The Securities Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) have posted a joint statement seeking input. According to the statement, the two federal agencies seek comments on the amended crypto rules for hedge fund advisers.
Details of the Joint Statement
The CFTC and the SEC are proposing to amend Form PF rules, a confidential reporting form. As a result, certain SEC-registered investment advisers that work with private hedge funds of significant size are required.
There is an October 11 deadline to submit comments. Amendments proposed by the two agencies are planned to improve the Financial Stability Oversight Council’s capacity to monitor systemic risk. In addition, these new reporting rules will strengthen the SEC’s supervision of private fund advisers and efforts to ensure investors are protected.
According to the statement, the two agencies are also looking for comments on proposed alternative rules. For instance, they want input on whether changes to the proposal should apply to Form ADV. In addition, while the CFTC and SEC are independent agencies, they have shown interest in regulating the cryptocurrency sector. For example, the SEC focuses on preventing market manipulation, while the CFTC focuses on controlling the derivatives markets.
Details of the Proposed Changes
Besides changing the reporting rules, the two agencies seek to make amendments to improve reporting data’s usefulness. For example, reporting rules apply to advisers that are required to register with the SEC as investment advisers. They also have to report if they manage one or more private funds and have at least $150 million in fund assets under management.
Private fund advisers already file reports with details such as the type of private fund, fund size, use of derivatives, borrowings, strategy, and the types of investors. In addition, some bigger advisers offer more information, such as details on a particular hedge fund and liquidity funds.
Why Form PF Matters
The Form PF is important because it provides important details on basic strategies and operations of private funds. It has been crucial in establishing a baseline picture of the private fund sector to assess system risk.
The agencies have almost a decade of experience analyzing data collected via Form PF. During that time, the private fund sector has grown in complexity, fund structure, investment strategies, and exposures. For instance, they note that private funds now invest in crypto assets. Due to this, they felt there were information gaps where updated information would improve their understanding of the private fund sector.
More Clarity on Crypto
Under current rules, there is a section for “cash and equivalents.” Most advisers include crypto in this general category, which the SEC and FTSC feel is too obscure. Under the new rule, a separate area for crypto assets will be included. Thus, it will give the agencies more clarity on how much exposure hedge funds have to the crypto sector.
The proposed rules do not prevent or change how hedge funds invest in the crypto sector. Instead, the goal seems to clarify how much private hedge funds invest in the crypto sector.