The European Central Bank has imposed two administrative penalties totalling €12.18 million on J.P. Morgan SE after identifying prolonged misreporting of risk-weighted assets (RWAs). The breaches, spanning from 2019 to 2024, involved the bank reporting lower RWAs than required under prudential rules.
For 15 consecutive quarters, the institution misclassified certain corporate exposures and applied lower credit risk weights than prescribed by regulation. In addition, for 21 consecutive quarters, it excluded specific transactions from the calculation of RWAs related to credit valuation adjustment (CVA) risk — a measure capturing potential losses from counterparty defaults in derivative contracts.
According to the ECB, both breaches were committed with serious negligence and were driven by deficiencies in internal processes. The supervisory authority determined that the bank’s control mechanisms failed to detect the errors in a timely manner, resulting in inaccurate reporting to regulators.
Takeaway
Why Risk-Weighted Assets Matter For Capital Strength
Risk-weighted assets form the foundation of a bank’s capital adequacy framework. They determine the amount of regulatory capital a bank must hold relative to the risks on its balance sheet. By underestimating RWAs, a bank effectively reports stronger capital ratios than warranted, potentially overstating its capacity to absorb losses.
Capital ratios are central to the Basel framework and serve as key indicators of resilience during market stress. Inaccurate RWA calculations can distort supervisory assessments and impair regulators’ ability to evaluate systemic risk exposure across institutions.
The ECB classified the credit risk breach as “severe” and the CVA-related breach as “moderately severe” under its penalty methodology. While the financial penalty is modest relative to the scale of a global banking group, the classification carries reputational and supervisory weight.
Takeaway
What This Signals About ECB Supervisory Priorities
The decision underscores the ECB’s strict stance on prudential compliance and internal governance standards. By emphasising “serious negligence,” the regulator signalled that prolonged control failures — even absent intentional misconduct — fall within the scope of enforcement.
Supervisory focus on data quality and reporting accuracy has intensified in recent years, particularly for systemically important institutions. Regulators increasingly expect banks to maintain robust internal validation processes capable of identifying misclassifications and calculation errors before submission to supervisory authorities.
The bank retains the right to challenge the decision before the Court of Justice of the European Union. Any appeal could potentially shape legal interpretation of supervisory classifications and penalty frameworks. In the meantime, the sanction reinforces the ECB’s zero-tolerance approach to lapses that compromise the transparency of capital adequacy reporting.
Takeaway
While the monetary amount is limited in scale for a major international bank, the broader message is clear: capital reporting accuracy remains a core pillar of supervisory trust. Prolonged deficiencies in internal controls, even at sophisticated institutions, are unlikely to escape regulatory sanction.
The case also highlights the complexity of RWA frameworks, particularly in areas such as CVA risk and derivative exposure classification. As prudential standards evolve, banks may need to invest further in automated controls, validation tools, and governance oversight to reduce operational risk in regulatory reporting.
In an environment where supervisory authorities are closely monitoring systemic resilience, enforcement actions tied to capital adequacy calculations are likely to remain a focal point of European banking oversight.
