Thursday, December 27, 2018
03:14AM / By FINRA
FINRA announced today that it has fined Morgan Stanley Smith Barney LLC $10 million for anti-money laundering (AML) 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:
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 of unregistered securities. In particular, 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.
Instead, the firm primarily relied on its customers’ representations that the penny stock they sought to deposit was not restricted from sale, and the representations of issuers’ counsel that the customers’ sales complied with an exemption from the registration requirements. As a result, Morgan Stanley failed to reasonably evaluate the customers’ penny stock transactions for "red flags" indicative of potential Section 5 violations.
Moreover, FINRA found that Morgan Stanley failed to implement policies, procedures, and controls to ensure that it conducted risk-based reviews on a periodic basis of the correspondent 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,” said Susan Schroeder, FINRA Executive Vice President, Department of Enforcement. “Firms must ensure that their AML programs are reasonably designed to detect and cause the reporting of potentially suspicious activity.”
This matter arose out of firm examinations and cause examinations referred to FINRA’s Department of Enforcement by FINRA’s AML Investigations Unit.
In determining the appropriate monetary sanction, FINRA considered extraordinary corrective measures Morgan Stanley took to expand and enhance its AML-related programs, including that it devoted substantial resources to increase its staffing, improve its automated transaction monitoring system, and revise its policies and procedures.
In settling this matter, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
3. FINRA Sanctions Morgan Stanley $13m In Fines And Restitution – Sept 25, 2017