CFTC and SEC Adopt Amendments to Expand Private Fund Reporting
Commentary by Steven Lofchie
In a joint final rule, the SEC and CFTC adopted amendments to Form PF that require more information on private funds.
In the final rule, the agencies described Form PF as the form that certain SEC-registered investment advisers to private funds, including those that also are registered with the CFTC as a commodity pool operator ("CPO") or commodity trading adviser ("CTA",) "use to report confidential information ... about the basic operations and strategies of private funds ... for use in assessing systemic risk."
The additional information includes data about a fund's assets, financing, investor concentration and performance. Form PF will now include questions devoted to digital assets. In addition, calculations that determined an adviser's reporting obligations based on the adviser's size were amended with the result that more advisers will be considered "large," and thus subject to additional reporting requirements.
The effective/compliance date for the Form PF final rule is one year from the date of publication in the Federal Register.
Commentary
In his statement supporting the adoption of the amendments to Form PF, Chair Gensler said "the Commissions [meaning the SEC and the CFTC] and FSOC have identified some gaps in the information we receive," which thus necessitated the expansion of the information required by the Form.
This comment is, for better or worse, an understatement. Form PF was essentially useless when it was first adopted, over ten years ago, because the questions were so badly conceived and written. That is the reason one so seldom hears about the valuable information collected by the Form; there is little to talk about. Rather than re-assess whether the information collected has been of any value, rather than stopping the collection of data that is not useful, the regulator's fix is simply to collect more data.
To justify the additional collection of information, the regulators say that the information is needed by FSOC. But there is very little reason to believe that FSOC has any ability to assess the data. Evidenced by FSOC's 2022 Annual Report, the agency missed the boat on identifying the risk that inflation ultimately had on regional banks shortly before three of them collapsed primarily due to inflation effects. (Perhaps they were overly focused on climate risk, a danger highlighted 112 times in the Report.") See prior commentary, and also FSOC Says Digital Assets May Create System Risk (observing that the extent of FSOC's concerns about digital assets seemed wholly disproportionate to its interest in either inflation or energy costs.)
Ultimately, requirements to produce detailed regulatory reports are a tax on the businesses required to create them. If the report provides valuable information and if the regulatory agency demonstrates an ability to use the information, then the tax may be worthwhile. It is very hard to feel confident that this tax is justified.