Blog: You, us, everyone

The Wealth Management Division of MS is under fire! The bank’s cornerstone group, which is generating close to half of the group’s overall revenue is short of competent people in compliance and regulatory.

According to a report by WSJ, due to the shortage of competences and people, critical compliance oversights have accumulated in its anti-money-laundering processes, resulting in a substantial backlog of account reviews. In fact, the business success and the acquisition of new customers so fast that the bank's due diligence department allegedly struggles to keep pace, causing thousands of accounts to remain unvetted and putting the bank’s reputation at risk.

Due to disparity of processes applied, resources, and expertise, significant regulatory deficiencies within the bank’s operations remain covered. MS conducts an international business, but its set-up remains US centric, hence many employees tasked with assessing client risk lacked proficiency in necessary languages, resorting to Google Translate to interpret foreign documents. Given the manual process applied, potential red flags or suspicious activities were frequently overlooked or inadequately performed.

According to information obtained, Morgan Stanley uncovered that one of its longstanding brokerage clients had a criminal history involving deception about terrorism probes and connections to al Qaeda's attacks on United States embassies. This individual had been found guilty in a U.S. court in 2005. Upon this discovery, the bank promptly alerted law enforcement agencies and closed the associated accounts. However, by the time action was taken, substantial amounts had already been withdrawn from ATMs located in Pakistan.

Another case involved a client who claimed to be a princess Romanian with over $5 billion in assets. For several weeks, without conducting essential background checks or completing proper due diligence, the account remained “good-to-do-business”. The client provided multiple implausible explanations for her wealth, including assertions of royal Romanian lineage and ownership of a multi-billion-dollar pharmaceutical company.

According to a 2023 internal report, the bank identified about 46’500 relationships (or 24% of its overall client base) as High Risk (4/5 on the risk scale). Inside this number, there are at least 25,000 international E*Trade accounts that are located in high-risk jurisdictions.

According to regulatory requirements, financial services providers are legally obligated to implement a comprehensive set of measures as part of their compliance responsibilities to identify the effective account holder. Among others, they must conduct thorough background checks, investigate and confirm the legitimate sources of their clients' wealth, ensure that their customers are not subject to U.S. sanctions and continuously monitor all transactions for any suspicious activities.

Unlike standard practices at other banks, Morgan Stanley's so-called KYC process to client onboarding often prioritized speed and asset acquisition over thorough due diligence, particularly for high-net-worth individuals. Internal documents and interviews reveal that the firm frequently bypassed the conventional process of in-person meetings between financial advisers and prospective clients.

MS seems to acknowledge its shortcomings as in a recent statement they said: One of our top priorities at Morgan Stanley is to make significant investments in people, processes and technology relating to our AML, KYC and Enhanced Due Diligence program to keep pace with the growth of our industry-leading business. The prioritization and scale of our investments in our onboarding processes is rapidly transforming these functions into an organizational strength.