Morgan Stanley Fined $10 Million for AML and Supervisory Failures






The U.S. Financial Industry Regulatory Authority (FINRA) announced on Wednesday that Morgan Stanley has been fined $10 million for deficiencies in its anti-money laundering program and its failure to maintain a supervisory system capable of meeting Securities Act compliance obligations.

According to FINRA’s news release, the firm’s AML program fell short of the Bank Secrecy Act’s requirements in three main areas of concern:

First, Morgan Stanley’s automated AML surveillance system did not receive critical data from several systems, undermining the firm’s surveillance of tens of billions of dollars of wire and foreign currency transfers, including transfers to and from countries known for having high money-laundering risk.


Second, Morgan Stanley failed to devote sufficient resources to review alerts generated by its automated AML surveillance system, and consequently Morgan Stanley analysts often closed alerts without sufficiently conducting and/or documenting their investigations of potentially suspicious wire transfers.


Third, Morgan Stanley’s AML Department did not reasonably monitor customers’ deposits and trades in penny stock for potentially suspicious activity, despite the fact that its customers deposited approximately 2.7 billion shares of penny stock, which resulted in subsequent sales totaling approximately $164 million during that time period.

In addition to those AML concerns, regulators also determined that Morgan Stanley’s supervisory system for preventing sales of unregistered securities was insufficient to ensure regulatory compliance. The company had apparently failed to provide a coordinated vetting process for penny stock deposits and sales, and instead relied on “customers’ representations that the penny stock they sought to deposit was not restricted from sale, and the representations of issuers’ counsel that the customers’ sales complied with an exemption from the registration requirements.”

FINRA claims that these failures persisted over a five-year period and that it settled on the $10 million amount after considering Morgan Stanley’s “extraordinary corrective measures” addressing AML program enhancement, staffing increases, policy revisions, and improvements in transaction monitoring.

FINRA Executive Vice President and Head of Enforcement Susan Schroeder noted that regulators continue to be concerned about AML deficiencies at other firms as well:

“As we stated in our Report on FINRA Examination Findings released earlier this month, FINRA continues to find problems with the adequacy of some firms’ overall AML programs, including allocation of AML monitoring responsibilities, data integrity in AML automated surveillance systems, and firm resources for AML programs. Firms must ensure that their AML programs are reasonably designed to detect and cause the reporting of potentially suspicious activity.”

Morgan Stanley’s fine of $10 million for five years of AML failures amounts to roughly 0.47% of the $2.11 billion in profits the company reported in October.


Author: Ken Chase

Freelance writer whose interests include topics ranging from technology and finance to politics, fitness, and all things canine. Aspiring polymath, semi-professional skeptic, and passionate advocate for the judicious use of the Oxford comma.

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