US regulators on Monday night ordered JP Morgan to improve its control functions after multimillion-dollar losses on trading positions.
After the losses, which eventually reached $6bn (£3.7bn), were first announced by the US bank in May, it became known as the "London Whale" incident and was said to have taken place in a trading operation known as the bank's "chief investment office"(CIO).
The Financial Services Authority said it had referred the matter to its enforcement division as regulators in the US ordered the Wall Street bank to strengthen its internal systems and controls.
The FSA, the City regulator, said: "In addition to its extensive supervisory agenda, the FSA is continuing to conduct a formal enforcement investigation into the trading losses. Conclusions will be reached in the enforcement investigation in due course and any further appropriate action determined at that time".
The US regulator, the Office of Comptroller of the Currency, said it had conducted "several targeted exams" and listed "deficiencies" in the so-called chief investment office, including "inadequate oversight and governance to protect the bank from material risk, inadequate risk management processes and procedures, inadequate control over trade valuation, inadequate development and implementation of models used by the bank".
The OCC issued a so-called cease and desist order as it also cited inadequate internal audit processes.
The US Federal Reserve gave 60 days to submit a plan to enhance its risk management. The way top executives are paid also needs to be reviewed to take account of "adverse risk outcomes and control deficiencies".
The Fed also issued another order against JP Morgan requiring it to take corrective action to enhance its programme for compliance with the bank secrecy act and other anti-money laundering requirements at various subsidiaries.
The CIO where the problems are understood to have occurred involved the arcane $10 trillion credit default swaps markets, a type of insurance against companies defaulting, one an index of 125 companies including Campbell's Soup, Time Warner and Walt Disney.
Thomas Curry, of the OCC, said in June that the so-called CIO had "inadequate risk management" while the bank's high-profile chief executive, Jamie Dimon, had been left embarrassed by the losses that occurred only months after he dismissed reports about the trading activities.
Dimon – who until the "London Whale" debacle had been regarded as having escaped the financial crisis with his reputation relatively unscathed – is now expected to be stripped of part of his bonus following the publication of the bank's results later this week.
JP Morgan neither admitted or denied the findings but said it had "already made progress" in dealing with the matters raised. The bank said there were no allegations of "intentional misconduct by the firm or any of its employees".
