UPDATE 2-UK fines JPMorgan record $49 mln, warns other banks

LONDON, June 3 (Reuters) - U.S. investment bank JP Morgan Securities Ltd has been fined a record 33.32 million pounds ($49.12 million) in Britain for failing to protect billions of dollars of client money over almost seven years.

Issuing a stark warning to other banks operating in Britain, the country's Financial Services Authority (FSA) said on Thursday that JP Morgan had failed to adequately protect client money of between $1.9 billion and $23 billion between Nov. 2002 and July 2009.

'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. Firms need to sit up and take notice of this action -- we have several more cases in the pipeline,' warned Margaret Cole, the FSA's head of enforcement.

Under FSA client money rules, companies have to ringfence client money from the firm's money and keep it in segregated accounts with trust status to protect it in the event of an insolvency.

However, JP Morgan Securities failed to segregate client money held by its futures and options business (F&O) with JPMorgan Chase Bank N.A. (JPMCB) following the merger of JP Morgan & Co and Chase Manhattan Corporation in 2000.

The error remained undetected for nearly seven years.

No clients suffered any losses from the breach. But the FSA has been keen to prove its mettle after battling accusations of failing to spot and halt the excessively risky banker behaviour that helped trigger the worst credit crisis since World War Two.

In handing down its largest-ever fine, the FSA said it took into account that the misconduct was not deliberate, that the firm reported the error to the regulator, that it immediately rectified the problem and that it cooperated with the FSA.

Because of its cooperation, the original fine of 47.6 million pounds was reduced by 30 percent, in line with FSA practice.

JP Morgan in London declined to comment.

($1=.6783 Pound)

(Reporting by Kirstin Ridley; Editing by Andrew Callus) Keywords: BRITAIN FINE/JPMORGAN ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.