MORGAN STANLEY Registered number: 02068222
Registered office:
25 Cabot Square
Canary Wharf
London
E14 4QA
Morgan Stanley & Co. International plc
Report and financial statements
31 December 2021
Table of contents
STRATEGIC REPORT....................................................................................................................................................... 3
Financial Performance and Condition ........................................................................................................................... 7
Financial Performance Indicators .......................................................................................................................... 7
Overview of 2021 Financial Results ....................................................................................................................... 8
Key Accounting Policies and Judgements ............................................................................................................ 10
Liquidity and Capital Management and Regulation .................................................................................................... 11
Regulatory Capital and Leverage Requirements ................................................................................................. 11
Funding and Liquidity Management .................................................................................................................... 12
Recovery and Resolution Planning ...................................................................................................................... 13
Regulatory Developments ................................................................................................................................... 14
Risk management ........................................................................................................................................................ 15
Risk Strategy and Appetite .................................................................................................................................. 15
Risk Management Framework ............................................................................................................................. 15
Market Risk .......................................................................................................................................................... 17
Credit Risk ............................................................................................................................................................ 18
Liquidity and Funding Risk ................................................................................................................................... 20
Operational Risk .................................................................................................................................................. 21
Legal, Regulatory and Compliance Risk ............................................................................................................... 21
Model Risk ........................................................................................................................................................... 22
Climate Risk ......................................................................................................................................................... 22
Sustainability ............................................................................................................................................................... 25
Environmental Matters ........................................................................................................................................ 25
Environmental and Social Risk Management ("ESRM") ...................................................................................... 28
Respect for Human Rights ................................................................................................................................... 28
Anti-corruption and Bribery ................................................................................................................................ 28
Our People ........................................................................................................................................................... 28
Giving Back to the Community ............................................................................................................................ 29
CORPORATE GOVERNANCE ........................................................................................................................................ 31
Corporate Governance Framework ............................................................................................................................. 31
Stakeholder Engagement and Section 172(1) Statement ............................................................................................ 35
DIRECTORS' REPORT ................................................................................................................................................... 37
INDEPENDENT AUDITOR'S REPORT ............................................................................................................................ 41
PRIMARY FINANCIAL STATEMENTS ............................................................................................................................ 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................................................................................... 56
2
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
STRATEGIC REPORT
The Directors present their Strategic Report for Morgan Stanley & Co. International plc (the "Company") and all of its subsidiary undertakings (together "the Group") for the year ended 31 December 2021.
Group and Company overview
The Company, Governance and Stakeholders
The Company operates within the financial services industry and, as such, is subject to extensive supervision and regulation. In certain circumstances, this supervision may be applied to Morgan Stanley International Limited ("MSI"), an intermediate parent undertaking and the ultimate United Kingdom ("UK") parent undertaking of the Company. The Company also shares elements of its Corporate Governance with MSI and the MSI Group (MSI together with all of its subsidiary undertakings). Throughout the Strategic Report the Directors may refer to policies, procedures and practices of MSI and the MSI Group that the Company and/or the Group may be covered by, or may share.
The ultimate parent undertaking and controlling entity is Morgan Stanley. Morgan Stanley is a global financial services firm authorised as a Financial Holding Company and regulated by the Board of Governors of the Federal Reserve System in the United States of America. Morgan Stanley, together with the Group and Morgan Stanley's other subsidiary undertakings, form the "Morgan
Stanley Group".
The Company and the Group adopt policies and procedures consistent with the Morgan Stanley Group to the extent permissible by local law and regulation. More information on Morgan Stanley can be accessed on the websitewww.morganstanley.com.
The Group follows the core values of the Morgan Stanley Group. The core values are designed to guide decision making aligned with the expectations of stakeholders. The core values are:
Put Clients First
Do the Right Thing
Lead with Exceptional Ideas Commit to Diversity and Inclusion Give Back
Further detail on the engagement with stakeholders by the Board of Directors ("Board") and the Company's section 172(1) statement is outlined in the 'Corporate Governance' section.
Principal Activity
The principal activity of the Group is the provision of financial services to a global client base consisting of corporations, governments and financial institutions. There has been no change to the Group's principal activity during the year and no significant change is expected.
The Group is a key contributor to the execution of the Morgan Stanley Group's global Institutional Securities segment strategy. The Group provides investment banking, sales and trading and other services to its clients. Investment banking services consist of capital raising including underwriting of debt, equity and other securities; financial advisory services, including advice on mergers and acquisitions, restructurings and project finance; sales and trading services include sales, financing, prime brokerage and market-making activities in equity and fixed income and includes providing secured lending to sales and trading customers. Other services include asset management.
The Company conducts business from its headquarters in London, UK and operates branches in the Dubai International Financial Centre, the Qatar Financial Centre, South Korea, France and Switzerland. The French branch was established by the Company in April
2021. Details of the Company's subsidiaries can be found in note 14 and in the Appendix to the Financial Statements.
Overview of 2021
The Group's net revenues increased by 17% predominantly driven by higher equity product trading activity levels and higher capital markets activity volume. As a result the Group's profit after tax increased to $1,351 million, a 39% increase as compared to the prior year. See 'Overview of 2021 Financial Results' for further information.
In response to the continued prevalence of the coronavirus disease ("COVID-19") throughout 2021, health measures implemented by the Group and the Morgan Stanley Group continued, with the workforce successfully working remotely as needed.
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
The Group also continued to successfully implement its transition plan for Interbank Offered Rates ("IBOR") exposures. For further details on COVID-19 and IBOR transition, refer to 'Group and Company Overview -
Business Environment'.
During the year, the Company complied with all its capital and liquidity requirements. See 'Liquidity and
Capital Management and Regulation' for further detail.
Another key focus of the Group was the continued integration of climate risk, establishing a Climate Risk framework with a Board level portfolio stress limit. Refer to 'Risk Management - Climate Risk' for further information.
Supervision and Regulation
As a UK-based financial services provider, the Company is authorised by the Prudential Regulation Authority ("PRA") as a PRA-designated investment firm and is regulated by the PRA and the Financial Conduct Authority ("FCA"). The PRA is a subsidiary of the Bank of England ("BOE") and is responsible for prudential regulation of systemically important institutions. The FCA regulates conduct matters of all market participants, including the Company.
As a provider of services to global clients, the Company is registered with the Securities and Exchange Commission ("SEC") as a Securities Based Swap Dealer ("SBSD") (as of November 2021) and is provisionally registered with the Commodity Futures Trading Commission ("CFTC") as a Swap Dealer. These swap dealer registrations provide a comprehensive regulatory framework applicable to the Company's US-related swap and security-based swap dealer activities.
The key regulations impacting the financial soundness of the Company are as follows:
Capital and Liquidity Standards: Until 31 December 2020, the Company was subject to risk-based capital, leverage and liquidity standards for European Union ("EU") regulated financial institutions prescribed in the Capital Requirements Directive ("CRD") and the Capital Requirements Regulation ("CRR"), as implemented by the PRA. These are largely based on the standards developed by the Basel Committee on Banking Supervision ("BCBS"). Following the UK's withdrawal from the EU and as described in 'Liquidity and Capital Management and Regulation - Temporary Transitional Power', from 1 January 2021, EU law has largelycontinued to apply in the UK in the same way as prior to 31 December 2020. The discussion of the standards that apply Temporary Transitional Power ("TTP") and their management can be found in 'Liquidity and Capital Management and Regulation'. The TTP period expired on 31 March 2022. From 1 April 2022 the Company has been compliant with the UK onshored regulatory obligations.
Recovery and Resolution: The Company is subject to regulatory requirements on recovery and resolution planning set by the PRA and the BOE, as part of the UK's recovery and resolution framework, established through the UK Banking Act 2009 and related legislation. This includes regulatory requirements that apply directly to the Company, and those regulatory requirements that apply to the MSI Group and therefore, indirectly apply to the Company. The Company is also within the scope of the resolution strategy adopted by the Morgan Stanley Group. Refer to 'Liquidity and Capital Management and Regulation - Recovery and Resolution Planning' for further information.
Outlook: The Company continues to monitor the changing political, tax and regulatory environment. It is likely that there will be further changes in the way financial institutions are regulated in the UK and other markets in which the Company operates, although it remains difficult to predict the exact impact these changes will have on its business, statement of financial position, results of operations and cash flows for a particular future period. The Company expects to remain subject to extensive supervision and regulation.
Risk Factors and Business Environment
Exposure to risk factors and the current business environment in which it operates may impact the business results of the Group's operations.
Risk Factors
Risk is an inherent part of the Group's business activity. The Group seeks to identify, assess, monitor and manage each of the various types of risk involved in its business activities, in accordance with defined policies and procedures.
The Group Risk Appetite Statement articulates the aggregate level and type of risk that the Group is willing to accept in order to execute its business strategy.
MORGAN STANLEY & CO. INTERNATIONAL plc
STRATEGIC REPORT
The Group has an established Risk Management Framework, to support the identification, monitoring and management of risk, including any risk acceptances.
The primary risk areas for the Group include Market, Credit, Liquidity & Funding and Operational risks. A description of the principal risks and how these risks are managed within the Group is outlined in detail within the relevant risk's section of 'Risk management'.
Climate risk is largely managed through these principal risks.
Business Environment
During 2021, the Group has been impacted by factors in the global environment in which it operates, each of which introduces risks and uncertainties that may adversely affect the results of operations of the Group. The continued prevalence of COVID-19 throughout 2021 created ongoing challenges for businesses, however the global economy which had contracted in 2020 began to recover.
Future Developments
The Strategic Report contains certain forward-looking statements and information on future developments. These statements are made by the Board in good faith, based on the information available at the time of the approval of the report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. In particular, the effects on the Group of the ongoing COVID-19 pandemic, the related global economic crisis and recent geopolitical tensions and armed conflicts continue to represent significant uncertainty factors.
COVID-19
Although the global economy has begun to recover from the COVID-19 pandemic, as many health and safety restrictions have been lifted and vaccine distribution continues to increase, certain adverse consequences of the pandemic continue to impact the global economy and may persist for some time. These include labour shortages and disruptions of global supply chains. The growth in economic activity and demand for goods and services, alongside labour shortages and supply chain complications, has also contributed to rising inflationary pressures. Should these ongoing effects of the pandemic continue for an extended period or worsen,
the Group could experience reduced client activity and demand for products and services.
Morgan Stanley and the Group continue to be fully operational and, recognising that local conditions vary for offices around the world and that the trajectory of the virus continues to be uncertain, employees are able to work from home and in offices as deemed necessary. If significant portions of the workforce, including key personnel, are unable to work effectively because of illness, government actions, or other restrictions in connection with the pandemic, the impact of the pandemic on the Group's business could be exacerbated.
The extent to which the consequences of the COVID-19 pandemic affect the Group's business, results of operations and financial condition, as well as its regulatory capital and liquidity ratios and ability to take capital actions, will depend on future developments that remain uncertain. This includes the rate of distribution and administration of vaccines globally, the severity and duration of any resurgence of COVID-19 variants, future actions taken by governmental authorities, central banks and other third parties. Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks described in the Strategic Report.
UK withdrawal from the EU
The transition period for the UK's withdrawal from the
EU ended on 31 December 2020. The transfer of clients, exchanges and businesses was substantially completed in 2020, with some remaining clients transferred during 2021 to the Morgan Stanley Group's EU German Group.
The transfer of clients in 2021 combined with the transfer of clients, exchanges and businesses in 2020 did not have a material impact on the Company's or the Group's financial position or on their 2021 financial results. The Morgan Stanley Group continues to provide cross-border banking and investment and other services in EU member states through its EU German Group.
Escalation of War in Ukraine
The Group has limited direct exposure to Russia and Ukraine. However, there may be negative effects to the global economy due to the current disruption to the financial markets, global trade payment systems and capital flows as well as from the impact of sanctions. The extent to which the impact to the global economy affects the Group will depend on future developments
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Morgan Stanley published this content on 27 April 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 April 2022 11:24:07 UTC.
