The UK’s Financial Services Authority announced Thursday that it has levied its largest fine ever, £33.32 million (US$49 million), against J.P. Morgan Securities Ltd., for failing to properly segregate client money.

Under the FSA’s rules, firms are required to keep client money separate from their own money in segregated trust accounts. However, the FSA says that between November 2002 and July 2009, J.P. Morgan failed to segregate the client money held by its futures and options business with J.P. Morgan Chase Bank N.A. The error, which went undetected for almost seven years, occurred following the merger of J.P.Morgan and Chase.

“ J.P. Morgan Securities Ltd. committed a serious breach of our client money rules by failing to segregate billions of dollars of its clients’ money for nearly seven years. The penalty reflects the amount of client money involved in this breach,” said Margaret Cole, FSA director of enforcement and financial crime.

The regulator says that the penalty reflects the fact that the misconduct was not deliberate, the firm self-reported the issue, and it also immediately remedied the situation. Also, no clients suffered any losses as a consequence of the segregation error.

The FSA reports that it has established a new unit to enhance its existing capabilities in the area of client money and assets. “It is crucial that firms are compliant with the FSA’s client money and assets rules. Adhering to these rules not only ensures greater protection of clients but of financial stability as a whole. The creation of a specific unit means that firms need to raise their game as the FSA’s focus on this area will continue to intensify,” said Sally Dewar, FSA managing director of risk.

IE