ASIC accepted an enforceable undertaking (EU) from three J.P. Morgan foreign financial service providers:

• J.P. Morgan Securities plc (JPMSPLC);
• J.P. Morgan Securities (Asia Pacific) Ltd (JPMSAPL); and
• J.P. Morgan Securities LLC (JPMSLLC),

collectively 'J.P. Morgan entities'.

The EU was accepted by ASIC following concerns about significant and repeated failures to comply with the disclosure conditions of ASIC exemptions relied upon by the J.P. Morgan entities. The ASIC exemptions provide relief to the J.P. Morgan entities from the requirement to hold an Australian financial services licence (AFSL) under the Corporations Act. The number and duration of these failures demonstrated a systemic weakness in the compliance controls implemented by the J.P. Morgan entities.

The ASIC licensing exemptions required the J.P. Morgan entities to provide written disclosure to all persons to whom financial services are provided in this jurisdiction (before the financial services are provided) containing prominent statements to the effect that:

• they are exempt from the requirement to hold an AFSL under the Corporations Act in respect of the financial services; and
• they are authorised and regulated by relevant foreign regulatory authorities under the foreign laws, which differ from Australian laws.

Under the terms of the EU:

• The J.P. Morgan entities must an appoint an ASIC approved independent expert to review its compliance framework implemented for the disclosure condition of the relevant class order relief, report any deficiencies and make recommendations on how to rectify those deficiencies to ensure compliance with disclosure conditions.
• The J.P. Morgan entities must provide and implement a remediation action plan to address any deficiencies and recommendations from the independent expert's report.  
• The independent expert will assess and test the remedial actions implemented by the J.P. Morgan entities by conducting a hindsight review of the J.P. Morgan entities' compliance with the disclosure conditions one year after the implementation of the remedial action plan.
• Following the hindsight review, the independent expert will report to the J.P. Morgan entities, following which the J.P. Morgan entities must provide and implement a second remediation plan if the independent expert report makes recommendations to do so.

ASIC Commissioner Cathie Armour said: 'It is fundamental to the class order relief granted to foreign financial service providers to disclose to clients that they are exempt from holding an Australian financial services licence and that they are regulated by the relevant overseas regulatory authority.'

'Foreign financial service providers seeking to provide financial services to Australian wholesale clients must ensure that they have adequate and enduring measures in place to comply with all their obligations under the Australian regime. The benefit of class order relief from licensing granted by ASIC will be subject to ongoing compliance with all the conditions set out in these instruments, including the disclosure condition.'

The J.P. Morgan entities have cooperated with ASIC and worked constructively to implement a remediation program to address weaknesses in its compliance framework.

Download the EU

Background

In 2014, the J.P. Morgan entities reported breaches of the disclosure conditions to ASIC. The breaches affected a large number of wholesale clients over approximately six years. In addition to the breaches reported in 2014, breaches of the disclosure condition were also reported by the J.P. Morgan entities in 2008 and, for JPMSPLC in 2005.

JPMSPLC is a financial service provider regulated by the Financial Conduct Authority of the United Kingdom. This entity relies on ASIC Class Order [CO 03/1099] pursuant to s911A(2)(h) of the Corporations Act 2001 to be exempt from the requirement to hold an AFSL.

• In 2014 JPMSPLC reported to ASIC a breach of the disclosure condition. JPMSPLC estimates that 518 wholesale clients have been impacted by this breach over a period of approximately six years.
• In 2008 JPMSPLC reported to ASIC a breach of the disclosure condition in relation to 26 wholesale clients.
• In 2005 JPMSPLC reported to ASIC a breach of the disclosure condition in relation to 21 wholesale clients.

JPMSAPL is a financial service provider regulated by the Securities and Futures Commission of Hong Kong. This entity relies on ASIC Class Order [CO 03/1103] pursuant to s911A(2)(h) of the Corporations Act 2001 to be exempt from the requirement to hold an AFSL.

• In 2014 JPMSAPL reported to ASIC a breach of the disclosure condition. JPMSAPL estimates that 55 wholesale clients have been impacted by this breach over a period of approximately six years.
• In 2008 JPMSAPL reported to ASIC a breach of the disclosure condition in relation to 22 wholesale clients.

JPMSLLC is a financial service provider regulated by the U.S Securities and Exchange Commission, the Financial Industry Regulatory Authority and the U.S. Commodity Futures Trading Commission. This entity relies on ASIC Class Order [CO 04/829] and ASIC Instrument 09-00905 pursuant to s911A(2)(h) of the Corporations Act 2001 to be exempt from the requirement to hold an AFSL.

• In 2014 JPMSLLC reported to ASIC a breach of the disclosure condition. JPMSLLC estimates that 226 wholesale clients have been impacted by this breach over a period of approximately six years.
• In 2008 JPMSLLC reported to ASIC a breach of the disclosure condition in relation to 16 wholesale clients.

ASIC may make public

• the J.P. Morgan entities' compliance with independent expert reports and associated remedial plans
• a summary of the contents of the independent expert reports and associated remedial plans.