Morgan Stanley’s wealth unit is under the regulatory microscope, with multiple federal agencies scrutinizing its procedures for evaluating the risk of money laundering among clients within its extensive wealth management arm.
Among the regulators investigating the bank's practices are the Securities and Exchange Commission, the Office of the Comptroller of the Currency, and various offices within the Treasury Department, according to a Wall Street Journal report Thursday.
The inquiry follows an earlier probe by the Federal Reserve, which reportedly is considering supervisory action.
The investigation centers on Morgan Stanley's diligence in confirming the identities of potential clients and the sources of their wealth. Regulators are also questioning whether it keeps a close-enough eye on the financial transactions of its clients, with an emphasis on its clients from overseas.
James Gorman, the firm’s executive chairman and former CEO, has told the Journal that Morgan Stanley is already taking steps to beef up its compliance and technology to better follow the flow of money within its wealth operations.
Those efforts come after the SEC pressed the firm for details last year on how it vetted specific current and former clients. Those included cases where clients previously rejected for potential red flags by ETrade, which Morgan Stanley acquired in 2020, continued to do business with Morgan Stanley's financial advisor unit.
The SEC’s list of questionable persons included a billionaire with connections to Russia who was facing sanctions in the UK, and a person whose financial activities suggested discrepancies in their stated US residency and occupation.
The Treasury’s Financial Crimes Enforcement Network and the Office of Foreign Assets Control have also approached Morgan Stanley, with the foreign assets office issuing an administrative subpoena for the bank’s sanction policies and client vetting procedures.
Adding to the regulatory pressure, the OCC reached out to Morgan Stanley in late 2023 on “a matter requiring attention over customer due diligence,” according to the Journal, in the wake of an annual exam of its measures against money laundering and associated programs.
The barrage of probes extends to ETrade, one of the bank's centerpiece acquisitions that catapulted its wealth business into a roughly $5 trillion behemoth.
That online brokerage business, which represents roughly half of Morgan Stanley’s revenue, has become an object of interest for the SEC and FinCEN, which are now grilling the bank over a decision to scrap ETrade’s client vetting processes and swap in the procedures from its own financial advisor unit.
The news of the probes hit Morgan Stanley's stock Thursday, with shares closing down 5.25% at $86.84.
A $141M judgment and a federal asset freeze collide over one shrinking pool
The firm's CFO and EVP of Wealth Management Solutions are the latest executives to exit the broker-dealer.
Clients are saying they would consider switching advisors if another professional offered estate planning services, according to a new Trust & Will survey.
CEO Laurel Taylor says the fintech's composable AI stack helps workers optimize dollars across Trump Accounts, 529s, 401(k)s, and other employee benefits.
The bank has swiped three private banking veterans from BNY as the city climbs the ranks of America's fastest-growing wealth hubs.
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
Direct indexing is on pace to outgrow ETFs and mutual funds. Northern Trust's Ken Lassner explains why the advisors who get it wish they had started sooner.
