Hedge funds venturing toward the cryptocurrency sector will have to stick with strict reporting requirements that have now been mandated by the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Hedge funds to report crypto exposure under SEC and CFTC requirements
Over the past year, there has been a notable increase in traditional hedge funds moving toward the cryptocurrency sector as crypto assets continue to receive institutional interest from those who want to buy Bitcoin or Ether.
A joint proposal issued by the SEC and the CFTC has now required that these hedge funds report crypto exposure through a confidential filing. The two regulatory bodies plan to uncover more about the risks in the crypto sector and whether these risks pose a danger to the US economy.
The joint proposal by the two commissions comes amid a notable plunge in the value of cryptocurrencies. The Wall Street Journal first shared the details of this joint proposal.
Under the newly proposed rule, hedge funds with over $500 million in net assets will have to report their exposure to cryptocurrency assets via form PF. This confidential filing was launched after the financial crash of 2008. The funds will also be mandated to report data on their portfolio composition and borrowing plans.
The SEC considered the changes to Form PF during an open meeting held on Wednesday. Federal agencies use reported data to share statistics about the private funds sector. The filings on crypto exposure of hedge funds in this form will increase the scope of information available to federal agencies.
The chair of the SEC, Gary Gensler, commented on this proposal, saying that he was pleased to be among those supporting it, adding that if it were adopted, it would improve the quality of information that the regulator received from form PF fliers. The commission is also planning to focus more on large hedge fund advisers.
A fact sheet by the SEC regarding the proposed Form PF changes said that they were designed to enhance the Financial Stability Oversight Council’s (FSOC) capability to monitor systemic risks and enhance the regulatory oversight of private fund advisers.
The fact sheet mentioned that the number of private funds had increased by around 55% between 2008 and the third quarter of 2021. Gensler said that the private fund space had grown significantly and was less transparent.
SEC and CFTC’s role in crypto regulations
The US SEC has been active in cryptocurrency regulations. The regulatory body has been enforcing its regulatory authority over the crypto market in areas such as Ripple’s case.
The SEC and CFTC have also discussed the crypto assets that fit within the scope of commodities and those that can be classified as securities. Additionally, the resounding majority of the crypto community opts that the CFTC be in charge of crypto regulations.
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