Regulation
Is the US SEC losing control? Hedge fund transparency rules are dropped
In a recent ruling, the Fifth Circuit Court of Appeals dealt a blow to the U.S. Securities and Exchange Commission (SEC), ruling that the 2023 rules on hedge funds and private equity firms go beyond its mandate legal. This ruling not only calls into question the SEC’s regulatory approach, but also raises concerns about its authority, especially in relation to the cryptocurrency industry.
The verdict: SEC regulations deemed illegal
On June 5, 2024, a three-judge panel ruled that the SEC’s regulations went beyond the authority granted by Congress. These rules, implemented in 2023, aimed to increase transparency by requiring annual audits, quarterly reporting on fees and expenses, and tougher rules against preferential treatment for certain investors.
Inside the SEC’s controversial rules for hedge funds
Introduced in August 2023, the SEC regulations required private funds to:
- Conduct annual audits for each fund
- Publish quarterly reports detailing fees, expenses and performance
- Disclose specific fee structures
- Eliminate preferential treatment for some investors
Despite the goal of shedding light on the financial operations within these funds, criticism has arisen over the perceived overreach of the SEC’s legislative mandate.
Tensions are increasing: now it’s a question of Crypto vs SEC
The court’s ruling highlights the growing tension between the SEC and various industries, particularly the cryptocurrency industry. Similar charges of regulatory overreach have been leveled against the SEC in this area. The consequences of this decision could shape ongoing discussions about the SEC’s authority, particularly with upcoming congressional actions.
Congressional response
The SEC’s perceived overreach could prompt Congress to reconsider its authority, particularly as it pertains to the cryptocurrency industry. Recent legislative initiatives signal a potential shift in regulatory power. Financial Innovation and Technology for 21st Century Law, which aims to shift regulatory oversight of cryptocurrencies to the Commodity Futures Trading Commission, recently gained bipartisan support in the House. Additionally, a bipartisan resolution aimed at repealing SAB 121, which limits banks’ involvement in the cryptocurrency industry, faced presidential debate. Joe Biden’s veto.
Implications of the Court’s ruling
The Fifth Circuit Court of Appeals’ verdict against the SEC highlights the agency’s challenges in expanding its regulatory reach. With Congress leaning toward a pro-cryptocurrency stance, the SEC may face further constraints on its authority.
With the SEC’s authority in question, the future of financial regulations, particularly for the booming cryptocurrency industry, remains uncertain.
Read also: A new law authorizes the president of the United States to block crypto transactions