U.S. SEC wants to increase private fund disclosures about leverage and cryptocurrency

Under a proposal from the Securities and Exchange Commission, hedge funds would have to start providing the government with much more information about their investment methods in order to properly monitor risks to the financial system.

One of the most significant changes in regulation for the private-fund business in the last ten years would be the extension of the confidential filings that big managers are required to submit to the SEC on a quarterly basis. The initiative is the latest step taken by regulators under the Biden administration to crack down on a relatively opaque area of finance that they claim can have a significant impact on markets.

After years of avoiding stricter Washington monitoring, the idea represents a stunning turn of events for hedge funds. The SEC started moving toward requiring large hedge funds and private equity firms to report significant losses and redemptions more swiftly in January. The regulator is also thinking at how to increase charge transparency.

A major and expanding portion of our financial system is made up of private funds, according to Gary Gensler, the agency's chair, who spoke to reporters on Wednesday. "We can contribute by increasing transparency, at least in part,"

Regulators can utilize the precise information on the so-called Form PF, even though it isn't made public, to assess broader market risks and to take enforcement action. The two Republican commissioners of the SEC and the industry both voiced opposition to the modifications, which the agency's three Democrats decided to recommend during a commission meeting.

Gensler claims that in order for authorities to keep up with the industry's expansion, more data is required. Since the first private filings were necessary following the financial crisis, he claimed, funds have become significantly larger and more complicated in their architecture. According to him, the adjustments would also increase regulators' awareness of the dangers related to hedge funds' exposure to digital assets.