Scrutiny on Morgan Stanley’s Vetting of Wealthy Foreigners

Morgan Stanley is currently under scrutiny regarding its vetting process for wealthy foreigners who become clients of its wealth management business, as reported by The Wall Street Journal.

Federal Reserve Investigation

The Federal Reserve has been conducting investigations into Morgan Stanley’s anti-money laundering procedures. This follows a series of reviews that revealed several deficiencies within the policies of the Wall Street giant.

Mitigating Concerns

To address the concerns raised by regulators, Morgan Stanley has developed a plan that it expects to complete within approximately 18 months, according to the Journal.

No Comment from Morgan Stanley

Morgan Stanley declined to comment on the report, while the Federal Reserve has yet to respond to a request for comment.

Stock Performance

Shares of Morgan Stanley experienced a 1.6% decrease in late Thursday morning trading. In contrast, the benchmark S&P 500 index saw slight gains.

Focus on Wealth Management

Morgan Stanley has been actively attracting wealthy overseas investors to its wealth management business, which has become a core aspect of the company’s operations under departing CEO James Gorman. In the third quarter, wealth management contributed $6.4 billion to Morgan Stanley’s net revenue, accounting for nearly half of the company’s total reported revenue of $13.3 billion.

Emphasizing Global Citizenship

Positioning itself as “a true global citizen,” Morgan Stanley boasts a team of U.S.-based wealth managers with expertise in specific countries and regions, ensuring they are well-versed in varying economic and regulatory climates. Gorman has expressed intentions to acquire foreign businesses in both asset and wealth management over the next three years.

Investigation Reveals Lapses in Morgan Stanley’s AML Program

Regulators have recently uncovered concerning lapses in Morgan Stanley’s efforts to expand its foreign client base and adequately review the individuals and the sources of their money, according to a report by the Journal.

The findings are not entirely new, as the brokerage self-regulatory organization, Finra, had previously fined Morgan Stanley in 2018 for alleged deficiencies in its anti-money laundering (AML) program. Moreover, the company had faced scrutiny for accepting a wealthy Venezuelan businessman as a client, who was suspected of helping a former oil minister launder billions of dollars.

Beginning in 2020, the Federal Reserve initiated an investigation into Morgan Stanley’s AML policies and procedures and discovered multiple issues. Subsequent visits in 2021 and 2022 revealed that the identified problems had not been adequately addressed.

In response to last year’s regulatory visit, Andy Saperstein, the head of Morgan Stanley’s wealth management division, became more directly involved in addressing the AML concerns. He presented regulators with a comprehensive plan to rectify the issues, which is reportedly on track to be completed within the next 18 months.

Morgan Stanley remains committed to resolving these compliance issues and ensuring the thorough review of its clients and their financial sources.

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