Morgan Stanley 2009 Annual Report Download - page 25

The financial services industry is subject to extensive regulation, which is undergoing major changes.
As a major financial services firm, we are subject to extensive regulation by U.S. federal and state regulatory
agencies and securities exchanges and by regulators and exchanges in each of the major markets where it
operates. We also face the risk of investigations and proceedings by governmental and self-regulatory agencies in
all countries in which we conduct our business. Interventions by authorities may result in adverse judgments,
settlements, fines, penalties, injunctions or other relief. In addition to the monetary consequences, these measures
could, for example, impact our ability to engage in, or impose limitations on, certain of our businesses. The
number of these investigations and proceedings, as well as the amount of penalties and fines sought, has
increased substantially in recent years with regard to many firms in the financial services industry, including us.
Significant regulatory action against us could materially adversely affect our business, financial condition or
results of operations or cause us significant reputational harm, which could seriously harm our business.
In response to the financial crisis, legislators and regulators, both in the U.S. and worldwide, are currently
considering a wide range of proposals that, if enacted, could result in major changes to the way our global
operations are regulated. Some of these major changes may take effect as early as 2010, and could materially
impact the profitability of our businesses, the value of assets we hold, require changes to business practices or
force us to discontinue businesses, and expose us to additional costs, taxes, liabilities and reputational risk.
We are a bank holding company that has elected to be treated as a financial holding company. As a financial
holding company, we are subject to the comprehensive, consolidated supervision and regulation of the Fed,
including risk-based capital requirements and leverage limits. Reform proposals could result in our becoming
subject to stricter capital requirements and leverage limits, and could also affect the scope, coverage, or
calculation of capital, all of which could adversely affect our ability to pay dividends, or could require us to
reduce business levels or to raise capital, including in ways that may adversely impact our shareholders or
creditors. Regulatory reform proposals could also result in the imposition of additional restrictions on our
activities if we were to no longer meet certain capital requirements at the level of the financial holding company.
The financial services industry faces substantial litigation and is subject to regulatory investigations, and we
may face damage to our reputation and legal liability.
We have been named, from time to time, as a defendant in various legal actions, including arbitrations, class
actions, and other litigation, as well as investigations or proceedings brought by regulatory agencies, arising in
connection with our activities as a global diversified financial services institution. Certain of the actual or
threatened legal or regulatory actions include claims for substantial compensatory and/or punitive damages,
claims for indeterminate amounts of damages, or may result in penalties, fines, or other results adverse to us. In
some cases, the issuers that would otherwise be the primary defendants in such cases are bankrupt or in financial
distress. Like any large corporation, we are also subject to risk from potential employee misconduct, including
non-compliance with policies and improper use or disclosure of confidential information.
Substantial legal liability could materially adversely affect our business, financial condition or results of
operations or cause us significant reputational harm, which could seriously harm our business. For more
information regarding legal proceedings in which we are involved see “Legal Proceedings” in Part I, Item 3
herein.
Our business, financial condition and results of operations could be adversely affected by governmental fiscal
and monetary policies.
We are affected by fiscal and monetary policies adopted by regulatory authorities and bodies of the U.S. and
other governments. For example, the actions of the Fed and international central banking authorities directly
impact our cost of funds for lending, capital raising and investment activities and may impact the value of
financial instruments we hold. In addition, such changes in monetary policy may affect the credit quality of our
customers. Changes in domestic and international monetary policy are beyond our control and difficult to predict.
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