The Financial Industry Regulatory Authority (FINRA) fined Morgan Stanley Smith Barney $10 million for supervisory failures related to its anti-money laundering (AML) program.
FINRA found that Morgan Stanley’s AML program did not meet the requirements of the Bank Secrecy Act over a span of more than five years.
First, Morgan Stanley’s automated AML surveillance system did not receive critical data in some cases, undermining the firm’s surveillance of tens of billions of dollars of wire and foreign currency transfers. These transfers included money to and from countries known for having high money-laundering risk.
Morgan Stanley also did not devote sufficient resources to review alerts generated by its automated AML surveillance system. Thus, Morgan Stanley analysts often closed alerts without conducting investigations of potentially suspicious wire transfers.
Third, Morgan Stanley’s AML Department did not do a good enough job monitoring customers’ deposits and trades in penny stock for potentially suspicious activity.
FINRA also found that Morgan Stanley divided responsibility for vetting its customers’ deposits and sales of potentially unregistered penny stock among its branch management and two home office departments without reasonable coordination among them. Consequently, Morgan Stanley failed to evaluate the customers’ penny stock transactions for “red flags” indicative of potential violations.
Further, FINRA said Morgan Stanley failed to implement policies, procedures, and controls to ensure that it conducted regular reviews of the accounts it maintained for certain foreign financial institutions.
“As we stated in our Report on FINRA Examination Findings released earlier this month, FINRA continues to find problems with the adequacy of some firms’ overall AML programs, including allocation of AML monitoring responsibilities, data integrity in AML automated surveillance systems, and firm resources for AML programs,” Susan Schroeder, FINRA executive vice president of Department of Enforcement, said. “Firms must ensure that their AML programs are reasonably designed to detect and cause the reporting of potentially suspicious activity.”
Morgan Stanley neither admitted nor denied the charges but consented to the entry of FINRA’s findings.