Wall Street’s industry funded watchdog fined The brokerage unit of Morgan Stanley must pay $10 million for failing to comply with its anti-money laundering program, according to Wall Street’s industry-funded watchdog group, Finra.
Finra (Financial Industry Regulatory Authority) reported that the brokerage unit’s lapses occurred for more than five years, from January 2011 until April 2016.
According to Finra, Morgan Stanley’s automated surveillance system did not receive important data from its other systems, resulting in the firm’s inability to track tens of billions of dollars of wire and foreign currency transfers. Some of these transfers were from countries that have higher-than-normal risks for money laundering.
Though Morgan Stanley did not admit or deny Finra’s charges, it consented to the watchdog’s findings as part of a settlement.
Understanding Federal Anti-Money Laundering Compliance
Finra rules require brokerage firms to have policies and procedures in place to adhere with a federal law that was designed to detect and curb money laundering. Failure to comply results in varying fines.
Finra found that Morgan Stanley failed to comply with three requirements of the Bank Secrecy Act of 1970. This law requires all financial institutions and banks based in the United States to help government agencies and watchdog groups discover and prevent money laundering.
The Back Story on Morgan Stanley’s Failures
Morgan Stanley learned of its problems in 2015, after a consultant the firm hired tested its surveillance and identified a number of “high risk” issues. Despite knowing about the problems, Morgan Stanley did not fix at least one of the problems until February 2017.
Additionally, Finra found that Morgan Stanley failed to reasonably monitor 2.7 billion of penny stock shares between 2011 and 2013. The lack of monitoring resulted in subsequent sales totaling approximately $164 million during that time period, according to the regulatory authority.
This is a major concern among brokerage firms because low-priced securities, such as penny stocks, often are used by criminals to falsely increase trading volume and share prices. Additionally, it is a securities law violation that is considered a gateway to money laundering.
Following the Settlement with Finra
Finra acknowledged that since 2013, Morgan Stanley has worked diligently to improve its anti-money laundering programs. The firm has implemented new automated processes for overseeing penny stock transactions and potential cases of insider trading, according to the watchdog group.
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