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Three more US regulators have opened investigations into how Morgan Stanley’s wealth management division handles potentially risky clients, according to a person familiar with the matter.
The business, which has been central to the bank’s growth in recent years, was already in the sights of the Federal Reserve over money laundering controls. Now the Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Treasury are also involved, the person said.
Regulators are looking into the level of thoroughness of the investigations Morgan Stanley conducted around the source of clients’ wealth and their financial activity.
Morgan Stanley, the OCC, the SEC, the Treasury and the Fed declined to comment.
Morgan Stanley’s stock, which has risen considerably in recent years on the back of strong growth at the wealth management division, fell 5.3 per cent after The Wall Street Journal reported that the probe had widened.
Growth in wealth management was a centrepiece of James Gorman’s tenure as chief executive, with the business growing to more than $5tn in assets, aided by the acquisitions of online trading platform ETrade and money manager Eaton Vance. Ted Pick, Morgan Stanley’s former head of investment banking and trading, took over from Gorman as chief executive at the start of this year.
The Wall Street Journal reported that the SEC had raised questions about the vetting of some current and former clients, including a billionaire with ties to Russia who was sanctioned by the UK. The OCC also reportedly sent Morgan Stanley a letter, flagging that additional attention was needed in customer due diligence.
While wealth management has helped make Morgan Stanley a Wall Street darling, the division’s growth has slowed amid higher interest rates, giving clients the option of keeping their money in cash or low-fee products which still earn a decent return. Morgan Stanley warned in January that the business would fall short of its profitability target in the near future.
The probes of the wealth management division are the latest regulatory scrutiny faced by Morgan Stanley following a long-running federal investigation into its block trading business. The bank in January agreed to pay $249mn to settle the case that looked at whether it leaked confidential information to clients.
Additional reporting by Claire Jones, Stephen Gandel and Stefania Palma
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