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SEC gears up to expand private fund oversight

SEC Chairman Schapiro speaks at the SABEW conference in Dallas, Texas
SEC Chairman Schapiro speaks at the SABEW conference in Dallas, Texas

By Sarah N. Lynch

WASHINGTON (Reuters) - U.S. regulators are poised to expand oversight of the roughly $2 trillion hedge fund industry, with the U.S. Securities and Exchange Commission expected on Wednesday to adopt rules requiring private fund advisers to register with the agency.

The new rules, mandated by the Dodd-Frank Wall Street overhaul law, would force advisers to hedge funds and private equity funds with more than $150 million under management to register with the agency.

In a move that frees resources at the SEC for its hedge fund monitoring, the agency is passing responsibility for a bigger swath of smaller fund advisers to state regulators.

Requiring hedge fund advisers to register is a power that eluded the SEC until the enactment of the Dodd-Frank Act last year. The agency tried to require it in 2006, but a federal appeals court tossed out the rule.

By requiring advisers of large funds to register, the SEC will be able for the first time to consistently receive data about the funds they manage.

Many fund advisers had already voluntarily registered with the SEC, but others relied on an exemption applying to those with fewer than 15 clients. Wednesday's rule closes that loophole.

Certain exemptions to the new rules would apply, including a provision that would let advisers to venture capital funds avoid registration.

More scrutiny of hedge funds is to come.

A separate proposal being weighed by the SEC would greatly increase the amount of data the agency receives, to help regulators determine if large hedge funds and private equity funds pose a systemic risk to the broader marketplace.

State regulators have been gearing up for their increased workload under what they refer to as "the switch," but the SEC is expected to give states even more time to transition.

In an April letter to the head of the North American Securities Administrators Association, the SEC disclosed it needed more time to get its computer database system ready for the changes. The SEC said it did not expect advisers to begin registering until the first quarter of 2012.

"There are lots of things we put in place to make sure we will be ready for it," said Melanie Senter Lubin, the Maryland Securities Commissioner who heads a task force that is gearing up for the Dodd-Frank changes. "The states have had notice that this is going to come and ... we think there will be adequate time to allow the advisers to get ready," she said in an interview on Tuesday.

(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)

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