Morgan Stanley 2014 Annual Report Download - page 20

addition, both institutions are exposed to changes in the cost of FDIC insurance. In 2010, the FDIC adopted a
restoration plan to replenish the reserve fund over a multi-year period. Under the Dodd-Frank Act, some of the
restoration must be paid for exclusively by large depository institutions, including MSBNA, and FDIC deposit
insurance assessments are calculated using a new methodology that generally favors banks that are mostly
funded by deposits.
Institutional Securities and Wealth Management.
Broker-Dealer and Investment Adviser Regulation. The Company’s primary U.S. broker-dealer subsidiaries,
MS&Co. and MSSB LLC, are registered broker-dealers with the SEC and in all 50 states, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands, and are members of various self-regulatory organizations,
including the Financial Industry Regulatory Authority, Inc. (“FINRA”), and various securities exchanges and
clearing organizations. Broker-dealers are subject to laws and regulations covering all aspects of the securities
business, including sales and trading practices, securities offerings, publication of research reports, use of
customers’ funds and securities, capital structure, recordkeeping and retention, and the conduct of their directors,
officers, representatives and other associated persons. Broker-dealers are also regulated by securities
administrators in those states where they do business. Violations of the laws and regulations governing a broker-
dealer’s actions could result in censures, fines, the issuance of cease-and-desist orders, revocation of licenses or
registrations, the suspension or expulsion from the securities industry of such broker-dealer or its officers or
employees, or other similar consequences by both federal and state securities administrators.
In addition, MSSB LLC is a registered investment adviser with the SEC. MSSB LLC’s relationship with its
investment advisory clients is subject to the fiduciary and other obligations imposed on investment advisors
under the Investment Advisers Act of 1940, and the rules and regulations promulgated thereunder as well as
various state securities laws. These laws and regulations generally grant the SEC and other supervisory bodies
with broad administrative powers to address non-compliance, including the power to restrict or limit MSSB LLC
from carrying on its investment advisory and other asset management activities. Other sanctions that may be
imposed include the suspension of individual employees, limitations on engaging in certain activities for
specified periods of time or for specified types of clients, the revocation of registrations, other censures and
significant fines.
The Dodd-Frank Act includes various provisions that affect the regulation of broker-dealer sales practices and
customer relationships. For example, the SEC is authorized to adopt a fiduciary duty applicable to broker-dealers
when providing personalized investment advice about securities to retail customers. The U.S. Department of
Labor is considering revisions to regulations under the Employee Retirement Income Security Act of 1974 that
could subject broker-dealers to a fiduciary duty and prohibit specified transactions for a wider range of customer
interactions. These developments may impact the manner in which affected businesses are conducted, decrease
profitability and increase potential liabilities.
Margin lending by broker-dealers is regulated by the Federal Reserve’s restrictions on lending in connection with
customer and proprietary purchases and short sales of securities, as well as securities borrowing and lending
activities. Broker-dealers are also subject to maintenance and other margin requirements imposed under FINRA
and other self-regulatory organization rules. In many cases, the Company’s broker-dealer subsidiaries’ margin
policies are more stringent than these rules.
As registered U.S. broker-dealers, certain subsidiaries of the Company are subject to the SEC’s net capital rule
and the net capital requirements of various exchanges, other regulatory authorities and self-regulatory
organizations. Many non-U.S. regulatory authorities and exchanges also have rules relating to capital and, in
some cases, liquidity requirements that apply to the Company’s non-U.S. broker-dealer subsidiaries. These rules
are generally designed to measure general financial integrity and/or liquidity and require that at least a minimum
amount of net and/or liquid assets be maintained by the subsidiary. See also “—Financial Holding Company—
Consolidated Supervision” and “—Financial Holding Company—Capital and Liquidity Standards” above. Rules
16