New York, NY – Morgan Stanley & Co. LLC (MSCO) has been penalized $500,000 by the Commodity Futures Trading Commission (CFTC) for failing to adequately supervise the reconciliation of exchange and clearing fees charged to customers. The CFTC issued an order detailing the violations and requiring MSCO to cease and desist from further breaches of CFTC regulations regarding diligent supervision.
The investigation revealed that between 2009 and April 2016, MSCO overcharged U.S. customers a total of $1,550,182 in exchange and clearing fees. An additional $1,439,047 in overcharges were levied against customers of a MSCO affiliate. The firm has since refunded nearly all affected customers and taken responsibility for any remaining discrepancies.
While MSCO recognized the need for an automated system to manage increasingly complex exchange fees as early as 2010 and began developing one, the system’s design failed to adequately protect against customer overcharges. For the majority of the period in question, MSCO lacked a fully automated process to identify and prevent these errors.
Beginning in early 2015, MSCO implemented modifications to its fee system designed to identify potential overcharges. The company claims this new functionality will prevent future instances of overbilling.
This case marks the fourth enforcement action by the CFTC against clearing firms for supervisory failures related to fee processing. Previous actions have been taken against Merrill Lynch ($1.2 million penalty in 2014), Barclays Capital ($800,000 penalty in 2016), and J.P. Morgan Securities ($900,000 penalty in 2017). The CFTC’s Division of Enforcement staff led the investigation.
Source: CFTC.gov
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