WASHINGTON — The Financial Stability Oversight Council needs a more formal system for monitoring its process for designating nonbanks as "systemically important," a watchdog said Thursday.

Companies are generally "satisfied" with how the FSOC communicates with them during the designation process, the Government Accountability Office said, but the council "has not centrally recorded" data about the progress of evaluations, including processing dates and the "duration of evaluation stages." The report noted that several areas of the process are handled by staffs from its member agencies, and their involvement varies by agencies.

"Without such data, FSOC's ability to effectively monitor the progress and evaluate the quality and efficiency of determination evaluations is limited," the GAO report said.

The report, which will likely stoke congressional criticism of the FSOC's designation procedures, also said the council should be more transparent about its designation process in its public documentation. A lack of "full transparency," the GAO said, "has resulted in questions about the process and may hinder accountability and public and market confidence in the process."

The GAO also recommended that the oversight council — which is chaired by Treasury Secretary Jack Lew — use both of the statutory standards available to it for determining whether a firm is systemic. The report said the council has been basing its decisions on the potential effects of a firm experiencing "financial distress," but it has not considered the effects of a company's specific activities in the determination.

"Making FSOC's designation process more systematic and transparent could bolster public and market confidence in the process and also help FSOC achieve its intended goals," the report said.

Under the Dodd-Frank Act, the council is tasked with identifying nonbank "systemically important financial institutions" that could trigger broader economic problems if they ever failed. A determination subjects each SIFI to more bank-style supervision from the Federal Reserve Board. To date, American International Group, Prudential Financial and GE Capital are the only firms to be designated. In September, FSOC proposed a designation for MetLife, which the company has protested, and a final decision is pending.

The report has already given more ammunition to lawmakers concerned about the FSOC's level of transparency.

"Before FSOC makes further non-bank SIFI designations, its activities must be transparent and objective, with clearly outlined criteria when such designations are appropriate," Sen. Mike Crapo, R-Idaho, who is the Senate Banking Committee's ranking and who asked GAO to conduct the audit, said in a press release Thursday. "The nonbank SIFI designation process has proved immeasurable and unclear. Threatening to subject firms to a new regulatory regime without clear and objective standards is not only contrary to the long established principles of our regulatory framework, but doing so will lead to legal uncertainty that will undermine the very objective of FSOC."

The GAO said the Treasury Department "neither agreed nor disagreed with the recommendations but said (in its capacity as council chair) that the FSOC would consider the recommendations."

In a letter responding to the report, Matthew Rutherford, the Treasury undersecretary of domestic finance, said the report's recommendations "complement a number of the suggestions previously made by other stakeholders" and will be included as part of the council's analysis of ways to improve its process.

Lew last month told Congress that the FSOC was reviewing its nonbank SIFI designation process and will "consider possible changes" in the coming months. The oversight council held meetings with a number of stakeholders Nov. 12 on the process, the first of what was expected to be a series of discussions with stakeholders on the subject.

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