JP Morgan Seoul office punished for poor internal control system
J.P. Morgan Chase headquarters in New York /AFP-Yonhap
By Kim Bo-eun
The Financial Supervisory Service (FSS) has directed J.P. Morgan's Korean brokerage unit to improve its internal control system.
The authority's action came a week ago, after it determined in an inspection conducted last year that the brokerage unit did not have a proper control system monitoring exchanges among affiliates.
The FSS concluded that the brokerage unit intervened in the sales process of structured deposits of J.P. Morgan Chase Bank's Seoul branch.
A structured deposit is a combination of a deposit and an investment product, where the return is dependent on the performance of an underlying financial instrument.
The FSS stated the J.P. Morgan's Korean brokerage unit intervened in the decision-making process of transaction scale and prices of structured deposits of the bank unit here.
The agency also found that records were not kept on meetings with affiliates.
In addition, the unit failed to properly monitor communication between its staff and other units, the FSS inspection showed.
Only one employee checked emails sent and received and the unit did not check J.P. Morgan's in-house messenger system, which was supposed to be a key communication channel among affiliates.
"Concerns exist on the possibility of the unit undertaking processes beyond its boundaries as an investment firm, and providing information that should not be transferred in exchanges with affiliates," the FSS stated.
The authority noted there is a need for better management in promoting investment options offered by an affiliate, and to strengthen internal control to regularly monitor the in-house messenger system and improve record keeping of meetings with affiliates.
The FSS also stated the unit should improve internal control in trading involving affiliates.
The direction by the FSS requires the brokerage to make improvements and provide a report on the matter within six months.
The FSS then reviews whether adequate improvements have been made, and can direct the subject to make further improvements when deemed necessary.
An FSS official said, "Directing a firm to make improvements is a punitive measure as this is made public."
J.P. Morgan's Korean brokerage unit declined to comment on the issue.