Statement by Commissioner Christy Goldsmith Romero on the proposal for improved monitoring and identification of systemic risks and emerging threats to the US financial system

As the US financial markets regulator and a member of the Financial Stability Oversight Council (FSOC), the Commission has a critical responsibility to monitor, identify and respond to systemic risks and emerging threats to US financial stability. I support the proposed changes to Form PF because they will improve one of the Commission’s tools to meet this critical responsibility and will facilitate our regulatory oversight of private money.[1]

One lesson learned from the financial crisis was the risk of contagion to US financial markets from private fund activities, strategies and exposures, including those related to novel or complex derivatives. This was evident in the failure of Bear Stearns structured credit funds in the run up to the financial crisis and more recently in the failure of Archegos Capital Management. These and other examples underscore the need for US financial regulators to have visibility into fund activities and exposures in order to perform their regulatory duties and ultimately prevent or mitigate the build-up of systemic risk in the US financial system.

This proposal marks important coordination with the Securities and Exchange Commission (SEC) to improve common reporting requirements and protect against hidden risks in the US financial system.

The CFTC and SEC are beginning this proposed rulemaking after nearly a decade of experience reporting private funds.[2] It is particularly appropriate to reconsider our reporting framework as the private fund space has grown and evolved with the evolution of US financial markets over the past decade. For this reason, we seek public comments on new or revised data areas—including those designed to provide further insight into complex structures, new types of instruments, identification data, redemption and withdrawal rights, ownership and counterparty risks, among other things. It is also important that we gather information about the fund’s exposure to digital assets to understand evolving market risk.

Our goal is to increase the usefulness of the data collected; to ensure it is actually used as Congress intended to bring transparency to previously hidden risks. I look forward to reviewing public comments on whether the proposal would achieve our goal.

Thank you to the Commission staff for working with my office to improve the proposal to facilitate effective oversight by the CFTC. I commend the staff of both agencies for this proposal and the future exchange of information that will promote financial stability in US financial markets.

[1] The data collected also supports the CFTC’s monitoring, audits, enforcement investigations and customer protection.

[2] The Dodd-Frank Wall Street Reform and Consumer Protection Act, Section 112, pub. L. No. 111-203, 124 Stat. 1376(2010) (Dodd-Frank Act) required the SEC and CFTC to establish common rules to advance FSOC’s critical systemic risk monitoring mission through the creation of Form PF. See Section 406 of the Dodd-Frank Act. Since 2012, private fund advisors, including certain commodity pool operators and commodity trading advisors registered with both the CFTC and the SEC, have been required to file reports on their trades and holdings via Form PF. See also Reporting by Investment Advisors to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, 76 Fed. Registration number. 71128 (November 16, 2011).