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.
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
