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Multiple Federal Regulators Probe Morgan Stanley’s Wealth Division 

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Federal regulators are scrutinizing Morgan Stanley’s wealth management segment to ensure thorough assessment of clients for money laundering risks. 
Image Source: Bloomberg 

Multiple federal regulators are probing Morgan Stanley’s wealth management segment to ensure it effectively assesses clients for potential money laundering risks. The Securities and Exchange Commission (SEC), alongside the Office of the Comptroller of the Currency and other Treasury Department entities, are leading investigations into this matter.  

These inquiries, coupled with a prior investigation by the Federal Reserve, raise concerns regarding Morgan Stanley’s diligence in vetting clients and monitoring their financial activities, especially those with international ties. 

James Gorman, Morgan Stanley’s executive chairman, has acknowledged the regulatory scrutiny, emphasizing the firm’s dedication to strengthening compliance measures through investments in technology and artificial intelligence. The SEC has raised specific questions regarding Morgan Stanley’s vetting processes, highlighting instances where the firm’s financial advisers maintained relationships with clients flagged by E*Trade for suspicious activity. 

FinCEN has also become involved, issuing a list of client names to Morgan Stanley, some of which overlap with those provided by the SEC, and requesting information on the firm’s sanctions policies. The Office of the Comptroller of the Currency, after examining Morgan Stanley’s anti-money laundering protocols, issued a formal notice urging improved customer due diligence. 

Despite being a cornerstone of Morgan Stanley’s post-financial crisis strategy, the wealth management division has encountered challenges, with revenue stagnating and net new assets declining in recent quarters. Regulators are particularly interested in disparities between the vetting procedures of Morgan Stanley’s financial adviser unit and those of E*Trade, prompting inquiries into the integration of E*Trade’s technology into Morgan Stanley’s processes. 

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