Statement on the Re-Opening of the Comment Period for Asset-Backed Securities Disclosure and Registration
Commissioner Michael S. Piwowar
Feb. 25, 2014
I am pleased that the Commission has re-opened the comment period for our proposal to amend the disclosure and registration requirements applicable to asset-backed securities (ABS). The ABS market is a critical source of capital, providing funding for home loans, automobiles, credit cards, and many other purposes. Yet, as shown during the recent financial crisis, investors may abandon the ABS market if they do not believe they possess sufficient information to evaluate and price such a security.
Our ABS proposal was originally issued in April 2010, prior to the enactment of the Dodd-Frank Act. It was subsequently re-proposed in July 2011 and the last substantive written comments were received in the summer of 2012. I appreciate the significant efforts of the SEC staff to address the comments provided by investors, originators, and others on the ABS proposal. These comments, however, were made long before I was even nominated to become a member of the Commission. Moreover, since 2012, market practices have continued to evolve in response to concerns identified during the financial crisis and it would be appropriate for the Commission to obtain the most recent data and information possible to inform and guide our decision-making process.
As amended by the Dodd-Frank Act, Section 7(c) of the Securities Act requires issuers of asset-backed securities to disclose asset-level or loan-level data, if such data are necessary for investors to independently perform due diligence. Early on, the SEC staff recognized the potential privacy implications inherent in disclosing asset-level data that can be re-identified and traced back to particular individuals. I share those concerns and, for that reason, recognize that the potential loss of privacy is one cost of requiring asset-level data disclosure.
One way to limit the potential loss of privacy is to simply follow the statute and require disclosure of asset-level data only if such data is necessary for investors to independently perform due diligence. Empirical evidence since the financial crisis suggests that the individual markets for specific ABS types have reacted differently. Registered offerings by private label residential mortgage-backed securities (MBS) remain almost non-existent, with only a single sponsor making such an offering in 2013. In contrast, the market for ABS backed by automobile loans and leases (Auto ABS) has rebounded and steadily increased since the financial crisis.
As discussed in the current staff guidance on economic analysis in SEC rulemakings, rule proposals should clearly identify the justification for the proposed rule and how the proposed rule will address the need for regulatory action. The market failure issues and subsequent economic consequences during the financial crisis with respect to MBS offerings have been well documented. Less documented, however, have been potential market failures and other causes triggering the need for regulatory intervention for Auto ABS and other ABS types.
During the re-opened comment period, it would be helpful to receive comments on whether asset-level data is necessary for investors to independently perform due diligence on Auto ABS and other types of non-MBS offerings. In other words, do grouped account disclosures or grouped account and pool-level disclosures provide sufficient information to investors for these types of securities? If these types of disclosures are not sufficient, or if the markets for Auto ABS and other non-MBS offerings can be further improved with asset-level disclosures, I would be interested in commenters describing any associated quantitative or qualitative benefits and costs to the markets as they exist today.
I also look forward to reviewing the comments on our staff’s memo and whether market participants understand their obligations under the described approach to handle sensitive asset-level data. For instance, is there sufficient guidance to distinguish between potential investors and the general public? Are there concerns as to whether third-party investment advisers, broker-dealers, and consultants will be able to access asset-level data in order to provide advice to their clients or customers? Are the restrictions, conditions, and agreements that an ABS issuer might place on access to asset-level data (e.g., a liquidated damages provision) compatible with a requirement that such data be available free of charge? If not all investors and potential investors agree to the privacy conditions in order to access the asset-level data, will that result in an unfair secondary market for investors in that security? What should be the consequences to an issuer that mistakenly identifies a person as not an investor or potential investor and denies that person access to the asset-level data?
 The March 2012 staff guidance on economic analysis in SEC rulemaking identifies the basic elements of a good regulatory economic analysis as: (1) a statement of the need for the proposed action; (2) the definition of a baseline against which to measure the to measure the likely economic consequences of the proposed regulation; (3) the identification of alternative regulatory approaches; and (4) an evaluation of the benefits and costs—both quantitative and qualitative—of the proposed action and the main alternatives identified by the analysis. The guidance is available at: http://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf.