JP Morgan slapped with record fine

According to the UK regulator, if JP Morgan had become insolvent during this time, substantial amounts of client money would have been at risk of being lost.

Margaret Cole, FSA director of enforcement and financial crime, said the fine would serve as a warning to other firms of the need to keep clients' cash separate.

"The FSA has repeatedly emphasised the importance of ensuring that client money is adequately protected," she said.

"Despite being one of the largest holders of client money in the UK, JP Morgan Securities failed to do so.

"This penalty sends out a strong message to firms of all sizes that they must ensure client money is segregated in accordance with FSA rules."

Following the collapse of Lehman Brothers during the financial crisis, firms' adherence to rules regarding the need to segregate client money has been under scrutiny.

The FSA sent out a warning shot to the industry last year after discovering that a number of firms had not ring-fenced the cash adequately.

It has set up a new unit within the regulator to specifically supervise client money and added it had "several more cases in the pipeline".

However, in this case the FSA said that JP Morgan self-reported the breach - a move that saw its fine reduced by 30%.

The firm alerted the regulator after discovering last July that its UK arm JP Morgan Securities had not been segregating client money held overnight by its futures and options business since November 2002.

The error happened following the merger of JP Morgan and Chase Manhattan in late 2000, after which the bank had to integrate a large number of different systems and processes.

During the time of the breach, JP Morgan held anywhere between £1.3bn and £15.7bn of client money - generally cash from other banks and City institutions.

The FSA assured that no clients of JP Morgan suffered losses as a result of the breach, nor was there any incorrect financial reporting by the bank.