Almost a month ago, the SEC surprised many people by including a vote on the final Reg AB II rules on its February 5 meeting agenda. In a highly unusual move, the SEC then removed the vote from the meeting agenda on February 3, two days before the vote was to take place. This left many to speculate as to the reason the vote was cancelled and what internal politics were taking place at the SEC. Was the vote not supposed to be on the agenda in the first place? Was there some internal dissent or uncertainty about whether the new rules would pass, or in what form? Did lobbyists shut down the vote? Was there pushback from the SEC’s general counsel because the rules that might pass were too different from what had been put forth for comment, or because too much time had passed? The 2011 Re-Proposal comment period closed on October 4, 2011, which would have made it a full 28 months between the end of the last comment period (and almost 4 years from the original proposal in April 2010!) and the vote on the final rules. In that time, industry norms have evolved, economic realities have shifted and ideas about best practices and rules have continued to develop.
We may never know why the vote was removed from the SEC’s agenda, but last Tuesday (February 25), the SEC announced that it would be re-opening the comment period for Reg AB II on two of their prior releases, the 2010 Proposal and the 2011 Re-Proposal. Comments are due March 28, 2014.
The release requesting additional comments focuses primarily on privacy concerns raised by requiring potentially sensitive asset-level disclosures to be made in a public forum such as EDGAR. During the prior comment periods, some commenters had raised concerns that the level of disclosure being proposed could allow consumers to be re-identified in ways that would conflict with or undermine consumer privacy protections under existing federal and foreign laws, and could also increase the potential for identity theft and fraud. In connection with the request for additional comments, the SEC staff prepared a memorandum describing and proposing alternatives that could address some of these privacy concerns. The SEC staff’s preferred approach is an issuer-controlled website that would require issuers to make asset-level information available to investors and potential investors, but that would allow issuers to restrict access to information to address privacy concerns. See our DechertOnPoint for more information about the proposed issuer-controlled website.
On February 25, Commissioner Michael S. Piwowar released a statement regarding re-opening the comment period, citing the changed market environment and his recent appointment as Commissioner among the reasons additional comments were requested. In addition to the general question of privacy raised in the official February 25 request for comments, Commissioner Piwowar also specifically requested comments on whether different types or levels of disclosures should be required for automobile loans and leases and other non-MBS offerings due to the better historical performance of those asset classes. Additionally, Commissioner Piwowar requested comments on whether distinctions should be made in the obligations of different market participants, for example, potential investors versus the general public, or third-party investment advisers, broker-dealers and consultants.
While this type of on-again, off-again, action can be exhausting, it is encouraging that the SEC is taking the time to make sure that every issue is addressed before final Reg AB II rules are passed. It will be interesting to see the scope of the comments that are submitted to the SEC. Officially, it would seem that only comments related to the narrow issue of privacy protections are being requested. Commissioner Piwowar’s statement, on the other hand, makes it seem like the SEC might be receptive to comments born out of the fact that over 2 years have passed since the industry was last given the opportunity to comment on the rules as a whole. I don’t know about you, but I think the financial markets are in a very different place than they were in 2011, and market norms and practices have certainly evolved. Hopefully, the SEC recognizes this, because while the date we might see final Reg AB II rules continues to be shrouded in uncertainty, one thing seems crystal clear: the final Reg AB II rules that are adopted by the SEC will most certainly play a role in shaping financial markets, norms, and practices for years to come.