July 16, 2026

Clients, Friends, and Associates:

With the first quarter of 2026 now behind us, we would like to highlight some noteworthy industry updates that we found to be especially interesting and impactful. As always, we strive to present an informative, albeit brief, overview of these topics. If you have any questions on these items or related matters, we encourage you to reach out.

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CFM Items

Hedge Fund Practice Recognized by Chambers USA2026 along with Co-Managing Partner Karl Cole-Frieman. We are thrilled to announce that we have been recognized again in Chambers USA 2026 as a leader in the USA-Nationwide Hedge Funds category, with the firm specifically noted for its extensive expertise in cryptocurrency and tokenization matters. Chambers notes, “Cole-Frieman & Mallon are very responsive and clearly experts in the area of digital assets.” Co-Managing Partner Karl Cole-Frieman was also ranked for his work advising clients on fund formation, structuring, and regulatory matters, with Chambers noting Karl is “one of the leaders in the digital asset space.”

CoinAlts Fund Symposium – October 14. We are proud to be a Premier Sponsor of the CoinAlts Fund Symposium again this year, joining industry leaders MG Stover, Harneys, and KPMG. This annual SF Fund Week anchor event will be held at the Hyatt Regency Hotel in San Francisco on October 14, 2026. Join us for expert panels, top-notch speakers, and the chance to stay ahead of the curve in this rapidly evolving industry. More information is available at https://coinalts.xyz/.

Our People. We are pleased to announce the following new additions to our team: our Investment Funds practice welcomed senior associate Hank Brier and associates Juyuan Lyu and Penny Zhang; our Corporate & Transactional practice welcomed associate Mateo Hoyos and senior corporate paralegal Daniel King; our Tax practice welcomed associate Miles Anderson; and Ajwang (AJ) Rading transitioned to Of Counsel. Please join us in welcoming Hank, Juyuan, Penny, Mateo, Daniel and Miles, and congratulating AJ!

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SEC Matters

SEC Raises Thresholds for “Qualified Client” Status Under the Investment Advisers Act. On June 29, 2026, the SEC raised the dollar thresholds for “qualified client” status, increasing the AUM test from $1.1 million to $1.4 million, and the net worth test from $2.2 million to $2.7 million. Existing fund investors that met prior thresholds before the effective date of the increase remain grandfathered. RIAs and ERAs in certain states (including California) that charge performance-based compensation will need to confirm that new investors admitted on or after June 29 meet the higher thresholds. Operationally, this means updating subscription agreements, investor questionnaires, advisory contracts, disclosure documents, and onboarding procedures before the effective date to reflect the new thresholds. If you would like assistance with updating your fund’s subscription documents, please feel free to reach out to your preferred CFM attorney.
 
SEC Reg S‑P Compliance Deadline for Sub‑$1.5B RIAs: June 3, 2026. RIAs with under $1.5 billion in AUM are required to comply with the SEC’s amendments to Regulation S-P as of June 3, 2026. The amendments expand obligations for safeguarding customer information, and the SEC has identified Regulation S-P as a 2026 examination priority.

To prepare, managers that are subject to Regulation S-P should focus on the following action items:

• Map data flows. Know what customer information you collect, where it’s stored, and who can access it, internally and through third parties.
• Update written policies and procedures. Make sure your information security program meets the amended rule’s standards for safeguarding customer data.
• Build an incident response plan. Create a written playbook to detect, investigate and respond to a data breach or unauthorized access incident.
• Prepare for breach notifications. Set up a process to promptly notify clients if their sensitive personal information may have been compromised.
• Strengthen vendor oversight. Review and update service provider contracts to confirm adequate safeguards and prompt incident notification.
• Train your staff. Ensure employees understand their roles under the updated program, especially around spotting and escalating potential incidents.
• Refresh recordkeeping practices. Retain the documentation to demonstrate compliance, including records on incident response and vendor due diligence.

Given the SEC’s stated examination focus, firms should expect increased scrutiny of their incident response procedures, breach notification practices, and vendor oversight arrangements, and should be prepared to produce documentation supporting each of these areas upon request.

Form PF Amendments Under Consideration by SEC and CFTC. The SEC and CFTC jointly proposed amendments to Form PF on April 20, 2026, which raise the filing threshold for all filers from $150 million to $1 billion in private fund AUM. They also raise the large hedge fund adviser reporting threshold from $1.5 billion to $10 billion in hedge fund AUM. The amendments will not change the reporting thresholds for large liquidity fund advisers. If the amendments are enacted, fund managers below the $1 billion AUM threshold would no longer need to file the Form PF. The proposal is not final yet, but both the SEC and CFTC chairmen voiced strong support, signaling a possibility these changes will be adopted. Managers should monitor the final rule timeline but do not need to make compliance changes yet.

SEC Guidance Indicates Potential for Regulatory Framework for Tokenized Stocks and Faster Capital Formation. The SEC recently published two pieces of guidance that suggest it is preparing to imminently propose a regulatory framework for trading tokenized versions of publicly traded company stocks on crypto platforms. These tokens would essentially be phantom instruments that track the price of the underlying stock without conferring actual equity ownership, voting rights, or dividends. A formal SEC framework would allow expanded tokenized equity access and exposure for managers’ portfolio hedging or synthetic strategies, and may create clearer pathways for funds to participate in blockchain-based secondary markets without direct crypto custody.

We are also closely monitoring the SEC’s forthcoming Innovation Exemption, a cabined “sandbox” framework meant to begin facilitating on-chain trading of tokenized securities, the vast majority of which sit outside the U.S., while these longer-term rules are developed. The innovation exemption could cause substantial growth of offshore tokenized equities markets once finalized. However, current delays in finalizing this exemption suggest a still-complicated regulatory path forward.

SEC Solicits Public Input on Potential ETF Rulemaking for Novel Products. The SEC has requested public comment on how the existing regulatory framework should apply to ETFs built around emerging asset classes such as prediction markets, particularly because the underlying assets in question may not qualify as securities under current law. 

Public comments on prediction market ETFs reflect varied views, with some commenters arguing that current law already permits these products and that existing disclosure rules are sufficient, while others urge the SEC to limit or heavily condition them.  The CFTC is also proposing a regulatory framework for event contracts, including prediction-market contracts (discussed below under CFTC Matters), reflecting coordinated regulatory attention to this emerging asset class.

As we see many of our fund manager clients accessing prediction markets and building strategies around event contract exposure, we are closely monitoring regulatory activity in this space.

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CFTC Matters

CFTC Opens Door for Regulated Bitcoin Perpetual Futures in the U.S. The CFTC announced four coordinated actions to establish a U.S. regulatory framework for crypto perpetual futures:

1. On May 28^th, the CFTC issued an order approving Kalshi to list and trade U.S. bitcoin perpetuals. The order specified that the approval of Kalshi’s bitcoin perpetual contract does not extend to asset classes other than digital commodities, which should be submitted for CFTC review under Regulation 40.3.
2. On May 29^th, the CFTC published a staff interpretation in which it clarified how certain foreign crypto perpetuals may be treated under U.S. rules. In doing so, it confirmed that Coinbase may categorize Deribit Perpetuals as “foreign futures” under Regulation 30.1 and issued a no-action position permitting customer-owned digital assets and stablecoins to be posted as margin collateral with affiliated foreign brokers.
3. Also on May 29^th, the CFTC published an advisory which clarified its expectations for 24/7 trading and clearing. The advisory outlined expectations for real-time monitoring and risk controls, system safeguards, compliance staffing, clearing and settlement, customer fund segregation, and risk management disclosures for designated contract markets, swap execution facilities, derivatives clearing organizations, and futures commission merchants.
4. On June 3^rd, the CFTC published guidance for other exchanges listing perpetuals. Perpetual futures are among crypto’s most heavily traded products but have largely operated offshore. The CFTC’s actions mark the first effort to bring crypto perpetual futures into the regulated U.S. derivatives market, which could increase institutional participation, improve investor protections, strengthen market oversight, and accelerate mainstream adoption of crypto derivatives.

CFTC Proposes Framework for Prediction Markets and Event Contracts.  On June 10, 2026, the CFTC published a Notice of Proposed Rulemaking that would amend Regulation 40.11 and add a new Appendix F to Part 40. The proposal intends to create a more defined process for reviewing event contracts, including certain prediction-market contracts, which may involve terrorism, assassination, war, gaming, or unlawful conduct under federal or state law. It would also establish a 90-day review process and define key terms, including “involve” and “gaming,” for purposes of the CFTC’s contract-by-contract public interest analysis. The proposal would be categorized as administrative rulemaking under the CFTC’s existing statutory authority and does not require Congressional approval.

The proposal reflects the CFTC’s effort to draw clearer boundaries around prediction markets while preserving space for regulated event-contract innovation. For fund managers and other market participants evaluating exposure to prediction-market platforms or related derivatives activity, the rulemaking may affect which contracts can be listed, how quickly they can come to market, and the compliance expectations applicable to CFTC-registered venues. This remains a proposal, but it signals increased regulatory focus on the structure and permissible scope of event-based markets.

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Digital Asset Matters

FinCEN and Banking Agencies Propose Customer Identification Rules for Stablecoin Issuers. On June 22, 2026, FinCEN, the OCC, the Federal Reserve, the FDIC, and the NCUA jointly proposed a rule establishing customer identification program (CIP) requirements for Permitted Payment Stablecoin Issuers (PPSIs), implementing the GENIUS Act’s designation of PPSIs as financial institutions under the Bank Secrecy Act. The proposal would require PPSIs to collect and verify core customer identifying information, maintain a written CIP tailored to the issuer’s size and business, and incorporate it into their broader AML program. However, under the current proposal secondary-market customers and existing primary-market customers would generally be excluded from CIP collection. Comments on the proposal are due August 21, 2026, and any final rule would take effect 12 months after issuance. If enacted, digital asset funds that transact directly with PPSIs may experience more friction while onboarding with, and conducting due diligence on, PPSIs.
 
U.S. Lawmakers Reintroduce Digital Asset PARITY Act to Reform Tax Treatment of Digital Assets. On May 20, 2026, Congress reintroduced the bipartisan Digital Asset PARITY Act, which would clarify how digital assets are treated under the U.S. tax code. The proposal aims to simplify taxation for stablecoin transactions, clarify rules governing digital asset lending and trading, and defer taxation on certain staking and mining rewards until disposition. The proposal reflects a broader shift toward integrating digital assets into the existing U.S. tax framework rather than regulating through piecemeal enforcement. If enacted, fund managers and their investors would have clearer rules on how digital assets should be taxed, which would remain in effect beyond the current administration. This is still a bill, not law, but bipartisan sponsorship signals meaningful legislative momentum.
 
Federal Reserve and White House Move to Expand Crypto Access to Payment Rails. President Trump signed Executive Order 14405 on May 19, 2026, directing six federal financial regulators, including the SEC, CFTC, and FDIC, to streamline rules for fintech firms and review barriers to bank charters and deposit insurance. The order also asks the Federal Reserve to evaluate whether crypto companies and other non-bank players can access Reserve Bank payment services, with 90-day and 180-day deadlines for regulators to act.

Expanded access to payment rails could strengthen the integration of crypto firms within the traditional financial system. For fund managers investing in digital assets, this may reduce friction in fund operations, improve counterparty banking relationships, and signal a more stable regulatory environment for crypto-focused investment strategies.

Minnesota Banks and Credit Unions Cleared to Offer Crypto Custody. Governor Tim Walz signed HF 3709 into law, permitting state-chartered banks and credit unions to hold virtual currency and cryptographic keys on behalf of customers under new state guidance. The law takes effect August 1, 2026, and adds Minnesota to the growing list of states enabling bank-level crypto custody services. For fund managers, state-level custody options through traditional banks may offer additional qualified custodian alternatives, potentially simplifying compliance with custody requirements under the Investment Advisers Act.
 
Congress Proposes Crypto-Theft Task Force. A bipartisan group of lawmakers introduced legislation that would establish a dedicated task force within the DOJ to investigate and prosecute cryptocurrency theft. The proposed bill seeks to create a functioning theft-recovery mechanism at the federal level, which comes as crypto and tokenized assets increasingly integrate with global financial infrastructure.

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Other Items

FINRA Sets September 11 Deadline for IARD Entitlement Certification and Phases In ID.me Verification. FINRA is modernizing the IARD system, including by requiring certain IARD users to complete entitlement account certification and identity verification through ID.me as part of a broader security enhancement initiative. From May 11 to September 11, 2026, SAAs for firms with more than one user and/or administrator account must certify that each user has the appropriate level of access to FINRA systems. FINRA is also phasing in ID.me identity verification for SAAs, Account Administrators, and users with access to social security numbers and/or fingerprint data. RIAs and ERAs should ensure that their SAAs complete the required entitlement certification by September 11, 2026, because failure to certify may result in account suspension and could impair access to systems used for Form ADV, Form PF and related filings. Firms should also identify all in-scope users, monitor FINRA email notices, and instruct those users to complete ID.me verification when prompted so that they retain access to FINRA systems. In-scope users should be prepared to provide a valid government-issued photo ID and, where applicable, additional residency documentation; U.S. citizens should have their social security number available, and non-U.S. citizens or users without a social security number should expect to complete video-chat verification. 

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Compliance Calendar

As you plan your regulatory compliance timeline for the coming months, please keep the following dates in mind:

(PASSED) July 10, 2026

• Quarterly Form 13H Amendment. Filing is for the calendar quarter that ended June 30, 2026, and should be submitted within 10 days of quarter end.

(PASSED) July 15, 2026

• Form PF filing for Large Liquidity Fund Advisers. Filing is for the calendar quarter that ended June 30, 2026.

July 31, 2026

• ERISA Schedule C of DOL Form 5500 Disclosure.

August 14, 2026

• Quarterly Form 13F Filing. Filing is for the calendar quarter that ended June 30, 2026, and should be submitted within 45 days of quarter end.
• Quarterly 13G Amendment. Filing is for the calendar quarter that ended June 30, 2026, and should be submitted within 45 days of quarter end.
• CTA Form PR. Filing is for the calendar quarter that ended June 30, 2026, and should be submitted within 45 days of quarter end.

August 28, 2026

• Form PF for Large Hedge Fund Advisers. Filing is for the calendar quarter that ended June 30, 2026, and should be submitted within 60 days of quarter end.
• CPO-PQR Form. Filing is for the calendar quarter that ended June 30, 2026, and should be submitted within 60 days of quarter end.

August 31, 2026

• Form N-PX Filing. This filing covers the 12-month period of July 1, 2025, through June 30, 2026.

Periodic

• Form D and Blue Sky Filings should be current.
• CPO/CTA Annual Questionnaires must be submitted annually, and promptly upon material information change, through the NFA Annual Questionnaire system.

Consult our complete Compliance Calendar for all 2026 critical dates as you plan your regulatory compliance timeline for the year.

Please contact us with any questions or assistance regarding compliance, registration, or planning issues on any of the above topics.

Sincerely,

Karl Cole-Frieman, Bart Mallon, John T. Araneo, Brett Bunnell, Garret Filler, Scott Kitchens, Kevin Leiske, Frank J. Martin, Lilly Palmer, Daniel M. Payne, David Rothschild, Bill Samuels, Tony Wise, and Alex Yastremski

Cole-Frieman & Mallon LLP (CFM) is a leading investment management law firm known for providing top-tier, innovative, and collaborative legal solutions for complex financial services matters. Headquartered in San Francisco, CFM services start-up investment managers, multibillion-dollar funds, and everything in between. The firm provides a full suite of legal services to private funds and their managers across a diverse range of asset classes, including fund formation, regulatory compliance, counterparty documentation (digital and traditional prime brokerage, ISDA, repo, and vendor agreements), employment and compensation matters, and routine business matters.  CFM is particularly well known for its pioneering work with digital asset funds and their managers. The firm’s corporate and intellectual property (IP) practice groups advise founders, management teams, and investors during all stages of a business’s lifecycle including fundraising, M&A, governance, IP, employment, tax, and regulatory compliance for service and product launches. CFM also publishes the prominent Hedge Fund Law Blog. For more information, please add us on LinkedIn, follow us on X, and visit us at colefrieman.com.