The Financial Industry Regulatory Authority Inc. announced Wednesday that it fined Morgan Stanley Smith Barney $10 million for anti-money laundering program and supervisory failures that spanned a period of more than five years.
FINRA found that Morgan Stanley’s AML program failed to meet the requirements of the Bank Secrecy Act because of three shortcomings:
• Morgan Stanley’s automated AML surveillance system did not receive critical data from several systems, undermining the firm’s surveillance of tens of billions of dollars of wire and foreign currency transfers, including transfers to and from countries known for having high money-laundering risk.
• Morgan Stanley failed to devote sufficient resources to review alerts generated by its automated AML surveillance system, and consequently Morgan Stanley analysts often closed alerts without sufficiently conducting and/or documenting their investigations of potentially suspicious wire transfers.
• Morgan Stanley’s AML Department did not reasonably monitor customers’ deposits and trades in penny stock for potentially suspicious activity, despite the fact that its customers deposited approximately 2.7 billion shares of penny stock, which resulted in subsequent sales totaling approximately $164 million during that time period.
Finra’s focus and findings were largely surrounding legacy Morgan Stanley Smith Barney systems, staffing and processes relating to the surveillance of wire transfers, and the deposit and sale of low priced securities.
Finra also found that Morgan Stanley failed to establish and maintain a supervisory system reasonably designed to comply with Section 5 of the Securities Act of 1933, which generally prohibits the offer or sale