Funds News

UPDATE 1-Morgan Stanley's chief legal officer to step aside

* Gary Lynch will continue as vice chairman in London

* Firm will search for successor, to be based in New York

* Lynch moved to London last year and became vice chairman (Adds details on candidate to succeed Lynch)

NEW YORK, Feb 23 (Reuters) - Morgan Stanley's MS.N chief legal officer, Gary Lynch, who worked closely with regulators, is leaving that post, according to an internal memo.

Lynch, who will remain vice chairman, is giving up the legal post as regulators in the United States and elsewhere consider new rules to limit the activities of banks.

Lynch joined Morgan Stanley in 2005 and has been based in London. He will remain chief legal officer until a replacement is found, the memo said.

Morgan Stanley plans to search for a successor who will be based in New York, the memo said.

A source familiar with the matter said Eric Grossman is the leading candidate to replace Lynch. Grossman is Morgan Stanley’s current global head of litigation, general counsel for the Americas, and general counsel for Morgan Stanley Smith Barney.

Lynch plans to remain with the firm in its London office working as vice chairman and focusing on firm management and meeting with global regulators. He moved to London last year and became vice chairman while keeping his legal post.

He was credited with helping Morgan Stanley transition to a bank holding company in 2008, at the height of the financial crisis. Previously, he was an executive with Credit Suisse Group AG's CSGN.VX Credit Suisse First Boston.

The move is the latest in a string of management changes since James Gorman became Morgan Stanley chief executive on Jan. 1, succeeding John Mack. Mack continues to serve as chairman.

The other moves have included the promotion of Ruth Porat to chief financial officer and the hiring of Gregory Fleming, a former Merrill Lynch president and chief operating officer, as head of investment management and global research. (Reporting by Steve Eder, editing by Gerald E. McCormick and John Wallace)