Compliancex

The Wall Street Journal reports that JP Morgan’s lead regulator, the Office of the Comptroller of the Currency (OCC), is investigating the company to determine if the firm offered adequate information and disclosures concerning its trading activities in the time period prior to the huge $2 billion trading loss:

Comptroller of the Currency Thomas Curry says the OCC plans to review its response to J.P. Morgan’s trading activities. The agency plans to probe if the information available to examiners was sufficient to “permit an understanding of the risk” in the trades. “We will also determine what, in retrospect, the OCC could have done differently.”

Major global investment banks such as JPMorgan are subject to the oversight of an array of regulators including the OCC, Federal Reserve Bank, Securities and Exchange Commission, FINRA, CFTC, and other regulatory agencies. Regulators conduct routine examinations and audits as well as specific inquiries and focused reviews. Major money center banks may also have the regulators actually work at the firm’s physical headquarters. They will be provided their own offices and continually review the firm.

This ongoing, daily onsite continual review is not reserved for companies that are alleged to have committed any transgression but are standard operating procedures. It appears that the OCC is digging into previous statements, misstatements, and lack of statements to regulators that may occurred while they were on JP Morgan’s premises.

The OCC and other regulators find themselves in a precarious place. Either they didn’t effectively execute their examinations and oversight responsibilities, or they may ultimately contend that they did indeed conduct appropriate exams but were not provided honest information and data from JP Morgan. What result do you think the regulators will produce?

My bet, the regulators will state that they did their jobs perfectly and JPMorgan did not provide or disclose “certain” data and or information which adequately detailed their trading strategies, positions held, and the extent of the risks attendant with the trading strategies. Look out for a regulatory action 2 to 5 years from now after the public has forgotten about the matter and a million dollar fine paid by the company while not admitting or denying any guilt.

Comptroller Sees Risk-Management Breakdown at J.P. Morgan

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