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: To help ensure that FSOC is comprehensively identifying and considering companies, the Secretary of the Treasury in consultation with FSOC members, should establish procedures to evaluate companies in Stage 2 and Stage 3 under both statutory determination standards when an evaluation in either stage concludes that a company does not meet one of the standards, or document--on a company-specific or more general basis--why the second determination standard is not relevant for determination evaluations.

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

Comments: In December 2019, FSOC adopted final interpretive guidance that revises its approach to evaluating and determining whether to designate nonbank financial companies. The final revised guidance prioritizes an activities-based approach to identifying and addressing potential risks to financial stability and states that FSOC will pursue company-specific determinations only if the activities-based approach is not sufficient. The guidance further states that if FSOC does consider a company-specific determination, its evaluation will focus primarily on the first determination standard. The guidance does not indicate the establishment of procedures to evaluate companies under both determination standards for the purpose of comprehensively identifying and considering companies or to document why the other standard is not relevant. We will continue to monitor FSOC's implementation of the guidance and any additional actions that may be responsive to our recommendation.

Recommendation: To help ensure that FSOC is comprehensively identifying and considering companies, the Secretary of the Treasury in consultation with FSOC members, should develop a process to collect information necessary for Stage 1 analysis, as appropriate, from certain nonbank financial companies for which public or regulatory information is otherwise unavailable. For example, FSOC could have companies for which such information is unavailable and that meet certain characteristics (such as quantitative thresholds similar to those used in Stage 1) report necessary information to the Office of Financial Research.

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

Comments: In December 2019, FSOC adopted final interpretive guidance that revises its approach to evaluating and determining whether to designate nonbank financial companies. The final revised guidance introduces a new stage 1 of the designation process in which FSOC would notify a nonbank financial company under review and consider available public and regulatory information. While the guidance states that a company under review in stage 1 may submit information it deems relevant to the evaluation, FSOC would not require the company to submit information during stage 1. We will continue to monitor FSOC's implementation of the revised guidance and any additional actions that may be responsive to our recommendation.