Financial institution Morgan Stanley escapes penalties from the Securities and Exchange Commission (SEC) following its practice of cash sweeps.
In a significant development, the Securities and Exchange Commission (SEC) has concluded its investigation into Morgan Stanley's cash sweep program, marking the end of a nearly year-long probe. According to a disclosure made by Morgan Stanley on March 14, 2022, the SEC has decided not to recommend an enforcement action against the financial giant [2][5].
The investigation was initiated to ensure that banks and brokers, including Morgan Stanley, acted in the best interest of their clients. The SEC aimed to ascertain if the companies' financial advisers had a fiduciary duty to inform clients they could potentially earn higher returns by moving their cash into other accounts [6].
The cash sweep program under scrutiny involves idle cash being automatically moved to an interest-bearing account or money market fund unless the account holder opts out [7]. Morgan Stanley raised rates for cash sweeps in advisory accounts to around 2% in August, up from as little as 0.01% [8].
Morgan Stanley is not the only financial institution that has been under the microscope. Class-action lawsuits have been filed against Morgan Stanley and other financial firms in New Jersey and New York over cash sweep practices. Morgan Stanley's subsidiary, E*Trade, is also named in these lawsuits, which claim that the company failed to pay a reasonable interest rate on cash sweeps [1].
The SEC's investigation into Morgan Stanley's cash sweep program is not the only regulatory scrutiny the company is facing. In 2025, Morgan Stanley was fined $1.6 million by FINRA for failures related to municipal securities transaction processing and $1 million for market access risk management lapses [3]. The Federal Reserve is separately investigating Morgan Stanley's anti-money laundering practices in wealth management, raising concerns about compliance vulnerabilities [3].
However, no specific penalties regarding cash sweep programs have been reported in these cases. Other financial institutions, such as Bank of America's Merrill Lynch and LPL Financial, have also settled SEC cash-sweep allegations, agreeing to pay $25 million and $18 million respectively [4].
Despite the conclusion of the SEC's investigation into its cash sweep program, Morgan Stanley has not yet disclosed the details of a cash-sweep investigation from a securities regulator in an unidentified state [9]. No comments have been made by spokespeople for Morgan Stanley or the SEC regarding this week's disclosure.
In summary, while the SEC's investigation into Morgan Stanley's cash sweep program has been closed without penalties, the company remains subject to regulatory oversight and fines in other financial compliance areas. No recent penalties tied directly to cash sweep programs have been publicly announced for Morgan Stanley or other institutions.
References:
- Class-Action Lawsuits Filed Against Morgan Stanley and Other Financial Firms Over Cash Sweep Practices
- SEC Concludes Investigation into Morgan Stanley's Cash Sweep Program
- Morgan Stanley Fined by FINRA and Federal Reserve for Regulatory Lapses
- Bank of America's Merrill Lynch and LPL Financial Settle SEC Cash-Sweep Allegations
- SEC Drops Investigation into Morgan Stanley's Cash Sweep Program
- SEC Investigates Morgan Stanley's Cash Sweep Program
- Understanding Cash Sweep Programs
- Morgan Stanley Raises Rates for Cash Sweeps in Advisory Accounts
- Morgan Stanley Faces Ongoing Cash-Sweep Investigation from Securities Regulator
The SEC's investigation into Morgan Stanley's cash sweep program aimed to ascertain if the company's financial advisers had a fiduciary duty to inform clients about potential higher returns in moving their cash into other accounts, which is a matter related to business and finance.
Despite the conclusion of the SEC's investigation into its cash sweep program, Morgan Stanley remains subject to regulatory oversight and fines in other financial compliance areas, suggesting ongoing scrutiny in the realm of business and finance.
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