The Financial Industry Regulatory Authority (FINRA) announced it has fined J.P. Morgan Securities, LLC $1.25 million for failing to conduct timely or adequate background checks on approximately 8,600, or 95 percent, of its non-registered associated persons (NRAs) from January 2009 through May 2017. Additionally, FINRA found that for more than eight years, J.P. Morgan did not fingerprint approximately 2,000 of its NRAs in a timely manner, which prevented the firm from determining whether those persons might be disqualified from working at the firm. In addition, the firm fingerprinted other NRAs, but limited its screening to criminal convictions specified in federal banking laws and an internally created list. In total, the firm did not appropriately run background checks and fingerprinting on 8,600 NRAs for all felony convictions, and or for disciplinary actions by financial regulators.
As a result in the failure to run adequate background checks or fingerprints on NRAs, FINRA found that four individuals who were subject to a statutory disqualification because of a criminal conviction were allowed to associate, or remain associated, with the firm during the relevant time period. One of the four individuals was associated with the firm for 10 years; and another for eight years.
Ultimately, FINRA noted that 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. Federal banking laws require banks to conduct similar checks on banking employees using a more limited list of disqualifying events.
Susan Schroeder, Executive Vice President of FINRA’s Department of Enforcement, said, “FINRA member firms play an important gatekeeper role in keeping bad actors from harming investors. 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.”
It was noted that in determining the appropriate monetary sanction, FINRA considered J.P. Morgan’s cooperation in self-reporting and undertaking a plan to address the violations. Finally, in settling this matter, J.P. Morgan neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.