TheCorporateCounsel.net

April 1, 2010

SEC to Consider Changes to Regulation AB

Asset-backed securities have been in the spotlight ever since the financial crisis hit, with high-rated residential mortgage backed securities bearing a share of the blame for investor losses following the real estate market crash. What often gets lost in the debate about asset-backed securities is how the SEC had adopted in 2004 (at the height of the bubble by coincidence) a very comprehensive and workable set of rules governing the registration and disclosure system for asset-backed securities in the form of Regulation AB and some related offering rules, where no such rules had existed before. [Broc and I both spent some time in the group handling asset-backed securities in Corp Fin, and before Regulation AB, the “lore” for how to handle asset-backed securities from an SEC perspective was passed down through internal memos, sample comments, handwritten notes, spoken word and a handful of public no-action letters!]

Yesterday, the SEC announced that coming up next Wednesday April 7th, the Commission will consider whether to propose revisions to Regulation AB and other rules relating to the offering, disclosure and reporting process for asset-backed securities. Under consideration are the rules governing the shelf offering process and eligibility criteria for asset-backed securities, and the proposals would require asset-backed issuers to provide enhanced disclosures, including information regarding each asset in the underlying pool in a standardized, tagged format. The Commission will also consider changes to Rule 144A and other rules applicable to privately offered asset-backed securities (where a good deal of the action has historically been in that market).

Given the considerable Congressional and media attention on asset-backed securities, I suspect that these rule proposals will no doubt be seeking to enhance investor protections and disclosure in the asset-backed securities market, rather than seeking to in any way to relax existing regulatory requirements.

Enforcement’s New Chief Accountant

Recently, the SEC announced that Howard Scheck is rejoining the Division of Enforcement as Chief Accountant. Howard is currently a partner in the Forensic & Dispute Services practice of Deloitte Financial Advisory Services LLP, and he had previously served in Enforcement for 10 years, including some of that time spent in the now extinct Branch Chief role.

As with Corp Fin, Enforcement relies heavily on the expertise of accountants in conducting investigations. Howard has both a J.D. and an accounting degree, so he brings to the job the perspectives of both a lawyer and accountant.

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– Dave Lynn