SEC Adopts Regulation AB II: Disclosure and Reporting Requirements for Asset-backed Securities
On August 27, the Securities and Exchange Commission at an open meeting unanimously adopted Regulation AB II (Reg AB II). The final rule provides significant revisions to Regulation AB, which provides the rules regarding the offering process and disclosure and reporting requirements for publicly registered asset-backed securities (ABS). Reg AB II was first proposed in April 2010, subsequently re-proposed in July 2011 following the adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and re-opened for limited comment in February 2014. The final rule, among other revisions, (i) revises the shelf registration eligibility by removing the previously required investment grade rating requirement, (ii) modifies the deadlines for the filing of offering documents by requiring a three-day waiting period between the filing of the preliminary prospectus and first sale to investors, (iii) requires an integrated offering document (rather than a base prospectus and prospectus supplement), (iv) requires the use of new registration forms SF-1 and SF-3 for ABS registration and (v) adds significant requirements for disclosure of asset-level data for ABS backed by residential mortgages, commercial mortgages, auto loans and leases and debt securities.
Significantly, the SEC did not adopt a proposed requirement that would have applied the enhanced asset-level data disclosure to private 144A transactions. In addition, the SEC did not adopt asset-level disclosure requirements for other asset classes such as equipment loans and leases, student loans or floorplan financings and did not adopt the proposed grouped-data disclosure for credit card ABS. However, the SEC has indicated that it is going to continue to consider these requirements and may propose additional rules in the future.
Under Reg AB II, ABS issuers are required to publicly file on EDGAR a new Form ABS-EE that contains the asset-level data points for each specific asset type required on newly adopted Schedule AL. The asset-level data is required to be filed in XML, a machine-readable format (Asset Data File), at the time of the offering with both the preliminary prospectus and the final prospectus (subject to an exception for incorporation by reference) and for ongoing reporting on Form 10-D. Commenters to the initial proposal had raised cost, privacy and competitive concerns regarding the disclosure of detailed asset-level information and suggested certain modifications and limitations to address those issues. In the final rule, the SEC took significant steps to address the concerns of commenters by limiting or removing certain data points, but also expressed the importance that investors have the necessary information to be able to fully assess the risks underlying asset-backed securities and to make comparisons across different ABS pools.
The final rule requires compliance one year from the effective date, which is 60 days after the date of the final rule’s publication in the Federal Register; however, issuers have two years from the effective date to comply with the asset-level disclosure requirements. The adopting release can be found here.