The SEC found that Morgan Stanley did not comply with requirements for annual surprise custody examinations for two consecutive years, failing to provide its private accountant with an accurate and complete list of client funds and securities for examination.
According to the SEC, Morgan Stanley also failed to properly maintain and preserve client contracts.
Sanjay Wadhwa, senior associate director of the SEC’s New York office, said: “The custody rule’s surprise examination requirement is designed to provide clients protection against assets being misappropriated or misused.”
He added: “Morgan Stanley failed in consecutive years to do what was required of it to give investment advisory accounts that important protection.”
The SEC’s order also found that Morgan Stanley overcharged more than 149,000 advisory clients through coding and other system errors.
The bank did not adopt and implement compliance policies or procedures to make sure clients were billed accurately and according to the terms of their advisory agreements, the SEC alleged.
Morgan Stanley received more than $16 million in excess fees between 2002 and 2016, and has already reimbursed this to affected clients, plus interest.
Andrew Calamari, director of the SEC’s New York regional office, said: “Investors must be able to trust that their investment advisers have put appropriate safeguards in place to ensure accurate billing.”
Morgan Stanley did not confirm or deny the findings, but consented to the SEC’s cease-and-desist order and agreed to the $13 million penalty and a censure.
A statement from the bank said: “Morgan Stanley Wealth Management is pleased to settle this matter, which included inadvertent billing errors in certain managed accounts. All affected clients have been reimbursed and the firm has enhanced its policies and procedures, including discontinuing the use of certain legacy systems.”