Privacy Concerns and the Proposed Reg AB II Revisions Relating to Asset Level Data

by Morrison & Foerster LLP
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In February 2014, the Securities and Exchange Commission (SEC) once again re-opened the comment period with respect to proposed revisions to Regulation AB relating to the disclosure of asset-level data after receiving many public comments relating to privacy law compliance issues. On the same date, the SEC released a memorandum (the “Memo”) outlining an alternative means for disseminating asset-level data in an attempt to address such concerns. Regulation AB governs the offering, disclosure and reporting process for asset-backed securities (“ABS”). In 2010, as a result of the financial crisis and the perceived role that securitization played in it, the SEC released a series of proposed revisions to Regulation AB (“Reg AB II”). In 2011, the SEC re-proposed portions of its Reg AB II proposal to take into account the passage of the Dodd-Frank Act and other developments since the date of the initial proposal. This most recent comment period closed on April 28 with many commenters feeling that the memorandum falls short of resolving the myriad of privacy concerns expressed by industry participants and consumer protection advocates.

In an effort to provide greater transparency to ABS investors, and subsequently to comply with Section 942 of the Dodd-Frank Act that requires asset-level disclosure “necessary for investors to independently perform due diligence,” the SEC Reg AB II proposal and re-proposal contain a schedule of asset-level data points that issuers would be required to disclose to both investors and potential investors. Although the few data examples set forth in the Dodd-Frank Act relate to originator data, the Reg AB II proposals require issuers to provide an extensive amount of borrower data via the SEC’s EDGAR website. Despite an outpouring of comments relating to such data disclosure after the Reg AB II proposal was released, the re-proposal did not revise the data requirements. Rather, it included a number of questions relating to the privacy concerns raised by industry groups, market participants, and consumer protection groups. Similarly, the Memo does not revise the borrower information required or address concerns raised about privacy law compliance; instead it offers an alternative approach for disseminating the most sensitive borrower information: a website established and maintained by the issuer. The Memo sets forth a two-step approach for providing information to investors and potential investors. Issuers would be required to file non-sensitive information with the SEC via EDGAR and to make available all required information on a secure website maintained by the issuer (with a copy of such information provided to the SEC on a confidential basis).

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