The Department of the Treasury is proposing legislation that would require all hedge funds and private capital pools with $30 million or more of assets under management to register with the Securities and Exchange Commission.
Hedge funds would also have to reveal how many assets they have under management, whether they engage in leveraging or borrowing, and if they have any off-balance sheet exposure. They would also have to comply with strict capital, liquidity and risk management rules.
While hedge funds were not at the center of the current crisis, said Michael S. Barr, assistant secretary for financial Institutions at the Treasury, their deleveraging and lack of transparency contributed to the crisis. “These firms continue to present unknown risks, and that lack of transparency is no longer tenable,” he said. “We need a system that’s flexible enough to adapt to the emergence of other institutions that could pose a risk to the system.”
Barr continued to say that innovation is critical to the financial services industry and the people and businesses it serves, but it “demands a system of regulation that protects our financial system from catastrophic failure, protects consumers from widespread harm and ensures that consumers have the information they need to make appropriate choices.”
Treasury is also calling for systemic risk oversight to be housed in the Financial Services Oversight Council that President Obama has proposed, and for the Federal Reserve to take action to supervise and support financial firms that either threaten the capital markets or are on the brink of failure.