3 - 5 minute read
The United States Securities and Exchange Commission (SEC) has decided to hold off on ratifying the definition of “digital assets” in its rules that govern reporting disclosures for hedge and private equity funds. The SEC published amendments to Form PF on May 3, which is a form that SEC-registered funds complete to disclose basic information about their fund so that the regulator can assess potential “systemic risks.” Nine months ago, the SEC proposed including a digital assets definition in the changes to Form PF. It would have been the first time the SEC would have defined “digital assets” if it went into effect.
Today the SEC finalized their new Form PF rules. The proposal included the 1st definition of “digital assets” in a rule. It is interesting that the SEC choose to NOT adopt the definition in their final rule. https://t.co/5y1UXbJqBd
— Anne Kelley (@amk_dc) May 3, 2023
The definition the SEC put forward for digital assets was an asset “that is issued and/or transferred using distributed ledger or blockchain technology” and included other commonly used terms such as “virtual currencies,” “coins,” and “tokens.” The SEC proposed the definition to obtain separate and more accurate reporting on such assets. However, the regulator is not going ahead with adding the definition, at least for now.
Currently, information regarding a fund’s digital assets is reported in an “other” category, resulting in “less robust Form PF data for analysis.” The SEC believes that it is essential to collect information on funds’ exposures to digital assets to understand their overall market exposures better. The latest updates to the SEC’s Form PF rules now require, among other new requirements, that SEC-registered funds report the occurrence of key events that could indicate systemic risk or harm to investors. This is likely in response to the U.S. banking crisis.
SEC Chair Gary Gensler has been vocal about his claim that cryptocurrencies are securities under his commission’s remit, and the U.S. crypto sector is acting afoul of securities laws. The SEC has also announced that it would revisit its definition of an “exchange” to possibly include decentralized finance (DeFi).
“We proposed adding ‘digital assets’ as a new term to the Form PF Glossary of Terms. The Commission and staff are continuing to consider this term and are not adopting ‘digital assets’ as part of this rule at this time.”
The Bottom Line
The SEC’s decision to hold off on ratifying the definition of “digital assets” in its rules means that the regulator cannot obtain separate and more accurate reporting on such assets. This could potentially lead to less robust Form PF data for analysis. However, the SEC’s new Form PF rules now require SEC-registered funds to report the occurrence of key events that could indicate systemic risk or harm to investors. Traders should be aware of these changes and monitor their impact on the market.
