GAO identified deficiencies in the SEC's oversight of FINRA, and offered recommendations for enhancing SEC oversight.
In its report, GAO reviewed case files on SEC reviews of FINRA from 2018 to 2020, as well as certain SEC policies and procedures with respect to oversight of FINRA. Specifically, GAO reviewed oversight activities of the FINRA and Securities Industry Oversight ("FSIO") Program within the SEC Division of Examinations.
The GAO found that the FSIO's indicators used to measure oversight performance did not reflect leading practices that GAO identified as "characteristics of successful performance measures." Specifically, GAO determined that FSIO's metrics, among other things, are task-oriented (e.g., conducting meetings), and do not (i) evaluate developments in achieving an FSIO goal, (ii) establish criteria against which performance can be measured, or (iii) provide information about outcomes that would "allow FSIO to assess its performance in overseeing FINRA." Rather, GAO stated that "FSIO's 10 performance measures focus on the completion of internal program activities." Moreover, GAO found that FSIO does not have (i) policies and procedures that enable it to continuously monitor its findings and related corrective actions (beyond the policies and procedures in the Division of Examinations' manual), or (ii) policies and procedures for evaluating and detailing the importance of its findings.
As a result of its review, GAO recommended that the Director of the Division of Examinations:
- establish FSIO performance measures that are representative of leading practices, including "measuring progress in achieving FSIO's mission, setting targets against which actual performance can be measured, incorporating key elements of FSIO's oversight activities, and providing information on the outcomes of FSIO program activities related to its stated mission goals and objectives";
- establish and implement FSIO policies and procedures to track those deficiencies and related FINRA corrective actions that have been identified by FSIO; and
- establish and implement FSIO procedures to "identify and communicate the significance of its inspection and examination findings."
GAO stated that the SEC generally agreed with GAO's recommendations and "described actions it would take to address them," including, among other things, enhancing "the current process [regarding evaluating the significance of, and communicating, findings] and [adopting] formalized written procedures."
Primary Sources
- GAO Press Release: SEC Could Take Further Actions to Help Achieve its FINRA Oversight Goals
- GAO Report: SEC Could Take Further Actions to Help Achieve its FINRA Oversight Goals
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