World News

Friday 29 August 2014

Bank failings led to £3.7bn loss

Published 15/01/2013 | 03:25

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JPMorgan promised to strengthen its policies and procedures to control risk and to screen customers to prevent money laundering

America's biggest bank has been ordered to take steps to correct poor risk management that led to a surprise trading loss last year of more than six billion dollars (£3.7 billion).

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US government regulators also cited JPMorgan Chase for lapses in oversight that could allow it to be used for money laundering.

JPMorgan, America's largest bank by assets, will not pay a fine under the agreements with the Federal Reserve and the US Comptroller of the Currency, a Treasury Department agency. The bank promised to strengthen its policies and procedures to control risk and to screen customers to prevent money laundering.

The regulators each issued two cease-and-desist orders against JPMorgan, a sanction that requires a bank to change its practices. They said they had found "deficiencies" in the bank's procedures for preventing money laundering, and also uncovered "unsafe or unsound practices" regarding management of risk. The orders said the regulators and other government agencies could pursue further action.

Britain's Financial Services Authority, meanwhile, said on Monday that its own investigation into JPMorgan's trading loss continued.

The US regulators said that the bank has committed to take "all necessary and appropriate steps" to correct the problems.

JPMorgan neither admitted nor denied the regulators' findings in agreeing to the accords. "We've been working hard to fully remediate the issues" related to risk management, JPMorgan spokesman Mark Kornblau said. He added that the bank had also made preventing money laundering a "top priority".

In May, JPMorgan disclosed that its London office lost billions in trades designed to hedge against risk. The bank later said that some traders had tried to hide the size of the losses. The loss, which occurred less than four years after the 2008 financial crisis, hurt the bank's reputation. JPMorgan had survived the crisis by taking fewer risks than its competitors.

In June, JPMorgan chief executive Jamie Dimon acknowledged before congressional politicians that the bank made mistakes but he defended its strategy for managing risk.

However, the bank took action against several employees at the heart of the controversy. Two senior managers and a trader linked to the London trading operation were sacked. The bank took back nearly two years' compensation from them. In addition to the firings, Ina Drew, the bank's chief investment officer overseeing its trading strategy, retired after 30 years at the bank and voluntarily repaid two years' salary. The bank also made a broad reshuffle of its top management, in an apparent bid to restore investors' trust.

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