An update to Regulation AB (“Reg AB II”) was originally proposed by the U.S. Securities and Exchange Commission (the “SEC”) on April 7, 2010,1 with an initial comment period open until August 2, 2010 (the “Proposal”) to modify the offering, disclosure and reporting requirements for asset-backed securities.2 Reg AB II was opened up for comment a second time on July 26, 2011,3 with a comment period open until October 4, 2011 (the “Re-Proposal”). The Re-Proposal sought comments on asset-level disclosure provisions and on Section 942(b) of the Dodd-Frank Act, which required the SEC to adopt regulations to require disclosure of asset-level information. The SEC did not take any further action on Reg AB II, until January 29, 2014, when it published its February 5 meeting agenda,4 which included a scheduled vote on “whether to adopt rules revising the disclosure, reporting and offering process for asset-backed securities.” This vote would have come twenty-eight months after the end of the Re-Proposal’s comment period and almost four years after Reg AB II was initially proposed. The SEC later removed the vote from the meeting agenda on February 3, two days before the vote was to take place.
On February 25, 2014, the SEC announced5 that it would be re-opening the comment period for Reg AB II (the “Comment Request”), with comments due March 28, 2014. The Comment Request focuses primarily on privacy concerns raised by requiring potentially sensitive asset-level disclosures to be made in a public forum such as EDGAR. During the prior comment periods, some commenters raised concerns that the level of disclosure being proposed could allow consumers to be re-identified in ways that would conflict with or undermine consumer privacy protections under existing federal and foreign laws, and could also increase the potential for identity theft and fraud. In connection with the request for additional comments, the SEC staff prepared a memorandum6 describing and proposing an alternative that could address some of these privacy concerns. The SEC staff’s preferred approach is an issuer-controlled website (the “Proposed Website”) that would require issuers to make asset-level information available to investors and potential investors, but that would allow issuers to restrict access to information to address privacy concerns. The Comment Request specifically solicits comments on this proposal.
The Proposed Website would allow issuers to identify investors and potential investors that should be given access to the asset-level information in a forum that allows the issuer to ensure that certain privacy safeguards are maintained in compliance with applicable federal and foreign laws. Any party requesting access could be required to make representations or covenants to give the issuers additional comfort regarding the requesting party’s identity and intentions and to place limits on their use of the information. The memorandum rejects several other alternatives to the Proposed Website, including any plan that would make the SEC responsible for deciding what information is sensitive and who should be able to access it, or any plan that would require the SEC to create and maintain a new forum for such information sharing. Among other reasons, the memorandum cited numerous inefficiencies to these approaches and the lack of information and expertise held by the SEC as potential downfalls. In addition, the memorandum pointed out potential benefits of the Proposed Website, including the market’s familiarity with websites as a method for distributing information, the flexibility granted by a system issuers control and the likelihood that an issuer-controlled system could also lead to greater innovation.
On February 25, Commissioner Michael S. Piwowar released a statement7 regarding re-opening the comment period, citing the changed market environment and his recent appointment as Commissioner among the reasons additional comments were requested. In addition to the general question of privacy raised in the official February 25 request for comments, Commissioner Piwowar also specifically requested comments on whether different types or levels of disclosures should be required for automobile loans and leases and other non-MBS offerings due to the better historical performance of those asset classes. Additionally, Commissioner Piwowar requested comments on whether distinctions should be made in the obligations of different market participants, for example, potential investors versus the general public, or third-party investment advisors, broker-dealers and consultants.