Morgan Stanley faces a new investigation from Wall Street's top regulator over how the bank screens clients for money laundering risks, adding to the firm's compliance challenges.
Morgan Stanley Under Fresh FINRA Scrutiny Over Client Vetting Practices
FINRA is digging into Morgan Stanley's client vetting procedures, risk rankings, and related practices spanning from October 2021 through September 2024, according to the Wall Street Journal. The probe covers both the bank's massive wealth management division, which includes E*Trade, and its institutional securities unit that handles trading operations.
The regulator has been asking for extensive documentation about U.S. and international customers across these divisions. FINRA also wants organizational charts, reporting structures, and details about Morgan Stanley's internal client risk-scoring systems.
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Data Quality Issues Surface
The investigation hit some bumps early on. Bank employees flagged concerns that initial data sent to FINRA was incomplete or contained errors. This forced Morgan Stanley to submit additional information after regulators pointed out the gaps.
Morgan Stanley has received at least six data requests from FINRA, including one that came through in recent weeks. The volume of information being sought suggests regulators are taking a comprehensive look at the bank's compliance systems.
Bank Defends Its Progress
A Morgan Stanley spokesperson told the WSJ that the bank “has made significant investments in its anti-money-laundering and client-vetting programs,” adding that “such regulatory reviews are not unique to the bank and do not indicate problems with its business or controls.”
The bank has been working to address longstanding concerns from the Federal Reserve about risk management controls in its wealth management unit. Those issues have been on regulators' radar for years.
Related: Morgan Stanley Hit With $15 Million SEC Fine Over Client Fund Theft
History of Compliance Problems
This isn't Morgan Stanley's first run-in with anti-money laundering enforcement. FINRA hit the bank with a $10 million fine in December 2018 for compliance failures that stretched over five years.
The bank is also dealing with potential penalties from other federal investigations into its anti-money laundering practices. Earlier this year, Swiss prosecutors fined Morgan Stanley's local unit $1.1 million over money laundering controls related to a Greek bribery scandal.
The latest FINRA probe adds regulatory pressure as Morgan Stanley works to clean up its compliance operations. Neither FINRA nor Morgan Stanley immediately responded to requests for additional comment beyond what was reported in the Wall Street Journal.
