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FINRA fines J.P. Morgan Securities over customer protection rule violations

BBR Staff Writer Published 02 January 2018

The Financial Industry Regulatory Authority (FINRA) has imposed a fine of $2.8m on J.P. Morgan Securities over customer protection rule violations and supervisory failures.

J.P. Morgan has been fined for violating the Securities and Exchange Commission’s (SEC) customer protection rule and related supervisory failures.

FINRA determined that from March 2008 to June 2016 J.P. Morgan Clearing did not maintained correct processes to operate its possession or control systems properly.

The firm created deficits in foreign and domestic securities by not moving and maintaining securities in good control locations.

According to FINRA, J.P. Morgan failed to move Italian securities to a good control location for nearly two years and on one sample day created a deficit in 81 Italian securities worth around $146m

FINRA said that J.P. Morgan neither admitted nor denied the charges in settling the matter.

To recover assets of customers during the broker-dealer's insolvency, the customer protection rule needs a broker-dealer that maintains custody of customer securities. It will help to secure and maintain physical possession or control over certain of those securities.

The securities must be segregated in a control location and free of liens or any other encumbrance that help to avoid customers from taking possession of their securities.

FINRA’s enforcement department executive vice president Susan Schroeder said: “Firms have a fundamental responsibility to safeguard the securities of their customers.

“The Customer Protection Rule is an important component of investor protection, and member firms must have reasonably designed and maintained systems and procedures to comply with the possession and control requirements.”

Image: FINRA has imposed a fine of $2.8m on J.P. Morgan Securities. Photo: courtesy of JanPietruszka / FreeDigitalPhotos.net.