MORGAN STANLEY

In further development of our SPOE strategy, we have created a wholly owned, direct subsidiary of the Parent Company, MS Holdings LLC (the “Funding IHC”), to serve as a resolution funding vehicle. We expect that, prior to the submission of our 2019 resolution plan by July 1, 2019, the Parent Company will contribute certain of its assets to the Funding IHC and enter into an updated secured amended and restated support agreement with the Funding IHC as well as certain other subsidiaries to facilitate the execution of our SPOE strategy. Similar to the existing secured amended and restated support agreement, the updated secured amended and restated support agreement will obligate the Parent Company to transfer capital and liquidity, as revised, to the Funding IHC, and that the Parent Company and/or the Funding IHC will recapitalize and provide liquidity to material entities in the event of our material financial distress or failure.

We are continuing to prepare our European operations regardless of whether or not a withdrawal or transition agreement is reached. For example, we are taking steps to make changes to our European operations in an effort to ensure that we can continue to provide cross-border banking and investment and other services in E.U. Member States without the need for separate regulatory authorizations in each member state through the use of E.U. “passporting” arrangements, which allow for such cross-border activity. In the event that our U.K. licensed entities are unable to rely on E.U. passporting rights to provide services, we will adjust our operations in Europe to be able to carry out activities from within the E.U. These changes will include use of: a new licensed investment firm, Morgan Stanley Europe S.E., based in Germany, which will passport throughout the E.U. and serve E.U.-based clients where required; our existing German licensed bank, Morgan Stanley Bank AG, which will provide licensable banking activities where required; new licensed entities based in Ireland for licensable asset management activities; as well as branches of the previously noted entities in the E.U. and our existing regulated operations in France and Spain. We are continuing to build out the capabilities of these entities, including engagement with clients and local regulators. We also expect to add personnel to certain of our existing offices in the E.U.

There remain, however, a number of unknown factors regarding the transition from the IBORs and/or interest rate benchmark reforms that could impact our business, including, for example, the pace of the transition to replacement or reformed rates, the specific terms and parameters for and market acceptance of the alternative reference rates, prices of and the liquidity of trading markets for products based on the alternative reference rates, and our ability to transition to and develop appropriate systems and analytics for one or more alternative reference rates. For a further discussion of the various risks we face in connection with the expected replacement of the IBORs and/or reform of interest rate benchmarks on our operations, see “Risk Factors—Legal, Regulatory and Compliance Risk.”

We maintain global programs for business continuity management and technology disaster recovery that facilitate activities designed to mitigate risk to the Firm during a business continuity event. A business continuity event is an interruption with potential impact to normal business activity of the Firm’s people, operations, technology, suppliers and/or facilities. The business continuity management program’s core functions are business continuity planning and crisis management. As part of business continuity planning, business units within the Firm maintain business continuity plans, identifying processes and strategies to continue business-critical processes during a business continuity event. Crisis management is the process of identifying and managing the Firm’s operations during business continuity events. Disaster recovery plans supporting business continuity are in place for critical facilities and resources across the Firm.

The more significant differences to the accounting policy in place prior to adoption were (i) the presentation of certain costs related to underwriting and advisory activities in that such costs were recorded net of Investment Banking revenues versus the current practice of recording the costs in the relevant non-compensation expense line item (ii) the presentation of certain costs related to the selling and distribution of investment funds in that such costs were recorded net of Asset Management revenues versus the current practice of recording the costs in the relevant non-compensation expense line item (iii) the recognition of certain performance fees from fund management activities not in the form of carried interest that were recognized quarterly versus the current practice of deferring the revenues until the fees are not probable of a significant reversal, and (iv) the timing of the recognition of advisory fees in that such fees were recorded when realizable versus the current practice of recognizing the fees as advice is provided to the client, based on the estimated progress of work and when the revenue is not probable of a significant reversal.