CIGFO Audit of the Financial Stability Oversight Council’s Monitoring of International Financial Regulatory Proposals and Developments

CIGFO Audit of the Financial Stability Oversight Council’s Monitoring of
International Financial Regulatory Proposals and Developments

May 2019

CIGFO-2019-01

[CIGFO member OIG agency seals]

Table of Contents

Transmittal Letter

Executive Summary

CIGFO Working Group Audit

Background

Audit Approach

FSOC’s Activities to Monitor International Financial Regulatory Proposals and
Devlopments

FSOC Members Consider the Monitoring

Process Adequate

Conclusion

Appendices

Appendix I: Objective, Scope, and Methodology

Appendix II: Prior CIGFO Reports

Appendix III: FSOC Response

Appendix IV: CIGFO Working Group

[End of Table of Contents]

Abbreviations

CIGFO Council of Inspectors General on Financial Oversight

Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act

FSB Financial Stability Board

FSOC or Council Financial Stability Oversight Council

IOSCO International Organization of Securities Commissions

LIBOR London Interbank Offered Rate

RRC Regulation and Resolution Committee

SRC Systemic Risk Committee

Treasury Department of the Treasury

[End of Abbreviations]

Message from the Chair

Dear Mr. Chairman:

I am pleased to present you with the Council of Inspectors General on
Financial Oversight (CIGFO) report titled, Audit of the Financial Stability
Oversight Council’s Monitoring of International Financial Regulatory Proposals
and Developments.

One of the statutory duties of the Financial Stability Oversight Council
(FSOC) is to monitor domestic and international financial regulatory proposals
and developments, including insurance and accounting issues, and to advise
Congress and make recommendations in such areas that will enhance the integrity,
efficiency, competitiveness, and stability of the U.S. financial markets.

FSOC’s monitoring of international financial regulatory proposals and
developments is conducted in the context of FSOC’s statutory purposes, which
focuses on developments that could pose risks to the stability of the U.S.
financial system.

CIGFO convened a Working Group to assess FSOC’s monitoring of international
financial regulatory proposals and developments. In this resulting audit report,
we concluded that FSOC has a process for monitoring international financial
regulatory proposals and developments. All FSOC members or member
representatives who offered an opinion described FSOC’s monitoring process as
adequate. Although described as adequate, several FSOC members or representatives
offered suggestions for enhancing the process. We encourage FSOC to consider
incorporating into its process the suggestions made by its members to the
extent the suggestions are consistent with FSOC’s focus on identifying and
addressing threats to the stability of U.S. financial system. We are not making
any recommendations to FSOC as a result of this audit.

I would like to take this opportunity to thank the FSOC members for their
support, especially those Department of the Treasury officials who assisted
with this effort.

CIGFO looks forward to working with you on this and other issues. In
accordance with the Dodd-Frank Wall Street Reform and Consumer Protection
Act, CIGFO is also providing this report to Congress.

Sincerely,

/s/

Eric M. Thorson

Chair, Council of Inspectors General on Financial Oversight

[End of Message from the Chair]

Executive Summary

Why and How

We Conducted this Audit

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)1
created regulatory and resolution frameworks designed to reduce the likelihood,
and severe economic consequences, of financial instability. The Dodd-Frank Act
established the Financial Stability Oversight Council (FSOC or Council) and
charged it with identifying risks to the nation’s financial stability, promoting
market discipline, and responding to emerging threats to the stability of the
nation’s financial system. Among other duties, Title I of the Dodd-Frank Act
requires FSOC to monitor domestic and international financial regulatory
proposals and developments, including insurance and accounting issues, and to
advise Congress and make recommendations in such areas that will enhance the
integrity, efficiency, competitiveness, and stability of the U.S. financial markets.

The Dodd-Frank Act also created the Council of Inspectors General on Financial
Over-sight (CIGFO), whose members include the Inspectors General with oversight
authority for the majority of FSOC’s member agencies. The Dodd-Frank Act authorizes
CIGFO to convene a Working Group of its members to evaluate the effectiveness and
internal operations of FSOC. In December 2017, CIGFO convened a Working Group to
conduct an audit to assess FSOC’s monitoring of international financial regulatory
proposals and developments for the period of January 2016 to January 2018.2 The
Working Group was led by the Department of the Treasury’s (Treasury) Office of
Inspector General, whose Inspector General is the Chair of CIGFO.

To accomplish the audit objective, the Working Group reviewed the Dodd-Frank
Act to determine FSOC’s statutory purposes and duties. It reviewed FSOC’s governance
documents, annual reports, meeting minutes, and committee meeting agendas. It
also interviewed staff from the FSOC Secretariat at Treasury as well as interviewed
or received responses from FSOC members and member agency representatives to
develop a better understanding of FSOC’s monitoring of international financial
regulatory proposals and developments. The Working Group conducted fieldwork from
February 2018 through June 2018. Appendix I provides additional details about the
objective, scope, and methodology of this audit.

Footnote 1: Public Law No. 111-203, enacted July 21, 2010. [End of footnote]

Footnote 2: See Appendix IV for a listing of Working Group members. [End of footnote]

What We Learned

FSOC monitors international financial regulatory proposals and developments
in several ways. First, FSOC develops and publishes an annual report, which
describes important international financial regulatory proposals and developments,
identifies emerging threats to U.S. financial stability, and can include
recommendations related to these issues. FSOC also follows up on the issues,
threats, and recommendations identified in its annual report. Second, FSOC
members periodically discuss international topics at their meetings, and are
given presentations by experts from relevant member agencies. Third, the staffs
of FSOC member agencies share information on these topics in FSOC’s staff-level
committees, primarily the Systemic Risk Committee (SRC). Finally, some FSOC
member agencies have their own international engagement, which can inform their
participation in FSOC meetings

FSOC members and FSOC member agency representatives expressed their overall
satisfaction with FSOC’s monitoring of international activities and proposals, and
believed that the process was adequate. Several FSOC members offered suggestions for
process enhancements which are included on pages 8 and 9 of this report. We encourage
FSOC to consider incorporating the suggestions made by these members into its
processes to the extent the suggestions are consistent with FSOC’s purposes of
identifying risks to U.S. financial stability, promoting market discipline,
and responding to emerging threats to the stability of the U.S. financial system.
We are not making any recommendations to FSOC as a result of our audit.

FSOC Response

In a written response, Treasury, on behalf of the FSOC Chairperson, acknowledged the
findings and conclusions in this report. The response stated that the suggestions made
by several FSOC members to further enhance the Council’s work will be considered. The
response is provided as Appendix III.

[End of Executive Summary]

CIGFO Working Group Audit

This report presents the results of the CIGFO Working Group’s audit of FSOC’s monitoring
of international financial regulatory proposals and developments. CIGFO is issuing
this report to FSOC and Congress as part of CIGFO’s responsibility to oversee FSOC under
the Dodd-Frank Act. See Appendix II for a listing of previous CIGFO reports.

Background

The Dodd-Frank Act established FSOC to create joint accountability for identifying and
mitigating potential threats to the stability of the nation’s financial system. By creating
FSOC, Congress recognized that protecting financial stability would require the collective
engagement of the entire financial regulatory community. As shown in Figure 1, the
Council consists of 10 voting members and 5 non-voting members and brings together the
expertise of federal financial regulators; state regulators; an insurance expert appointed
by the President, by and with the advice and consent of the Senate; and others.3 The
voting members of FSOC provide a federal financial regulatory perspective as well as
an independent insurance expert’s view. The non-voting members offer different insights
as state-level representatives from bank, securities, and insurance regulators or as the
directors of offices within Treasury — the Office of Financial Research and the Federal
Insurance Office, established in Titles I and V of the Dodd-Frank Act, respectively.
Within Treasury, a dedicated policy office of Treasury staff, led by a Deputy Assistant
Secretary, functions as the FSOC Secretariat and assists in coordinating the work of
the Council among its members and member agencies.

The statutory purposes of FSOC are to:

• identify risks to the financial stability of the U.S. that could arise from the material
financial distress or failure, or ongoing activities, of large, interconnected bank
holding companies or nonbank financial companies, or that could arise outside
the financial services marketplace;

Figure 1: FSOC Council Membership

Federal and Independent Members

• Secretary of the Treasury, Chairperson (v)

• Chairman of the Board of Governors of the Federal Reserve System (v)

• Comptroller of the Currency (v)

• Director of the Bureau of Consumer Financial Protection (v)

• Chairman of the Securities and Exchange Commission (v)

• Chairperson of the Federal Deposit Insurance Corporation (v)

• Chairman of the Commodity Futures Trading Commission (v)

• Director of the Federal Housing Finance Agency (v)

• Chairman of the National Credit Union Administration Board (v)

• Director of the Office of Financial Research

• Director of the Federal Insurance Office

• Independent member with insurance expertise (v)

State Members

State Insurance Commissioner

State Banking Supervisor

State Securities Commissioner

[End of Figure 1: FSOC Council Membership]

• promote market discipline, by eliminating expectations on the part of shareholders,
creditors, and counterparties of such companies that the Government will
shield them from losses in the event of failure; and

• respond to emerging threats to the stability of the U.S. financial system.4

Footnote 4: 12 U.S.C. 5322(a)(1). [End of footnote]

Audit Approach

Our audit objective was to assess FSOC’s monitoring of international financial regulatory
proposals and developments. Our audit scope focused on FSOC’s efforts to monitor
international activities over a 2-year period, January 2016 through January 2018.
To accomplish our objective, participating Offices of Inspector General collected
information from FSOC members and/or FSOC member representatives, through interviews
or self-reporting guided by a questionnaire developed by the CIGFO Working Group,
regarding their perspectives on FSOC’s efforts to monitor international financial
regulatory proposals and developments. In addition, we interviewed officials of the
FSOC Secretariat and reviewed FSOC annual reports and laws applicable to FSOC’s authority
to monitor international financial regulatory proposals and developments. We conducted our
audit fieldwork from February 2018 through June 2018.

FSOC’s Activities To Monitor International Financial Regulatory Proposals And Developments

The Dodd-Frank Act provides that FSOC has the duty to monitor international financial
regulatory proposals and developments, including insurance and accounting issues, and
to advise Congress and make recommendations in such areas that will enhance the integrity,
efficiency, competitiveness, and stability of the U.S. financial markets. FSOC’s monitoring
of international financial regulatory proposals and developments is conducted in the context
of FSOC’s statutory purposes, which focuses on developments that could pose risks to the
stability of the U.S. financial system.

The Dodd-Frank Act does not establish specific guidelines or expectations for how FSOC is to
fulfill its duty to monitor international financial regulatory proposals and developments.
Accordingly, the CIGFO Working Group developed a methodology for reviewing FSOC’s activities
in this regard.

Through our interviews with the FSOC Secretariat and FSOC members and/or representatives
and their responses to the questionnaire developed by the CIGFO Working Group, we
learned that FSOC monitors these activities in several ways: (1) periodic discussion of
international topics at the FSOC principals’5 meetings, including presentations by experts
from relevant member agencies; (2) information sharing at FSOC committee-level meetings;
and (3) the development and publishing of its annual reports, which describe important
international proposals and developments, identify potential emerging threats to U.S.
financial stability, and may include recommendations related to these issues. In
addition, some member agencies have their own international engagement, which can
inform their participation in FSOC meetings.

FSOC Principals and FSOC Committee Meetings

FSOC has a statutory duty to facilitate information sharing and coordination among
its member agencies and other Federal and State agencies.6 Through this role, FSOC
works to address gaps and weaknesses within the regulatory structure that could pose
risks to U.S. financial stability, and to promote a safer and more stable financial
system. FSOC exercises its convening authority both through meetings of FSOC members
and through its staff-level committee structure.
We noted that the principals held 17 meetings
during the audit period and international topics
were discussed at 10 of those meetings.

Footnote 5: Principals are FSOC members, most of whom are heads of federal or state
financial regulatory agencies. [End of footnote]

Footnote 6: 12 U.S.C. 5322(a)(2)(E). [End of footnote]

FSOC operates under a committee structure to promote shared responsibility among its
members and member agencies and to leverage the expertise that already exists at each
agency. These committees consist of senior or staff level representatives from each
of the FSOC members. We identified two primary committees that support the Council’s
monitoring of international activities, FSOC’s Regulation and Resolution Committee (RRC)
and FSOC’s SRC. The RRC is tasked with identifying potential gaps in regulation that
could pose risks to U.S. financial stability, and the SRC is tasked with identifying
risks and responding to emerging threats to the stability of the U.S. financial system.
During the audit period, the RRC held nine meetings to discuss topics that were regulatory
in nature. We were told by an FSOC Secretariat official that most of the topics had
international aspects. Additionally, the SRC held 10 meetings during the audit period
to receive briefings from FSOC member agencies on a range of international topics that
had a bearing or potential bearing on financial stability and to discuss the issues
raised.

Topics discussed during SRC and RRC meetings included: European political and market
developments, the United Kingdom referendum to leave the European Union (known
as Brexit), Basel standards, the European banking sector (including Greece), China’s
economy and potential spillover risks, virtual currency, the London Interbank Offered
Rate (LIBOR), central counterparty supervisory stress tests, and qualified financial
contracts. We determined that many topics discussed at the committee meetings were
raised with the Council and were included, as appropriate, in FSOC’s annual report.

Most FSOC members and/or representatives that we interviewed or coordinated with noted
that the SRC is FSOC’s primary mechanism to monitor international financial regulatory
proposals and developments. The SRC serves as a forum for FSOC members and member
agencies to identify, discuss, and analyze potential risks to U.S. financial stability,
which may extend beyond the jurisdiction of a single agency.

Representatives from one member agency stated that proposals and developments monitored
by these committees are shared with the Deputies Committee,7 sometimes as part of a
committee meeting readout, and sometimes as a standalone presentation. Representatives
from another member agency stated that when there is an international financial
regulatory proposal or development of concern from a financial stability perspective,
the Deputies Committee and/or the Council receive briefings from relevant experts
from FSOC member agencies to inform them about the topic.

Footnote 7: The members of the Deputies Committee are senior officials from each of the
member agencies. This committee coordinates and oversees the work of the other interagency
staff committees. [End of footnote]

In addition, several FSOC members and/or representatives stated that FSOC focuses
more on domestic activities than those of an international nature due to the greater
potential influence of domestic developments on U.S. financial stability. For example,
representatives from one member agency stated that FSOC member agencies that are the
lead on domestic regulatory proposals and developments with financial stability
implications are available to brief FSOC members and/or its committees. Despite the
emphasis on domestic developments, briefings on international financial regulatory
proposals and developments are provided by FSOC member experts.

Annual Reporting

The Dodd-Frank Act requires FSOC to report to Congress annually about: (1) its
activities; (2) significant financial market and regulatory developments; (3) potential
emerging threats to the financial stability of the United States; and (4) recommendations
to: (i) enhance the integrity, efficiency, competitiveness, and stability of U.S.
financial markets; (ii) promote market discipline; and (iii) maintain investor confidence,
among other things. Consistent with this charge, we found that FSOC’s annual reports
described the activities of the Council and its subcommittees, including international
financial regulatory proposals and developments. Most of the FSOC members and/or
representatives we interviewed or coordinated with, told us that FSOC monitors international
financial regulatory proposals and developments through its annual reporting process.
Specifically, many FSOC members and/or representatives participate in FSOC’s annual report
drafting process, which serves as an opportunity for participating members and member
agencies to discuss and provide input about international activities.

FSOC has made no recommendations related to international financial regulatory proposals
and developments in its annual reports, which FSOC has issued to Congress each year since
its inception in 2010. An FSOC Secretariat official told us that should the Council identify
a need to make a recommendation related to an international regulatory proposal or development,
it would likely accomplish this through its annual report.

Individual Member Agencies’ Efforts

Some FSOC member agencies independently monitor international activities within their agencies’
purview and hold discussions with foreign counterparts. The knowledge these member agencies
gain from these activities can be shared among each other and at FSOC meetings. Examples of
agencies’ independent activities include: participation in working groups and committees of
the Financial Stability Board (FSB) and other international organizations,8 and information
sharing with agencies’ international affairs offices. For example, Treasury participates
in the FSB. The Securities and Exchange Commission is active in monitoring international
activities and regulatory developments through a variety of methods, including participation
in international financial regulatory organizations of which it is a member (e.g.,
FSB, International Organization of Securities Commission (IOSCO) and working groups
thereof), and direct engagement with foreign counterparts that are market regulators. The
Commodity Futures Trading Commission conducts its own monitoring of international
financial regulatory proposals through its membership in the IOSCO, the Over-The-
Counter Derivatives Regulators Group, and as an invited guest to working groups and
committees of the FSB. The Federal Deposit Insurance Corporation participates in
international standard-setting bodies and engages in its own discussions with international
supervisors and regulators. The Board of Governors of the Federal Reserve System
monitors international financial developments consistent with its mandate. For example,
the Federal Reserve Board’s Division of International Finance conducts research,
analyzes policies, and reports in the areas offoreign economic activity, U.S. external trade
and capital flows, and developments in international financial markets and institutions.
FSOC Secretariat officials told us that FSOC seeks to avoid duplication or overlap with its
member agencies’ individual efforts in monitoring international developments.

Footnote 8: The FSB was established in April 2009 and serves as an international body that
monitors and makes recommendations about the global financial system. The U.S. member
institutions on the Board are the Board of Governors of the Federal Reserve System, the
U.S. Securities and Exchange Commission, and Treasury. Additional background is available
online at www.fsb.org.

FSOC MEMBERS CONSIDER THE MONITORING PROCESS ADEQUATE

All FSOC members and/or representatives who provided views on this issue described
FSOC’s monitoring of international financial regulatory proposals and developments as
adequate since FSOC’s monitoring process accomplishes its intended purpose, which is
to keep abreast of international issues that may pose risks to the U.S. financial system
and raise awareness of those issues. We note that as a practical matter, FSOC does
not have decision making authority over international financial regulatory proposals
or developments.

A couple of members suggested that FSOC could enhance its monitoring process by
incorporating additional or more focused briefings at its principals and committee
meetings. One of these members suggested that FSOC’s RRC could receive periodic updates
on key international regulatory proposals being considered in various financial sectors
while the SRC could receive periodic updates on international market developments. That
member also suggested that it would be appropriate for the Nonbank Financial Companies
Designations Committee (Nonbank Designations Committee)9 to receive updates regarding the
global systemically important insurers’10 process and/or activities-based approach being
discussed at the International Association of Insurance Supervisors.11 In addition, the
member stated that it would make sense for the principals to receive briefings regarding
the most significant proposals and market developments to the extent that those proposals
and developments may impact U.S. financial stability.

Footnote 9: The Nonbank Designations Committee supports FSOC in fulfilling its
responsibilities to consider, make, and review determinations that nonbank financial
companies shall be supervised by the Board of Governors of the Federal Reserve System and
be subject to enhanced prudential standards, pursuant to the Dodd-Frank Act. [End of
footnote]

Footnote 10: Insurers identified by the FSB as those whose distress or disorderly failure,
because of their size, complexity, and interconnectedness, would cause significant
disruption to the global financial system and economic activity. [End of footnote]

Another member suggested that agencies who participate in international regulatory
coordination and standard-setting bodies could make a greater effort to regularly present
to the SRC, RRC, or other FSOC committees about their coordination efforts with
international regulatory authorities, as appropriate. The member suggested FSOC should
make a greater effort to cover, in committee meetings, the risks posed to systemically
important foreign financial institutions by domestic and international financial regulatory
proposals and developments. According to that member, international topics covered
by the SRC are generally related to international economic or political developments as
opposed to international financial regulatory developments. This member suggested that
FSOC could make a greater effort to connect emerging international risks to international
financial regulatory proposals intended to mitigate those risks. Additionally, this member
stated that greater effort could be made by the SRC to cover international developments
and proposals discussed in FSOC’s annual report.

Additionally, representatives from one FSOC member agency stated that FSOC does not
need to get involved in areas where regulators already exist and should continue monitoring
areas such as risks related to LIBOR, European debt, and the Chinese shadow banking system,
where there is no lead U.S. financial regulatory agency.

Footnote 11: Established in 1994, the International Association of Insurance Supervisors
is the international standard-setting body responsible for developing principles, standards,
and other supporting material for the supervision of the insurance sector and assisting in
their implementation. [End of footnote]

CONCLUSION

We determined that FSOC has a process for monitoring international financial regulatory
proposals and developments. FSOC’s monitoring is evidenced by the discussion of international
topics at FSOC principals’ meetings, information sharing at FSOC committee-level
meetings, and the development and publishing of its annual report.

All FSOC members or member representatives who offered an opinion described FSOC’s process
to monitor international financial regulatory proposals and developments as adequate.
Although they described FSOC’s monitoring process as adequate, several members and/or
representatives offered suggestions for enhancing the process which included, but were
not limited to: (1) asking member agencies who participate in international regulatory
coordination, as well as standard-setting bodies, to regularly present to FSOC’s
committees on coordination efforts with international regulatory authorities; (2)
making a greater effort to cover the risks posed to systemically important foreign
financial institutions by domestic and international financial regulatory proposals
and developments; (3) separating the types of periodic updates received by the SRC and
RRC—specifically, international market updates versus international financial regulatory
proposals, respectively; (4) receiving briefings at principals’ meetings regarding
the most significant international financial regulatory proposals and market developments
to the extent that those activities may impact U.S. financial stability; and (5)
continuing FSOC’s monitoring efforts in areas where no lead financial regulatory
agency exists.

We encourage FSOC to consider incorporating into its process the suggestions made by
its members to the extent the suggestions are consistent with FSOC’s focus on identifying
and addressing threats to the stability of U.S. financial system. We are not making
any recommendations to FSOC as a result of our audit.

FSOC Response

In a written response, Treasury, on behalf of the FSOC Chairperson, acknowledged
its monitoring of international financial regulatory proposals and developments as
outlined in this report. The response stated that the suggestions made by several FSOC
members to further enhance the Council’s work will be considered.

Appendix I:

Objective, Scope, and Methodology

Objective

The audit objective was to assess the Financial Stability Oversight Council’s (FSOC)
monitoring of international financial regulatory proposals and developments.

Scope and Methodology

The scope of this audit included FSOC’s monitoring of international financial regulatory
proposals and developments from January 2016 through January 2018.

To accomplish our objective, we:

• reviewed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to
determine FSOC’s statutory purposes and duties;

• interviewed staff from the FSOC Secretariat to determine FSOC’s process of monitoring
international financial regulatory proposals and developments;

• interviewed or coordinated with FSOC members and member agency representatives to obtain
their views and to determine their involvement in FSOC’s process of monitoring international
financial regulatory proposals and developments;

• reviewed past FSOC and Council of Inspectors General on Financial Oversight annual reports,
FSOC’s bylaws, FSOC’s committee charters for the following committees: Data Committee;
Financial Market Utilities and Payment, Clearing and Settlement Activities Committee; Nonbank
Financial Companies Designations Committee; Regulation and Resolution Committee; and the
Systemic Risk Committee;

• reviewed FSOC’s Principals’ meeting minutes, and meeting agendas for FSOC’s Systemic Risk
Committee and Regulation and Resolution Committee (FSOC is not required to prepare meeting
minutes for committee meetings; therefore, we could only review agendas for these groups);
and

• created a questionnaire designed to gather specific information regarding each FSOC member
and member agency’s participation in the monitoring of international financial regulatory
proposals and developments as well as their assessment of FSOC’s work in this area. This
questionnaire was used by each of the Working Group members to facilitate the consistent
collection of information from all interviewees. Several members self-reported their
responses to the questionnaire.

We performed fieldwork from February through June 2018. We conducted this performance
audit in accordance with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.

[End of Appendix 1 Objective, Scope, and Methodology]

Appendix II:

Prior CIGFO Reports

The Council of Inspectors General on Financial Oversight (CIGFO) has issued the following
prior reports:

• Audit of the Financial Stability Oversight Council’s Controls over Non-public Information,
June 2012

• Audit of the Financial Stability Oversight Council’s Designation of Financial Market
Utilities, July 2013

• Audit of the Financial Stability Oversight Council’s Compliance with Its Transparency
Policy, July 2014

• Audit of the Financial Stability Oversight Council’s Monitoring of Interest Rate Risk
to the Financial System, July 2015

• Audit of the Financial Stability Oversight Council’s Efforts to Promote Market
Discipline, February 2017

• CIGFO’s Corrective Verification Action on the Audit of the Financial Stability
Oversight Council’s Designation of Financial Market Utilities, May 2017

• Top Management and Performance Challenges Facing Financial Regulatory Organizations,
September 2018

[End of Appendix II: Prior CIGFO Reports]

Appendix III: FSOC Response

December 19, 2018

The Honorable Eric M. Thorson
Chair, Council of Inspectors General
on Financial Oversight (CIGFO)
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Re: Response to Draft Audit Report: CIGFO’s Audit of the Financial Stability Oversight
Council’s Monitoring of International Financial Regulatory Proposals and Developments

Dear Mr. Chairman:

Thank you for the opportunity to review and respond to your draft audit report. Audit of
the Financial Stability Oversight Council’s Monitoring of International Financial Regulatory
Proposals and Developments (the Draft Report). The Financial Stability Oversight Council
(FSOC) appreciates the CIGFO working group’s review of the FSOC’s efforts to monitor
international issues consistent with its statutory duties. This letter responds on behalf of
Secretary Mnuchin, as Chairperson of FSOC, to the Draft Report.

As the Draft Report notes, FSOC monitors international financial regulatory proposals and
developments in several ways, including through the development of its annual reports;
discussions at Council and staff-level committee meetings and other staff-level discussions;
and through the direct international engagement of its member agencies that inform their
participation on FSOC. The report noted that FSOC members and their staffs expressed their
overall satisfaction with FSOC’s monitoring in this area and believe the process is adequate.
CIGFO made no recommendations as a result of the working group review. The Draft Report
notes that several FSOC members offered suggestions to further enhance FSOC’s work, which
we will consider in the future.

Thank you again for the opportunity to review and comment on the Draft Report. We value
CIGFO’s input and look forward to continuing our constructive engagement with you.

Sincerely,

/s/

Bimal Patel

Deputy Assistant Secretary for the Financial Stability Oversight Council

[End of Appendix III: FSOC Response]

Appendix IV: CIGFO Working Group

Department of the Treasury Office of Inspector General, Lead Agency

Eric M. Thorson, Inspector General, Department of the Treasury, and CIGFO Chair

Deborah Harker

Lisa Carter

Jeffrey Dye

Vicki Preston

Virginia Shirley

Clyburn Perry III

Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial
Protection Office of Inspector General

Mark Bialek, Inspector General, Board of Governors of the Federal Reserve System and Bureau of
Consumer Financial Protection

Chie Hogenmiller

Melissa Chammas

Commodity Futures Trading Commission Office of Inspector General

A. Roy Lavik, Inspector General, Commodity Futures Trading Commission

Miguel Castillo

Branco Garcia

Federal Deposit Insurance Corporation Office of Inspector General

Jay N. Lerner, Inspector General, Federal Deposit Insurance Corporation

Robert Fry

Federal Housing Finance Agency Office of Inspector General

Laura Wertheimer, Inspector General, Federal Housing Finance Agency

Marla Freedman

Bob Taylor

Jim Lisle

April Ellison

Securities and Exchange Commission Office of Inspector General

Carl W. Hoecker, Inspector General, Securities and Exchange Commission

Rebecca L. Sharek

Carrie Fleming

[End of Appendix IV: CIGFO Working Group]

[End of report]