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Senate Committee on Banking, Housing, and Urban Affairs, Chairman Chris Dodd (D-CT) Contact: Kirstin ... - page 7 / 11





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Hedge funds worth over $100 million will be required to register with the SEC as investment advisers and to disclose financial data needed to monitor systemic risk and protect investors.

Why Change is Needed: Hedge funds are responsible for huge transfers of capital and risk, but generally operate outside the framework of the financial regulatory system, even as they have become increasingly interwoven with the rest of the country’s financial markets.

As a result, no regulator is currently able to collect information on the size and nature of these firms or calculate the risks they pose to the broader economy. The SEC is currently unable to examine private funds’ books and records or take sufficient action when it suspects fraud.

Raising Standards and Regulating Hedge Funds

  • Fills Regulatory Gaps: Ends the “shadow” financial system in which hedge funds and other private pools of capital operate by requiring that they provide regulators with critical information.

  • Register with the SEC: Requires hedge funds to register with the SEC as investment advisers and provide information about their trades and portfolios necessary to assess systemic risk. This data will be shared with the systemic risk regulator and the SEC will report to Congress annually on how it uses this data to protect investors and market integrity.

  • Independent Custody of Client Assets: Requires investment advisers to use independent custodians for client assets to prevent Madoff-type frauds.

  • Greater State Supervision: Raises the assets threshold for federal regulation of investment advisers from $25 million to $100 million, a move expected to increase the number of advisors under state supervision by 28%. States have proven to be strong regulators in this area and subjecting more entities to state supervision will allow the SEC to focus its resources on newly registered hedge funds.


Office of National Insurance: Creates a new office within the Treasury Department to monitor the insurance industry, coordinate international insurance issues, and requires a study on ways to modernize insurance regulation and provide Congress with recommendations.

Streamlines the regulation of surplus lines insurance and reinsurance through state-based reforms.


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