US bank J.P. Morgan has been hit with a $2.4m civil penalty by the Monetary Authority of Singapore (MAS) for failing to prevent and detect misconduct committed by its relationship managers.
The relationship managers had made “inaccurate or incomplete disclosures to clients”, judged the MAS in relation to 24 over-the-counter bond transactions.
This mishandling resulted in clients being charged spreads that were above the bilaterally agreed rates. This follows MAS’ review of pricing and disclosure practices in the private banking industry, with a particular emphasis on over-the-counter bond transactions.
Investigations found that for over-the-counter bond transactions, J.P. Morgan’s was charging clients a spread over the interbank prices. As the interbank prices were not available to clients, they had to rely on the relationship manager’s representations to them regarding the interbank prices and spreads.
The US bank did not establish adequate processes and controls to ensure that its relationship managers’ adhered to pre-agreed spreads with clients when executing over-the-counter bond transactions on their behalf, according to MAS.
The Singapore authority sampled these bond transactions conducted by J.P. Morgans’ relationship managers found that in the 24 transactions, they had either misrepresented the price components or omitted material information that the spreads charged were above the agreed rates.
J.P. Morgan has admitted liability under section 236C of the Securities and Futures Act (SFA) for its failure to prevent or detect the misconduct by its relationship managers and has paid MAS the $2.4m civil penalty.
The bank has refunded the overcharged fees to affected clients and has also enhanced its pricing frameworks and internal controls to prevent the recurrence of such misconduct.