OVERVIEW
The SEC is adopting Securities Act Rule 192 (part of Section 621 of the Dodd-Frank Act) to prohibit a “Securitization Participant” (e.g., underwriter, placement agent, initial purchaser, sponsor of an asset-backed security, or certain affiliates or subsidiaries) from engaging in any transaction that would involve or result in certain material conflicts of interest.
The rule is intended to prevent the sale of asset-backed securities (“ABS”) that are tainted by material conflicts of interest. It prohibits a “Securitization Participant”, for a specified period of time, from engaging, directly or indirectly, in any transaction that would involve or result in any material conflict of interest between the Securitization Participant and an investor in the relevant ABS.
WHAT RULE 192 MEANS FOR FIRMS' INFORMATION BARRIERS POLICIES AND PROCEDURES
Importantly, an affiliate or subsidiary of an underwriter, placement agent, initial purchaser, or sponsor will only be a Securitization Participant if, prior to the date of the first closing of the sale of the covered ABS, the affiliate or subsidiary:
In other words, the SEC will allow firms to rely on information barriers.
The final rule permits securitization participants to demonstrate a lack of involvement or control through the presence and effectiveness of information barriers or other indicia of separateness.
The SEC acknowledges that whether an affiliate or subsidiary acts in coordination with a Securitization Participant or had access to, or received, information about an ABS, or its underlying asset pool, or referenced asset pool prior to the closing date, will depend on the facts and circumstances of a particular transaction.
The SEC observes that an affiliate and subsidiary may not be a “Securitization Participant” if the named Securitization Participant, for example:
Any such mechanisms must effectively prevent the affiliate or subsidiary from acting in coordination with the named securitization participant or from accessing, or receiving, information about the relevant ABS or the asset pool underlying or referenced by the relevant ABS.
WHAT ARE MATERIAL CONFLICTS OF INTEREST?
The rule prohibits a securitization participant from entering into a “conflicted transaction” for a period beginning on the date on which such a person has reached an agreement to become a Securitization Participant with respect to an ABS and ending one year after the date of the first closing of the ABS’s sale. For purposes of the rule, the term “conflicted transaction" is defined to include two main components:
With Star’s Compliance Control Room and Employee Conflict of Interest Solutions, Securitization Participants can comply with the new information barrier requirements of Securities Act Rule 192 which allows users to:
Interested in learning more about StarCompliance's SaaS and how we can help? Request a demo today!