A recent report has led to a significant decline in the shares of Morgan Stanley due to mounting pressure from a group of U.S. regulators conducting an investigation into the firm’s efforts to prevent potential money laundering by wealthy clients. The Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency, and other Treasury Department offices are currently scrutinizing whether the New York-based bank has implemented adequate measures to identify high-risk clients. This information was reported by the Wall Street Journal, citing individuals familiar with the matter who chose to remain anonymous. It has been noted that the Federal Reserve had already been investigating these controls last year.
In the midst of these investigations, Morgan Stanley’s stock fell by 5.3% to $86.84 during regular trading in New York on Thursday, marking its biggest drop in five months. However, a spokesperson for Morgan Stanley declined to provide any comments on the matter.
The SEC and the Treasury’s Financial Crimes Enforcement Network have specifically requested information on certain clients outside the U.S. who have raised red flags, as well as the bank’s policies in addressing these concerns. According to the report, the SEC has questioned Morgan Stanley about conducting business with individuals who were no longer supported by E*Trade, the digital-trading platform that the bank acquired.
Notably, the inquiries by these regulators, which had not been publicly disclosed by the bank, have focused on the wealth management arm of Morgan Stanley. This business segment has become the most significant source of revenue for the company, responsible for generating almost half of its total revenue last year. The U.S. government has increased its efforts to push the industry to enhance its money-laundering controls, especially as authorities are increasingly applying sanctions.
In response to the investigations, Morgan Stanley has assured regulators that it is in the process of enhancing its controls and procedures. The bank has also held meetings with Federal Reserve officials to address their concerns from last year.
According to the Wall Street Journal, the Office of the Comptroller of the Currency issued a formal warning to the firm last year, known as a “matter requiring attention,” which demanded that executives address the regulator’s concerns. This warning followed an annual examination of the bank’s anti-money-laundering programs. It was reported that the bank had provided the regulator with detailed plans for taking corrective action.
In recent years, regulators have been issuing matters requiring attention (MRAs) with greater frequency. In cases where concerns are considered more urgent, they issue matters requiring immediate attention (MRIAs). Typically, these notices are brought to the attention of the board and prompt a response that includes a time frame for corrective action. If officials are dissatisfied, a deeper investigation or enforcement action may ensue.
It is evident that the increased scrutiny from multiple regulatory bodies is causing significant concern for Morgan Stanley and has impacted its stock performance. The ongoing investigations and the report from the Wall Street Journal underscore the seriousness of the situation and its potential ramifications for the financial institution.