A multibillion-dollar consulting industry came under the spotlight in Washington on Thursday, as lawmakers questioned the quality and independence of companies that guide banks through regulatory scrutiny.
At a senate banking committee hearing, lawmakers contended that the consulting business was fraught with conflicts. While banking regulators rely on consultants to help clean up financial misdeeds like money laundering and foreclosure abuses, the companies remain on Wall Street?s payroll.
?Consultants have a financial incentive to do things to attract repeat business,? senator Sherrod Brown, the Ohio Democrat leading the hearing, said to a panel of regulators who testified. Brown also took aim at consultants, citing some recent missteps. When regulators farmed out a review of foreclosure abuses to companies like the Promontory Financial Group and Deloitte & Touche, the consultants earned $2 billion in fees while scrutinising only a sliver of the more than 800,000 troubled loans in question.
Money laundering cases have dogged the consultants, too. Lawmakers on Thursday alluded to an episode in August, when New York officials accused Deloitte of helping the British bank Standard Chartered cloak illicit transfers.
?If a consulting firm has routinely been at the scene of the crime, what will it take to be disqualified?? Brown asked.
Konrad Alt, a Promontory executive who testified on Thursday, said ?it would depend on if they were at the scene of the crime as a witness, perpetrator or detective.?
The Senate hearing was the latest indication that federal regulators were facing pressure to rein in the consulting industry. Representative Maxine Waters, Democrat of California, also introduced legislation this week to impose conditions on the use of consultants, including progress reports and detailed cost estimates.
The scrutiny comes on the heels of the Government Accountability Office?s report that faulted regulators for the flawed foreclosure review. The regulators, the report said, failed to coordinate the review properly and potentially let some errors go undetected.