The Financial Industry Regulatory Authority today announced it had fined J.P. Morgan Securities LLC $1.25 million for failing to conduct adequate background checks on approximately 8,600 (95 percent) of its employees. The violations took place from January 2009 through May 2017.
As a result of the failure, four J.P. Morgan employees who had criminal convictions that would have statutorily disqualified them continued working with the firm and its customers for years. One of the four individuals was associated with the firm for 10 years and another for eight years.
"Firms have a clear responsibility to appropriately screen all employees for past criminal or regulatory events that can disqualify individuals from associating with member firms, even in a non-registered capacity,” said Susan Schroeder, executive vice president of Finra's Department of Enforcement.
Finra's action addressed "associated, nonregistered persons" at J.P. Morgan, not brokers but those who work with brokers.
“Finra member firms play an important gatekeeper role in keeping bad actors from harming investors,” Schroeder added.
In total, the firm did not appropriately screen or fingerprint 8,600 individuals for all felony convictions or for disciplinary actions by financial regulators, Finra found. As a result, four employees who had criminal convictions that would have disqualified them continued working at the firm and with its customers.
In addition, Finra found that for more than eight years, J.P. Morgan did not fingerprint approximately 2,000 of its non-registered associated persons in a timely manner, which prevented the firm from determining whether any of the 2,000 people committed crimes or felonies that would have disqualified them from working at the firm.
During the same time period, J.P. Morgan did fingerprint other associated persons but limited its screening to criminal convictions specified in federal banking laws and an internally created list, Finra found.
Federal securities laws require broker-dealers to fingerprint certain associated persons working in a non-registered capacity who may present a risk to customers based on their positions.
“Fingerprinting helps firms identify if a person has been convicted of crimes that would disqualify them from being associated with a firm, absent explicit regulatory approval,” Finra said.