CFTC proposes new crypto reporting rule for large hedge funds

Quick Take

  • The CFTC has voted to propose a joint rule with the SEC that would require hedge funds to report cryptocurrency exposure.

The US Commodity Futures Trading Commission (CFTC) has voted to propose a joint rule with the Securities and Exchange Commission (SEC) that would require hedge funds to report cryptocurrency exposure.

News of the proposal broke earlier today when the SEC voted in favor of supporting the proposal. The CFTC has now voted to do the same.

The rule, which would have hedge funds report crypto exposure through a confidential filing, is in part an attempt to enhance the Financial Stability Oversight Council's ability to monitor systemic risk and bolster wider regulatory oversight. Hedge funds with more than $500 million of net assets would report their crypto exposure on Form PF,  a confidential filing created in the wake of the 2008 financial crisis. Funds would also report information related to concentrations and borrowing. 

The financial crisis illustrated the risk of contagion from private-fund activity, and the proposal is an attempt to increase transparency into private fund activity, CFTC Commissioner Christy Goldsmith Romero said in a statement.

"Our objective is to increase the usefulness of the data collected; to ensure that it is actually used as Congress intended to bring transparency to risk previously hidden," she said. "I look forward to reviewing public comment on whether the proposal would meet our objective."

SEC Chair Gary Gensler similarly noted that the private fund space has grown significantly in recent years without significant the transparency mechanisms in place.

However, some commissioners are concerned that the proposed requirements could have unintended consequences on innovation. 

"The proposed joint amendments, an action of the CFTC as well as the SEC, seem to impose overly broad obligations that would be unnecessarily burdensome and would present potentially significant operational challenges and costs without a persuasive cost-benefit analysis under the Commodity Exchange Act (CEA)," CFTC Commissioner Caroline Pham said in a dissenting statement today.

CFTC Commissioner Summer K. Mersinger likewise voted against introducing the proposal. Though she said she supports evaluating possible amendments, she is concerned that today's proposal does not sufficiently address the input of PF reporting companies. 

"Data and information that federal regulators request from market participants should be narrowly tailored to the purpose intended under our governing statutes, and unfortunately, that does not appear to be the overall approach in this proposal," she said in a statement.

The agency will now accept public comments on the proposed changes to Form PF.

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