U.S. Appeals Court Rejects SEC Rule for Greater Transparency, Questions Authority over Crypto Industry
Summary:
A U.S. appeals court has negated a Securities and Exchange Commission (SEC) rule that demanded more transparency on fees and expenses from hedge funds and private equity firms, stating it oversteps the authority granted by Congress. The ruling adds to the ongoing debate on the SEC's jurisdiction over the crypto industry. The regulator claimed extended oversight of private funds from the Dodd-Frank Act, but this assertion was rejected by the court. Facing multiple lawsuits from crypto firms, the SEC's authority over the U.S. crypto industry is potentially under congressional review. The Financial Innovation and Technology for the 21st Century Act (FIT21), intending to transfer regulatory authority over the crypto industry to another body, received bipartisan support.
In a setback for the Securities and Exchange Commission, a U.S. appeals court has overruled a regulation that demanded greater transparency over fees and expenses from hedge funds and private equity firms. The court argued that the rule, which has faced significant opposition from the crypto industry, goes beyond the authority granted to the SEC by Congress. On June 5, the Fifth Circuit Court of Appeals, consisting of a panel of three judges, unanimously rejected the SEC's regulation. The rule was challenged by six industry groups in August, who argued that it would increase compliance costs and cause a drastic alteration to the sector's practices. The judges pronounced that the rule was beyond the SEC's statutory authority, and therefore, could not stand. The regulation, which spans 656 pages, necessitated quarterly performance and fee reports from funds, yearly audits, and prohibited preferential treatment to certain investors. The SEC claimed that the Dodd-Frank Act, established after the 2008 financial crisis, expanded their oversight to include private funds. However, Judge Engelhardt dismissed the SEC's interpretation of the Act, stating that it didn't grant the Commission such power. Bill Hughes, senior counsel at Consensys, likened the SEC's conduct in this matter to its approach over the past three years. The SEC has been embroiled in multiple lawsuits with crypto firms for claiming that many cryptocurrencies fall under secure investment specified by a legal framework known as the Howey test. Crypto firms argue that the SEC does not have the authority to regulate crypto without explicit approval from Congress. Currently, the SEC is under potential legislative action that might alter its claimed oversight over the US crypto industry. Additionally, the Financial Innovation and Technology for the 21st Century Act (FIT21) which aims to transfer regulatory authority over the crypto industry to the Commodity Futures Trading Commission, received bipartisan support in the House. The SEC was spared after President Joe Biden vetoed a resolution to repeal its Staff Accounting Bulletin (SAB) 121, which restricts banks from owning crypto. This resolution also received bipartisan support in both the House and the Senate.
Published At
6/6/2024 8:44:37 AM
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