Finra is investigating how Morgan Stanley screens its wealth management clients, with a particular focus on anti-money-laundering (AML) compliance practices, according to a report in The Wall Street Journal.
The probe zeroes in on the firm’s client onboarding and monitoring protocols, especially for individuals with political exposure, including foreign officials, their families, and close associates.
The investigation reportedly centers on clients onboarded between October 2021 and September 2024 and spans both the wealth management division and the firm’s trading desk. Finra is said to be evaluating Morgan Stanley’s internal risk ranking methodologies and related AML oversight procedures.
While Morgan Stanley has not commented publicly on the inquiry, Finra reiterated its standard policy of not confirming or denying investigations.
This is not the first time Morgan Stanley’s AML controls have come under scrutiny. Past reviews include a Federal Reserve probe into how the firm screened international clients with significant assets and a prior Finra enforcement action that resulted in fines tied to deficiencies in the firm's AML systems.
In response to regulatory pressure, Morgan Stanley has reportedly taken a series of risk-mitigation steps. These include closing high-risk accounts and reducing its exposure in certain geographies, such as Latin America. The firm told the Journal that it has made substantial investments in its AML compliance infrastructure and emphasized that regulatory inquiries of this nature are common among large financial institutions.
AML compliance remains a foundational requirement for financial firms governed by the Bank Secrecy Act. The law mandates stringent vetting of clients, ongoing surveillance for suspicious activity, and the filing of relevant reports with regulators. Firms are expected to maintain robust internal controls to prevent money laundering and guard against the infiltration of illicit funds from criminal enterprises, terrorist organizations, and hostile foreign entities.
For wealth managers and RIAs, this regulatory environment has taken on new relevance. Although AML obligations have historically applied to broker-dealers and banks, the Treasury Department recently proposed extending similar requirements to registered investment advisors. However, the department has since paused implementation of the rule to assess whether it appropriately reflects the varied structures and risk profiles across the RIA space.
According to the Treasury, the proposed AML rule for advisors is intended to close gaps in the financial system that may be exploited by bad actors through less-regulated channels. At the same time, officials acknowledged the need to strike a balance—ensuring the final rule is both effective and proportionate to the operational realities of advisory firms.
For now, wealth advisors not affiliated with broker-dealers have a temporary reprieve from formal AML mandates, but the broader direction of policy is clear: regulators are increasingly focused on the role all financial intermediaries play in preventing illicit finance. As the Morgan Stanley probe demonstrates, robust due diligence and client vetting protocols are not just compliance checkboxes—they are essential components of institutional risk management in today’s regulatory climate.
Advisory firms would be wise to review and strengthen their own onboarding and monitoring processes, even in the absence of finalized rules. Inquiries like the one facing Morgan Stanley highlight the reputational and regulatory risks tied to lapses in client screening. A proactive approach to AML oversight could help RIAs stay ahead of future rulemaking and maintain credibility with both clients and regulators.
