Asset Securitization: Impact of Regulation AB II, the Credit Risk Retention Rules and the Volcker Rule

Description

Since the credit crisis, the structured finance industry has been living through a time of great regulatory uncertainty, which is starting to abate. The Volcker Rule was finalized in early 2014, Regulation AB II was adopted in late summer 2014, and the credit risk retention rules were finalized last month.

Regulation AB II significantly changes the offering process and many disclosure and reporting requirements for offerings of asset-backed securities most importantly, by imposing a new requirement to provide investors with detailed asset-level data regarding in securitizations of residential mortgages, commercial mortgages, automobile loans and leases, and debt securities, as well as in resecuritizations.

The newly finalized credit risk retention rules generally require retention of five percent of the credit risk in each deal, in one of several prescribed forms. “Qualified residential mortgages” are exempt and defined the same as “qualified mortgage” under the CFPB’s “ability to repay” rules.

The Volcker Rule generally prohibits banking entities from sponsoring or retaining any ownership interest in a “covered fund.” While these rules were primarily intended to deal with vehicles such as private equity funds and hedge funds, their breadth poses many difficult interpretive issues for the structured finance industry.

Listen as our authoritative panel of finance practitioners discusses the complexities of these regulations.