The SEC unanimously approved final rules that significantly revise the regulatory regime governing asset-backed securities (ABS). The rule is mandated by the Dodd-Frank Act (see FSM Report ABS10) and is intended by both Congress and the Commission to block the “book-it/sell-it” culture that many believe contributed to high-risk lending and, then, the depth of the 2008 crisis. It is unclear whether issuers will be willing to take on their many new responsibilities, especially in higher-risk areas like private-label mortgage securitization, but advocates of tough standards believe that higher-risk loans should stay on originator portfolios or simply not be made at all. Tracking its longstanding proposal (see Client Report ABS11), in broad strokes the final rule requires considerably more disclosures about the underlying loans that comprise the ABS and sharply constrain self-registration criteria to mandate far greater issuer responsibility and investor protection. The new shelf-registration standards – which do not apply to private placements despite a strong push by some to do so – are also now intended to replace rating reliance, barred by Dodd-Frank and harshly criticized in the course of the Commission’s session. Several asset classes – e.g., student loans, equipment leases – are not covered by the final rule, which also now includes significantly more protection for personally-identifiable information at the loan level. The rule was approved unanimously, although GOP Commissioner Gallagher made clear that he supported it in part because he believes the SEC should stick only to improving disclosures and not advance rules like risk retention. In sharp contrast, Democratic Commissioners Aguilar and Stein advocated not only for fast action on several incomplete aspects of the ABS rule, but also on risk retention.
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