WASHINGTON: The Securities and Exchange Commission (SEC) on Wednesday adopted tighter rules for asset-backed securities (ABS) and credit rating agencies, tackling two issues at the core of the 2007-2009 financial crisis after years of delays.
Banks will need to give far more transparency about ABS products under the new rules, and have to publicly disclose a raft of information about the thousands of car, home or other loans that underlie such securities.
And credit rating agencies will be required to erect strict boundaries between sales staff and employees handing out ratings to the securities, as part of an effort to prevent firms from luring clients with the prospect of favourable ratings.
“The SEC must protect investors in ABS just as it does investors in any other security,” SEC chairman Mary Jo White said during a public meeting, at which the five-member commission voted on the two rules.
ABS, which can be very complex and lacking in transparency, boomed before the 2007-2009 crisis, but investors massively dumped them when they turned out to be tainted by defaulting subprime mortgages.
Credit rating agencies, such as Moody’s, Standard and Poors, and Fitch, compounded the problem by giving top-notch marks to the securities that later imploded, which led to widespread calls for reform of the industry. Reuters