U.K. regulators have told JPMorgan Chase to review how the firm manages its operational risk as the Prudential Regulation Authority intensifies its scrutiny of the reporting processes of banks it supervises.
JPMorgan has been instructed to commission a section 166 review, which typically involves appointing a consultancy to analyze the accuracy of regulatory reporting, according to people familiar with the situation, who asked not to be named discussing private matters. The reviews can lead to reports recommending changes, which in some cases can prove large-scale and expensive.
A spokesman for the bank declined to comment. The Bank of England’s PRA, which supervises banks, said it doesn’t comment on individual reviews. The PRA has also ordered HSBC Holdings to conduct a
The PRA told banks in January that it was increasing its use of section 166 reviews, having previously raised concerns about regulatory returns. “Multiple firms did not treat the preparation of their regulatory returns with the same care and diligence that they apply to financial reporting shared with the market and counterparties,” PRA officials David Bailey and Rebecca Jackson said in a letter to chief executive officers in September.
In the year through February 2020, the PRA commissioned 29 reviews of firms including banks, investment firms, clearinghouses and insurers on topics such as governance, individual accountability and information management. The number fell to 17 the following year as the regulator paused some work amid the pandemic.
The cost of a skilled person review in 2019 to 2020 ranged between 86,000 pounds ($112,247) and 4.2 million pounds. That doesn’t include the cost of remediation.
The PRA has a focus on operational resilience, which includes the ability of firms, their groups and the financial sector as a whole to prevent, respond to, recover from and learn from disruptions. The regulators’ approach is based on the assumption that disruptions will sometimes prevent firms from functioning as usual.
