Morgan Stanley agreed to pay $1.5 million fine for failing to deliver — and failing to supervise the delivery system for — prospectuses and investment objective change letters to the firm’s clients, according to FINRA.
Morgan Stanley advisers entered about 23,500 investment objective change confirmations into the firm’s system that were not sent out as confirmation letters to customers, as they were supposed to, between November 2013 and December 2014, according to FINRA.
A coding error in a computer system change at the firm in the fourth quarter of 2013 led the system to generate the required letter only when a supervisor reviewed and approved a particular investment objective change on the same day that the adviser requested it, the FINRA letter states. Federal securities laws require broker-dealers to send the letters when any investment objective changes are made, according to FINRA.
The Morgan Stanley computer system also failed to notify advisers or their supervisors when it automatically rejected a requested investment objective change because a supervisor hadn’t granted approval for 29 days, FINRA stated. Without the notification, advisers and their supervisors didn’t have an adequate system to review the automatic rejections to determine if they were made erroneously, according to the regulator.
According to FINRA, the prospectus delivery problems for Morgan Stanley started in November 2013 with a system update to its MS Online system, which allowed customers to receive transaction confirmations and view prospectuses online. With the update, the “view prospectuses hyperlink,” which had previously been designated for delivering prospectuses to clients, was missing from its previous location in the online area where customers reviewed their transactions, FINRA reported.
The firm’s staff didn’t notice the missing link until more than nine months later, when a customer reported it to the firm, FINRA states, which meant the firm failed to deliver about 2.1 million prospectuses.
A third computer coding error led to the firm failing to send out another 4,000 investment objective change letters, FINRA states. All three of the computer system change errors led to violations of NASD and FINRA rules, according to FINRA.
Morgan accepted FINRA’s findings and the penalty without admitting or denying guilt.
In a written statement, Morgan Stanley Wealth Management pointed out that the FINRA settlement recognized the firm’s “extraordinary cooperation in identifying and quickly resolving the prospectus issue.” The firm also noted that the settlement notes that prospectuses were available elsewhere on MS Online and in most cases investment objective information was still reflected on customer monthly account statements.
Register or login for access to this item and much more
All On Wall Street content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access