Thursday, September 20, 2012

GAO Wants Greater Transparency from the FSOC


Author: David Schwartz J.D. CPA David Schwartz J.D. CPA

In a recently concluded study, the US Government Accountability Office (GAO) says, among other things, that Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) could benefit from more transparency. Though both the FSOC and OFR issue annual reports on their activities and have created web pages that provide some information to the public, the GAO concluded that the FSOC's and OFR's management mechanisms to carry out their missions could be improved to provide greater accountability and transparency.

In particular, the areas in which the GAO feels more accountability and public access to information and could be helpful include:

  • FSOC's Systemic Risk Committee, which is responsible for identifying risks to financial stability, has procedures to facilitate analysis of risks raised by staff. However, without a more systematic approach and comprehensive information, FSOC member agencies, on their own, may not be well positioned to judge which potential threats will benefit from interagency discussions. GAO recommends that FSOC collect and share key financial risk indicators as part of a systematic approach to help identify potential threats to financial stability.

  • Public information on FSOC's and OFR's decision making and activities is limited, which makes assessing their progress in carrying out their missions difficult. GAO recommends that (1) FSOC keep detailed records of closeddoor sessions and (2) both entities develop a communication strategy to improve communications with the public. FSOC's annual reports--which serve as its key accountability documents--do not consistently identify which entities should monitor or implement the identified recommendations or give time frames for specific actions.

  • To hold FSOC accountable for its recommendations, GAO recommends that FSOC recommend a lead agency or agencies to monitor or implement each recommendation within specified time frames. OFR issued a strategic framework in March 2012 as an important first step in adopting a strategic planning and performance management system. However, that document lacked some leading practices such as linking activities to strategic goals and performance measurement systems. GAO recommends that OFR further develop a strategic planning and performance management system that includes these elements and will allow it to be held accountable.
In all, the GAO made ten recommendations, including:
  1. clarify responsibility for implementing requirements to monitor threats to financial stability across the FSOC;
  2. develop an approach that includes systematic sharing of key financial risk indicators across FSOC members and member agencies;
  3. develop a strategy to improve communications with the public;
  4. maintain detailed records (such as detailed minutes or transcripts) of closed door sessions;
  5. establish formal collaboration and coordination policies that clarify issues such as when collaboration or coordination should occur and what role FSOC should play in facilitating such coordination;
  6. establish a collaborative and comprehensive framework for assessing the impact of its decisions for designating financial market utilities and nonbank financial companies on the wider economy and such entities; and
  7. develop more systematic forward-looking approaches for reporting on potential emerging threats to financial stability in annual reports.
The Treasury Department, which chairs the FSOC, has stated that the FSOC would consider the recommendations, but questioned the need for FSOC and OFR to clarify responsibilities for monitoring threats to financial stability and stated that OFR expects to share publicly some risk indicators. The GAO, however, maintains that stronger and more systematic actions are still needed in these areas.  


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