SEC Tasks Hedge Funds on Reporting Cryptocurrency Exposure

The US Security and Exchange Commission (SEC), as well as the Commodity Futures Trading Commission (CFTC), are looking for ways to minimize risks to establishments due to their exposure to crypto. The reason behind the latest move is the spreading contagion resulting from Terra’s collapse in the market. The ecosystem’s collapse had a strong impact on many entities and cost investors several billions of Dollars.

Guiding Against Financial Crisis

The regulators have, therefore, found it necessary to be informed about any Hedge Fund’s exposure to crypto. The US SEC and CFTC recently announced their new decision. The Wall Street Journal reported that the two agencies are working to present a unified proposal on Wednesday in that regard.

It is said that the expected proposal would ask big Hedge Funds to declare their crypto exposure via a classified form tagged “Form PF.” It is private funds advisors who use the “Form PF” to report data about private funds to either the SEC or the FSOC. This enables the regulators to assess the risk possibilities in the exposure of funds.

Collecting such data became necessary following the 2008 financial crisis. Thus, Form PF was created to collect it.

If the proposal becomes effected, Hedge Funds that have assets under management that exceed $500 million will be mandated to report their crypto exposure. Expanding the policy is said to have also become necessary as there is an increasing correlation between established finance and the crypto market.

Duties and Areas are Defined

The worrisome events that recently took over the crypto market have also contributed significantly. The Chairman of the SEC, Gary Gensler, said collecting such data will be helpful for the Commission and other regulators. They would all be able to better observe the connection of big hedge funds with the general financial system.

The proposal came up just some days after BlackRock announced its recent partnership with Coinbase. The partnership arose so that institutional users of BlackRock would have exposure to Coinbase Prime’s trading facilities. Note that BlackRock is the biggest investment manager in the world.

The US Sec and the CFTC have been in a long-drawn contest regarding which agency should have oversight of the crypto sector. The US Senate recently passed a bill giving the CFTC authority over crypto that met commodity requirements. These put assets such as BTC and ETH under the CFTC’s purview since they are digital commodities.

But the SEC has been more involved in regulating crypto for a while. The Commission is struggling with popularity among crypto advocates for its legal tussle with Ripple and Coinbase.