WASHINGTON, D.C. – Following this week’s agreement with New York State’s banking regulator and Deloitte Financial Advisory Services LLP (Deloitte FAS), U.S. Sen. Sherrod Brown (D-OH) called on federal regulators to increase oversight on independent consultants involved in the financial services industry. In a letter to Federal Reserve Chairman Benjamin Bernanke and Comptroller of the Currency Thomas Curry, Brown urged the agencies to enact specific standards on third-party consultants and increase efforts to ensure proper oversight when they are hired by federal regulators.
“Because these firms work for the banks that they oversee, there needs to be more transparency and accountability when private consultants are involved in regulatory action,” Brown said. “These firms should not be stepping in without explicit, objective standards to ensure an independent consultant's qualifications and conduct. It’s past time for the Federal Reserve and OCC to enact uniform standards to effectively manage these independent firms.”
Earlier this week, Deloitte agreed to work with New York State’s Department of Financial Services (DFS) to develop a clear set of rules for consultants involved in regulatory action, following the firm’s advisory role in a money-laundering investigation of the British bank Standard Chartered. Brown’s letter calls on the Office of the Comptroller of the Currency (OCC) and Federal Reserve to develop similar standards to be applied to all independent consultants.
In April, Brown, Chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, held a hearing focused on the independence, oversight, and quality of services provided by private consultants, which are routinely hired by banks at the behest of regulators. Representatives from the Federal Reserve and OCC testified at the hearing entitled “Outsourcing Accountability? Examining the Role of Independent Consultants.”
A report released earlier this year by the Government Accountability Office (GAO) revealed gaps in the quality of banking regulators’ oversight of work provided by independent consultants hired to oversee the Independent Foreclosure Review Process (IFR) established in the wake of widespread mortgage servicing errors. Representatives from the OCC and Federal Reserve testified at the hearing.
Full text of the letter is below.
June 21, 2013
The Honorable Benjamin Bernanke
Chairman
Board of Governors of the Federal Reserve
Washington, D.C. 20551
Mr. Thomas Curry
Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
Dear Chairman Bernanke and Comptroller Curry:
On June 18, 2013, the New York Superintendent of Financial Services announced an agreement between the State of New York and Deloitte Financial Advisory Services LLP (Deloitte FAS) related to their role as an independent consultant in the Standard Chartered Bank case.
In April, your agencies testified at a hearing of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection which examined the role of independent consultants in financial regulation. In their testimony, both the Office of the Comptroller of the Currency (OCC) and Federal Reserve representatives informed the Subcommittee that regulators had no written, objective standards for an independent consultant's qualifications or conduct. Further, neither said that repeated allegations of legal misconduct would disqualify a firm from serving as an independent consultant pursuant to any future regulatory actions. At the hearing, the OCC’s Deputy General Counsel testified that the OCC is in the process of evaluating whether and what standards for independent consultants would be appropriate.
Independent consultants have repeatedly asserted that they maintain the highest professional standards. But, as the Standard Chartered Bank case has shown, these internal guides and the ad hoc standards used by regulators can prove insufficient. Without written guidelines and transparent processes, it is impossible to ensure the integrity of a system that relies upon consultants paid by banks to report on their regulatory compliance. This lax system undermines financial regulation at every level and puts our economy at risk.
Under its agreement with Deloitte FAS, the State of New York will work with the firm to develop the first-ever set of binding standards for independent consultants retained as part of a financial regulatory action. While the details of the standards will be written in the coming year, the DFS standards will include:
Once final, the standards will apply to all independent consultants working with New York-chartered institutions.
DFS's common-sense proposals will bring needed oversight to independent, profit-seeking companies that play a crucial role in our regulatory system. But these new standards will only bring transparency to the small segment of consultants working with New York regulators. I urge the OCC and the Federal Reserve to act immediately to create a similar set of written standards for independent consultants. If either the OCC or the Board feels that it cannot implement these standards, please explain why this is the case.
Your agencies play an essential part in protecting the integrity of our financial system. I look forward to continuing the discussion we began in April to bring additional transparency and accountability to the role of independent consultants. Please contact Graham Steele of my staff at Graham_Steele@brown.senate.gov or 202-224-2315 to discuss this issue further.
Sincerely,
Sherrod Brown
United States Senator
