The Securities and Exchange Commission (SEC) has adopted revisions to rules governing the disclosure, reporting and offering process for asset-backed securities.
It made the revisions to enhance transparency, better protect investors and facilitate capital formation in the securitization market.
The new rules, among other things, require loan-level disclosure for certain assets, such as residential and commercial mortgages and automobile loans. The rules also provide more time for investors to review and consider a securitization offering, revise the eligibility criteria for using an expedited offering process known as “shelf offerings” and make important revisions to reporting requirements.
“These are strong reforms to protect America’s investors by enhancing the disclosure requirements for asset-backed securities and by making it easier for investors to review and access the information they need to make informed investment decisions,” says SEC chair Mary Jo White. “Unlike during the financial crisis, investors will now be able to independently conduct due diligence to better assess the credit risk of asset-backed securities.”
Asset-backed securities holders suffered significant losses during the 2008 financial crisis.
The SEC says the crisis revealed that many investors in the securitization market were not fully aware of the risks underlying the securitized assets and overrelied on ratings assigned by credit rating agencies, which, in many cases, did not appropriately evaluate the credit risk of the securities. It also exposed a lack of transparency and oversight by the principal officers in the securitization transactions.
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