The Securities and Exchange Commission, already under fire by critics who've questioned the agency’s actions amid the U.S. financial market meltdown, is under fresh criticism in two reports that blast the agency’s oversight of investment bank holding companies and broker-dealers subject to its risk-assessment program.

The publication of the reports by the SEC’s Inspector General on the SEC’s Consolidated Supervised Entity program and its supervision of Bear Stearns and broker-dealers subject to the Commission's Risk Assessment program came as the SEC on Sept. 26 officially announced the end of the CSE program. The voluntary program was created in 2004 as a way for global investment bank conglomerates to voluntarily submit to regulation, since under the Gramm-Leach-Bliley Act, no government agency had authority to regulate large investment bank holding companies.

With the major investment banks that were part of the CSE program each being reconstituted within a bank holding company, they’ll all be subject to supervision by the Federal Reserve, eliminating the need for the CSE program.

GrassleyThe IG audit reports came in response to an April 2 request from Charles Grassley, ranking member of the Senate Finance Committee.

In his report on the CSE program, which includes 26 recommendations for improvement, IG David Kotz called it “undisputable that the CSE program failed to carry out its mission in its oversight of Bear Stearns.”

While the report notes that audit “... does not purport to demonstrate any specific or direct connection between the failure of the CSE Program’s oversight of Bear Steams and Bear Steams’ collapse,” it identified “serious deficiencies” in the program and found “significant questions about the adequacy of a number of CSE program requirements.”

Meanwhile, the report on the Commission’s Broker-Dealer Risk Assessment Program found that the SEC’s Division of Trading & Markets “is not fulfilling its obligations in accordance with the underlying purpose of the Broker-Dealer Risk Assessment program in several respects.”

Describing the CSE program as “fundamentally flawed from the beginning, because investment banks could opt in or out of supervision voluntarily, ” SEC chairman Christopher Cox said the SEC “will look closely at the applicability” of the IG report recommendations to other areas of the SEC’s work and “move to aggressively implement them.”

Meanwhile, Cox said the SEC will focus on its oversight of the broker-dealer subsidiaries of bank holding companies regulated by the Federal Reserve, based on the July Memorandum of Understanding between the two agencies.