SEC & CFTC call for public comment on crypto reporting for hedge funds

The US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) on Thursday launched public consultations asking the public to contribute to the proposed rule that seeks to define crypto hedge funds and their public disclosures.

The public comment document was made available on the Federal Registry website and seeks to gather the opinions of major hedge fund advisers and all filers on their investment strategies as the commission moves to consider proposed changes to Form PF, a confidential reporting form that discloses workday arrangements for the SEC- registered investment advisers to private funds and certain commodity pool operators and commodity trading advisers.

“We are also requesting comments on the proposed rules and a number of options, including whether certain possible changes in the proposal should apply to Form ADV,” the SEC and CFTC announced in a statement.

SEC changes seek to increase hedge fund monitoring

Under the proposed changes for Form PF or rule, the SEC intends to strengthen private equity and crypto hedge fund disclosures and increase monitoring of the industry to mitigate potential risks.
“The changes are designed to enhance the Financial Stability Oversight Council’s (“FSOC’s”) ability to monitor systemic risk, as well as strengthen the SEC’s regulatory oversight of private fund advisers and investor protection efforts,” the statement said.

Regulators will also change guidelines in the Investment Advisers Act of 1940 that require “temporary hardship relief.”
“The proposal would add a new sub-asset class for digital assets and define the term ‘digital asset,'” the statement reads in part.
SEC Chairman Gary Gensler told reporters last month that the proposed changes requiring the largest financial firms to report on their complex structure would ensure transparency.
“We can play a role by increasing at least some of the transparency.” Gary Gensler, the agency’s head, told reporters.

The proposed investigation will be the largest in 10 years

If the changes to confidential filings are considered as proposed, they would be one of the biggest regulations overseeing collective investment fund trading in liquid assets in more than 10 years, according to analysts. The regulatory probe began when the hedge fund’s deleveraging sparked turmoil in the U.S. Treasury market in March 2020 and the “meme-stock” saga rife with shady assets prompted the Biden administration to move regulators to put a wall on shady private funds that have has a negative effect on the markets.

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