The Financial Stability Oversight Council’s (FSOC) recently released annual report sounded the alarm on cybersecurity, data breaches and other threats to the U.S. financial system.
Although sometimes controversial, FSOC does serve an important role, noted Cliff Stanford, chair of Alston & Bird’s Bank Regulatory Group.
“It is akin to an enterprise risk management approach, where people sit around a table and bring perspectives about their roles and what they are responsible for overseeing,” said Stanford. “They throw them all in the soup, stir them up and come up with a recitation.”
“Everybody is at least talking to each other,” Stanford continued. “When the FSOC meets, what they talk about is really meaningful, because they will be held accountable.”
Stanford wasn’t surprised to see cybersecurity concerns in the report, and says it has “potential tea leaves” of where regulators may direct more attention.
“One I looked for is the emergence of peer-to-peer lending platforms and if they pose risk either from a consumer perspective, from a banking perspective or from a securitization perspective,” said Stanford. “Who is buying this stuff, where does it end up? Does it end up being bad debt that is folded into a bunch of securitized platforms down the line? Is it in there, in the context of financial innovation and how it impacts the financial system.”
Another risk Stanford expected to see covers non-bank mortgage servicers, some of whom “hold gigantic books of mortgages and many compliance concerns.”
The FSOC also reported that no matter what progress has been made, regulatory agencies must do more to collect, analyze and share quality data.
“The house they are building here in terms of their assessment of risks could fall down if they have bad data,” said Stanford.