CFTC and SEC finalize joint Dodd-Frank rule

The CFTC and SEC have approved a final rule which requires advisors to private hedge funds registered with either regulator to report information to the SEC to be used by the Financial Stability Oversight Council (“FSOC”). The Council will use this information to monitor risk levels in the U.S. financial system. This rule implements Sections 404 and 406 of the Dodd-Frank Act.

“With this final rule, regulators will gain transparency into an important sector of the financial marketplace to better assess risk to the overall system,” said CFTC Chairman Gary Gensler. “The data collection form that we have adopted will address the dramatic lack of private fund information available to regulators today while easing the burden on private fund managers producing the data,” echoed SEC Chairman Mary L. Schapiro.

The final rule requires SEC- and CFTC-registered investment advisors with $150 million or more in private fund assets under management to periodically file a new reporting form. All information reported on this form will remain confidential. The rule divides fund advisors into two groups: large advisors and small advisors. The information to be reported and the frequency of reports varies based on this grouping. The CFTC and SEC both anticipate that a small number of large advisers will actually provide detailed information on a significant portion of the industry assets under management. Consequently, FSOC will be able to monitor a large share of the private fund asset, while simultaneously decreasing the compliance duties of private fund advisors.

The rule will be implemented in two phases. The majority of private fund advisers will be required to begin comply with the rule following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after December 15, 2012. A smaller group will begin filing following the end of their first fiscal year or fiscal quarter, as applicable, to end on or after June 15, 2012.

Read more about this joint CFTC-SEC  Dodd-Frank rule.
Creative Commons License photo credit: Velo Steve

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