WASHINGTON — Roughly eight months after the disclosure of JPMorgan Chase's multibillion loss related to trading activities in London, federal regulators publicly unveiled enforcement orders related to the doomed trades.
But the orders -at least for now — included no monetary penalties, prompting questions about their severity. The Federal Reserve Board and Office of the Comptroller of the Currency ordered the bank to fix its internal controls and devote more resources and oversight to its trading activities, but stopped short of mandating sweeping changes.
The regulators also released a separate enforcement action against JPMorgan related to its anti-money laundering activities, saying the bank had failed to detect and report on suspicious activities by its customers. It was not immediately clear if the anti-laundering orders were directly related to the London Whale trades, or constituted a completely new concern. But those orders, too, were devoid of any monetary penalty, requiring the bank to step up its anti-laundering procedures.
"The content of both orders are really no more than what was required by law absent of this consent order — so this really is a slap on the wrist," said Ann Graham, professor of law at the Hamline University School of Law and a former attorney at the Federal Deposit Insurance Corp. "It's not new news to the bank that it should have been doing these requirements all along."
But others said it wasn't that unusual that JPMorgan did not receive a monetary penalty.
"Generally when there is just a compliance deficiency that is self-contained, where the regulators have identified it, it's not a criminal violation and the institution is fully capable of instituting remedial measures on its own, then you often do not see a monetary penalty," said Peter Djinis, a private attorney who specializes in anti-laundering compliance programs.
JPMorgan Chase has been under intense scrutiny since last spring following its announcement of what is now an estimated $6 billion in losses from synthetic credit derivatives traded out of its Chief Investment Office based in London.
But while the regulators cited problems in the bank's risk management related to that office, they did not stop there, ordering a series of changes through its Bank Secrecy Act program to improve monitoring of suspicious transactions.
"The bank has an inadequate system of internal controls and independent testing," the OCC said of JPMorgan Chase's AML program in one of the two consent orders lodged at the banking company's subsidiaries.
The OCC also noted that "the bank's oversight and governance of the credit derivatives trading conducted by the" bank's Chief Investment Office "were inadequate to protect the bank from material risks in those trading strategies, activities and positions,"
The Fed, which released two orders against the bank's holding company, ordered JPMorgan Chase's board to ensure the parent company was acting as a "source of strength" to it primary bank subsidiary. Among other requirements, the company must also submit a plan within 60 days of the enforcement action for continuing improvements in the overall risk management program, as well as a plan within 90 days for how it will continue to improve its internal auditing.
