The Monetary Authority of Singapore (MAS) has imposed a civil penalty of $2.4 million on JPMorgan Chase Bank, N.A. (JPM), for failing to prevent and detect misconduct committed by its relationship managers (RMs). In 24 over-the-counter (OTC) bond transactions1, the RMs had made inaccurate or incomplete disclosures to clients, resulting in the clients being charged spreads that were above the bilaterally agreed rates.
2. 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.
3. 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. MAS sampled OTC bond transactions conducted by JPM’s RMs and found that in the 24 transactions, RMs had either misrepresented the price components2 or omitted material information that the spreads charged were above the agreed rates, in contravention of sections 201(c) and 201(d) of the Securities and Futures Act (SFA).
4. 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. The bank has also enhanced its pricing frameworks and internal controls to prevent the recurrence of such misconduct. Separate reviews into the individual RMs involved in the misconduct are ongoing.
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- The transactions took place between November 2018 and September 2019.
- Price components here refers to the executed interbank price and/or spread charged.
Additional information
(A) The civil penalty regime
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.
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).
(B) 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.
(C) 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.
(D) 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.
