1). FSOC has established seven standing  committees that are generally composed of staff of FSOC members and  member agencies to help carry out the council’s business. FSOC and OFR Face Challenges Achieving Their Missions

FSOC and OFR face several challenges as they work to carry out their  responsibilities and achieve their missions. Third, OFR faces the challenge of trying to build a world-class research  organization from the ground up, including acquiring staff with the needed  skills, while meeting its short-term responsibility to support FSOC. Identifying Potential Risks and Emerging Threats to Financial Stability

FSOC has taken steps to meet its statutory responsibilities related to  identifying risks and potential emerging threats to U.S. financial stability  but has not yet developed comprehensive and systematic mechanisms to  realize these goals. positioned to judge which potential threats will benefit from interagency  discussions. To  improve FSOC’s approaches for monitoring threats to financial stability,  we recommended that FSOC develop an approach that included  systematic sharing of key financial risk indicators across FSOC members  and member agencies to assist in identifying potential threats for further  monitoring or analysis. In addition, FSOC does not have sufficient processes for identifying or  prioritizing potential emerging threats to U.S. financial stability for its  annual reports. FSOC’s 2011 and 2012 annual reports generally  addressed the subjects mandated by the Dodd-Frank Act. However, FSOC has not developed a  structure that supports having a systematic or comprehensive process for  identifying potential emerging threats. We  recommended that FSOC develop more systematic approaches for  identifying emerging threats to financial stability that are forward-looking  and help prioritize such threats in annual reports. Transparency

Although FSOC and OFR have adopted communication methods to  provide information on their activities to the public and Congress, some of  their methods could be strengthened. We  recommended that FSOC keep detailed records of closed door sessions  of key meetings. In our September 2012 report, we also recommended that both entities  develop a communication strategy to improve communications with the  public, which could include more fully developing their websites. OFR issued a strategic framework in March  2012 to cover fiscal years 2012-2014 that lists five strategic goals,  including:  supporting FSOC through the secure provision of high-quality financial  data and conducting the analyses needed to monitor threats to  financial stability; developing and promoting data-related standards and best practices; establishing a center of excellence for research on financial stability  and promoting best practices for financial risk management; providing the public with key data and analyses while protecting establishing OFR as an efficient organization and world-class  workplace. To support the  growth of OFR into a viable and sustainable entity, we recommended that  OFR build on its strategic framework by further developing its strategic  planning and performance management system so that it linked its  activities to its goals and used publicly available performance measures  to measure its progress. To improve FSOC’s accountability, we recommended in September 2012  that FSOC should make recommendations in the annual report more  specific by identifying which FSOC member agency or agencies, as  appropriate, were recommended to monitor or implement such actions  within specified time frames. In addition, FSOC and OFR have not defined their roles and  responsibilities for monitoring risks to the financial system. We recommended  that FSOC and OFR clarify responsibility for implementing requirements  to monitor threats to financial stability across FSOC and OFR, including  among FSOC members and member agencies. We recommended that  FSOC work with federal financial regulators to (1) develop formal  coordination policies that would clarify issues such as the timing of  coordination, the process for soliciting and addressing comments, and  FSOC’s role in facilitating coordination and (2) more fully incorporate the  key practices for successful collaboration that we have previously  identified. Moreover, FSOC  can rely on OFR for some data collection and analysis. To strengthen the accountability of FSOC’s decisions, FSOC  should establish a collaborative and comprehensive framework for  assessing the impact of decisions for designating FMUs and nonbank  financial companies on those entities and the wider economy. We made 10  recommendations to FSOC and OFR to strengthen the accountability and  transparency of their decisions and activities as well as enhance  collaboration among FSOC members and with external stakeholders. In its November 2012 response to our report and recommendations,  Treasury noted that FSOC and OFR had considered the  recommendations. In March 2013, Treasury officials described steps that  each entity was considering or taking to address some of the  recommendations, such as reviewing FSOC’s transparency policy and  updating the websites.
Why GAO Did This Study

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act created FSOC to identify and address threats to financial stability and OFR to support FSOC and Congress by providing financial research and data. This testimony primarily discusses findings from a September 2012 GAO report and addresses four topics (1) challenges FSOC and OFR face in carrying out their missions, (2) FSOC's and OFR's efforts to establish management mechanisms, (3) FSOC's and OFR's activities for supporting collaboration among their members and external stakeholders, and (4) FSOC's rules for designating nonbank financial firms that pose threats to financial stability.
For this testimony, GAO updated some information on the entities' response to the recommendations in its September 2012 report.

What GAO Found

The Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) face challenges in achieving their missions. For example, collaboration among FSOC members can be challenging, as almost all members represent independent agencies that retain existing authorities. Additionally, OFR faces the challenge of building a world-class research organization while meeting shorter-term responsibilities.
FSOC and OFR have developed some management structures to carry out their missions and taken steps to promote collaboration among their members and stakeholders. For example, FSOC established several standing committees composed of members' and member agencies' staffs to support the council in carrying out its business. FSOC also issued rules on the process for designating nonbank financial firms for additional oversight. However, GAO reported in September 2012 that these efforts could be strengthened to conform to key standards and practices and made 10 recommendations.
FSOC should develop a systematic approach to help identify potential threats to financial stability that includes collecting and sharing key financial risk indicators. FSOC's Systemic Risk Committee, which is responsible for identifying risks to financial stability, has procedures to facilitate risk analysis but does not have a systematic approach or comprehensive information. FSOC member agencies on their own may not be well positioned to judge which potential threats will benefit from interagency discussions.
FSOC should develop more systematic approaches that are forward looking and help prioritize threats to the financial system in its annual reports. To date, FSOC's annual reports have not reflected a forward-looking process for identifying emerging threats.
To improve transparency, (1) FSOC should keep detailed records of closed-door sessions and (2) both FSOC and OFR should develop a communication strategy to improve communications with the public. Currently, public information on FSOC's and OFR's decision making and activities is limited.
OFR needs to further develop its strategic planning and performance management system to include some leading practices. OFR issued a strategic framework in March 2012 that did not, among other things, link activities to strategic goals and performance measurement systems.
FSOC should identify an agency or agencies to monitor or implement each recommendation from its annual reports within specified time frames. FSOC's annual reports have not consistently identified which entities should monitor or implement the identified recommendations.
FSOC should (1) develop policies to clarify when formal collaboration or coordination should occur, (2) more fully incorporate key practices for successful collaboration, and (3) clarify with OFR responsibility for implementing requirements to monitor risks to the financial system.
FSOC should develop a comprehensive framework for assessing the impact of its designation decisions. For example, FSOC has issued rules on processes for designating nonbank financial entities for additional oversight, but it has not developed plans to comprehensively evaluate whether the designations are having their intended impact.

What GAO Recommends

In its September 2012 report, GAO made 10 recommendations to FSOC and OFR, which among other things, recommends ways to improve the transparency and accountability of their decisions. In response to GAO's report, Treasury said, as Chairperson, that the council and OFR had considered the recommendations. In March 2013 Treasury and OFR officials described steps that each entity was considering or taking to address some of them.