A United States appeals court has tossed a Securities and Exchange Commission rule forcing hedge funds and private equity firms to be more transparent about their fees and expenses, saying it exceeded its congressional authority in doing so.

The case is a blow to the regulator’s claimed congressional authority over the sector. Vocal critics of the regulator in the crypto industry have also floated similar criticism over the last few years. 

The Fifth Circuit Court of Appeals’ three-judge panel unanimously ruled against the SEC on June 5. Six industry groups challenged the rule passed in August, arguing it would increase compliance costs and drastically change how the sector operates.

The SEC “exceeded its statutory authority,” Judge Kurt Engelhardt wrote on behalf of the three judges. “The promulgation of the Final Rule was un-authorized, no part of it can stand.”

The 656-page rule required funds to release quarterly reports on performance and fees, conduct yearly audits and stop giving special treatment to some investors.

The SEC claimed Congress expanded its role to oversee private funds with the Dodd-Frank Act — passed to overhaul the financial sector after the 2008 financial crisis.

But Judge Engelhardt shot down the SEC’s two cited sections of the Act it used for sway over the sector writing, “neither section grants the Commission such authority.”

Consensys senior counsel Bill Hughes wrote on X sharing the ruling that “this is the same off-key performance from the SEC that has been the hallmark of these last three-plus years.”

In a wave of lawsuits against crypto firms, the SEC has argued many cryptocurrencies are securities under its remit, defining them using a legal framework called the Howey test.

Crypto firms have hit back to claim the SEC lacks the authority to regulate crypto without explicit congressional approval.

The SEC is now facing possible action from Congress that could change its claimed authority over the U.S. crypto industry.

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The Financial Innovation and Technology for the 21st Century Act (FIT21), which would largely hand authority over the crypto industry to the Commodity Futures Trading Commission, passed the House in a wide bipartisan vote.

The SEC was also only saved by President Joe Biden’s veto of a resolution repealing its Staff Accounting Bulletin (SAB) 121 that prevented banks from owning crypto.

The Congressional resolution to strike SAB 121 saw bipartisan support in both the House and Senate.

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