SEC and CFTC Adopt Controversial Amendments to Private Fund Reporting Rules

SEC and CFTC Adopt Controversial Amendments to Private Fund Reporting Rules

February 14, 2024, Global Banking Regulation Review

David Fredrickson’s commentary was included in a Global Banking Regulation Review article on new amendments the Securities and Exchange Commission (SEC) adopted to its Form PF, including a joint final rule with the Commodity Futures Trading Commission (CFTC) on reporting requirements for all filers and large hedge fund advisers.

David analyzes the move by the SEC, explaining how regulators adopted the amendments largely as proposed, but with divided votes. He noted that the requirements include new disclosure requirements for hedge funds to report their use of digital assets and pointed out that the commissions did not adopt the originally proposed definition of “digital assets.” He added that the commissions included another instruction, stating that if an investment strategy could be characterized as either a “digital asset strategy” or a “non-digital asset strategy,” it should be reported as a “non-digital asset strategy.”

Comparing the new amendments to other changes the SEC adopted to Form PF less than a year ago, David said the more recent changes will require much more granular information. He said many private fund industry representatives commented on the changes, noting that compliance will be expensive, the new information may not be reliable indicators of systemic risk, and that the reporting burden may be a barrier to entry for smaller advisers. “They also noted that the SEC has already adopted, and has proposed yet more, rules related to the private fund industry, but they claimed the SEC had not fully assessed the overall impact of these changes,” he said.

“While the changes do not go into effect until one year after the rule is published in the Federal Register, the SEC’s Division of Examinations, however, has already indicated that it intends to inspect advisers to private funds, including with respect to portfolio management risks, fee calculation and allocation, compliance with custody rules, and specifically with respect to policies and procedures for reporting on Form PF,” he added.

“Those procedures may involve new information retrieval and storage capabilities, new procedures, and training of personnel.”

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