Morgan Stanley shares fell for the first time in five months following reports that senior U.S. regulators are scrutinizing the company's efforts to prevent potential money laundering by wealthy clients.
The Wall Street Journal, citing unidentified people, said the Securities and Exchange Commission, the Office of the Comptroller of the Currency and other Treasury Department agencies are asking the New York-based bank to conduct background checks on its at-risk customers. They reported that they are investigating whether sufficient efforts were made. On that matter. It was already known last year that the Fed was considering such regulations.
Shares fell 5.3% to $86.84 in regular trading in New York on Thursday, the biggest decline since mid-October. A Morgan Stanley spokeswoman declined to comment.
The SEC and the Treasury Department's Financial Crimes Enforcement Network are seeking information about specific non-U.S. customers that raised red flags and the bank's policies in dealing with them, the paper said. Specifically, the SEC questioned Morgan Stanley about why it entered into transactions with some people who were discontinued by E*Trade, a digital trading platform that the SEC acquired.
The study, which the bank has not made public, focuses on Morgan Stanley's wealth management division, which has grown to be its largest business and generated nearly half of the company's revenue last year. The U.S. government is increasing pressure on the industry to tighten money laundering regulations as authorities tighten sanctions.
The bank last year told regulators it was improving its controls and procedures and met with Federal Reserve officials to address concerns.
The OCC last year sent the company a formal warning, known as a red flag, asking executives to address the concerns, the paper said. This follows an annual inspection of the bank's anti-money laundering program, the paper said, with documents showing the bank sent a detailed action plan to regulators.
Regulators have been issuing MRAs more frequently in recent years. Issues requiring immediate attention will also be issued if the concern is determined to be more urgent. Such notices are typically flagged to the board and a response is generated that includes a schedule for corrective action. If officials are dissatisfied, a deeper investigation or enforcement action could be taken.
