On August 10, 2022, 3-2 majorities of the SEC and CFTC voted to propose amendments to Form PF reporting for certain investment advisers to private investment funds. Among the many proposed amendments to the form, the proposed rules would for the first time require covered investment advisers to report on certain digital asset investments.

Form PF is a confidential reporting form for certain investment advisers to private funds that are registered with the SEC, including those also registered with the CFTC. An adviser must file Form PF if (1) it is registered or required to register with the SEC as an investment adviser, (2) it manages one or more private funds, and (3) the adviser and its related persons collectively had at least $150 million in private fund assets under management as of the last day of its most recently completed fiscal year. A commodity pool operator or commodity trading advisor that also is registered or required to register with the SEC as an investment adviser and satisfies the other conditions described above must file Form PF with respect to any commodity pool it manages that is a private fund. Most private fund advisers file annually to report general information, such as the types of private funds advised, fund size, use of borrowings and derivatives, strategy, and types of investors. Certain larger advisers provide additional information on a more frequent basis.

According to the SEC and the CFTC, the proposed amendments are designed to improve the utility of Form PF data to enhance the Financial Stability Oversight Council’s ability to assess systemic risk, as well as to bolster the oversight of private fund advisers in light of the growth of the private fund industry. The proposed amendments address a wide range of topics, including digital assets. The proposed rules define the term “digital asset” to include an asset that is issued or transferred using distributed ledger or blockchain technology (“distributed ledger technology”), including, but not limited to, so-called “virtual currencies,” “coins,” and “tokens.” According to the proposing release, these types of assets also are commonly referred to as “crypto assets,” and for purposes of the proposal these various terms are considered synonymous.

Currently, Form PF does not explicitly address digital assets, and reporting on digital asset positions is often made as part of another asset class. Under the proposal, investment advisers reporting on Form PF would be required to disclose a good faith estimate of the percentage of the reporting fund’s net asset valuedevoted to digital assets. Covered advisers would also be required to report the dollar valueof long positions and the dollar valueofshort positions in digital assets. Further, information about synthetic and derivative positions in digital assets would be required to be disclosed under certain circumstances.

The proposing release seeks comment on a number of elements of the proposal, including the approach to digital asset reporting. The public comment period for the proposed amendments will close 30 days after publication in the Federal Register or on October 11, 2022, whichever is later.