Morgan Stanley Fined $1.5 Million over Online Disclosure Failures
In another sign of the unintended consequences of technology upgrades, Morgan Stanley failed to provide millions of online customers an easy way to access information on purchases of mutual funds and other products and to deliver notices of investment objective changes to hundreds of thousands of other customers over several years.
The lapses were caused by unintentional coding and systems errors introduced that the firm failed to catch because of improper testing and supervision, the firm said in a consent order signed this week with the Financial Industry Regulatory Authority.
The industry-sponsored regulator censured Morgan Stanley and fined it $1.5 million for the compliance and supervision failures, which the firm neither admitted nor denied.
Finra’s order acknowledged the firm’s “extraordinary cooperation” in identifying and attempting to remediate the errors before regulatory detection. Morgan Stanley offered rescissions to thousands of customers who for nine months were not able to receive prospectuses because a “View Prospectus Hyperlink” was not placed on online transaction confirmations following a systems update the firm made in November 2013. It also hired an outside consultant to review the offers and the firm’s prospectus delivery fulfillment system, the consent order said.
The firm didn’t notice the hyperlink omission until a customer searching for a prospectus on a purchase contacted the firm.
Morgan Stanley also failed to send 23,500 letters to customers confirming they had made investment objective changes, and in some cases failed to make the changes due to coding and programming errors at various times between 2012 and 2016 as a result of technology errors, the settlement said.
“The settlement recognized Morgan Stanley’s extraordinary cooperation in identifying and quickly resolving the prospectus issue, and further recognized that prospectuses were available elsewhere on MS Online, and client profile information continued to be reflected on account statements,” Morgan Stanley spokeswoman Christy Jockle said in an email.