I understand your preference, more specificity in the proposed language would make it both easier to comply going forward and clearer what the real intent of the Act was – right now this part remains a bit opaque.

Inferring the genesis of the proposed language from its structure, the amendment is specific about hedge funds being subject to the information gathering capabilities that the proposed Financial Services Oversight Council, the FRB and other agencies will likely need for their planned roles – probably at their request. On the other hand, it merely tries to clear any roadblocks to let the SEC address its own roles and concerns via their rulemaking process – as they also probably requested.

Perhaps, the second objective should have been clearer and more specifically set in the proposed language, but in the current push to legislate they may not have wanted to take the time to determine the right scope of coverage (by AUM, clients, other factors, or a mix). When a court interprets a statute, it’s always possible for Congress to “clarify” the meaning as the proposal would do, although so far it is of course just the Executive Branch proposing to keep the authority to set details within its own agency. We’ll see how Congress responds.

From a theoretical perspective, there is a case for using the rulemaking powers of an agency to address complex topics that require more expertise and/or flexibility than the Legislative Branch can devote – and this topic may well qualify. Nevertheless, it would have been good to be more specific if this is the intent.

You are right. I thought the Act was trying to get rid of the 15 client rule exemption for private funds. That is the approach in Hedge Fund Adviser Registration Act of 2009. Instead it is taking the kludgy approach of redefining the word “client.”

I updated the “Defining Clients” section of the post.

More of my thoughts are in a posting at hedgefundregs.com.