ECB imposes €12.18 million penalty on J.P. Morgan for capital misreporting
The European Central Bank has imposed two administrative penalties totalling €12.18 million on J.P. Morgan SE for misreporting risk-weighted assets and understating capital requirements.
€12.18 million for reporting failures
The European Central Bank has imposed two administrative penalties totalling €12.18 million on J.P. Morgan SE.
The sanction follows the bank's misreporting of risk-weighted assets (RWA) between 2019 and 2024. Specifically, for 15 consecutive quarters, J.P. Morgan misclassified corporate exposures, applying a lower risk-weight for credit risk than prescribed by banking rules.
Additionally, for 21 consecutive quarters, the bank unduly excluded certain transactions when calculating RWA for its credit valuation adjustment risk.
These breaches led to the bank reporting lower RWA than it should have, consequently presenting higher capital ratios.
The ECB classified the credit risk breach as 'severe' and the CVA risk breach as 'moderately severe' according to its penalty guide.
The bank committed these breaches with serious negligence, stemming from evident deficiencies in its internal processes and a failure of timely detection by internal controls.
Supervisory action for internal deficiencies
The misreporting prevented the ECB from gaining a comprehensive view of J.P. Morgan's true risk profile.
Risk-weighted assets are fundamental for banks to calculate their capital requirements, and capital ratios are crucial indicators of a bank's financial strength and capacity to absorb losses.
By underestimating its RWA, the bank presented an inaccurate picture of its capital position.
The ECB's decision to impose penalties underscores the importance of accurate and timely reporting for effective banking supervision.
J.P. Morgan SE retains the right to challenge the ECB's decision before the Court of Justice of the European Union, as provided by relevant EU regulations governing the ECB's supervisory powers.