Key Takeaways:
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- Finra Probe Widens: Wall Street’s self-regulator, Finra, is investigating whether Morgan Stanley properly screened wealth-management and trading clients for money-laundering risks from October 2021 to September 2024.
- Regulatory Pressure: The probe adds to ongoing federal investigations by the Justice Department and Treasury’s FinCEN, with potential fines looming over anti-money-laundering (AML) lapses.
- High-Risk Clients: Finra is seeking information on politically exposed clients and accounts with high-risk characteristics, including those linked to foreign political figures and regions known for financial crime.
- Internal Gaps: Past reviews found thousands of accounts with insufficient due diligence, especially in the wealth-management unit (including E*Trade), and lapses in risk-scoring tools that were only recently activated for some clients.
- Remediation Efforts: Morgan Stanley has shut down thousands of accounts, pulled back from high-risk regions, and invested heavily in AML programs, but concerns remain about the completeness and accuracy of its responses to regulators.
What Happened?
Finra is conducting a deep dive into Morgan Stanley’s client-screening and AML practices, focusing on how the bank risk-ranks clients and monitors for suspicious activity. The probe covers both wealth management and trading divisions, with particular attention to high-risk and politically exposed clients.
Why It Matters?
The scrutiny highlights ongoing vulnerabilities in AML compliance at major banks and the regulatory risks facing global financial institutions. For Morgan Stanley, the outcome could mean fines, further remediation, and reputational damage if deficiencies persist.
What’s Next?
Expect continued regulatory pressure and possible enforcement actions. Investors will watch for updates on the scope of the probes, the bank’s remediation progress, and any financial or operational fallout.
