JPMorgan’s $1 billion compliance costs, and more (#Sibos 9)

It’s SIBOS day three, and the body is complaining already about the massive abuse to its system.

The late nights and early mornings, combined with zero food and a nearly 100% liquid diet, is taking its toll.

But hey, real bankers don’t do lunch (or dinner or breakfast), so live with it.

Yes, it’s mid-SIBOS when half the audience look like zombies and the other half are zombies, but that’s banking for you.

Now down to the nitty gritty.

A great night to begin with at the world’s highest restaurant 123-stories up the Burj Khalifa.

The restaurant is called At.mosphere and by the end of the evening, there was a very good one.

All smiles and handshakes, hugs and kisses and then back to grab a short sleep before beginning some early morning interviews.

First stop is with Franco, the HSBC barista, who apologises that there is no milk this morning so it’s black coffees all around.

No worries.  Eyes opened and adrenalin starting to kickin, I visit with a top secret discussion behind
the back of the Standards Forum to find out if my Mission Impossible: FIX Protocol mystery can be solved.  I’ll tell you the answer to that one on Monday, as there is still some discussion to be had on that area.

Then it’s off to find some WiFi and, just as I’m on my way over to the conference hall, I happen to spot the front page story of the snoozepapers is all about Jamie Dimon spending $1 billion on compliance in the last year and calling for all staff to simplify things.

Running by the JPMorgan stand, I notice a copy of the memo sent to the troops so here it is in condensed form (if you want to read the whole memo to staff,
download the Jamie Dimon memo):

Message from Jamie Dimon

Dear colleagues

I hope you all enjoyed your summer and were able to spend some quality time with your friends and family. Unfortunately, we are all well aware of the news around the legal and regulatory
issues facing our company, and in the coming weeks and months we need to be braced for more to come. In this note, I will discuss in detail how we are aggressively tackling these challenges.

We are ensuring that our systems, practices, controls, technology and, above all, culture meet the
highest standards. We have made changes in our organizational structure to ensure we get this done properly and as soon as possible. Eventually, most of these new processes will be embedded permanently in how we conduct our business. Here are just some of the critical steps that we have already taken.

1. Simplifying our business

One key initiative across our enterprise has been to simplify our business and to refocus our priorities. On the business side, we have been asking our senior people to eliminate products and services that are not essential to serving our customers and are not core to our business. We recently announced that we will be exiting the student lending origination business and most of the physical commodities sales and trading business. Additionally, we no longer sell identity theft
protection and credit insurance to customers. 

While we will continue to focus on serving our clients properly around the world, we will strengthen our controls—particularly around "Know Your Customer" and transaction monitoring—to better protect our company and our country.

We have also taken tangible steps to improve our oversight of outside vendors. If a vendor or partner engages with our customers, we need to be as vigilant about their practices as we are about our own, particularly if they interact directly with customers.

We are also proactively trying to decrease the number of vendors we have, which reduces complexity in our business and creates more jobs internally.

2. Adding resources and training

We will have increased the number of employees dedicated to our control efforts (Risk,  Compliance, Legal, Finance, Technology, Oversight & Control and Audit) across the entire firm by 4,000 employees since the beginning of 2012 (including adding 3,000 in 2013 alone).

We have increased our total spend on controls by about $1 billion this year. For example, we have
dedicated more than $750 million to address several of our consent orders and assigned close to 5,000 people to ensure we meet or exceed all that is expected of us.

We have 500 dedicated professionals and several thousand others contributing significantly to the
resubmission of the Federal Reserve's capital stress test or Comprehensive Capital Analysis and Review (CCAR). These individuals working together developed and reviewed more than 100 new models and sub-models, conducted more than 130 independent assessments, and established new permanent functions and processes to enhance the firm's overall capital planning process.

We have provided approximately 750,000 hours of Regulatory and Control-related training to
employees across our franchise, on topics ranging from how to understand new regulations such as Dodd-Frank, to Anti-Money Laundering (AML) training for Operations employees.

We are also deploying unprecedented resources, dedicating senior managerial time and prioritizing efforts to build and maintain an industry-leading AML program. We've made  progress in strengthening our ability to measure AML risk, are improving how we onboard clients
and perform customer due diligence, and are enhancing how we monitor client transactions to detect potentially suspicious activity. The AML teams must be empowered to make decisions swiftly as we review and adjust our company's risk appetite for certain types of clients to meet our enhanced standards.

3. Utilizing technology in this effort

We have increased spending on technology in the Regulatory and Control space by 27% since 2011. We have built a state-of-the art control room in our corporate headquarters to provide streamlined data analysis and reporting capabilities of control and operational risk data across the firm.

In closing, all the steps outlined above represent an unprecedented effort for our firm. Never before
have we focused so much time, effort, brainpower, technological power and money on a
single, enterprise-wide objective. Make no mistake—we are going to get this right.

You better, as rumours tell me that you're about to pay $800 million in fines to the SEC and Federal Reserve over the London Whale losses.

$6 billion lost in trading errors, $800 million in fines and $1 billion on compliance is a big ticket for big bank ... and the goods news for my mates is the 27% increase in tech spend, and more to come.  That's good for all the tech firms out there who offer AML, KYC and compliance solutions, but watch out as the bank proactively decreases the number of vendors we have. 

Great stuff … luckily I’m now off to a regulation briefing about how banks are rebuilding trust, so I’ll share that with you Jamie upon return.