Regulators Demand Hedge Funds Reveal Exposure To Crypto

The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), which both seek to achieve clarity regarding the crypto exposure of hedge funds, have proposed an amendment to Form PF, a confidential form through which registered private fund advisers are mandated to reveal their assets under management.

The two regulators consulted with the Treasury Department and the Federal Reserve before proposing changes to Form PF Wednesday, the Wall Street Journal reported.

Form PF was introduced following the financial disaster of 2008, giving regulators the power to figure out the bubbles and disasters across the private funds' ecosystem that manage the money of wealthy personalities and protect investors.

SEC Chairman Gary Gensler noted that the size of these private hedge funds has surged recently and is now at par with the banking system.

"A very significant part of our financial system is growing — and growing faster, and is about to overtake the entire commercial banking system — that has far less regulation and far less transparency," Gensler said Wednesday, as per the outlet.

The new rule added to Form PF will introduce a new asset class called "digital assets" and will define the same as well. The rule requiring hedge funds to reveal the nature and name of the cryptocurrency being managed may also be included in the form. However, the two agencies are still awaiting comments on the said rule.

The SEC staff noted that the existing hedge funds have increasingly included crypto, while new ones that focus only on crypto are being formed at a rapid pace.

These hedge funds surpassing $500 million in net assets will have to reveal more information on Form PF regarding their investment exposures, portfolio concentrations and borrowing arrangements.

"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," Gensler explained, according to the WSJ.

Recently, The SEC Chair commented on Bitcoin, the world's biggest cryptocurrency, being the only blockchain-based asset to be considered a commodity, while others should come under securities.