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US Securities and Exchange Commission

Financial Reform Group Calls for Changes to 13F Reporting, Family Office Exemption Following Archegos Collapse

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

Bill Flook  Editor, Accounting and Compliance Alert

· 5 minute read

Americans for Financial Reform (AFR) urged the SEC to beef up disclosure requirements on Form 13F and revisit an exemption allowing certain family offices to avoid registration under the Investment Advisers Act of 1940, following the collapse of Archegos Capital. Archegos, a family office whose sudden unraveling in late March sent banks that worked with the fund scrambling to sell stock, had never filed a 13F report with the commission.

The group is the latest to call for reforms to 13F disclosures, which gives hedge funds and other investors with at least $100 million in assets under management 45 days following the end of a quarter to report their holdings, and does not require disclosure of short positions or certain complex derivatives.

AFR, in a March 31, 2021, letter to Acting SEC Chair Allison Herren Lee, wrote that “in order to give regulators, market participants, and the broader public a more adequate window into the activities of hedge funds the SEC must expand both the frequency of Form 13F reporting, and the range of financial products required to be disclosed on this form,” including short stock sales, short option positions, and derivatives such as “total return swaps” that behave similarly to stocks.

The Dodd-Frank Act retooled an Advisers Act exemption for family offices, allowing them to continue to manage the investments of wealthy families without registering under the act. The SEC in 2011 issued rules defining family offices in Release No. IA-3220Family Offices. The SEC is reviewing that rule and four others adopted in 2011 per the requirements of the Regulatory Flexibility Act.PL111-203

AFR, in its letter, urged the SEC to “evaluate if the registration exemption that family offices enjoy under Dodd-Frank is creating regulatory blind spots,” pointing to the recent volatility sparked by the Archegos collapse to highlight that “family offices behave very similarly to hedge funds.”

“Given the consequences that highly levered family offices can have for other investors and companies, the Commission should direct its advisory committees to investigate whether there are ways to plug the regulatory gaps for family offices managing more than $1 billion,” AFR wrote.

The volatility, and the question of how the commission should respond to it, creates another challenge for incoming SEC Chairman Gary Gensler, who is expected to be confirmed soon by the full Senate.

Gensler will face pressure to broaden 13F reporting after his predecessor, Jay Clayton, attempted to do the opposite by vastly expanding exemptions from the disclosures.

The July 2020 proposal in Release No. 34-89290Reporting Threshold for Institutional Investment Managers, would have increased the $100 million asset threshold to $3.5 billion. The proposal, which was never finalized, was widely condemned by issuers, investors, and others, drawing thousands of comment letters opposed to the changes. (See Thousands Ask SEC Not to Change Reporting Threshold for Institutional Investment Managers in the September 8, 2020, edition of Accounting & Compliance Alert.)

That proposal continued to draw a smattering of critical comment letters as Clayton prepared to leave the commission at the end of 2020. William Peysson, a retired CFO, in a December 12 comment letter warned that “transparency of the transactions by the large money managers is something that should not be hidden from those of us who find that knowledge beneficial.”


This article originally appeared in the April 5, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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