The latest Hedge Fund rule formulated by the U.S Securities and Exchange Commission (SEC) underwent a few last minute changes as it struck out the definition of ‘Digital Assets’, included in it’s 2022 proposal to rebuild mandatory disclosures for hedge funds, which would’ve been it’s first ever attempt to regulate the crypto market. However, it was found missing in the final set of rules approved by the Commissioners. A footnote explaining this decision read that ‘digital assets’ was something that was still being looked into and understood in it’s entirety and hence, it was found best not to include it as a part of the rule this time.
Not denying the fast paced growth of the crypto sector, the agency released a statement outlining that they were looking into matters relating to consideration and enforcement of cryptocurrency, but thought it best to leave it out this one time. Sharp criticism was drawn by one of the recent policy moves which attempted at ensnaring crypto into the existing rules. Two of the five SEC members came heavily at another February proposal which could seemingly bar investment advisors from keeping their assets at crypto firms.
For the time being, the agency operates without the usage of digital assets as a formal means in lexicon, even though it being a regular point of contention in speeches made by various SEC officials and even the Chair, Gary Gensler. Some have made extensive remarks and gone as far in saying that not recognizing digital assets is a strategic on the part of the agency as it would debilitate their stance on digital assets being securities which must be subjected to SEC security laws. Inspite of all the criticisms, there have been a few applauses, like that from Americans for Financial Reform (AFR), a consumer advocacy group as well as advert critic of the crypto sector for setting aside a distinct category for hedge funds disclosing their digital assets in the new scheme.
The AFR Education Fund highlighted the role of hedge funds, private equity funds and banks for their involvement in investing and lending digital assets, even though these assets are viewed as an alternative for the traditional systems of finance. However, complaints have been on a rise with regards to the definition which fails to clarify whether the intent was to incapsulate all digital assets as opposed to all securities. The definition goes on to include commodities, bitcoin and non-fungible tokens, leading to Securities Industry and Financial Markets Association (SIFMA) demanding a more exact and specific definition.