May 1 (Reuters) – The Federal Reserve is planning new steps to ensure officials and top executives comply with financial trading and ethics rules introduced last year, a report said on Monday.
The report, released Monday by the central bank’s internal regulator, the Office of the Inspector General (OIG), argued that more central bankers should be covered by the rules.
More work can be done on the process of filing disclosure reports and verifying their accuracy, while clarifying how those who break the rules will be held accountable, it said.
The Fed Board of Governors agreed with many of the IG report’s findings and offered deadlines and procedures for fulfilling the recommendations. A Fed spokesman declined to comment beyond the board’s formal responses in the report.
“We take seriously the need to improve the effectiveness of the [Federal Open Market Committee’s] trade and investment policies, and we look forward to considering the OIG’s recommendations,” Fed Chair Powell said in the IG report.
The regulator’s report is the latest development in a long-standing effort by the central bank to impose limits on the financial activities of officials and employees.
In 2021, the heads of the Dallas and Boston regional Fed banks withdrew early after their financial disclosure statements showed that they had actively traded in financial markets while setting monetary policy, even though that trading conformed to rules then in force.
Other Fed officials have also faced heat over their trading activities, including Powell and former Vice Chairman Richard Clarida. Meanwhile, Atlanta Fed chairman Raphael Bostic last year acknowledged that some of his investing activities inadvertently took place at prohibited times.
IG is still scrutinizing trades with regional Fed officials.
The Fed formalized new rules that severely limited what Fed officials and senior staff can trade and when they can do so, and also required pre-approval for trades last February. The new rules aimed to ensure that central bankers set monetary policy for the good of the nation and not their own personal finances.
The Fed, in response to the IG recommendations, said it plans to have a system in place by the second quarter of next year to verify that information disclosed by officials and employees is accurate. But according to the report, some at the central bank viewed the process as onerous and possibly even unnecessary.
“One board official stated that requiring broker statements from data subjects would be a significant resource requirement and may not be worth the burden or expense,” the report said, adding, “Another board official stated that the board had no problem that requires verification of brokerage statements and that it would be excessive to require them.”
The Fed also said in the report that by the end of this year it would provide a formal blueprint on how trade policy violations would be enforced and who would be responsible for imposing sanctions.
Reporting by Michael S. Derby; Editing by Mark Porter
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