J.P. Morgan Securities LLC (JPMS) has accepted a censure and a $250,000 fine from the Financial Industry Regulatory Authority (FINRA) following admissions of long-running failures in its margin account disclosures, according to a Letter of Acceptance, Waiver, and Consent (AWC) published by the regulator. AWC letters are the standard settlement mechanism FINRA uses to resolve disciplinary matters, allowing firms to resolve cases without a formal hearing.

According to the AWC, a technology change implemented in October 2010 inadvertently caused certain margin credit information to be omitted from account statements sent to customers carrying margin debit balances. The missing details included the annual interest rate charged, the account balance at the end of the interest period, and, where applicable, the average debit balances tied to each interest rate — all disclosures required under Rule 10b-16(a)(2) of the Securities Exchange Act of 1934, which governs the information brokers must provide to customers who borrow on margin. Those requirements exist because margin borrowers bear interest costs that can compound losses, and the SEC-mandated statements are intended to let customers verify the rates and balances they are being charged against.

FINRA found that between October 2010 and February 2024, JPMS failed to include this required information on 56,254 account statements affecting 4,463 customer accounts. Notably, the dollar amount of margin interest charged was consistently disclosed on those statements.

The regulator also determined that JPMS lacked an adequate supervisory system and written procedures to ensure compliance with the rule for approximately 14 years. This supervisory lapse persisted until the firm introduced corrective measures in September 2024. FINRA rules require member firms to maintain supervisory systems reasonably designed to achieve compliance with securities laws, and lapses of this duration are typically treated as an aggravating concern in disciplinary matters, even where the underlying violation was unintentional.

The case originated from JPMS's own self-disclosure to FINRA in March 2024, submitted under FINRA Rule 4530, which requires firms to report regulatory and certain specified events. FINRA cited the voluntary reporting, together with the firm's prompt remediation efforts, as mitigating factors in determining the sanctions.

JPMS settled the matter without admitting or denying FINRA's findings, consenting to the censure and fine as part of the standard AWC process.

Source: LeapRate