By DANA LIEBELSON
The Project On Government Oversight is urging lawmakers to reduce the government's reliance on private self-regulatory organizations. These self-regulatory organizations, as POGO writes in a letter sent Monday to Congress, are a breeding ground for conflicts of interest and ultimately hurt the public interest.
In particular, POGO cites the National Futures Association, a self-regulatory organization, which has a board filled with industry representatives and collects membership fees from those firms it is supposed to oversee. An organization like this could “have enhanced susceptibility to industry capture,” according to a recent report by the Securities and Exchange Commission.
As POGO points out in its letter:
National Futures Association does not have to comply with federal laws and regulations designed to make government agencies more transparent, ethical, and accountable. The Government Accountability Office has noted that expanding self-regulation in the securities industry could potentially “limit transparency and accountability, as the SRO would be accountable primarily to its members rather than to Congress or the public.”
This isn’t the first time that POGO has encouraged the government to give federal agencies the resources they need to bolster oversight, so they don’t have to rely on self-regulatory organizations. In May, POGO sent a letter to Congress opposing self-regulation of investment advisors, raising serious concerns about the Financial Industry Regulatory Authority (FINRA).
In light of the massive customer losses caused by recent meltdowns of futures brokers MF Global and Peregrine Financial Group, it’s more important than ever that the government have the tools to carry regulatory activities out on its own. It’s also essential that Congress improve policies on transparency and ethics for self-regulatory organizations, such as the National Futures Association, so that the public isn’t harmed by potential conflicts.
The U.S. House Agriculture Committee will hold a hearing Wednesday to examine oversight of the swaps and futures markets.
Dana Liebelson is the Beth Daley Impact Fellow for the Project On Government Oversight.