SEC may review asset-backed securities standard

WASHINGTON Tue Jan 18, 2011 7:30pm EST

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WASHINGTON (Reuters) -U.S. regulators are mulling rules requiring asset-backed securities issuers to conduct a more thorough review of underlying assets to better inform investors, according to a person familiar with the matter.

The Securities and Exchange Commission is set to adopt new rules on Thursday designed to make sure investors know the quality of the assets after those linked to toxic mortgages led the United States into a deep financial crisis. The rules were required under the Dodd-Frank Wall Street reform law.

The SEC had proposed rules in October requiring banks and other asset-backed securities issuers to review underlying assets and publicly disclose the findings of the review.

But the rules did not have a minimum standard of review, an issue that raised concerns for Commissioner Luis Aguilar, a Democrat.

A draft of the final rule now includes a minimum standard requiring issuers to do an appropriate and reasonable review to ensure information is accurate, according to the source, who spoke anonymously because the rule has not been made public. The person stressed the rule could still be changed before commissioners decide to adopt it.

A "reasonable review" could entail making sure the reviewer has the proper background and qualifications. It could also mean ensuring the person has actually looked at a large enough sample of the assets underlying the complex securities.

When the SEC first proposed the rule, Aguilar, as well as Chairman Mary Schapiro and Democratic Commissioner Elisse Walter, questioned whether it should include a standard.

"It appears to me that this rule is essentially an endorsement of the 'anything goes' approach of the past," Aguilar said at the time before voting against the proposal.

Walter voted to propose the rule, but had concerns it did not provide a clearer review standard.

"I understand that there are various levels and types of reviews that may be performed in a securitization," she said then. "Yet, what is not clear to me is what level or type of review will, in fact, be performed if our rules do not require any standard for that review."

An SEC spokesman declined to comment on the draft of the final rule.

(Reporting by Rachelle Younglai and Sarah N. Lynch; editing by Carol Bishopric and Andre Grenon)

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