FINRA has slammed J.P. Morgan Securities with a $1.25 million fine for failing to conduct adequate background checks on 8,670 non-registered employees over more than eight years, according to an announcement today from FINRA.
The regulator scolded the firm for failing to fingerprint 2,036 non-registered "associated persons" in a timely manner, "preventing it from determining whether those persons might be disqualified from working at the firm."
While J.P. Morgan fingerprinted the remaining 6,634 non-registered employees, it failed to screen them for all felony convictions or disciplinary actions brought by financial regulators, as required under the Exchange Act and FINRA by-laws, FINRA said.
Instead, J.P. Morgan limited its screening to criminal convictions specified in federal banking laws and an internally-created list that included crimes such as kidnapping, rape, murder, manslaughter and sexual assault, according to the settlement.
The fingerprinting and screening lapses, which occurred from January 2009 through May 2017, affected approximately 95% of the firm's non-registered associated employees, FINRA said.
As a result, at least four employees who should have been disqualified due to criminal convictions were allowed to remain associated with the firm for extended periods of times. One of the four remained associated with the firm for 10 years after a disqualifying event. Another remained associated for eight years and was subsequently rehired for an additional six months, the regulator said in the settlement.
"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," Susan Schroeder, executive vice president of FINRA's Department of Enforcement, said in a statement.
FINRA member firms are required under federal securities laws to fingerprint most employees to determine whether they committed any criminal offenses, according to FINRA. They must also obtain other background information to see if they are subject to serious, non-criminal findings or sanctions imposed by financial regulators.
In addition to paying a $1.25 million fine, the firm agreed to review its systems and procedures related to the identification, fingerprinting and screening of non-registered associated persons. J.P. Morgan cooperated with FINRA in self-reporting and undertaking a plan to address the violations, a factor that FINRA weighed when determining the appropriate monetary sanction, FINRA said.
"We self-reported this matter and are pleased it’s now behind us," said Jessica Francisco, a spokeswoman for J.P. Morgan Securities, adding that the firm is "committed to having appropriate controls to comply with regulatory requirements."
J.P. Morgan agreed to the sanctions without admitting or denying the charges, according to the settlement.
