Morgan Stanley 2010 Annual Report Download - page 26

the EU and various laws in Asia, including the Japanese Personal Information (Protection) Law, the Hong Kong
Personal Data (Protection) Ordinance and the Australian Privacy Act. The Company has adopted measures
designed to comply with these and related applicable requirements in all relevant jurisdictions.
Research.
Both U.S. and non-U.S. regulators continue to focus on research conflicts of interest. Research-related
regulations have been implemented in many jurisdictions. New and revised requirements resulting from these
regulations and the global research settlement with U.S. federal and state regulators (to which the Company is a
party) have necessitated the development or enhancement of corresponding policies and procedures.
Compensation Practices and Other Regulation.
The Company’s compensation practices are subject to oversight by the Federal Reserve. In June 2010, the
Federal Reserve and other federal regulators issued final guidance applicable to all banking organizations,
including those supervised by the Federal Reserve, promulgated in accordance with compensation principles and
standards for banks and other financial companies designed to encourage sound compensation practices
established by the Financial Stability Board at the direction of the leaders of the Group of Twenty Finance
Ministers and Central Bank Governors. The guidance was designed to help ensure that incentive compensation
paid by banking organizations does not encourage imprudent risk-taking that threatens the organizations’ safety
and soundness. The scope and content of the Federal Reserve’s policies on executive compensation are
continuing to develop, and the Company expects that these policies will evolve over a number of years.
The Company is subject to the compensation-related provisions of the Dodd-Frank Act, which may impact its
compensation practices. Pursuant to the Dodd-Frank Act, among other things, federal regulators, including the
Federal Reserve, must prescribe regulations to require covered financial institutions, including the Company, to
report the structures of all of their incentive-based compensation arrangements and prohibit incentive-based
payment arrangements that encourage inappropriate risks by providing employees, directors or principal
shareholders with excessive compensation or that could lead to material financial loss to the covered financial
institution. In February 2011, the FDIC was the first federal regulator to propose an interagency rule
implementing this requirement. Further, the SEC must direct listing exchanges to require companies to
implement policies relating to disclosure of incentive-based compensation that is based on publicly reported
financial information and the clawback of such compensation from current or former executive officers following
certain accounting restatements.
In addition to the guidelines issued by the Federal Reserve and referenced above, the Company’s compensation
practices may also be impacted by other regulations promulgated in accordance with the Financial Stability
Board compensation principles and standards. These standards are to be implemented by local regulators. For
instance, in December 2010, the FSA published a policy statement outlining amendments to the Remuneration
Code, which governs remuneration of employees at certain banks, to address compensation-related rules under
the EU Capital Requirements Directive. In another example, the United Kingdom has implemented a
non-deductible 50% tax on certain financial institutions in respect of discretionary bonuses in excess of £25,000
awarded during the period starting on December 9, 2009 and ending on April 5, 2010 to “relevant banking
employees.”
The Dodd-Frank Act also provides a bounty to whistleblowers who present the SEC with information related to
securities laws violations that leads to a successful enforcement action. The Dodd-Frank Act requires the SEC to
establish a Whistleblower Office to administer the SEC’s whistleblower program, and prohibits retaliation by
employers against individuals that provide the SEC with information about potential securities violations. As a
result of the potential of a bounty, it is possible the Company could face an increased number of investigations by
the SEC.
For a discussion of certain risks relating to the Company’s regulatory environment, see “Risk Factors” herein.
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