Issa questions financial regulatory research

House Oversight Committee Chairman Darrell Issa (R-Calif.) is pressing the Treasury Department on whether a new financial agency ignored outside input in drafting a contentious new study.

In a letter to Treasury Secretary Jack Lew, Issa asked if the Office of Financial Research (OFR) ignored warning signs from the Securities and Exchange Commission (SEC) as it gathered information about a particular part of the financial sector that is the primary jurisdiction of the SEC.

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Issa, as well as Rep. Jim Jordan (R-Ohio) cautioned that OFR's work appeared to ignore input from long-time staffers at the SEC, and fretted that the study could be used as the basis for further financial regulation.

“The committee is concerned that such efforts are intended to justify a predetermined outcome: additional regulation of the financial sector," they wrote.

Issa sent his letters to the members of the Financial Stability Oversight Council (FSOC), which consists of the heads of all major financial regulators, who regularly meet to identify issues pertaining to the entire financial system.

In April 2012, the FSOC asked OFR to produce a report examining the potential risks posed by asset management firms. The end product released in September was controversial, as it concluded that large asset management firms could pose a risk to the financial system.

The FSOC was created under the Dodd-Frank financial reform law, and is tasked with identifying and designating institutions that are critical toe the financial system. If a bank or other entity is deemed systemically significant by the FSOC, it can be subjected to extra regulations and increased oversight to ensure its stability. Any institution in line for a designation undergoes an extensive review by the body, and has several chances to make their case to avoid it.

Lawmakers from both parties publicly criticized OFR’s report, saying it was based on incomplete information and mischaracterized the industry. They have called on the FSOC to not rely on OFR’s findings to inform future policy decisions.

In his letter, Issa identifies concerns SEC employees found with the study, including areas where it appeared researchers “lacked even a basic knowledge of the asset management industry.”

In an SEC memo responding to a draft of the report, agency staffers said one section contained “multiple and fundamental inaccuracies.”

But Issa maintained that it appeared OFR ignored many of those concerns.

One email Issa cited, written by a senior special counsel at the SEC, accused the OFR of paying “lip service” to SEC concerns.

Testifying before Congress in February, SEC Chairwoman Mary Jo White said her agency provided "technical assistance" to OFR, and provided input.

"Some of those comments taken, some of those not, as is usual," she told the Senate Banking Committee. "But agree to disagree on a number of things."

Issa asked for documents detailing OFR’s work on the report and interactions with the SEC. A Treasury spokesperson confirmed receipt of the letter and the department plans to respond.

“The OFR engaged with the asset management industry and consulted with Council member staffs, and published a report on the industry and its activities on September 30, 2013,” the spokesperson said. “The Council is in the early stages of analyzing the asset management industry and its various activities.  As that analysis moves forward, the Council will continue to be informed by the work of the OFR and welcomes continued engagement with asset managers and other stakeholders from across the spectrum.“

This post updated at 5:41 pm.