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FINRA fines Morgan Stanley $10M for anti-money-laundering failures

The Financial Industry Regulatory Authority fined Morgan Stanley $10 million for deficiencies in its anti-money-laundering program, the regulator said.

Prevention of money laundering has become a high priority for regulators, a fact FINRA underlined by announcing the penalties against Morgan Stanley.

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," Susan Schroeder, executive vice president of the regulator’s department of enforcement, said in a statement.

In recent years, FINRA has also penalized other brokerage firms over anti-money-laundering issues. LPL Financial paid $2.75 million to settle a FINRA investigation alleging deficient reporting of client complaints and failures in its AML program.

Morgan Stanley agreed to sell a business that administers its alternative investment feeder funds to iCapital, a financial-technology firm run by a former Goldman Sachs banker.
Morgan Stanley signage is displayed on the exterior of the company's headquarters in New York, U.S., on Tuesday, July 12, 2016. Morgan Stanley is scheduled to release earnings figures on July 20. Photographer: Eric Thayer/Bloomberg

FINRA found deficiencies in Morgan Stanley’s AML program during a five-year period. Among those shortcomings: The firm’s automated surveillance system did not receive critical data, including information about transfers to and from countries known for having high money-laundering risk.

The wirehouse also failed to do enough to review alerts generated by its automated AML surveillance system. Morgan Stanley analysts sometimes closed alerts without sufficiently documenting investments of potentially suspicious wire transfers, according to FINRA.

Finally, Morgan Stanley’s AML department did not reasonably monitor client trades in penny stocks for potentially suspicious activity, according to FINRA. The firm’s clients deposited approximately 2.7 billion shares of penny stocks, resulting in sales totaling approximately $164 million, the regulator says.

FINRA says that it arrived at the $10 million fine after considering the “extraordinary corrective measures” that Morgan Stanley took to improve its AML program; this included more robust staffing and enhancements to its monitoring system.

Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA's findings, according to the regulator.

“We are pleased to have resolved this matter from several years ago. We continuously work to strengthen our controls and have been recognized by FINRA for the extraordinary steps we have taken to expand and enhance our AML program,” a Morgan Stanley spokeswoman said in a statement.

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