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Treasury Secretary Timothy Geithner broadly outlined the Obama Administration’s proposed two-tiered regulation of hedge and private equity funds in his testimony today on financial regulatory reform before Congress’s Committee on Financial Services.

The first tier of regulation would require funds with a certain amount of assets under management to register with the Securities and Exchange Commission. While all of the testimony and literature refers to registration of "funds," it is unclear to what extent this will focus on the fund vehicles themselves or the fund managers.

Although Geithner did not elaborate on the consequences of such registration, the Obama Administration had earlier indicated that registered hedge funds would be required to open their books to the SEC and provide information about their investors and trading partners. Additionally, the SEC would routinely inspect registered funds to determine whether any of them were sufficiently leveraged to threaten the financial stability of the United States. Geithner claimed, however, that the Obama Administration would not propose capital requirements or quasi-banking regulations on funds solely regulated by the SEC.

Funds and other non-bank financial institutions with sufficient assets under management to be “systematically important to the economy” would, however, be subject to a second tier of regulation overseen by a systematic risk regulator, a yet-undetermined agency. The regulator would be responsible for ensuring the stability of major financial institutions and payment and settlement systems. Funds overseen by the regulator would be subject to stringent capital and liquidity standards.

While few concrete details regarding the proposed reforms were provided in the committee hearing, Geithner stated that the Obama Administration would release proposals expanding on them in the following weeks.