It wasn't my job, man.

That, essentially, was Mary Schapiro's response at the Senate hearing to confirm her as chairwoman of the Securities and Exchange Commission today, when asked how FINRA—the organization she heads—could have missed the $50 billion fraud allegedly perpetrated by Bernard Madoff.

Schapiro's session with the Senate Committee on Banking, Housing and Urban Affairs ran close to two hours, mostly filled with admiration for her experience and jawboning about the tough task ahead of her. But the Madoff scandal could not be avoided, and Sen. Christopher Dodd (D-Conn.), the banking committee's chairman, got it out of the way with a gentle question that gave her a pulpit to explain. Dodd pointed out that FINRA had authority over the broker/dealer arm of Madoff's firm, but not its investment advisor activities. But he also cited FINRA Rule 8210, which gives FINRA the right to examine Madoff's broker/dealer and any "associated person" with it, meaning Bernard Madoff himself.

"One of the real tragedies, and one of the real lessons of this tragedy, is that we have this stove piped approach to regulation that allows misconduct to take place out of the sight of at least some of the regulators," Schapiro said in response. "As you point out, FINRA had jurisdiction over Madoff's broker/dealer activities, but not over its advisory activities. The investment advisory activity did not run through the books of the broker/dealer, which is what FINRA was examining. And, in fact, the SEC required Madoff's investment advisory activities to be separately registered as an investment advisor in 2006. I would also add that FINRA didn't have any access to any tips, either, directly. And no tips were shared by the SEC with FINRA."

In other words: Blame the SEC.

To hone the point, Schapiro suggested that, apart from the Madoff scandal, she has been complaining about the "migration" of financial professionals from broker/dealers to advisory firms-only to find a deaf ear in SEC Chairman Christopher Cox. "The bigger issue here, and one that I have repeatedly expressed concern about, including, frankly, as recently as August, with the chairman of the SEC, is that there is an increasing migration of financial activity out of regulated b/ds, where there is an SEC, a FINRA, other SROs and state involvement in the regulation of investment advisors, where there are fewer resources available for inspection and oversight," Schapiro said. "And the SEC has not shared our view that this is something to be concerned about."

Sen. Michael Enzi (R-Wyo.) was more blunt with Schapiro, asking, "How did that expansive fraud slip past the radar?" And, once again, Schapiro deflected the blame to the SEC. "The investment advisory activity-the Ponzi scheme-didn't run through the books of the broker/dealer, they were kept in separate books, for the money management business. As a result, FINRA was not aware of the investment advisory fraud. FINRA had not received any tips, either directly or from anybody, nor did the SEC share those tips with FINRA," she said.

How to fix the "stove-piped" problem? (A term Schapiro used twice during the hearing.) She says the regulators need to "cooperate a whole lot more closely," and she said she would also set up a central way for vetting tips to the agency "within weeks" of becoming the SEC chairwoman.

Schapiro's approval by the committee is virtually assured. Sen. Robert Menendez (D-N.J.) mentioned that some have called her a "safe and predictable pick," and confronted her with assertions in a Wall Street Journal front-page story today that suggesting that "FINRA often filed tiny cases against small players" while giving the big Wall Street firms a pass. She said the Journal story "presented a completely unfair picture" of her enforcement record. In any case, Menendez assured her he would support her nomination.

Dodd wrapped up the hearing, giving Schapiro the chance to comment on lawsuits, naming her and other FINRA executives as defendants, in a challenge to the merger that created FINRA. She called the cases "frivolous," and, with a knowing smile, mentioned that the latest was filed "very close in time" to the announcement of her nomination.