GAO: Money watchdogs need central database

"Better Information Sharing Among Financial Services Regulators Could Improve Protections for Consumers"

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Financial regulators need a cross-industry database for keeping track of enforcement actions, Government Accountability Office officials said.

Enforcement databases for financial companies are kept on different information systems segmented by industry, impeding "direct, ready access to regulatory data," according to the congressional watchdog agency in a report publicly released last week. Without easily accomplished routine and comprehensive background searches, little prevents rogue financiers from moving to a new state or financial industry.

Even within a single industry — banking — five separate regulators maintain disjointed databases, so a search on one individual's banking regulatory history could require five separate inquires, auditors wrote.

The absence of common databases is particularly problematic when it comes to regulating hybrid financial products with features of the insurance and securities sectors. Consumers may not file complaints with the correct oversight agency, and the lack of common data sharing practices hinders regulators "because they lack the ability to access and analyze relevant data from each other complaint systems" in a systematic fashion, the report states.

Only one third of state insurance regulators have legislative authority to access the FBI's nationwide criminal history data.

Creation of a common database does not come easily. Financial industry supervisors told GAO officials that sharing closed regulatory actions would be no problem — most of that information is "already publicly available, although not necessarily easily accessible."

However, GAO supports cross-industry sharing of consumer complaints, ongoing investigations and "unverified activity that merit regulatory attention," the report states.

But, "release of unsubstantiated information, particularly with regard to customer complaints and open investigations, raised liability concerns for some regulators," the report states. Releasing data in an ongoing case could "jeopardize that investigation and existing sources of information," regulators told GAO.

Financial regulators also were uneasy about transmitting data to the state insurance industry watchdog body, the National Association of Insurance Commissioners — a voluntary organization.

Additionally, a centralized database would be costly and difficult to maintain, regulators said.

GAO officials argue that these issues must be addressed, however. "Proposals for improving information-sharing capabilities or tools...need to address concerns about sharing and protecting different types of regulatory data that have varying degrees of sensitivity," the report states.

About the Author

David Perera is a special contributor to Defense Systems.

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