FINRA fines Morgan Stanley $13M for supervisory failures
FINRA hit Morgan Stanley with $13 million in sanctions for failing to properly supervise short-term trades of unit investment trusts, the regulator announced Monday.
The regulator credited Morgan Stanley with providing "substantial assistance to FINRA in its investigation" of the matter, which involved more than $33 billion worth of trades.
FINRA's investigation found that Morgan Stanley failed to provide sufficient guidance to supervisors regarding how they ought to review UIT transactions, the regulator said. Morgan Stanley's UIT training for registered reps also fell short, FINRA added.
The firm's failings stretched over a three-year period, from January 2012 through June 2015, according to FINRA. During that time hundreds of Morgan Stanley's registered reps executed short-term UIT rollovers, including some more than 100 days before maturity, in thousands of client accounts.
Because of the nature and structure of UITs, short-term trading of the investments can raise concerns about suitability, says Susan Schroeder, FINRA's head of enforcement.
"Firms must adequately supervise representatives' sales of UITs ― including providing sufficient training ― and have in place a system to detect potentially unsuitable short-term UIT rollovers," she said in a statement.
The wirehouse was ordered to pay $3.25 million in fines and $9.78 million in restitution to clients.
Morgan Stanley neither admitted nor denied the charges as part of its settlement with the regulator. But the firm consented to the entry of FINRA's findings.
A spokeswoman for Morgan Stanley said the company was "pleased to have resolved this matter and to have been recognized by FINRA for its extensive cooperation."
FINRA noted the wirehouse instituted its own companywide investigation. Morgan Stanley interviewed more than 65 employees and hired an outside consultant to analyze UIT rollovers at the firm, according to FINRA. The company identified affected clients and established a plan to provide remediation.