Financial institution Morgan Stanley escapes penalty from the Securities and Exchange Commission concerning cash sweeps
Morgan Stanley has announced that the Securities and Exchange Commission (SEC) will impose no penalty on the bank over its cash sweep program, following a nearly year-long investigation.
The SEC's investigation focused on potential conflicts of interest and whether the bank or its financial advisers failed to act in the best interests of their clients. The probe also aimed to ascertain if there were any violations of regulations during the investigation.
The cash sweep program, which typically involves placing clients' idle cash into interest-bearing accounts or funds, was under investigation for potential issues related to transparency and investor impact. Despite the investigation, the SEC chose to drop the case against Morgan Stanley in May 2025, signaling a possible shift in enforcement attitudes or regulatory priorities at that time.
However, Morgan Stanley remains embroiled in multiple regulatory probes. Alongside the SEC probe, the bank faced investigations from FINRA and the Federal Reserve, focusing on municipal securities transaction processing failures and anti-money laundering (AML) compliance. The AML concerns involved Morgan Stanley's due diligence lapses, particularly regarding high-net-worth clients with problematic backgrounds, raising broader worries about systemic compliance vulnerabilities in the firm's wealth management operations.
Investor lawsuits separately accused Morgan Stanley's bank deposit sweep program of being deceptive and not delivering reasonable yields, reflecting market dissatisfaction beyond regulatory findings.
Meanwhile, two Wells Fargo subsidiaries agreed to pay a total of $35 million to settle SEC cash-sweep allegations. Other financial firms, including Bank of America's Merrill Lynch and LPL Financial, have also settled similar allegations, paying millions of dollars in settlements.
Morgan Stanley increased rates on cash sweeps in advisory accounts to around 2% in August, following the investigation. The SEC declined to comment on the disclosure made by Morgan Stanley this week.
References:
- Bloomberg
- The Wall Street Journal
- Reuters
- The New York Times
- CNBC
- Morgan Stanley continued to navigate complex business matters, with increasing rates on cash sweeps in advisory accounts following the SEC's investigation, despite facing additional concerns in regards to anti-money laundering compliance.
- Amidst the flood of regulatory inquiries, Morgan Stanley's decision to boost cash sweep rates signals a continued focus on investing and maintaining its financial standing, even as competitors such as Bank of America's Merrill Lynch and LPL Financial also settled similar cases with the SEC.
