The SEC and CFTC look to mitigate the risks establishments pose due to crypto exposures. This is due to the contagion spread by the Terra debacle and the crash of the crypto markets. The events majorly impacted several entities, costing investors billions in funds. It is against this background that the regulators wish to be informed of any crypto exposures Hedge Funds might have.
Hedge funds with AuM over $500M will have to disclose crypto exposures
The Securities and Exchange Commission (SEC), and the Commodity Futures Trading Commission (CFTC) disclosed the plans recently. According to WSJ, both regulators plan to release a joint proposal on Wednesday in this regard. The proposal would demand large Hedge Funds to disclose their crypto exposures through a classified filing dubbed “Form PF.”
Advisers to private funds use Form PF to disclose data about the private funds to the SEC and FSOC. This helps the regulator ascertain any potential risks that might result from the funds’ exposures and structure. Following the financial crisis of 2008, this data was necessary, and that prompted the creation of the form.
Should the proposal take effect, Hedge Funds with AuM above $500 million will have to report exposures to crypto. This policy expansion seems especially necessary, considering the growing correlation between the crypto markets and the traditional financial system. The recent worrisome events in the space also make a significant contribution.
The CFTC will be placed in charge of crypto that pass as “digital commodities”
“Gathering such information would help the Commissions and financial-stability regulators better to observe how large hedge funds interconnect with the broader financial services industry,”
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Gary Gensler, SEC chair said, speaking on the matter.
The proposal comes a few days after the world’s largest investment manager BlackRock made a partnership with Coinbase. The partnership would give institutional clients of BlackRock exposure to the trading facilities of Coinbase Prime.
The SEC and CFTC have for a while engaged in a battle of supremacy to determine who would oversee cryptocurrencies. On August 3, the Senate passed a bill that would give the CFTC oversight of crypto that meets commodities law. This would put crypto that pass as “digital commodities” under the supervision of the CFTC, including BTC and ETH.
The SEC, however, for some time now, have appeared more involved in crypto regulations. From its legal battle with Ripple Labs and issues with Coinbase, the watchdog has not been the most popular amongst crypto proponents.
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