Morgan Stanley, the largest wealth manager in the United States, is facing potential regulatory scrutiny after authorizing its financial advisors to pitch Bitcoin exchange-traded funds (ETFs). This move, according to former SEC official John Reed Stark, could lead to a significant compliance burden for the firm.
Stark, a known cryptocurrency skeptic, voiced his concerns on August 9 via X, stating that Morgan Stanley’s decision to allow its 15,000 brokers to promote Bitcoin ETFs could trigger the largest SEC and FINRA examination sweep in history. He likened the situation to a “compliance death wish,” predicting that identifying violations within Morgan Stanley’s operations would be like “shooting fish in a barrel.”
Regulatory Scrutiny Intensifies
Stark elaborated on the compliance challenges Morgan Stanley might face, explaining that SEC and FINRA enforcement teams would gain immediate access to all records, emails, texts, voicemails, and phone conversations related to Bitcoin sales to retail investors. He emphasized that this extensive trove of evidence would be easily accessible during both document requests and surprise on-site inspections.
Morgan Stanley Endorses Limited Bitcoin ETFs
The controversy follows reports that Morgan Stanley has started recommending Bitcoin ETFs to high-net-worth clients, specifically endorsing BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC). This development is seen as a significant moment for the cryptocurrency market, with experts like Dragonfly managing partner Haseeb Qureshi predicting increased inflows in the latter half of the year.
Since the approval of spot Bitcoin ETFs in January, these products have already attracted $17.3 billion in inflows, according to Farside data, highlighting the growing interest and potential impact on the market.