On August 27th, the SEC unanimously approved final amendments to Regulation AB II. The changes address the offering process and disclosure and periodic reporting requirements for asset-backed securities.
Some of the significant changes adopted by the Commission today are:
- a requirement to file a preliminary prospectus at least three days prior to sales of any securities (this is referred to as the “speed bump” provision)
- excluding securities of master trusts with non-revolving assets from the definition of asset-backed security – means covered bonds are not asset-backed securities
- a requirement to appoint a Credit Risk Manager to review assets for compliance with representations and warranties
- a requirement to provide in machine readable form asset-level information for securitizations involving residential mortgage loans, commercial mortgage loans, auto loans and leases, debt securities and resecuritizations of these assets
- report periodically demands by the trustee to repurchase assets for breach of representations and warranties and any such assets not repurchased
- for each offering, a certification by the CEO or executive officer in charge of securitization of the depositor that the securitization as described in the prospectus is designed to produce cash flows from the assets in amounts sufficient to service expected payments on the securities
- new Forms SF-1 and SF-3 for the registration of asset-backed securities
The road to these final amendments has been long. The amendments were first proposed prior to the adoption of the Dodd-Frank Act in 2010 -- which addressed some of the elements of the 2010 proposal -- resulting in a re-proposal by the Commission in 2011. The Commission published a third release in 2014, requesting comment on the possibility of sponsors disclosing asset-level information on their own websites.
Read Chairman Mary Jo White's statement here.