What's new? The US Court of Appeals reversed a Securities and Exchange Commission (SEC) order requiring hedge funds and private equity firms to be more transparent about their fees and expenses. The court noted that the SEC had exceeded its authority by such a requirement.

The Court's decision

What else is known? On June 5, a three-judge panel ruled unanimously against the SEC on a complaint filed by six industry groups. They claimed the rule, which was adopted by the regulator last August, increases compliance costs and significantly changes the way companies operate.

The SEC required funds to publish quarterly performance and fee reports, conduct annual audits, and “cease giving preferential treatment to specific investors.”

At the time, the SEC said Congress had expanded the commission’s role in overseeing private funds through the Dodd-Frank Act, which was passed to restructure the financial sector after the 2008 financial crisis.

But the court rejected the SEC’s arguments in which it cited the act's rules to justify its influence over the sector, noting that nothing in the document gave the SEC such authority. “Because the promulgation of the final rule was unauthorized, no part of it can stand,” the court said in its decision.

The SEC is known for its approach to regulating the crypto sector through enforcement actions, and in particular the filing of lawsuits. However, recent actions by Congress could significantly limit its authority in the future. Last month, for example, the House of Representatives passed the Financial Innovation and Technology for the 21st Century Act (FIT21), which transfers much of the authority to oversee cryptocurrencies to another market regulator, the Commodity Futures Trading Commission (CFTC).

The White House noted that the President will not veto the bill if it is passed by the Senate. At the same time, Joe Biden has already vetoed the decision of Congress to repeal another SEC rule affecting accounting in cryptocurrency companies.

In fact, last month, the House and Senate rejected the SEC’s proposed rule SAB 121, which would require custodians to account for customers’ crypto assets in their accounts as liabilities. The lawmakers did not garner enough votes to override a presidential veto, and the rule ultimately remained in effect.