The Dodd-Frank Act’s Prohibition against Conflicts of Interests in Securitizations: The Authors Respond
Photo by Fernando Zuleta. Some rights reserved.
On September 19, 2011, the SEC published for comment proposed rules implementing Section 621 of the Dodd-Frank Act, which prohibits conflicts of interest in connection with asset-backed securities (“ABS”). Originally, the comment period for the proposal expired on December 19, 2011. The SEC extended the comment period twice, with the current comment period ending on February 13, 2012. The rule is intended to prohibit underwriters, sponsors, and others who assemble ABS from packaging and selling those securities and profiting from the securities’ failures. See Blogmosaic’s earlier summary of the proposal.
Given the apparent straightforward nature of the proposal, it may come as no surprise that only 14 comments have been submitted and only one agency meeting noted (with the bulk of the comments being of the “securitizations are evil” variety). But the dearth of comments belies an underlying struggle evidenced by the Commission’s decision to extend the comment period twice.
Although not posted as a comment to this specific SEC proposal, the Securities Industry and Financial Markets Association (“SIFMA”) wrote the Commission in 2010 to present its views on Section 621 of the Dodd-Frank Act. Citing the Act’s legislative history, SIFMA suggested a rule that required intent; in order to find that a securitization participant engaged in a prohibited material conflict of interest, it would have to be found that the securitization participant intended to benefit from the transaction’s failure.
As proposed, the rule does not require intent.
