FINRA Cracks Down: Morgan Stanley Faces Anti-Money-Laundering Probe in 2025

Wall Street's watchdog just sharpened its teeth—and Morgan Stanley's compliance team is sweating bullets.

The Hammer Drops

FINRA launched a full-scale investigation into the banking giant this week, probing alleged AML violations. Sources say the inquiry focuses on 'systemic weaknesses' in transaction monitoring—Wall Street code for 'oops, we missed a few billion.'

Compliance on Trial

Internal audits reportedly flagged red flags for months before regulators got involved. Now Morgan Stanley joins the hall of shame—right beside Deutsche Bank's $630M fine and Goldman's 1MDB scandal. But hey, at least they're consistent: another bank, another 'we take compliance seriously' press release.

The Bottom Line

While crypto gets bashed for 'lack of regulation,' traditional finance keeps proving it can't even follow century-old rules. Maybe blockchain's transparency wouldn't look so bad now, huh?

Morgan Stanley client risk reviews queried 

FINRA is reportedly asking Morgan Stanley to produce data on politically exposed persons (PEPs) like senior foreign officials, their relatives, and close associates. 

The regulators are also reviewing which Morgan Stanley employees were responsible for handling clients exposed to money-laundering vulnerabilities because of their political connections.

FINRA is not a government agency, but under federal law, it has the authority to impose penalties on broker-dealers that breach regulatory standards.

In April 2024, WSJ reported that Morgan Stanley was facing other federal investigations, including from the Justice Department, Securities and Exchange Commission (SEC), Office of Foreign Assets Control (OFAC), and the Financial Crimes Enforcement Network (FinCEN) at the Treasury Department. 

The investigations probing the firm’s wealth management unit reportedly delved into Morgan Stanley’s onboarding of new clients, alleged to be involved in corruption and drug trafficking.

FINRA has asked the bank for organizational charts and reporting pipelines for teams in charge of anti-money-laundering, sanctions compliance, and financial crime detection. 

The regulator told Morgan Stanley to explain how it assigns risk profiles to clients using E*Trade, its private banking and institutional services arms.

Morgan Stanley has purportedly been trying to overhaul its AML systems after the Federal Reserve coined its risk management practices as “weak.” Some of the listed efforts the financial institution has mentioned include shutting down thousands of accounts and cutting back on operations in parts of Latin America.

Yet, internal documents reviewed by the Journal in 2023 showed accounts in Morgan Stanley’s wealth-management business had characteristics of money laundering or tax evasion. At the time, 24% of over 46,500 clients holding international wealth-management accounts were flagged for money laundering. 

Employees are unsettled over FINRA data requests

According to people briefed on the matter, Morgan Stanley has received at least six information requests from FINRA, the latest arriving in recent weeks. Some employees inside the bank were reportedly worried about the completeness and accuracy of responses submitted to FINRA. 

In at least one instance, the firm had to supply more data after regulators found initial submissions “lacking.”

A spokesperson told WSJ that the bank has made significant investments in compliance programs across the board. 

“The existence of these supervisory exams and the back and forth with our regulators is not unique to Morgan Stanley, nor is it an indication of an issue in our business or controls,” the representative surmised.

Morgan Stanley may have received the good conduct “thumbs up” from the Fed on its E*Trade’s customer-vetting procedures, but other regulators are not convinced about its customer protection policies. 

The Office of the Comptroller of the Currency (OCC) has reportedly found that thousands of wealth-management accounts failed to undergo enhanced due diligence (EDD) as required for high-risk clients. EDD reviews are initiated when a client presents elevated financial crime risk and are supposed to be conducted on a recurring basis.

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