Regulation
U.S. Court of Appeals rules that SEC overstepped hedge fund regulations
A recent ruling by the Fifth Circuit Court of Appeals dealt a major blow to the U.S. Securities and Exchange Commission. The court found that the SEC overstepped its authority with its new rules requiring hedge funds and private equity firms to disclose more of their fees and expenses. This decision could impact the SEC’s regulatory approach, particularly regarding the crypto sector.
U.S. Court of Appeals Ruling Regarding SEC Authority
On June 5, 2024, a three-judge panel of the Fifth Circuit Court of Appeals ruled that the SEC’s 2023 regulations on hedge funds and private equity firms exceeded the agency’s congressional authority . These rules, intended to improve transparency, required annual audits and quarterly reports detailing fees, expenses and performance and prohibited preferential treatment for certain investors.
The Contested SEC Rules for Hedge Funds: What You Need to Know
Implemented in August 2023, the SEC rules required private funds to:
- Carry out annual audits for each fund
- Publish quarterly reports on fees, expenses and performance
- Disclose specific fee structures
- Remove preferential treatment for certain investors
The rules were intended to reduce the opacity of funds’ financial activities, but were criticized for overstepping the SEC’s legislative mandate.
The decision highlights growing tensions between the SEC and various sectors, including the crypto industry, which has faced similar criticism over regulatory overreach. The decision could influence ongoing debates over the SEC’s jurisdiction, particularly with upcoming congressional actions.
Congressional Response and Crypto Regulations: An Overview
The SEC’s overreach could prompt Congress to reconsider its authority over the crypto industry. Recently, the Financial Innovation and Technology for the 21st Century Act, which would transfer regulatory authority over crypto to the Commodity Futures Trading Commission, passed the House with bipartisan support. Additionally, a congressional resolution to revoke SAB 121, banning banks from owning cryptocurrencies, garnered bipartisan support but was vetoed by US President Joe Biden.
The Fifth Circuit Court of Appeals’ decision against the SEC highlights the challenges the agency faces in expanding its regulatory scope. As Congress increasingly takes a pro-crypto stance, the SEC may face further limitations on its authority, impacting future regulatory actions in the traditional finance and securities industry. cryptography.