SEC Commissioner Calls for Hedge Fund Registration in Two Recent Speeches
In two separate speeches this year SEC Commissioner Luis A. Aguilar has called for hedge fund registration. Commissioner Aguilar, appointed to the Commission last year, asked Congress to pass legislation amending the Investment Advisors Act to give the SEC authority to regulate hedge funds or hedge fund advisors. Aguilar believes that increased regulation will provide the SEC with more information about funds and will also give the SEC the necessary tools to identify and potentially prevent misconduct prior to investor losses.
The following excerpts come from speeches made within the past month:
Remarks at the Investment Company Institute’s Board of Governor’s Winter Meeting
By Commissioner Luis A. Aguilar
United States Securities and Exchange Commission
Washington, D.C.
January 26, 2009
Close Loopholes in Regulation
Moreover, I urge Congress to close the glaring loopholes in securities regulation by unequivocally stating that the SEC has jurisdiction and the ability to regulate hedge funds advisers and derivatives and provide for municipal securities disclosure.
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Empowering the Markets Watchdog to Effect Real Results
By Commissioner Luis A. Aguilar
North American Securities Administrators Association’s
Winter Enforcement Conference
San Diego, California
January 10, 2009
III. Limiting Risk by Closing Regulatory Loopholes
Regulation of Hedge Funds
An additional area that calls out for Congressional action is the world of hedge funds and hedge fund of funds. Given the current climate, it is troubling to me that the Commission lacks basic information about hedge funds and hedge fund advisers. The argument for regulation is reinforced by the fact that retirement assets have been increasingly invested in hedge funds and that hedge funds are such significant players in our capital markets. Because neither hedge funds nor hedge fund advisers are required to be registered, the Commission lacks meaningful information about these entities, such as how many hedge funds operate in the United States, the size of their assets, and who controls them. Additionally, because hedge fund advisers are not subject to periodic examinations like registered investment advisers, the staff does not have the opportunity to identify misconduct prior to significant losses occurring.
The Commission tried unsuccessfully to act in this area. In December 2004, the Commission promulgated a rule that effectively required hedge fund managers to register under the Investment Advisers Act and comply with adviser regulations, including filing disclosures, adopting a compliance program and a code of ethics, and being subject to SEC examinations. However, in June 2006, the U.S. Court of Appeals for the District of Columbia Circuit vacated the rule — as a result, the Commission currently lacks tools in the hedge fund arena to provide effective oversight and supervision.
Congress should not hesitate to amend the Investment Advisers Act to clearly provide the Commission with authority over hedge fund advisers.
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