SEC Finalizes Rule On Asset-Backed Securities

RMBS SEC ABS

On September 24, the SEC issued a final rule adopting significant revisions to regulations governing the disclosure, reporting, registration and the offering process for asset-backed securities (“ABS”). The revised rules aim to increase investor protection in the ABS market by making it easier for investors to review and analyze the credit risk of ABS, and limit reliance on the ratings provided by credit agencies. The rule mandates that issuers provide standardized asset-level disclosures for ABS backed by residential mortgages, commercial mortgages, auto loans, auto leases, and debt securities at the time of the offering and on an ongoing basis. The rule also modifies asset-level disclosures for RMBS and securities backed by auto loans and leases in order to reduce potential privacy risks to obligors. The rule requires ABS issuers using a shelf registration statement to file a preliminary prospectus at least three business days before the first sale of securities in the offering. Further, the regulations revise the eligibility requirements for ABS shelf offerings and require additional changes to the procedures and forms related to shelf offerings. Specifically, the rules adopt four transaction requirements for ABS shelf eligibility (certification by the CEO, asset review provision, dispute resolution provision, and disclosure of investors’ requests to communicate) and remove the prior investment-grade rating requirement in order to reduce undue reliance on credit ratings. The rule will become effective on November 24, 2014.