Morgan Stanley's Compliance Efforts Under Spotlight As Federal Regulators Investigate Handling of Wealth Management Clients

Multiple federal regulators, including the Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency (OCC), are reportedly investigating Morgan Stanley’s MS practices in vetting clients for potential money laundering activities. 

The probe extends to various Treasury Department offices, with the Federal Reserve also considering supervisory action. 

Key concerns revolve around the adequacy of client investigations and monitoring of financial activities.

Related: Morgan Stanley To Cut Hundreds Of Jobs In Wealth Management As Growth Slows.

As per the Wall Street Journal report, regulators are focused on how Morgan Stanley assesses prospective clients’ identities and sources of wealth, especially those with international ties. 

The bank is under scrutiny for handling certain clients, including a billionaire with Russian connections sanctioned by the U.K. and individuals whose financial activities raised red flags.

In response to regulatory scrutiny, Morgan Stanley has emphasized its commitment to enhancing compliance measures. 

Former CEO and current executive chairman James Gorman stated the bank’s investment in compliance, technology, and artificial intelligence to better understand the flow of funds within its wealth management division.

The SEC and FinCEN have raised questions about discrepancies in vetting procedures between Morgan Stanley’s financial adviser unit and ETrade, which the bank acquired. 

Regulators are interested in understanding how the bank compared ETrade’s technology and vetting processes with its own before integrating them.

Morgan Stanley is expected to report its first quarter 2024 earnings next week, with EPS of $1.66 and sales of $14.41 billion.

Read Next: Bank Stocks Hit All-Time Highs: Analyst Points To Further Rally On ‘A 1995 Soft Landing Scenario’.

Price Action: MS shares are down 1.22% at $85.78 on the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo by Sven Piper on Unsplash