House Passes Legislation Elevating Independence of SEC and CFTC Inspectors General

The House had passed legislation enhancing the independence of the SEC and CFTC Inspectors General by requiring that they be appointed by the President and confirmed by the Senate. Making the SEC and CFTC Inspectors General subject to presidential appointment and Senate confirmation gives them independence from their agency management, as well as giving them more stature to come directly to Congress with any problems that they encounter. The legislation is based on a key congressional finding that the Inspectors General have to be independent from the agencies they are supervising if they are going to be effective Congress ensured that the Inspectors General have the legal authority and tools they need to continue their roles as nonpartisan and honest brokers.

The Improved Financial and Commodity Markets Oversight and Accountability Act, H.R. 885, clarifies that the SEC and CFTC Inspectors General and their staffs retain their existing pay and personnel structure. The legislation ensures that the positions covered by the Act will not suffer a reduction in pay and the individuals will remain on par with similarly situated senior individuals at the institution

It also clarifies and strengthens the subpoena authority of the Inspector General, and requires the SEC and CFTC Chairs to report to Congress on actions they have taken in response to Inspector General recommendations. The Act requires the regulatory agencies to take some action on the deficiencies identified by the IGs. These agencies cannot simply ignore the findings. The measure specifically provides that the SEC and CFTC must either take action to address deficiencies identified by a report or investigation of the Inspector General or certify to both Houses of Congress that no action is necessary or appropriate in connection with a deficiency

Currently, there are two main types of Inspectors General: First, there are Inspectors General appointed by the President and confirmed by the Senate. These presidentially appointed Inspectors General operate with a great deal of independence and have their own independent office, separate from the office of their agency chairs. The second main type of Inspectors General are designated ones who do not operate wholly independent offices, but rather sit under the office of the agency chairs. They are hired by the chair of the agency and can also be removed by the chair. All investigations must go through the agency chair, as well. The Act thus cures an inconsistency in the current system where some financial agencies like the FDIC have an Inspector General appointed by the President and confirmed by the Senate, while other large and important agencies like the SEC have an Inspector General who is appointed by and reports to the head of the agency they are supposed to be investigating.

The legislation elevates the SEC and CFTC Inspectors General in recognition of the importance of the financial and commodities markets and the role of the SEC and CFTC, especially during the economic crisis. The Act’s sponsor, Rep. John Larson, assured that the legislation is not intended to punish these agencies; rather, it is intended to provide them with the oversight they need to do their jobs more effectively as each agency faces new challenges.