The Monetary Authority of Singapore (MAS) has imposed a civil penalty of SGD 2.4 million on JPMorgan Chase Bank, N.A. (JPM), according to a media release issued by the central bank of Singapore. The penalty was for JPMorgan Chase Bank failing to prevent and detect misconduct committed by its relationship managers (RMs).
The media release said: “In 24 over-the-counter (OTC) bond transactions, the RMs had made inaccurate or incomplete disclosures to clients, resulting in the clients being charged spreads that were above the bilaterally agreed rates.” These transactions took place between November 2018 and September 2019, said MAS.
This enforcement action on JPM follows MAS’ review of pricing and disclosure practices in the private banking industry. Investigations found that for OTC bond transactions, JPM’s practice was to charge clients a spread over the interbank prices. As the interbank prices were not available to clients, they had to rely on the RMs’ representations to them regarding the interbank prices and spreads.
Monetary Authority of Singapore
Explaining that the RMs of JPMorgan Chase Bank had misled the clients into paying more than what they should have paid, MAS said that “JPM did not establish adequate processes and controls to ensure that its RMs adhered to pre-agreed spreads with clients when executing OTC bond transactions on their behalf”.
The central bank “sampled OTC bond transactions conducted by JPM’s RMs” and found that in the 24 transactions, the RMs had “either misrepresented the price components or omitted material information that the spreads charged were above the agreed rates”. The phrase “price components” refers to the executed interbank price and/or spread charged.
MAS said that this misrepresentation and omission by the RMs was “in contravention of sections 201(c) and 201(d) of the Securities and Futures Act (SFA)”.
Informing that the private bank had accepted these violations and its responsibility for what the relationship managers did, MAS said: “JPM has admitted liability under section 236C of the SFA for its failure to prevent or detect the misconduct by its RMs and has paid MAS the civil penalty. The bank has refunded the overcharged fees to affected clients.”
At the same time, JPMorgan Chase Bank has taken measures to prevent a repeat of this. “The bank has also enhanced its pricing frameworks and internal controls to prevent the recurrence of such misconduct,” said MAS. “Separate reviews into the individual RMs involved in the misconduct are ongoing.”
What is the MAS civil penalty?
“A civil penalty action is not a criminal action and does not attract criminal sanctions. The civil penalty regime, designed to complement criminal sanctions and provide a nuanced approach to combat market misconduct, became operational at the beginning of 2004,” said the MAS media release.
“Under section 232 of the SFA, MAS may enter into an agreement with any person for that person to pay, with or without admission of liability, a civil penalty for contravening any provision of Part 12 of the SFA. The civil penalty may be up to three times the amount of the profit gained or loss avoided by that person as a result of the contravention, subject to a minimum of $50,000 (if the person is not a corporation) or $100,000 (if the person is a corporation).”
● Section 201(c) of the SFA
Under section 201(c) of the SFA, no person shall, directly or indirectly, in connection with the subscription, purchase or sale of any capital market products, make any statement he knows to be false in a material particular.
● Section 201(d) of the SFA
Under section 201(d) of the SFA, no person shall, directly or indirectly, in connection with the subscription, purchase or sale of any capital market products, omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.
● Section 236C of the SFA
Under section 236C of the SFA, a corporation which fails to prevent or detect a contravention of any provision in Part 12 of the SFA that is committed by an employee or officer for its benefit and attributable to its negligence, commits a contravention and shall be liable to an order for a civil penalty.
