A Guide to the Securitization Conflicts of Interest Rule

December 04, 2023

More than a decade after its initial proposal, the US Securities and Exchange Commission (SEC) has at long last adopted a final rule under the Securities Act of 1933, as amended (the Securities Act), prohibiting material conflicts of interest in asset-backed securities (ABS) transactions, as required by Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The final rule, denominated as Rule 192 under the Securities Act, prohibits an underwriter, placement agent, initial purchaser, or sponsor of any ABS (including synthetic ABS), and certain affiliates and subsidiaries of such entities, from engaging in any transaction that would involve or result in a material conflict of interest as defined by the SEC. The new rule provides for a number of exceptions, including for certain risk-mitigating hedging activities, liquidity commitments, and bona fide market-making activities.

The rule will become effective 60 days after publication in the Federal Register, but compliance will be required only for ABS transactions that close 18 months or more after that publication date.