US regulators seek to make hedge funds report crypto exposure in confidential filings

As United States regulators explore ways to manage the cryptocurrency market, hedge funds are emerging as the next target to minimize risks associated with the sector, especially after the 2022 market meltdown. 

In particular, the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) is set to front a proposal that will compel hedge funds to report their cryptocurrency exposure through a confidential filing dubbed Form PF, the Wall Street Journal reported on August 10. 

In the latest regulatory proposal, the two agencies require hedge funds with over $500 million of net assets to comprehensively provide information about their crypto investment, including exposures, portfolio concentrations, and borrowing plans. 

“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,” said SEC chairman Gary Gensler. 

The need for Form PF 

Notably, the Form FP first originated from the 2008 financial crisis intending to help identify possible stability risks among private funds that manage money for wealthy individuals and institutions. 

Based on the submissions under the form, SEC and Federal Reserve usually publish aggregated statistics on the private-funds industry. 

The potential addition of cryptocurrency data to the reporting requirements for hedge funds comes as the SEC and CFTC weigh on a broader set of regulatory proposals that would expand the scope of Form PF.

Overall, both SEC and CFTC have recently increased their focus on regulating cryptocurrencies, and the Form PF partly highlights their concerns regarding the effects of extreme market volatility. 

US increasing focus on crypto regulation

It is worth mentioning that the US has increased its crypto regulatory framework development accelerated by the market collapse. Notably, several proposals have also been fronted, like the bill before Congress by Wyoming Senator Cynthia Lummis. 

The comprehensive bill calls for CFTC to be in charge of the broader crypto market regulations amid growing resistance toward SEC’s latest stand on digital assests.

Consequently, part of the crypto community is calling for the resignation of Gensler by signing a petition accusing him of obstructing the growth of digital assets.