Treasury Secretary Timothy Geithner unveiled a framework for financial regulatory reform on March 26 that, among other measures, would require advisers to private investment funds whose assets under management exceed a certain threshold to register with the SEC. Managers of hedge funds as well as private equity and venture capital funds would be required to register. The framework also appears to contemplate that funds advised by such advisors would themselves be subject to investor and counterparty disclosure requirements and to regulatory reporting requirements. The regulatory reporting requirements would require the confidential disclosure of certain systemic risk information. Geithner further proposed that the SEC share such information with a systemic risk regulator who would then decide whether those funds are systemically important enough to be required to comply with certain prudential standards. Such standards would include more stringent capital, liquidity, counterparty and credit risk management requirements.

Geithner's proposals echoed those of Lord Turner, head of the U.K. Financial Services Authority. Turner, in a plan for reform of the financial industry published March 18 (the "Turner Review"), called for regulators to have the power to gather information and apply "appropriate prudential regulation," such as capital or liquidity rules, to hedge funds.

The Turner Review also calls for bringing offshore centers within the ambit of an internationally-agreed financial regulator, to reduce regulatory arbitrage as onshore regulation increases. The FSA already imposes registration and reporting requirements on U.K.-based fund managers.

Consistent with the U.S. Treasury's goal of international coordination in any comprehensive regulatory reform, we expect that Geithner's proposals will be further developed in connection with the G-20 meetings this week. We will continue to monitor these activities and report on further developments.

GEITHNER PROPOSAL: available here (HTML)

TURNER REVIEW: available here (PDF)