SEC releases proposed rules governing registration of hedge fund advisors

The U.S. Securities and Exchange Commission today spelled out the regulatory improvements it expects to enjoy by requiring hedge funds to register.

Last week, the regulator proposed he a new rule that would require hedge fund advisors to register with the commission, in a contentious split decision.

The commission says that under the new rule, it would be able to:

• collect basic information about hedge funds and hedge fund advisors, including the number of hedge funds operating in the U.S., the amount of assets, and the identity of their advisors, and provide this information to the public;
• examine hedge fund advisors to identify compliance problems early and deter questionable practices;
• require all hedge fund advisors to adopt basic compliance controls;
• improve disclosures made to prospective and current hedge fund investors; and
• prevent felons or individuals with other serious disciplinary records from managing hedge funds.

The proposed new rule would require advisors to “private funds” to register with the commission.

SEC staff estimate that approximately 40% to 50% of all hedge fund advisors are currently registered anyway.

The proposed rule also contains special provisions for advisors located outside the U.S., which are designed to limit the extraterritorial application of the rule to offshore advisors to offshore funds that have U.S. investors.