- More federal regulators are probing Morgan Stanley over how it controls wealthy clients, according to the Wall Street Journal.
- The SEC sent the bank a list of clients with questions about how they were selected, according to the report.
- One of his clients includes a Russia-linked billionaire who was sanctioned by the United Kingdom, the Journal reported.
More federal regulators, including the Securities and Exchange Commission, are examining how Morgan Stanley controls its wealthy clients and their sources of money, The Wall Street Journal reported. THURSDAY.
According to the report, regulators are looking specifically at the bank’s wealth management division and flagging current and former clients who pose a “risk” of money laundering. Regulators are asking Morgan Stanley how it vetted these clients and why the firm did business with some of them despite red flags.
One of those clients includes a Russia-linked billionaire who was sanctioned by the United Kingdom, the Journal reported. Another person is someone who appears to have atypical amount of money for a person in their claimed profession. The Journal reported that the client also claimed she was based in the United States, but her activity on E-Trade, a brokerage firm purchased by Morgan Stanley in 2020, indicated she was located somewhere in the Caribbean.
A Morgan Stanley spokesperson did not immediately respond to a request for comment.
James Gorman, executive chairman of Morgan Stanley, told the Journal in January that the company was cooperating with regulators and would invest in technology, including artificial intelligence, to better monitor the money that goes into its business.
Several federal agencies are involved, sources familiar with the investigation told the Journal. They include the SEC, offices of the Treasury Department, and the Federal Reserve. The Journal reported in November that the Fed investigation into the control processes of Morgan Stanley’s wealth management activities.
At least one Morgan Stanley executive met with the Federal Reserve last year about the agency’s concerns, Bloomberg reported in November.
According to the Journal, the SEC sent out a list of former and current clients of interest to the bank last year. Regulators questioned why Morgan Stanley did business with some of these wealthy clients despite banning e-commerce due to red flags, according to the report.
The Treasury’s Financial Crimes Enforcement Network (FinCEN) also sent Morgan Stanley a client list, which overlaps to some extent with the SEC’s list, the Journal reported.
The Treasury’s Office of Foreign Assets Control is also reviewing Morgan Stanley’s sanctions policy, according to a document obtained and viewed by the Journal.
Spokespeople for the SEC, Treasury Department and Treasury FinCEN did not respond to requests for comment sent outside of business hours.
Despite recent layoffs and a decline in net new assets managed by the firm, Morgan Stanley’s wealth management arm remains a core part of the bank’s business. Last year, the division, which manages about $1.9 trillion, generated nearly half of the bank’s revenue, according to the bank’s annual report.
This interagency oversight comes as the government is increasingly interested in how banks conduct background checks on ultra-wealthy individuals, especially as government sanctions limit who can do business in states -United.
Last year, the federal government fined Deutsche Bank $186 million for failing to crack down on illicit money flowing through the German bank, Reuters reported.
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