WASHINGTON – Today, House Oversight and Government Reform Committee Chairman Darrell Issa, R-Calif., and Subcommittee Chairman Jim Jordan, R-Ohio, pressed Treasury Secretary Jacob Lew for more information about the Financial Stability Oversight Council’s (FSOC) interaction with other financial agencies, after concerns were raised about the group’s usage of the Office of Financial Research (OFR).
“[I]t appears FSOC is deploying the Office of Financial Research (OFR) – a division of the Treasury Department and a non-voting member of the Council – in an effort to override the professional judgment of the career, non-partisan staff at the Securities and Exchange Commission,” the letter states. “The Committee is concerned that such efforts are intended to justify a predetermined outcome: additional regulation of the financial sector.”
In April 2012, the FSOC tasked OFR with producing a report on asset management firms, with the express purpose of using the analysis as the basis for future policy decisions. Before publication in September 2013, professional staff at the Securities and Exchange Commission (SEC) reviewed the report and provided extensive feedback and criticism.
“The SEC experts were especially concerned that OFR had overstated the potential risks posed by asset management firms, and had relied on inadequate and incomplete data,” the letter states. “Even more concerning, it appears that the SEC experts identified instances where the OFR study lacked even a basic knowledge of the asset management industry and necessary regulatory considerations…. Amazingly, while OFR paid lip service to the SEC staff’s suggestions, OFR failed to meaningfully address the important issues flagged in the SEC memorandum.”
“Documents produced to the Committee show that OFR ultimately ignored or dismissed core criticisms from the career, non-partisan regulatory experts at the SEC, strongly suggesting that, as observers have alleged OFR produced the report as simply a pretext for further action to designate asset managers as systemically important, and not as an unbiased and objective review of the industry,” the letter concludes. “This information also suggests that the OFR study should not be relied upon for any further action by FSOC or its members.”
You can read the letter to Secretary Lew here.