Further Regulatory Clamp Downs

Hedge funds are actively managed investment pools and are often considered risky alternative investment choices, as they can operate on less strict regulations than other financial institutions… for now.

• The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have joined forces to clamp down on hedge fund regulations.
• The regulators are proposing an amendment to the reporting form of Private Funds (P.F.). 
• The form P.F., introduced in 2011, aims to provide regulators with crucial information that enables them to “assess risk” and monitor operations and strategies. 
• Under the joint proposal, hedge funds with more than $500 million in net assets will have to report their cryptocurrency exposure. 
• In addition, hedge funds will be required to report information on their specific investment concentration, borrowing arrangements, counterparty exposure, market factor effects, currency exposure, and even country and industry exposure with risk metrics.
• The commissions wish to learn more about the potential risks of cryptocurrency to the U.S. economy.

Although not mentioning the events related to the Terra collapse, many within the crypto space warned about the potential regulatory implications. The collapse led to the insolvency of hedge fund Three Arrows Capital, lending firm Celsius, and many other companies, resulting in the loss of billions in investor capital.