CFTC and SEC open comments on reforming crypto reporting rules for large hedge funds

The U.S. Securities and Exchange Commission, or SEC, and the Commodity Futures Trading Commission, or CFTC, have asked for comment on a proposal that would require large advisers to certain hedge funds to report exposure to crypto.

In a joint proposed rule published in the Federal Register on Sept. 1, the SEC and CFTC established a 40-day comment period for amendments to Form PF, a confidential reporting document for certain investment advisers of at least $500 million in personal funds. The proposal calls for qualifying hedge funds to report their exposure to crypto in a separate category from “cash and cash equivalents.”

The two regulators were first introduced on August 10 so that members of the public could submit comments on the proposed changes until October 11. At the time, the SEC and CFTC cited the growth in the hedge fund industry as the reason for the proposal. A change since form PF was introduced following the financial crisis of 2008 as crypto investments became more common.

Among the suggested changes in Form PF is the definition of certain “digital assets” to report income based on “virtual currencies”, “coins” or “tokens”. The public is invited to comment on whether the regulators should use the term “crypto asset” instead of “digital asset”.

“We treat these terms as synonyms,” the proposal said. “We proposed that the term and definition be consistent with the SEC’s recent disclosure on digital assets, and we believe that this term and definition provides a consistent understanding of the types of assets we intend to address.”

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The two regulators said the proposal, if implemented, would allow investment advisers to provide more detailed information about strategies and exposure to certain assets, allowing the Financial Stability Oversight Council to better assess potential risks to the economy. US lawmakers are considering various legislative approaches aimed at better establishing the role of the SEC and CFTC in regulating crypto.