SFA Supports Proposed Revision To Securitization Safe Harbor Rule
article by Structured Finance Association
Main Takeaway
In a letter to the Federal Deposit Insurance Corporation (FDIC) on October 21, 2019, SFA laid out its support for efforts to create consistency in the application of federal disclosure requirements through the FDIC’s proposed revision to the Securitization Safe Harbor Rule.
Background
On August 22, 2019, FDIC released a proposal to revise its Securitization Safe Harbor Rule.
The original FDIC rule, in place since 2010, makes remedies quickly available to securitization investors under certain circumstances if the FDIC is appointed receiver or conservator for an insured depository institution (IDI). The rule, as one of its conditions, requires compliance with the Securities and Exchange Commission’s (SEC’s) Regulation AB, which covers registration, disclosure, communication, and reporting, for all asset-backed securities, regardless of whether the securitizations are publicly registered or privately placed.
But since 2016, SEC’s revised regulation, known as Regulation AB II, has excluded privately placed securitizations. That change has led to inconsistent application of disclosure requirements. The new proposed Safe Harbor Rule would provide consistency by only requiring compliance in the case of publicly registered transactions.
SFA’s letter is its public response to the proposed new FDIC rule.
SFA’s Key Points
- The rule as it stands creates a mismatch between the regulations that are applicable to an IDI and an institution that is not an IDI seeking to enter into a similar transaction.
- SFA and its members agree with the changes described in the SEC’s proposal based on the principle that the regulations applicable to industry participants should be consistent.
- Although SFA members agree that FDIC should not require a higher disclosure standard to IDIs than the SEC requires of all industry participants and are therefore supportive of this FDIC proposal, SFA’s investor members and issuer members differ on whether the SEC itself should extend Regulation AB II to include some privately offered structured finance products. Both investor and issuer members agree that this should be governed by the SEC, not by the FDIC.
- As one of the proposal’s objectives is to remove unnecessary barriers to IDIs’ securitization transactions, SFA would welcome the opportunity to discuss, with FDIC staff and other stakeholders, other regulatory barriers including the linkage between regulatory capital treatment and accounting-based consolidation.