2025. Both entities currently operate under national supervision but failed to meet the EU-level exemption criteria for a second consecutive year, necessitating the change in supervisory authority.
DRSPs, including Approved Publication Arrangements (APAs) and Approved Reporting Mechanisms (ARMs), can qualify for exemption from ESMA oversight if their activities have limited relevance to the internal market. The assessment, conducted annually, evaluates this by considering client presence across EU Member States and the market share of each DRSP in terms of trade and transaction volume.
In preparation for the shift in oversight, ESMA will collaborate closely with the two entities and their current national supervisors to ensure a smooth transfer of regulatory responsibilities. This move is part of ESMA’s broader mandate under the ESAs’ Review Regulation, which transferred DRSP authorisation and supervision responsibilities to ESMA, apart from those DRSPs meeting exemption criteria.
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