Entities created to safeguard the nation's financial system lack the tools needed to detect financial risks early on, a government watchdog group said Thursday.

The Treasury's Financial Stability Oversight Council (FSOC) was created after the 2008 market crash to study economic risks and raise a red flag whenever a system anomaly threatens the stability of the financial markets.

But Nicole Clowers with the Government Accountability Office told the House Financial Services Committee Thursday that FSOC and its accompanying Office of Financial Research (OFR) lack sufficient tools to pinpoint future threats to the financial system. 

"FSOC and OFR have not developed a comprehensive, systemic approach to identifying and addressing threats to the financial system. Without a more systematic approach and comprehensive information, FSOC member agencies on their own may not be well positioned to judge which potential threats will benefit from inter-agency discussions," Clowers said.

While the GOA credits FSOC and OFR for strengthening key risk areas such as management structure and for improving oversight of non-bank firms, the market still needs more oversight, Clowers suggested.

Still, FSOC and OFR members believe their efforts are not only effective, but coordinated enough to detect risks to the financial system whenever they surface.

Richard Berner, director of the Treasury's OFR office, credits his agency for following GOA recommendations and improving communications with the public, while continuing to develop the group's strategic planning and responsibilities. 

Additionally, Amias Gerety, deputy assistant secretary for FSOC, says the council put the GOA's recommendations into practice, enhancing its accountability by posting annual reports and redefining its approach to financial stability.

"We strongly support GAO’s important oversight function, and we appreciate the constructive input and feedback received during our interactions," Gerety said.

In general, the GOA is aware it will take time before FSOC, OFR and regulators can fully incorporate the watchdog group's recommendations for oversight of the financial system.

"We will continue to monitor FSOC’s and OFR’s progress in implementing our recommendations and stand ready to assist Congress as it continues its oversight of these entities," Clowers concluded.