BREAKING NEWS: Morgan Stanley Wealth Unit Being Probed by Federal Regulators: Report

Morgan Stanley shares fell as much as 6.5% on Thursday as reports surfaced that the bank’s wealth unit is under investigation by numerous federal agencies for client-vetting methods and potential money laundering risks.

The Wall Street Journal reported that the U.S. Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency, and Treasury Department officials are involved in the investigation, citing unnamed sources.

Banks are required under “Know Your Customer” laws to verify their customers’ identity and the source of their funds. The Wall Street Journal reported in November that the Federal Reserve was investigating Morgan Stanley’s wealth management division to ensure that enough safeguards were in place to prevent wealthy international clients from laundering money.

According to the WSJ, the SEC handed the bank a list of current and former clients along with questions about how they were screened. It also questioned why the bank’s financial advisor unit, which deals directly with wealthy individuals, worked with certain clients who were turned down by E*Trade, the bank’s digital trading platform, after red flags were raised.

Morgan Stanley has worked to address the issues by investing in compliance, technology and artificial intelligence to better analyze the cash flows tied to its wealth business, the WSJ reported.