The Central Bank has fined and reprimanded JP Morgan Administration Services (Ireland) Limited €1.6 million for regulatory breaches relating to the outsourcing of fund administration activities.
JPMAS, an investment business firm, is a wholly owned subsidiary of JP Morgan Bank (Ireland), which is itself a subsidiary of US banking giant JP Morgan Chase & Co.
It admitted to failing to obtain prior regulatory approval to outsource the activities and to have adequate control systems to ensure it satisfied outsourcing requirements for fund administrators.
The Central Bank said as a result of these failings, JPMAS did not always have a clear understanding of, and controls around, its outsourcing arrangements.
It said this undermined the ability of the firm to effectively identify and manage the risks associated with its outsourcing arrangements.
Its failings also undermined the Central Bank's ability to properly assess, monitor and supervise JPMAS's outsourcing of regulated activities.
The Central Bank said an aggravating factor in the case was that JPMAS persistently failed to remediate the root causes of these failings despite repeated supervisory intervention by the regulator over a number of years.
According to the Central Bank, outsourcing allows an Irish regulated fund administrator to use a third party to perform fund administration activities that would normally be undertaken by that fund administrator in Ireland.
It allows regulated firms to reduce costs or provide services more efficiently by accessing skills and technologies that may not be available within the firm.
It can also allow firms to provide round the clock services to clients across different time zones, the Central Bank said.
The Central Bank’s Director of Enforcement and Anti-Money Laundering, Seána Cunningham, said that outsourcing plays a key role in the provision of regulated financial services.
Ms Cunningham said it is vital that regulated firms can demonstrate a clear understanding of their outsourcing arrangements, the associated risks and the effectiveness of the governance and risk management measures in place in respect of those arrangements.
She noted that this is the first enforcement action taken by the Central Bank against a fund administration firm in relation to outsourcing failures.
"When firms outsource activities, they do not outsource their responsibilities. It is important for firms to have strong controls in place around the governance and oversight of all outsourcing arrangements to ensure that they comply with all legal and regulatory requirements," the Central Bank director said.
"JPMAS's failures in this case demonstrated unacceptable weaknesses in its outsourcing framework. These weaknesses were further evidenced by the firm’s repeated failures to satisfactorily remediate the issues identified by the Central Bank as part of its supervisory engagement with the firm," Ms Cunningam said.
She said the fine imposed reflects JPMAS's failure to address the root causes of these weaknesses over several years.
The Central Bank had determined that the appropriate fine for JPMAS was €2.286m, which was reduced by 30% in accordance with the settlement discount scheme provided for in its Administrative Sanctions Procedure.