Morgan Stanley is in the middle of implementing a global reporting system that will help it comply with US legislation designed to cut down on global money laundering activity.

This April, the bank implemented the foundation of its new reporting system and on the third of July, it will add on an anti-money laundering (AML) component.

Following September 11, the US government aggressively pushed through its controversial Patriot Act, which required the financial sector to report on a wide range of suspicious activities.

The EU responded rapidly, expanding its existing legislation to increase the reporting requirements for European banks regarding suspicious activity.

'The regulatory environment for the financial sector became much more severe,' said Morgan Stanley executive director for technology strategy Arthur Riel.

'There were three main components that affected us. We had to establish an anti-money laundering (AML) programme, collect more information about customers, and increase our suspicious activity reporting,' he said.

In February 2002, Morgan Stanley began work on developing internal procedures for complying with the legislation, a serious challenge for a firm spread across 26 countries, with 55,000 staff managing over $400bn in assets.

Its initiative focused on twelve countries, including the UK.

Riel says the bank is working with authorities to determine how its suspicious activity reporting (SAR) system will need to be customised for the local market.

By June last year, the firm had appointed a compliance officer, established a SAR team and created a preliminary governance structure for the AML initiative.

To build a global reporting system that could pull together information from all 22 of its business units, the firm partnered with SAS, a business intelligence vendor.

'We provided the intellectual capital for the project, establishing various money laundering scenarios, while SAS developed the software to handle it,' said Morgan Stanley executive director and AML project leader Imtiaz Kanji.

Speaking at the company's annual European user group conference last week, SAS chief executive Dr Jim Goodnight says AML is a big issue in Europe, with Switzerland requiring banks to submit their plans for compliance by September.

Once the system is implemented in July, the bank will work with SAS to fine tune its reporting of suspicious activity - and also investigate how the system could be used for competitive advantage.

'We are working to see how we can maximise this opportunity. We believe possibilities exist for cross-selling, as well as fraud reduction,' said Kanji.

A report by TowerGroup in the US says that the brokerage industry will spend nearly $700m through 2005 on technology solutions to comply with the Patriot Act.