Yesterday, the House Committee on Financial Services’ Subcommittee on Oversight and Investigations held a hearing to examine the role of technology in financial services oversight. The hearing included testimony regarding H.R. 1242, a bill that would “amend the Emergency Economic Stabilization Act of 2008 to provide for additional monitoring and accountability of the Troubled Assets Relief Program,” and H.R. 932, the “Community Regeneration, Sustainability, and Innovation Act of 2009.”

H.R. 1242 would require the Secretary of the Treasury to, among other things:

  • provide to the Special Inspector General of the Troubled Assets Relief Program, the Comptroller General, and the Congressional Oversight Panel ongoing, continuous, and close to real-time updates of the status of funds distributed under this title through a standardized electronic database that combines all of the necessary information from existing public and private sources to track the status of the funds distributed under this title;
  • compare the data in such database with any other data the Secretary chooses to review for any activities that are inconsistent with the purposes of the bill; and
  • collect from all Federal agencies any regulatory filings, internal models, financial models, and analytics associated with the financial assistance received under this title on no less than a daily basis to help enable the Secretary to determine the effectiveness of the Troubled Assets Relief Program in stimulating prudent lending and strengthening bank capital.

H.R. 932 would “authorize the Secretary of Housing and Urban Development to make grants and offer technical assistance to local governments and others to design and implement innovative policies, programs, and projects that address widespread property vacancy and abandonment, and for other purposes.”

Testifying before the subcommittee were the following witnesses:

  • Ari Schwartz, Vice President and Chief Operating Officer, Center for Democracy and Technology
  • Thomas Quaadman, Executive Director for Financial Reporting Policy, U.S. Chamber of Commerce
  • Steve Horne, Senior Vice President for Master Database Management, Dow Jones and Company
  • Dilip Krishna, Vice President, Financial Services and Insurance, Teradata Corporation
  • Susan Marlow, Chief Executive Officer, Smart Data Strategies, Inc., on behalf of the Management Association for Private Photogrammetric Surveyors (MAPPS)
  • Gregory B. Hahn, Principal, Crowe Horwath LLP
  • Bennet A. Zelner, Professor, Fuqua School of Business, Duke University, on behalf of The Probity Group
  • Thomas Kimner, Risk Manager, Americas Risk Practice, SAS Institute, Inc.

Mr. Schwartz, on behalf of the Center for Democracy & Technology, expressed support for H.R. 1242 as a bill that would “add greater transparency to the Troubled Assets Relief Program,” stating that “giving the oversight bodies access to [regulatory filings, internal agency models and analytics] will greatly improve oversight and increase citizen confidence in the TARP program.” However, Mr. Schwartz urged that the bill “go a step further and require this centralized repository of TARP information be made available to the public on the Web.” He also supported the goals of H.R. 932 to create “geographic information systems containing regional land parcel data to better monitor the effects of the housing crisis…”, but urged Congress “to specifically require privacy and security protections and improve data accuracy,” in an effort to protect against identify theft and other privacy related risks.

Mr. Quaadman, on behalf of the U.S. Chamber of Commerce, strongly supported H.R. 1242, noting that the bill “represents an important step forward in creating and enforcing accountability in the TARP program.” He agreed with the plan “to create a single publicly accessible data base that can track TARP funds in near real time” and noted that “this level of transparency will help avoid the misuse of funds and develop a level of confidence that is integral to the success of TARP.” However, Mr. Quaadman also cautioned that “an appropriate discussion of the context and relevance of information is needed to facilitate it[s] usage” and that “Congress needs to investigate the privacy implications that may impact individuals or businesses that may have been loaned money by TARP recipients using TARP funds.”

Mr. Horne also supported the goals of H.R. 1242 and stated that the bill would “provide true transparency to the TARP program.” In developing systems to track funds under H.R. 1242, Mr. Horne stressed the importance of aggregating data from a variety of sources. According to Mr. Horne, “the key to obtaining transparency is in the integration of the disparate sources and the analysis of the aggregate data to provide answers to key questions.” Ultimately, Mr. Horne explained that the system should allow for the identification of (i) “anomalies in reporting”, (ii) “potentially undesirable transactions” and (iii) conflicts of interest or potential misuses of funds.

Mr. Krishna, on behalf of Teradata Corporation, a data analytics and data warehousing company, “endorse[d] H.R. 1242 without reservation or qualification and encourage[d] the Congress to pass this legislation as expeditiously as possible.” He noted that “technology has advanced to the point where the oversight of large, complex financial enterprises is now feasible.” He also used the analogy of “the information assembly line” to discuss the process of collecting data for “monitoring and predictive analysis” and distributing the information through the “data warehouse.” In closing, Mr. Krishna stated that, “the time has never been better for leveraging information technology to create a strong system of financial oversight – it is proven and successful and can be implemented today.”

Ms. Marlow, on behalf of MAPPS, discussed the need to coordinate the tracking of parcel data at the federal level. According to Ms. Marlow, “The current mortgage crisis leaves no doubt that land ownership and the associated rights, interests and value of property are fundamental to our entire socioeconomic system.” She generally supported H.R. 932, but “urge[d] clarification on the use of geospatial technologies to enhance the goal of the legislation.” With respect to H.R. 1242, Ms. Marlow “urge[d] that a geospatial component or geospatial reference be included in the database.”

Mr. Hahn, on behalf of Crowe Horwath LLP, discussed how his company could use some of its previous work with state governments, commercial banks and financial services companies, to help the federal government with its oversight. According to Hahn, “our technical solutions have provided automation and repeatability to historically-manual or non-existent oversight processes.” In his testimony, Mr. Hahn discussed previous processes developed by his company to help clients with Anti-Money Laundering regulations and investigating suspicious activity. “We believe these cutting edge technologies in the world of financial services have merit and application for the federal environment, especially today.”

Mr. Zelner discussed how the “Probity Gradient™”, a technology developed by his company, could help the government improve its oversight of the financial system and the allocation of future TARP funds. Based on a systems engineering approach, he said that the Gradient system would structure data to allow for an analysis of inter-relationships and potential systemic risk. According to Mr. Zelner, “the success of the [Gradient system] approach is due largely to the ability it provides to drill down to threat, vulnerability and breach details and then aggregate up to global consequences – illuminating both individual and systemic effects.”

In his testimony, Mr. Kimmer, on behalf of SAS, a software analytics provider, explained how the technologies that his company offers to its clients could be used by financial regulators “to enhance oversight and risk management.” According to Mr. Kimmer, “these tools provide not just better insights into what is happening within a financial organization, but could provide a comprehensive assessment of that organization.” He explained how “critical technological tools” such as (i) stress testing, (ii) counterparty credit risk and (iii) performance measurement could help the regulators with their oversight function. Mr. Kimmer also noted the importance of the people that will use the technology. “Without the right people possessing the right skills in the right jobs, technology will not provide improvements in oversight.”