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SEC strengthens its focus on Form PF – 13 firms fined

Jun 21, 2018

Topics: Compliance | Form PF | SEC |

The US Securities and Exchange Commission (SEC) is ramping up enforcement activity around Form PF – a periodic filing that contains a great deal of investment and risk exposure data which the regulator uses to monitor levels of risk in the private fund industry.

In early June, the SEC announced settlements with 13 registered private fund investment advisers who repeatedly failed to file annual reports via Form PF. The firms were required to pay civil penalties as well as provide the missing filings. It’s possible that there may be more enforcement action in this area – including enforcement in relation to incomplete or otherwise poorly filed Form PFs.

Indeed, the focus of SEC activity isn’t just on hedge fund managers, private equity firms, and other private fund shops that have failed to file. The SEC requested information from a number of private fund advisers about their Form PF filings in January and February of this year. While the SEC has not publicly penalized a firm for a poor-quality Form PF filing, this may only be a matter of time. Meanwhile, firms could be (and have been) subject to deficiency letters if their Form PF is not completed properly.

The US SEC has required private fund advisers managing $150 million or more in regulatory assets to file a Form PF since 2012. The information in Form PF contributes significantly to the regulator’s evolving Big Data approach to monitoring both firm risk and systemic risk, according to a report the regulator published in October. The information is being used to inform rulemaking, identify compliance risks, and monitor private fund industry trends. It’s also being used, like the content of other disclosure forms such as Form ADV, to help the SEC better target its examinations and enforcement investigations – a point repeatedly discussed at recent Cordium events in San Francisco, New York, and Boston.

While this filing can seem complex and daunting, it’s important that firms get the Form PF filing correct. In particular, you should ensure the Form PF:

  • Is filed on time – firms are either required to file on a quarterly or an annual basis. The timing of the filing depends on the firm’s fund type and the amount of assets under management. If the firm is not sure of its requirements, it should double check.
  • Is filled in accurately – misinterpretation of the technical requirements and definitions contained in the form is common.
  • Is specific to your firm – the form should contain information that is specific to the activities of the individual legal entity it is being filed for.
  • Is backed up – the firm should keep a copy of all of the information it uses to complete Form PF in a secure place should the SEC request to see it.

The SEC publishes quarterly reports with aggregated information and statistics derived from Form PF data to inform the public about the private fund industry. It also provides Form PF data to the Financial Stability Oversight Council to help it evaluate systemic risks posed by hedge funds and other private funds. As such, the regulator is keen to ensure the accuracy and completeness of the data provided in the form. Incorrect or incomplete data could result in incorrect assumptions about the safety and soundness of the private fund industry, or could lead to unnecessary exams and site visits.

Firms should ensure their recent Form PF filings are accurate and filed on-time. If you have trouble interpreting what information needs to be included or when you need to file, you should seek the help of a regulatory expert.