Reuters cited persons with knowledge of the review who said JPMorgan Chase & Co. is working with KPMG to better how the American bank oversees its traders as Wall Street struggles with how to identify potential misbehavior during a boom in securities trading.
According to the sources, KPMG is looking into how JPMorgan manages its traders globally throughout the bank’s markets division.
JPMorgan Chase Cuts Stake
The bank’s revenue from the purchase and sale of bonds, currencies, and equities increased to $29 billion in 2022, the highest level ever and the greatest among the top five U.S. banks.
The pandemic’s first spike in market volatility and the resulting surge in trading activity at investment banks and securities firms have made it more difficult to manage staff members amid higher levels of buying and selling and significant price swings.
Market volatility is measured by the CBOE Volatility Index, which is still higher than it was before the pandemic.
When Reuters questioned JPMorgan why it had recruited KPMG, JPMorgan responded: “We invest heavily in our compliance and surveillance systems and often engage third parties to benchmark our capabilities.”
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Warning And Alerts
Investment banks’ compliance teams that supervise traders rely in part on the warnings and alerts from automated systems to identify and stop any wrongdoing that, if undiscovered, might cost the banks money and attract regulatory attention.
JPMorgan signed a three-year deferred prosecution deal with the US in 2020 and agreed to pay a $920 million fine for market manipulation at its trading desks in New York, London, and Hong Kong. Office of Justice.
When there are plausible reasons to suspect bad intent, such as potential insider selling or market manipulation, banks are obligated to alert watchdogs about suspicious transactions as part of their duties to regulators.
One such incident occurred in September 2022 when the British government bond market was shaken by extreme tax-cutting proposals from former UK Prime Minister Liz Truss. One of the sources claimed that JPMorgan’s traders received a deluge of compliance alerts as a result of the volatility in UK government bonds, or gilts.
According to a second source, KPMG has conducted an analysis of the technologies the financial sector is employing to monitor trading and is now advising JPMorgan on how to modify its systems.
In some trading locations, fewer alarms are being sent to compliance departments as a result of improvements that are already being evaluated, according to the first source.
The Financial Conduct Authority in Britain said in its most recent data that the number of so-called suspicious transaction and order reports financial services businesses flagged to the regulator to identify potential hazards climbed by 15% in 2021 compared to the previous year. The FCA research reveals that potential insider trading appeared to be the most prevalent threat.
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