Recommendation: The Director of CFPB should implement a systematic process for prioritizing risks to consumers and considering how to use the bureau's available policy tools—such as rulemaking, supervision, enforcement, and consumer education—to address these risks. Such a process could incorporate principles from the prior One Bureau process, such as an assessment of the extent of potential harm to consumers in financial markets, to prioritize the most significant risks. (Recommendation 1)

Agency: Consumer Financial Protection Bureau
Status: Open

Comments: In October 2019, CFPB staff told us that the CFPB Director approved a proposal to implement a short-term policy prioritization exercise. According to a memorandum describing this exercise, CFPB anticipates that it will involve CFPB's Strategy Office engaging members of cross-bureau working groups to review and update priorities related to addressing risks to consumers. According to CFPB staff, the working groups will need up to a few months to complete this work, and the results should be available in the second quarter of 2020. To fully address this recommendation, CFPB needs to make further progress in implementing this planned prioritization exercise, including by demonstrating steps taken to prioritize risks to consumers and considering how to use CFPB's various policy tools to address these risks.

Recommendation: Congress should consider whether additional changes to the financial regulatory structure are needed to reduce or better manage fragmentation and overlap in the oversight of financial institutions and activities to improve (1) the efficiency and effectiveness of oversight; (2) the consistency of consumer and investor protections; and (3) the consistency of financial oversight for similar institutions, products, risks, and services. For example, Congress could consider consolidating the number of federal agencies involved in overseeing the safety and soundness of depository institutions, combining the entities involved in overseeing the securities and derivatives markets, transferring the remaining prudential regulators' consumer protection authorities over large depository institutions to the Consumer Financial Protection Bureau, and the optimal role for the federal government in insurance regulation, among other considerations.

Agency: Congress
Status: Open

Comments: At least two bills have been introduced in the 115th Congress that would change the financial regulatory structure, to some degree, to address fragmented and overlapping regulatory authorities among agencies, as GAO suggested in February 2016. The Financial CHOICE Act of 2017 (H.R. 10) was introduced on April 26, 2017, passed the House in June 2017 and the Senate held hearings in July 2017. Among other things, the Financial CHOICE Act of 2017 calls for the federal financial regulatory agencies to implement policies and procedures to minimize the duplication of effort with respect to enforcement actions. For example, it eliminates the authority of the Consumer Financial Protection Bureau to supervise and examine financial institutions and also eliminates the regulatory and enforcement authority of the agency with respect to unfair, deceptive, and abusive acts and practices by depository institutions. Such actions could help reduce fragmentation and overlap in the financial regulatory structure. In addition, the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) was introduced on November 16, 2017 and passed in the Senate in March 2018. The bill, to some extent, may help address fragmentation, overlap, and duplication in the financial regulatory structure. For example, the bill helps to address fragmentation in insurance oversight by finding that the federal agencies and office involved in insurance regulation should achieve consensus with state insurance regulators when they participate in negotiations on insurance issues before any international forum of financial regulators or supervisors, and create an advisory committee to discuss and report on insurance policy issues including international issues. GAO will continue to monitor the reform efforts to determine the extent to which they could help to address fragmentation and overlap between the federal financial regulatory agencies and reduce opportunities for inefficiencies in the regulatory process and inconsistencies in how regulators conduct oversight activities over similar types of institutions, products, and risks.

Recommendation: Congress should consider whether legislative changes are necessary to align FSOC's authorities with its mission to respond to systemic risks. Congress could do so by making changes to FSOC's mission, its authorities, or both, or to the missions and authorities of one or more of the FSOC member agencies to support a stronger link between the responsibility and capacity to respond to systemic risks. In doing so, Congress could solicit information from FSOC on the effective scope of its collective designation authorities, including any gaps.

Agency: Congress
Status: Open

Comments: While some legislative action has been taken that may alter FSOC's authorities, it is not clear that the legislation would address GAO's February 2016 suggestion. The Financial CHOICE Act of 2017 (H.R. 10) was introduced on April 26, 2017, passed the House in June 2017, and the Senate held hearings in July 2017. The bill would change FSOC's authorities by repealing its authorities to designate non-bank financial institutions and financial market utilities (i.e., payment, clearing, and settlement systems) as "systemically important." In addition, the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) was introduced on November 16, 2017 and passed in the Senate in March 2018. The bill may alter some of FSOC's authorities. However, it is unclear if these acts would alter FSOC's mission to better align it with its authorities to respond to systemic risk or addresses a gap in systemic risk mitigation mechanisms. Without legislative changes that would align FSOC's authorities with its mission, FSOC may lack the tools it needs to comprehensively address systemic risks that may emerge and a gap will continue to exist in the mechanisms for mitigating systemic risks. GAO will continue to monitor the reform efforts to determine the extent to which they help to align FSOC's authorities with its mission to respond to systemic risks.

Recommendation: FSOC and OFR should clarify responsibility for implementing requirements to monitor threats to financial stability across FSOC and OFR, including FSOC members and member agencies, to better ensure that the monitoring and analysis of the financial system are comprehensive and not unnecessarily duplicative.

Agency: Department of the Treasury: Financial Stability Oversight Council
Status: Open

Comments: In October 2019, Treasury staff said that steps continue to be taken to clarify roles and responsibilities across FSOC and OFR for monitoring threats to financial stability. Treasury staff said that they are working with OFR to reorganize and restructure the organization to better fulfill its mission and support FSOC. That work is still underway and will include additional clarification of roles and responsibilities. In June 2019, the Senate confirmed a new OFR Director. Treasury published a report in response to the President's executive order (13772) on Core Principles for Regulating the United States Financial System that recommended the structure and mission of the Office of Financial Research should be reformed to improve its effectiveness and to ensure greater accountability. We will continue to monitor progress in implementing these steps.

Recommendation: FSOC and OFR should clarify responsibility for implementing requirements to monitor threats to financial stability across FSOC and OFR, including FSOC members and member agencies, to better ensure that the monitoring and analysis of the financial system are comprehensive and not unnecessarily duplicative.

Agency: Department of the Treasury: Financial Stability Oversight Council: Office of Financial Research
Status: Open

Comments: In October 2019 Treasury staff said that steps are being taken to clarify roles and responsibilities across FSOC and OFR for monitoring threats to financial stability. Treasury staff said that they are working with OFR to reorganize and restructure the organization to better fulfill its mission and support FSOC. That work is still underway as staff from both entities meet on a weekly basis and will include additional clarification of roles and responsibilities. The Senate confirmed a new OFR director in June 2019. In June 2017, Treasury published a report in response to the President's executive order (13772) on Core Principles for Regulating the United States Financial System that recommended the structure and mission of the Office of Financial Research should be reformed to improve its effectiveness and to ensure greater accountability. We continue to monitor FSOC and OFR actions that would be responsive to clarifying responsibilities for monitoring threats to financial stability.

Recommendation: While creating control systems at the same time that the emergency programs were being designed and implemented posed unique challenges, the recent crisis provided invaluable experience that the Federal Reserve System can apply in the future should the use of these authorities again become warranted. Going forward, to further strengthen policies for selecting vendors, ensuring the transparency and consistency of decision making involving the implementation of any future emergency programs, and managing risks related to these programs, the Chairman of the Federal Reserve Board should direct Federal Reserve Board and Reserve Bank staff to strengthen procedures in place to guide Reserve Banks' efforts to manage emergency program access for higher-risk borrowers by providing more specific guidance on how Reserve Bank staff should exercise discretion and document decisions to restrict or deny program access for depository institutions and primary dealers that would otherwise be eligible for emergency assistance.

Agency: Federal Reserve System: Board of Governors
Status: Open

Comments: We most recently sought information from the Board of Governors of the Federal Reserve System in July 2018 regarding the status of the recommendation but did not receive any new information. Therefore, the recommendation remains open.

Recommendation: While creating control systems at the same time that the emergency programs were being designed and implemented posed unique challenges, the recent crisis provided invaluable experience that the Federal Reserve System can apply in the future should the use of these authorities again become warranted. Going forward, to further strengthen policies for selecting vendors, ensuring the transparency and consistency of decision making involving the implementation of any future emergency programs, and managing risks related to these programs, the Chairman of the Federal Reserve Board should direct Federal Reserve Board and Reserve Bank staff to document a plan for estimating and tracking losses that could occur under more adverse economic conditions within and across all emergency lending activities and for using this information to inform policy decisions, such as decisions to limit risk exposures through program design or restrictions applied to eligible borrowing institutions.

Agency: Federal Reserve System: Board of Governors
Status: Open

Comments: We most recently sought information from the Board of Governors of the Federal Reserve System in July 2018 regarding the status of the recommendation but did not receive any new information. Therefore, the recommendation remains open.

Recommendation: While creating control systems at the same time that the emergency programs were being designed and implemented posed unique challenges, the recent crisis provided invaluable experience that the Federal Reserve System can apply in the future should the use of these authorities again become warranted. Going forward, to further strengthen policies for selecting vendors, ensuring the transparency and consistency of decision making involving the implementation of any future emergency programs, and managing risks related to these programs, the Chairman of the Federal Reserve Board should direct Federal Reserve Board and Reserve Bank staff to document the Federal Reserve Board's guidance to Reserve Banks on types of emergency program decisions and risk events that require approval by or consultation with the Board of Governors, the Federal Open Market Committee, or other designated groups or officials at the Federal Reserve Board.

Agency: Federal Reserve System: Board of Governors
Status: Open

Comments: We most recently sought information from the Board of Governors of the Federal Reserve System in July 2018 regarding the status of the recommendation but did not receive any new information. Therefore, the recommendation remains open.

Recommendation: To help ensure that CFTC and SEC are strategically positioned to implement the joint report's recommendations and address remaining harmonization opportunities, as CFTC and SEC continue to develop the charter for the Joint Advisory Committee, the Chairmen of CFTC and SEC should take steps to establish, with associated time frames, clearer goals for future harmonization efforts and requirements for reporting and evaluating progress toward these goals. Specifically, the agencies could benefit from formalizing a plan to assess implementation of the joint report's recommendations and harmonization opportunities that may not have been fully addressed by the joint report, such as differences in market structure and investor definitions. Such a plan could include goals for future harmonization efforts, such as time frames for implementing the recommendations; assessment of whether remaining differences in statutes and regulations result in inconsistent regulation of similar products and entities that could lead to opportunities for regulatory arbitrage; and periodic reports to Congress on their progress, including the implementation and impact of the recommendations.

Agency: Commodity Futures Trading Commission
Status: Open

Comments: In July 2018, the CFTC and SEC Chairmen signed an updated version of a Memorandum of Understanding (MOU) originally signed in 2008. The new MOU created an updated framework for information sharing to make it easier for the two agencies to share information. A CFTC official noted that the MOU underscored two agencies' commitment to addressing harmonization efforts. In addition, CFTC officials identified examples of harmonization areas where CFTC and SEC have made some additional progress. This recommendation remains open until CFTC identifies steps taken to create a plan for assessing progress on working with SEC on remaining harmonization opportunities.

Recommendation: The Congress may wish to consider broadening IRS's ability to use math error authority (MEA), with appropriate safeguards against misuse of that authority.

Agency: Congress
Status: Open

Comments: Congress has expanded IRS's math error authority in certain circumstances, but not as broadly as we suggested in February 2010. Section 208 of division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113 enacted in December 2015) gave IRS the authority to use math error authority if (1) a taxpayer claimed the Earned Income Tax Credit, Child Tax Credit, or the American Opportunity Tax Credit (AOTC) during the period in which a taxpayer is not permitted to claim such credit as a consequence of either having made a prior fraudulent or reckless claim; or (2) a taxpayer omitted information required to be reported because the taxpayer made prior improper claims of the Child Tax Credit or the AOTC. In addition, Congress expanded math error authority for the First-Time Homebuyer Credit in November 2009. While expanding math error authority is consistent with what we suggested in February 2010, we maintain that a broader authorization of math error authority with appropriate controls would enable IRS to correct obvious noncompliance, would be less intrusive and burdensome to taxpayers than audits, and would potentially help taxpayers who underclaim tax benefits to which they are entitled. If Congress decides to extend broader math error authority to IRS, controls may be needed to ensure that this authority is used properly such as requiring IRS to report on its use of math error authority. The Administration also requested that Congress expand IRS's math error authority as part of the President's budget proposal for fiscal year 2021. Specifically, the Administration requested authority to correct a taxpayer's return in the following circumstances: 1) the information provided by the taxpayer does not match the information contained in government databases; 2) the taxpayer has exceeded the lifetime limit for claiming a deduction or credit; or 3) the taxpayer has failed to include with his or her return certain documentation that is required by statute. As of January 2020, the Congress had not provided IRS with such authority. We continue to believe that Congress should broaden IRS's math error authority with appropriate safeguards in order to help reduce the tax gap, which is the difference between tax amounts that taxpayers should have paid and what they actually paid .

Recommendation: To address the current information gap in Regulation SHO for prime brokerage arrangements and mitigate the impact of any unintended consequences caused by SEC rules, as well as ensure consistent implementation of SEC rules by the industry, the Chairman of the Securities and Exchange Commission should finalize, in an expedited manner upon finalization of the temporary rule, the revised 1994 Prime Broker Letter.

Agency: United States Securities and Exchange Commission
Status: Open

Comments: As of June 4, 2019, the revised Prime Broker letter has not been finalized. Staff from the Reg SHO team in SEC's Trading and Markets division stated that they have regularly and continuously asked the industry for comments on the Prime Broker Letter without receiving any real progress. Their most recent request for comments was emailed to industry counsel on May 22, 2019. Industry counsel acknowledged the request but have yet to provide comments.