SEC Consults on ABS Exemptions

The US Securities and Exchange Commission has unanimously voted to consult with the public on rules that could change credit rating provisions for issuers of asset-backed securities.

The SEC also put forward a paper seeking comment on the interpretations of a provision in the Act that companies may use when acquiring mortgages and mortgage-related instruments on Wednesday.

The paper queries the role of asset-backed securities issuers when complying with the Investment Company Act.

Under the act, some entities that issue asset-backed securities are exempted from being defined as investment companies - and thus from a number of requirements - provided their securities are endorsed by a credit rating agency.
Since the financial crisis, the SEC has undergone various regulatory initiatives to strip ratings agencies from their rulings.

One of the alternatives put forward by the agency is to ensure the issuer "preserves and safeguards" its assets and cash flow.

Issuers could also be required to undergo an independent review to protect investors from possible "self-dealing and overreaching by insiders", the SEC said.

The SEC also voted to seek comment on a rule to modernise the regulations for asset-backed securities issuers and real estate investment trusts, which acquire mortgages and other mortgage-related instruments.