Japan regulator issues administrative action against JP Morgan Chase

Japan’s Financial Services Agency (FSA) has issued an administrative action against the Tokyo branch of JP Morgan Chase requesting it improve its compliance and internal controls. JP Morgan Chase is requested to “submit the Business Improvement Plan to the FSA by April 30, 2004 and implement it promptly”, the regulator said in a statement.

The decision follows an irregularity in some yen interest rate options trades from December 2002 and July 2003, during which period a trader at the bank manipulated the valuation of yen interest rate options offered to clients. “These misvaluations were discovered by JP Morgan after an internal investigation, which resulted in dismissal of the trader,” the bank said in a statement.

The FSA nevertheless pointed out that it took JP Morgan Chase a long time to find the trader’s misconduct, "due to the fact that the internal checking did not work properly. Moreover, internal audit function [was] not properly performed either.”

No suspension is resulting from the administrative action, but the FSA is asking the bank “to clarify the commitment of the management on compliance with laws and other related regulations”, to develop and reinforce its legal and compliance department, as well as its operational and internal control systems regarding financial derivatives transactions.

The US bank said it “takes this matter very seriously and is determined to further strengthen our internal management controls to prevent recurrence of a similar incident".