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Morgan Stanley Under Investigation by Federal Agencies
Morgan Stanley’s wealth management unit is currently under investigation by multiple federal agencies regarding its practices and procedures for assessing and vetting clients. The Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency, and other Treasury Department offices are scrutinizing whether the investment bank is diligent in evaluating clients, their financial activities, and the sources of their wealth.
Last year, the SEC sent Morgan Stanley a list of both current and former clients, inquiring about the client screening process and questioning why the bank’s financial advisor unit continued to engage with certain wealthy clients who had previously been terminated by E*Trade, the bank’s digital trading platform, over concerns.
In addition to the SEC investigation, the Federal Reserve initiated a similar probe in November, further intensifying the scrutiny on Morgan Stanley’s international wealth management practices.
A History of Regulatory Scrutiny
This is not the first time that Morgan Stanley or one of its divisions has faced regulatory challenges. Over the past decade, the investment bank has reached settlements with the SEC amounting to over $600 million. Here is a timeline of the penalties Morgan Stanley has paid to the agency:
- July 2014: Morgan Stanley agreed to pay $275 million to settle SEC charges related to misleading investors in residential mortgage-backed securities securitizations.
- December 2014: The SEC imposed a $4 million penalty on Morgan Stanley for violating the market access rule.
- December 2015: Morgan Stanley Investment Management agreed to a settlement of $8.8 million for illegally prearranging trading that favored certain client accounts.
- June 2016: Morgan Stanley Smith Barney (now Morgan Stanley Wealth Management) settled for $1 million due to failures in protecting customer information.
- December 2016: Morgan Stanley paid $7.5 million for using customer cash trades to reduce borrowing costs against SEC regulations.
The list of settlements and penalties continues with incidents in subsequent years, reflecting various infractions and violations perpetrated by different branches of Morgan Stanley. The investment bank has been repeatedly fined and sanctioned by regulatory authorities, indicating a pattern of non-compliance and regulatory lapses over time.
The recent agreement by Morgan Stanley to pay over $249 million to settle fraud charges and for failing to enforce information barriers underscores the ongoing challenges and scrutiny facing the institution. Regulatory compliance and adherence to strict protocols in client assessment and wealth management practices are essential for financial institutions to maintain trust, credibility, and regulatory compliance in the increasingly complex and scrutinized financial services industry.
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