By Sarah N. Lynch
WASHINGTON (Reuters) - Criticism is rising within the U.S. Securities and Exchange Commission over the structure of a new regulatory body that assesses risk in the financial markets, with some commissioners saying they are being wrongfully excluded from the group's critical decision-making process.
SEC Commissioner Luis Aguilar, a Democrat, on Wednesday became the latest agency member to speak out against the way the Financial Stability Oversight Council is run, saying the council's closed-door approach to regulation threatens to undermine its mission.
The FSOC was created by the 2010 Dodd-Frank Wall Street reform law to keep an eye on emerging systemic risks.
It comprises the heads of all the top regulatory agencies including the chair of the Federal Reserve, and is chaired by Treasury Secretary Jack Lew. The group can impose additional regulations on large financial firms that could destabilize the economy if they failed.
As chair of the SEC, Mary Jo White also serves as the member who represents the interests of the SEC on the FSOC.
Each member regularly attends closed-door sessions to discuss regulatory matters. Staffers from all of the FSOC-member regulatory agencies who are tapped as "deputies" of the council also meet separately.
But the law does not consider the SEC's other four commissioners to be FSOC members, so they do not participate in FSOC's decision-making.
"There needs to be a mechanism by which the full Commission, not just the Chair and SEC staff, provide meaningful input and coordinate with the leadership of FSOC," Aguilar said in a speech in Washington at a conference hosted by the Mutual Fund Directors Forum.
"The work of FSOC...to identify and mitigate systemic risk is important. However, there is real danger in that work being compromised if the full five-member Commission is cut out of the process."
A Treasury spokesperson said the council defers to the agencies to determine who attends top-level meetings, which generally include the principal and one guest from each agency.
"For deputies meetings, we try to keep it to two attendees per agency to allow for a more productive conversation," the spokesperson said in an email.
Other FSOC member agencies, including the Commodity Futures Trading Commission, also have multiple commissioners who do not attend FSOC meetings.
Aguilar is the third SEC commissioner to voice concerns about FSOC's governance and structure. His Republican colleagues - Daniel Gallagher and Michael Piwowar - have voiced similar complaints.
In a speech earlier this year, Piwowar complained that his requests to attend FSOC meetings were denied. He said he was told that if the SEC were allowed to bring more guests, then every other FSOC member agency would ask to do the same.
He also lamented that the Federal Reserve gets special treatment because its chair frequently attends council meetings along with two other Fed officials - Fed Governor Daniel Tarullo and New York Federal Reserve President William Dudley.
An SEC spokesman did not immediately respond to a request for comment about the commissioners' concerns.
The SEC's interest in FSOC matters is particularly pressing now because the council has been considering whether firms typically overseen by securities regulators should face additional rules.
The FSOC already has prodded the SEC to consider additional reforms for money market funds and is also mulling whether large asset managers such as Blackrock or Fidelity should be designated as "systemic" and face additional regulations.
Last year the U.S. Treasury released a controversial study, which could lay the groundwork for possible designation of asset managers but has since been panned by the industry and U.S. lawmakers who claim it is riddled with errors.
In May, the FSOC plans to hold a public event featuring panel discussions about the asset management industry to help inform its next steps.
(Editing by Alden Bentley)