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Privacy Concerns Raised About Office of Financial Research, But Reforms Likely to Pass Without Significant Amendment

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This month’s regulatory debate on the subject of the Office of Financial Research proposals, which are contained in Title I of the current US financial reform bill, included discussion of the potential threat to privacy that the data centre poses to the US market overall. Democrat senator Susan Garrett called the Office of Financial Research “Big Brother on steroids” and Republican senator Jeb Hensarling made a motion to strike the proposals from the reform bill. However, Democrat senators Barney Frank and Carolyn Maloney both supported the establishment of the utility and the amendment to strike the proposals failed.

Hensarling is not the first senator to raise privacy concerns about the Office of Financial Research; Republican senator Richard Shelby indicated his fear about misappropriation of the data back in May. Shelby has also previously noted the potentially high cost of the establishment of such a utility, which he called a “half billion dollar per year federal bureaucracy”. However, the recent discussions do not seem to have included the cost equation.

Garrett indicated that she believes the Office of Financial Research data should be limited to that involved in “systemic risk issues” rather than acting as an all-encompassing instrument and entity data utility. She also highlighted the extension of the new body’s powers to collect financial data with what she felt was limited by “very few controls”. Hensarling added: “I don’t see any congressional oversight of Office of Financial Research.”

Democrat senator Max Bachus also spoke out against the utility.

However, the majority did not share these concerns, as the vote to strike the reforms related to the Office of Financial Research failed by 7-12. Maloney, for example, supported the introduction of the utility in order to be able to accurately track risk exposure across the financial services industry, pointing to AIG as an example of one instance where more data would have been handy.

There is due to be a vote today on whether to limit the reforms to systemic risk related data and Frank might be forced to accept these amendments. This will likely affect the initial scope of the project and mean the utility is focused on tracking data from systemically important financial institutions, rather than all firms in the market. However, regardless of restricted scope, it will still impact the standardisation agenda for instrument and entity identification.

Moreover, given that these reforms have now been passed, albeit possibly slightly amended, and it looks very much like the whole bill will soon be approved, it will be interesting to see the progress made towards discussing how the utility will work in practice.

The original bill (with section 151 onwards being focused on the Office of Financial Research) is available to download here.

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