Securities regulator won't impose penalty on Morgan Stanley's cash sweeps activity
Morgan Stanley, one of the leading financial institutions in the world, has found itself under scrutiny due to allegations that it failed to pay a reasonable interest rate on cash sweeps. The cash sweep program, a common practice in the banking industry, involves moving idle cash to higher-yielding accounts or funds.
The Securities and Exchange Commission (SEC) has been investigating Morgan Stanley's cash sweep program for nearly a year, with the aim of ensuring compliance with regulations and industry standards. The SEC's investigation into cash sweep programs at several institutions last year was aimed at determining if banks or brokers steered clients towards accounts paying little or no interest, and if financial advisers had a fiduciary duty to inform clients about higher-yielding alternatives.
Three other financial institutions, including Wells Fargo subsidiaries, Bank of America's Merrill Lynch, and investment adviser LPL Financial, have agreed to pay settlements for cash-sweep allegations, amounting to a total of $88 million.
In a positive development for the bank, Morgan Stanley disclosed on Monday that the Securities and Exchange Commission (SEC) has concluded its investigation into the bank's cash sweep program and does not intend to recommend an enforcement action. However, the risk of potential legal action and financial penalties remains for Morgan Stanley due to the ongoing investigations and lawsuits.
Spokespeople for both Morgan Stanley and the SEC declined to comment on this week's disclosure regarding the investigation. Despite the lack of official comment, it is important to note that, as of April 2022, there is no available information indicating that Morgan Stanley has faced penalties from the SEC specifically over their cash sweep program.
Meanwhile, Morgan Stanley increased rates on cash sweeps in advisory accounts to around 2% in August, a move that could potentially address some of the concerns raised by the SEC and the class-action lawsuits.
The SEC's investigation into cash sweep programs may have implications for other financial institutions that offer similar programs. It serves as a reminder for all financial institutions to ensure they are acting in the best interest of their clients and adhering to industry standards and regulations.
As the investigation continues, it will be interesting to see how Morgan Stanley and other institutions respond to the scrutiny and whether any further penalties or settlements are announced.
Personal-finance practices within businesses, like Morgan Stanley, are under scrutiny following allegations of insufficient interest rates on cash sweeps. The SEC's investigation into these practices aims to ensure compliance and upholds the fiduciary duty of financial advisers to inform clients about higher-yielding investment opportunities in personal-finance management.
