Morgan Stanley will see no penalty from the Securities and Exchange Commission over the bank’s cash sweep program, the New York City-based lender disclosed Monday in its quarterly report.
The SEC told the bank March 11 that it had “concluded” its nearly yearlong investigation of the program “and did not intend to recommend an enforcement action,” according to the Monday filing.
In a cash sweep, idle cash is automatically moved to an interest-bearing account or money market fund unless the account holder opts out.
Several institutions’ cash sweep programs caught the SEC’s attention last year. The regulator aimed to ascertain whether banks or brokers steered clients toward sweep accounts that paid little or no interest, and whether the companies’ financial advisers had a fiduciary duty to tell clients they could make higher returns by moving their cash into other accounts.
Spokespeople for Morgan Stanley and the SEC declined to comment on this week’s disclosure.
Morgan Stanley announced in August that the SEC was reviewing the program. Days earlier, the bank raised rates to around 2% – from as little as 0.01% – on cash sweeps in advisory accounts.
Not every institution has escaped unscathed. Two Wells Fargo subsidiaries agreed – in the waning days of the Biden administration – to pay a total of $35 million to settle SEC cash-sweep allegations. At the same time, Bank of America’s Merrill Lynch agreed to pay $25 million, and investment adviser LPL Financial agreed to pay $18 million.
Morgan Stanley isn’t completely off the hook. The bank still faces a cash-sweep investigation from a securities regulator in a state it did not identify, according to Monday’s filing. Morgan Stanley and other financial firms also have been named as defendants in several class-action lawsuits – notably in New Jersey and New York – that claim the lender or its E*Trade subsidiary failed to pay a reasonable interest rate on cash sweeps, the filing indicated.
