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Virginie’s Blog – SEC’s Systemic Risk Push and Form PF

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This week, the US Securities and Exchange Commission (SEC) conducted an open meeting about new proposed data reporting requirements for the private funds sector for systemic risk monitoring purposes. The SEC and the Commodity Futures Trading Commission (CFTC) have been tasked with adopting a joint form to collect critical systemic risk data about hedge funds and other private funds, with a view to supporting the work of the Financial Stability Oversight Council (FSOC) and as required by Dodd Frank. Form PF (for ‘private fund’) is the result of this work.

During the meeting SEC chairman Mary Schapiro explained that the form is a result of the efforts of FSOC members’ collaborative work to determine the basic level of information that is required to monitor systemic risk. She said: “We have produced a document that will address the dramatic lack of private fund information available to regulators today while easing the burden on private fund managers producing the data, so that the same data collection approaches and protocols apply cross border where appropriate.”

On the latter note, SEC commissioner Luis Aguilar has indicated that a lot of this work has been conducted in cooperation with the UK Financial Services Authority (FSA) and the European Securities and Markets Authority (ESMA), thus hinting that similar requirements are on their way across the pond. He also stressed the importance of the endeavour: “As of this moment, there is no baseline of reliable information on which FSOC can rely to assess the systemic risk of the activities of private funds, particularly hedge funds.”

As for the US, the regulators will use Form PF and its new counterpart Form ADV, which includes details about a fund’s size, its managers and the related ‘gatekeeping’ entities (aka auditors and custodians), in order to feed this data back to FSOC. However, the data requirements related to Form PF are tiered so that the larger the institution, the more data they will need to provide. Those private fund advisers managing under US$150 million will not be required to fill in the form at all, but hedge fund managers in charge of US$1.5 billion or more will be required to provide a lot more data than others. The SEC estimates that the latter category will apply to around 230 US-based hedge fund managers, and 155 US-based private equity fund advisers would also fall under the heightened reporting regime.

Understandably, these funds have raised a number of concerns about these requirements, especially with regards to the burden of reporting requirements. To this end, Schapiro said: “The strongest concerns voiced on the proposal related to the timing and frequency of the reporting. We want the information that will be reported to regulators on Form PF to be useful. It will not be useful if it is rushed or incomplete. As a result, we are extending the filing deadlines from 15 days to 60 days for larger hedge fund advisers. In addition, for smaller advisers and for large private equity advisers, we are extending the deadlines from 90 days to 120 days. We believe data quality will improve and reporting burden will decrease with these changes, but FSOC will still obtain sufficiently timely data.”

Private equity advisers are being granted even more leeway in that they will only be required to file Form PF annually rather than quarterly like hedge fund managers. The regulator has also taken into account the burden of standards adoption for these reports, according to Schapiro: “In fine-tuning Form PF, we have balanced the usefulness that comes from standardisation of data reporting, where necessary, with the benefit of relying on advisers’ own internal calculation methodologies where appropriate.”

The SEC has also made assurances that this data will not be made public, unlike that being collected by the Office of Financial Research (OFR – more on which here). Aguilar noted that the SEC staff has already begun to incorporate Form PF into the Investment Adviser Registration Depository (IARD), which will be kept confidential.

If you’d like to find out more about some of the activities of FSOC thus far, check out its annual report, which available to view on the US Treasury website here.

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