This rule forced these companies to be more transparent about their fees and expenses. In its decision, the court stated that the SEC’s authority to enforce this rule exceeded the authority granted to it by Congress.

This decision has important consequences for both traditional finance and the cryptocurrency market. First, it significantly limits the SEC’s authority over private equity and hedge funds. The SEC, which has previously argued that it has the authority to supervise this sector under the Dodd-Frank Act, may be forced to back down on this claim.

The repercussions of the decision on the cryptocurrency market are also remarkable. Leading names in the crypto industry have also questioned the powers of the SEC in recent years. The Court of Appeal’s decision could add a new dimension to the debate over how to regulate cryptocurrencies.

The rule, which was enacted by the SEC in August 2023, included a very comprehensive regulatory package for hedge funds and private equity companies. Under this rule, these companies were obliged to publish quarterly reports and provide more information about performance and compensation, to have annual independent audits, and to forego special treatment for some investors.

Fund management companies objected to this rule on the grounds that compliance costs would increase and it would significantly change the functioning of the sector.

A three-judge panel of the Fifth Circuit Court of Appeals ruled unanimously against the SEC on June 5. In the court decision, in the opinion signed by Judge Kurt Engelhardt, it was stated that the SEC did not have sufficient authority to implement this rule.

In the decision, it was emphasized that the Dodd-Frank Act does not give the SEC authority over private equity and hedge funds in this context. This situation reveals that the SEC’s claimed authority was not given to it by Congress.

The cryptocurrency market also follows these developments carefully. Because, in recent years, the SEC has claimed that it has the authority to regulate many cryptocurrencies by classifying them as “securities”. However, this claim has also been criticized for the lack of clear Congressional approval.

The Court of Appeals’ decision to strike down the rule against hedge funds also sheds light on the debate over the regulation of cryptocurrencies. This situation may also lead to questioning of the SEC’s authority to regulate the cryptocurrency market.

Cryptocurrency regulations in the USA are not yet clear. The Court of Appeals’ decision impedes the SEC’s efforts to make progress in this area.

On the other hand, there are also legislative proposals in Congress addressing cryptocurrency regulations. The proposed law, known as the Financial Innovation and Technology Act for the 21st Century (FIT21), aims to largely transfer the authority of cryptocurrencies to the Futures Trading Commission (CFTC). The passage of this bill in the House of Representatives is considered an important step in the discussions on cryptocurrency regulations.