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Ethical Issues in GP Morgan Chase & Co Investing and Trading Operations

Paper Type: Free Essay Subject: Accounting
Wordcount: 3289 words Published: 23rd Sep 2019

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Ethical Issues in GP Morgan Chase & Co Investing and Trading Operations


Cover Sheet: Non-Anonymous Marking

1) Weak Management

2) Internal Control Issues

3) Inexperienced & Unqualified Personnel

4) Conflict of Interest

5) Poor Regularity and Corporate Governance

6) Integrity

7) Money Laundering

Conclusion and Recommendations

Executive summary

The aim of this report is to investigate the breaches of ethical conduct by JP Morgan Chase and Co in relation to its trading and investing activities. To come to conclusions and recommendations we took into consideration bank’s market manipulation of its FX trades, money laundering activities, insider trading, etc.in the UK and Europe.

This report will provide recommendations and possible solutions to the current ethical and business conduct issues on JP Morgan’s everyday operations and activities.


 The main objective of this report is to investigate the practices of banks and financial services firms in relation to their ethical conduct of business to the clients, marketplace and regulatory bodies.

As an example of our subject analysis we investigated trading and investment activities of an American multinational investment bank JP Morgan Chase & Co as it is a prominent representative of the wild-variety of world’s investment banks and other financial services’ providers.

Ethical behavior is one of the crucial parts of any financial services’ organization.

It is very important for clients and society in general to conduct any trading or investment business in compliance with government regulations and guidelines in order to create trustworthy business relationships.

JP Morgan Chase & Co is an American multinational investment bank and financial services company with its headquarters in New-York, USA. It is the sixth largest bank in the world and its total assets comprised of $2533.6 billion as of 2017 (statists, 2018)

The bank also operates in UK from its London branch in Canary Wharf. It engages in securities trading and brokerage activities, provides services in investment banking, asset management, financing, etc. 

In years of 2013 and 2014 the bank was investigated by UK Financial Conduct Authority (FCA) in relation to its serious failings in the Chief Investment Office (CIO).

FCA is the UK regulatory body which oversees the conduct of financial services firms and monitor financial markets. All the financial services firms in the UK are responsible for implementing adequate measures of ethics imposed by FCA.

FCA has the powers to sanction the companies which are in breach of code of conduct including the right to impose a penalty and make a public statement. It also has the power to investigate and take disciplinary action against the firm which was the case for JP Morgan Chase & Co.

Insider Trading Case

In years of 2013 and 2014 it was investigated by UK (FCA) in relation to its serious failings in its Chief Investment Office (CIO).

JP Morgan’s conduct demonstrated failings in relation to Principles 2, 2, 5 and 11 of the FCA’s Principles for Business which are essential obligations firms have under the regulatory system.

The breaches concerned failures related to trading losses in the firm’s Synthetic Credit Portfolio (SCP), a trading portfolio managed by firm’s Chief Investment Office in London.

The breaches occurred in connection with the $6.2 billion trading losses sustained by CIO in 2012(FCA Press Releases, 2013).

This case is famously-known as the “London Whale” trades which losses aroused by a high-risk trading strategy, weak management of the trading and an inadequate response to important information which should be noticed by firm of the huge risk present in its Synthetic Credit Portfolio.

Because of the trading activity by JP Morgan’s CIO two of its former employees faced criminal charges and the bank admitted violating securities laws and agreed to pay fines of more than $1 billion, of which fines imposed by FCA were of $352 million (FCA Press Releases, 2014).

FX Market Manipulation Case

The FCA findings showed that JP Morgan Chase & Co was involved with spot FX benchmarks manipulation (known as “fixes”), which are used to establish the relative value of two currencies, with other major banks. Fixes are used by many companies to value assets or manage currency risks (FCA Final Notice, 2014).

The FCA’s investigation focused on the G10 currencies, which are the most widely-used and systemically important, and on the 4pm WM Reuters and 1:15pm European Central Bank fixes.

FX market is one of the largest and liquid markets in the world with around 40% of deals taking place in London.

It was found that between 1 January 2008 and 15 October 2013 the Banks did not exercise adequate and effective control over their G10 spot FX trading businesses. For example, policies were high level and firm-wide in nature, there was insufficient training and guidance on how these policies applied to this business, oversight of G10 spot FX traders’ conduct was insufficient, and monitoring was not designed to identify the behaviors found in the FCA investigation.

The traders acted in their banks own interest without proper considerations of their clients’ interests, other market participants or the wider UK financial system.

Traders at different banks formed tight groups and used chart rooms to share information about clients’ activity without naming them.

Traders shared the information obtained through these groups to help them to work out their trading strategies. They then attempted to manipulate fix rates and trigger client “stop loss” orders (which are designed to limit the losses a client could face if exposed to adverse currency rate movements). This involved trader attempting to manipulate the relevant currency rate in the market, for example, to ensure that the rate at which the bank had agreed to sell a particular currency to its clients was higher than the average rate it had bought that currency for in the market. If successful, the bank would profit.

Firms can legitimately manage risk associated with client orders by trading in the market and may make a profit or loss as a result. It is completely unacceptable, however, for firms to engage in attempts at manipulation for their own benefit and to the potential detriment of certain clients and other market participants.

From the examples above it is clear that the factors which contributed to the misconduct of JP Morgan Chase are the following:

1)     Weak Management

2)     Internal Control Issues

3)     Inexperienced and Unqualified Personnel

4)     Conflict of Interest

5)     Poor Regularity and Corporate Governance

6)     Integrity

7)     Money Laundering

We are going to discuss the above threats of ethics and their implications on company financial operations in more details.


1) Weak Management

One of the reasons of the huge trading losses is a weak management of the bank. The senior management did not take reasonable steps to avoid such excruciating situations. Management fail to handle the grim circumstance, so the matter went out of control and due to unethical behavior of management, JP Morgan trading losses regarding its CIO (Chief Investment Office) operations became worse.

The poor management of company deters the company financial operations. Weak management will not respond accurately the CIO (Chief Investment Office) Trade and it made the bad impact on company reputation.


2) Internal Control Issues

The internal controls of JP Morgan are very weak in sense of its portfolio and illiquid market. These inadequate controls represent the poor performance of the company in banking sector. Insufficient controls of company affect its reputation.

Due to poor controls, company involved in the risky derivatives which increase the loss of the company and it is against the standards of ethics to not adopt the right strategy in company operations. Investors became reluctant to invest in this risky company, so it could deter the company financial operations.


3) Inexperienced & Unqualified Personnel

The staff and senior management of the JP Morgan is very inexperienced to take the pressure from the risk strategy. The task force team for the risk management process was inadequate and failed to implement proper strategy into bank’s operations.

Task officer did not take necessary steps to improve the risk management process because he didn’t have abilities to absorb the pressure from market, so he has totally failed to control the trading investment.

As an example, JP Morgan appointed a new member for the CIO (Chief Investment Office) but he was inexperienced and didn’t have specific skills to cope with the issues of risk management process and he was also involved in the insider trading, so this would further deter the financial operations of the company. Furthermore, the staff irresponsible behavior affects the credibility of the company.

4) Conflict of Interest

There were two teams involved in the risk management process. Their roles and responsibilities differ from each other. One team was looking after the operations of risk management and one was responsible for investment so there was conflict of interest between them due to the return on investment to reduce the risk.

This issue increased with the passage of time and no one didn’t try to resolve this conflict which affected the further operations of the company.

Both teams were trying to increase their investment and profit so their wish to deceive each other deteriorated the financial operations of the company


5) Poor Regularity and Corporate Governance

There are lot of flaws existed in the corporate governance of the JP Morgan. For example, there was no threshold set for the portfolio of the CIO’s Synthetic Credit Portfolio which is against the regularity rules. The reporting lines were deficient due to lack of meetings, so no daily reporting is occurred to implement some good controls over the portfolio of the CIO. Senior management was not involved in the activities of the company which further worsen the position of the company. There was no risk committee made to overview the risk of the portfolio and the research methods were very limited and outdated which is against the code of ethics. The management was unaware of the new models of analysis. Due to the lack of corporate governance, the operations of the company became worse. Poor management and controls increased the risk of company. Poor reporting lines reduced the confidence level of traders.

6) Integrity

Integrity is to give transparent information to the regularity bodies in a best way to achieve and maintain the highest standards of professionalism and code of ethics

JP Morgan faced many trading losses and they tried to conceal these losses from the regularity bodies to present good position of the company. The amount of losses was too much so JP Morgan hides these details with the FCA (Financial Conduct Authority) to avoid from the penalty which is ethically illegal and against the standards of professionalism. 

The implications of integrity threat reduce the confidence level of investors and markets on JP Morgan because JP Morgan hides their poor position.

Companies become reluctant to invest in JP Morgan and their reputation will be affected in market due to low level of transparency and honesty so to not present company true position will deter the JP Morgan image in Global Financial Market and this thing would affect their future financial operation.

7) Money Laundering

JP Morgan failed to adopt the fair trail of money in its operation and involve in the money laundering activities which could make bad impact upon on its operations.

JP Morgan transferred hundreds of million dollars from one account to another account unethically through the layering process of money laundering which hide their true origin of money.

Conclusion and Recommendations

It is JP Morgan responsibility to disclose all the information to the global market and regularity authorities to present the true and transparent position of the company financial operation so by taking some steps, JP Morgan regain their confidence into the market.

In order to prevent weak management incidents good strategy should be put in place in accordance with current guidelines and regulations which in its turn will promote efficient operations of the company. This is entirely lying on senior management team.

Also, senior management team should implement good internal control, so company will use balanced mechanisms in trading and investing in order to avoid heavy losses and make company more efficient.

Employing highly qualified and competitive personal is very important to overall functioning of the company. So, strict selection techniques should be implemented in personnel hiring process.

The conflict of interest should be resolve by board on timely basis to avoid further loss. There should have been clear separation of departmental responsibilities and roles. There are some reporting lines between their profits, so both could have worked separately on operations of own department to maximize the good position of company.

The corporate governance impact is very important, and their role could not be neglected in corporate world so poor corporate governance could deteriorate the financial activities and operations of company.

There should have been proper daily reporting on the activities of the company. Company should follow the regulatory bodies and adopt the best corporate governance rules. Risk committee should be made to avoid the riskiest area of the company operations. A proper limit should be set on the portfolio.  Also, seminars should be conducted to familiarize the staff with new techniques and models to make operations effective on daily basis.

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In order to prevent money laundering the MLRO (Money laundering reporting officer) should be appointed. Staff should be trained on recognizing suspicious activities which might be the case of money laundering operations. It is also advisable to keep the records of the company operations up-to-date to refer quickly to the incidents if it is the case of money laundering investigation. 


-          https://www.nytimes.com/2017/12/21/business/jpmorgan-money-laundering.html


JP Morgan fined by the FCA in 2013 and 2014 and these figures are material.

We draft a chart to give a comparison of their fines.


















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