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 In a joint letter to the U.S. Securities and Exchange Commission
late Friday, the two groups asked the regulator to scrap its
asset-backed securities (ABS) draft plan and start fresh.
"We ... urge the commission to re-propose the ABS releases,
including the portion relating to asset-level disclosure," wrote the
Securities Industry and Financial Markets Association and the
Financial Services Roundtable.
"Any such re-proposal should provide definitive, coordinated federal
guidance as to whether an issuer's compliance with the commission's
requirements fully satisfies the other federal laws that may be
implicated by the disclosure of such asset-level information."
The SEC has been considering major reforms to the asset-backed
securities market for more than three years, after investors
suffered losses on soured mortgages during the 2007-2009 financial
crisis.
Asset-backed securities, comprised of bundled loans such as
mortgages, were at the center of the crisis.
Many investors who bought them were unaware that the subprime loans
underlying the securities were often made to people who could not
afford to buy homes. Once the floating interest rates on those
subprime loans spiked to higher levels, many homeowners defaulted
and were forced into foreclosure.
The SEC is trying to adopt a new rule set for the asset-backed
securities market to prevent similar problems from happening again.
A pillar of the proposed reforms is a measure that would require
issuers of ABS to better inform investors about the risks by
disclosing loan-level details, such as credit scores and geographic
locations of borrowers.
That requirement for more disclosure has proven highly
controversial, with many on Wall Street urging the SEC to proceed
with caution or else banks and others could risk disclosing too much
information and violating federal privacy laws.
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The SEC was poised earlier this year to adopt the rule, but in late
February, it canceled a public vote on the measure and re-issued it
for comment alongside a new 19-page memo that lays out an
alternative disclosure approach that the agency said aims to balance
the need for investor protection and privacy.
The SEC's tweaked plan calls for issuers to make asset-level data
available to investors on their websites in a less public fashion.
That is a key difference from the SEC's original plan which called
for requiring all issuers to disclose the data in public financial
filings with the SEC.
But SIFMA and the FSR said the SEC's proposed changes are still not
enough to protect issuers from lawsuits. If investors believe the
disclosures on the websites are inadequate, they said, then
investors could resort to suing the issuers for failing to disclose
"material" information.
"This puts issuers in an untenable position," they wrote. "The more
carefully an issuer protects customer data by restricting access to
its website, the more risk it bears of an investor suit for failing
to disclose all material information."
(Reporting by Sarah N. Lynch; editing by Bernadette Baum)
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