Yellen Defends Discretion in Referring Leak Probes to Watchdog

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Federal Reserve Chair Janet Yellen defended her practice of discretion in referring leaks of confidential policy information to the central bank’s internal watchdog, saying that not all breaches merit a full-blown investigation.

Representative Sean Duffy, chair of the House Financial Services subcommittee on oversight and investigations, urged Yellen on Wednesday to automatically refer leaks of confidential information to the Fed inspector general for further investigation. Policy now says those referrals can be discretionary.

Yellen, testifying at a full-committee hearing on Fed regulation, said it’s her practice to refer any “material” breach to the inspector general.

The Fed’s information-security program is reviewed each January by the policy-setting Federal Open Market Committee. The policy is under lawmaker scrutiny because of a leak of internal details on sensitive policy planning to Medley Global Advisors in 2012. At that time, the FOMC didn’t refer the matter to the inspector general and its own investigation ended without conclusion.

In a separate exchange with Representative Mick Mulvaney, a South Carolina Republican, Yellen said not all breaches merit a full-blown investigation, such as the accidental loss of a smartphone by a Fed employee.

“I’ve taken the view that as soon as we’ve determined there is a material breach, I’ve asked the inspector general to look,” Yellen said.

Fed spokeswoman Michelle Smith declined further comment.

Duffy said that the directive is flawed because the Fed’s general counsel and the FOMC secretary both have access to confidential information.

“There could be a conflict of interest,” said Duffy, a Republican from Wisconsin.

“The general counsel could actually be the leaker,” he said, adding that “this is ripe for some internal policy review.”

Yellen responded that “maintaining the confidentiality of sensitive information is to me a very high priority.”

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