Schapiro Wants 1940 Act for ABS
In a recent speech, SEC Chairman Mary Schapiro called for new legislation regulating asset-backed securities in a manner similar to the Investment Company Act. She indicated that the ABS market needs substantive regulation beyond enhanced disclosure requirements. She suggested that the legislation include specific requirements for pooling and servicing agreements including required representations and warranties. Additionally, she indicated the SEC is reviewing ABS disclosure and offering rules.
OUR TAKE: This is the first time that any of the regulators have taken regulatory aim at ABS, the venue for the sub-prime mortgage securities that many believe caused the recent financial crisis. The Investment Company Act turned a scandal-ridden fund industry into the investment of choice for most Americans. Perhaps a 1940 Act for ABS will help mainstream those vehicles to the benefit of sponsors and investors.