FSA 'powerless' over JP Morgan

British regulator may be unable to act against US bank despite huge losses in London

British regulators may be powerless to act against JP Morgan over its chief investment office's huge, loss-making positions in credit derivatives because of the bank's structure, The Independent has learned.

Because JP Morgan's businesses are branches, UK authorities have only limited powers to act, with almost all authority resting with US watchdogs located more than 3,000 miles and several time zones away.

That stands in stark contrast to banks like HSBC. Its overseas operations are subsidiaries which have to be authorised by local watchdogs and must comply with their rules on capital.

The affair threatens to reignite a debate about whether banks should be forced to follow a model similar to that of HSBC, kicked off by the collapse of Icelandic banks such as Landsbanki. Its British branches were effectively exempt from Financial Services Authority (FSA) scrutiny.

The news came as fresh evidence of the size of the trading positions built up by JP Morgan's London-based chief investment office emerged in filings with US watchdogs.

According to Reuters, filings with the US Federal Reserve show that the bank's position in credit default swaps – a type of insurance taken out on the debt of other companies – surged eightfold from a net $10bn (£6.37bn) at the end of 2011 to a net $84bn at the end of the first quarter of this year.

That is a huge leap and supports rumours about the nature of the enormous positions built up in such contracts by Bruno Iksil, the so-called "London Whale". JP Morgan recently admitted that they had lost more than $3bn, and rising.

Analysts were goggle -eyed at the figures, which they described as huge even for a bank the size of JP Morgan.

Experts have warned that it will take JP Morgan a long time to wind down the positions because the type of contracts it has bought – or gone long on -– are not easily tradeable.

The bank's chief executive, Jamie Dimon, has admitted the bank may be in the "long haul" over the positions.

JP Morgan is now facing investigations from a number of US regulators.

The FSA has known about the positions for more than a month. Yesterday it would not comment on whether it had ordered the bank to commission a section 166 report on the trading. These reports can cost as much as £1m and tend to be compiled by teams from one of the big four accountancy firms.

However, even if the report reveals that the trading strategy was questionable, it is not clear if the FSA would be able to take any action. Sources close to the regulator admitted its powers were limited by JP Morgan's use of branches rather than subsidiaries.

The limited powers of national regulators to supervise the branches of foreign banks were highlighted by Lord Turner in his review into the financial crisis. Landsbanki was supervised out of Iceland and the FSA had few powers to act under EU law. Lord Turner has called for greater international co-operation among regulators.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The teaser trailer has provoked more questions than answers
filmBut what is Bond's 'secret' that Moneypenny is talking about?
News
Johnny Depp is perhaps best known for his role as Jack Sparrow in Pirates of the Caribbean
peopleBut how did he break it?
Arts and Entertainment
Paul Walker and Vin Diesel in Fast and Furious 5
film
Sport
Lewis Hamilton secured his second straight pole of the season
f1Vettel beats Rosberg into third after thunderstorm delays qualifying
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss