Compliance Project-JP Morgan Chase

 Compliance Program for JP Morgan Chase USA

1.Introduction of JP Morgan Chase:

JP Morgan Chase Group was formed in 2000 by the merger of Chase Manhattan Bank and J.P. Morgan, and the acquisition of the First Bank of Chicago, Bear Stearns Bank and Washington Mutual Bank, is now the main commercial bank in the United States. Their Headquarter is in New York, USA, with total assets of 2.5 trillion US dollars, total deposits of up to 1.5 trillion US dollars, accounting for 25% of total US deposits, more than 6,000 branches, is one of the largest financial services institutions in the United States. Their multinational financial services operations are in more than 60 countries, including investment banking, financial transaction processing, investment management, commercial financial services, and personal banking. Their industries sectors are very diversified involving real estate, energy and natural resources, financial institutions, general industrials, telecommunications & technology, and healthcare.

Company governance:

JP Morgan corporate governance mainly focus on three divisions: an independent board, strong internal governance, and alignment with shareholders.

Its board is experienced, independent and accountable to shareholders. In fulfilling the selection of new directors, the Corporate Governance & Nominating Committee periodically reviews the criteria for composition of the Board and evaluates potential new candidates for Board membership. The whole managers in the firm need to respect and obey global policies and standards that typically apply to all relevant units regardless of geography or legal structure. The strength of these global control processes is the foundation of regional and individual subsidiary governance. Three examples of the Firm’s global processes and standards are its risk management structure, policy review process and codes of conduct. Good corporate governance requires that compensation policies align with shareholder interests. JPMorgan Chase’s compensation policy for executive officers emphasizes performance-based, variable compensation over fixed salary and uses equity-based awards to align the interests of executive officers with shareholders.

Stakeholders:

They include clients, employees, investors, business partners, social environment, regulators and market supervision and the natural environment.

Ethical culture:

Inside the company, there is a code of conduct guiding customers, employees, managers, the Board shareholders and regulators to cultivate and conduct their ethical behavior when doing business. New hires must complete Code training shortly after they begin work. All employees are required to complete additional Code training and provide a new affirmation periodically, usually annually.

Suppliers:

JP Morgan Chase has been made efforts to supplier diversity for establishing positive relationships with other companies and organizations that are equally dedicated. Their mission is to align their supply base with their consumer bases; develop and engage with certified and qualified diverse businesses in the interest of promoting economic growth in their communities. Over the past eleven years, JPMorgan Chase spent over $15 billion with diverse suppliers.

2. News and the consequences:

● Financial crisis in 2008: The fraudulent mortgage derivatives JPMorgan and other Wall Street banks sold to investors helped trigger the 2008 financial crisis when the fraudulent loans went bust and no one had enough capital to cover the losses – despite AIG providing insurance in the form of credit default swaps on the mortgage derivatives. After 5 years in 2013, JP Morgan agreed to pay a $13 billion fine to federal and state authorities in order to settle claims that it had misled investors in the years leading up to the financial crisis.

● On May 10, 2012, JP Morgan Chase disclosed that due to the failure of the risk hedging investment strategy, the bank’s risk management department’s Chief Investment Office lost $2 billion in the past six weeks. JPMorgan Chase shares fell all the way on May 11, 2012, and finally closed down 9.3% to 36.96 US dollars, and the market value evaporated by 15 billion US dollars a day. On the same day, in Europe the stock market financial sector fell as well, which is the largest decline in the major sectors.

● In April 2014, the Federal Deposit Insurance Corporation (FDIC) sued the world's 16 largest banks, including the JP Morgan group, that they were suspected of manipulating the London Interbank Offered Rate (LIBOR) and defrauding dozens of banks that are now bankrupt. This is the latest lawsuit that has accused financial institutions of conspiring to manipulate LIBOR. As a

global benchmark interest rate, LIBOR affects the global price of $550 trillion in assets, from financial products such as mortgages to financial derivatives.

● On October 2, 2014, JPMorgan Chase Bank acknowledged that in a recent cyberattack, the information of 76 million home users and 7 million small business users was stolen. It is alleged that hackers in Southern Europe have access to dozens of servers from JPMorgan Chase, stealing personal information such as the name, address, phone number and email address of bank customers, and internal bank information related to these users has also been leaked.

● JP Morgan in 2016 agreed to pay more than $264 million to US authorities to settle charges that it bribed officials in the Asia-Pacific region in order to win business. The charges alleged that JPMorgan gave approximately 100 jobs and internships to friends and family of corrupt government officials, which would be a violation of the Foreign Corrupt Practices Act. The hiring, dubbed internally as a "Sons & Daughters Program," enabled JPMorgan to win business that generated $100 million in revenues for the bank.

3. Identified risk from the news:

Credit risk:

Credit risk is the risk of loss due to due to a counterparty’s inability to meet its financial obligation. Like operational risk, credit risk is an essential element of an organization's enterprise risk management (ERM) and audit practices. During the 2008 financial crisis, their credit risks mainly come from loan portfolios, trade finance, guarantees, other payment commitments and counterparty default risk. Therefore, many banks cannot correctly measure their credit risk then they all went bankruptcy. Counterparty credit risk at JP Morgan is climbing, with an increasing share of its derivatives and repo books now seen as more likely to default. With stricter regulations as a consequence of the recession, JP Morgan banks are more conservative in their lending practices, leading to more prudent levels of risky assets that we can see from their balance sheet.

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