JPMorgan Commingles Client Funds: UK Issues Fine, But Lawyers Get Disbarred

The U.K.’s Financial Services Authority slapped JPMorgan (NYSE: JPM) a record £33.3M ($48.9M) fine for commingling billions of dollars of its clients’ money with the bank’s for nearly seven years. Under the FSA’s client money rules, firms are required to keep client money separate from the firm’s money in segregated accounts with trust status.

Legal bar associations promulgate the same type of rules for licensed lawyers. However, a breach of these rules in the legal field is one of, if not the most, scandalous transgressions a professional can make.

When I clerked at the Florida Supreme Court, I focused on attorney disciplinary actions. Commingling client and firm funds was almost always an automatic disbarment from legal practice — the harshest penalty a lawyer can face besides going to jail.

In the case of JPMorgan, the FSA is barking much louder than its bite. The financial services regulator warns, “This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules.”

However,  the fine does not reflect the risks to client accounts had the bank gone bankrupt. In the event of insolvency, client funds would not be protected. Therefore, it is in customers would have prospectively lost much more than $50 million.

As in the legal profession, financial services firms have a fiduciary duty to clients which entrust them with money. Given the extraordinary number of scams and frauds perpetrated in the financial industry (Bernie Madoff, Allen Stanford, Tom Petters, Scott Rothstein, etc.), regulators must absolutely forbid the commingling of client and fiduciary funds. In order to publish trust in the financial services industry, these transgressions should be reason for financial services firms to lose their licenses to do business.