Potential disclosure regulation reform could heighten enforcement risk for ABS issuers

SEC Chairman Paul Atkins is exploring ways to streamline requirements for public company disclosures that contain pertinent information for investors, potentially affecting the auto asset-backed securitization market. Under Regulation S-K, public entities must disclose information that would be material to investors such as risk factors, executive compensation and corporate governance. The regulation influences information investors receive in annual and quarterly filings such as 10-Ks and 10-Qs. A reform of Regulation S-K may affect issuers of asset-backed securities (ABS) transactions, David Dwyer , general counsel for policy and regulatory affairs at the Structured Finance Association (SFA), told Auto Finance News . Regulation AB is a subsection of Regulation S-K that governs much of ABS issuance, Dwyer said. It dictates registration, disclosure and reporting requirements for public ABS transactions. “If you amend Regulation S-K, you may affect a very key and important market,” he said. He said the SEC wants: “Issuers of securities to disclose information that would be relevant and important to an investor when making an investment decision;” and “To not necessarily require or mandate an issuer to provide information that's not particularly helpful to investors.” Regulation S-K is part of the architecture for auto ABS transactions and defines how non-financial information around risks and structure are presented to investors, Sarah Razaq Sallis , a partner at law firm Husch Blackwell who previously served as a securities regulator, told AFN . If those disclosures are pared back to “only what a reasonable investor would consider material,” that could pose enforcement risk for auto ABS issuers, she said. “An ABS issuer who streamlines their disclosures, and are relying on this reformed framework, can still face an enforcement action if the [SEC] staff concludes that there was something that was omitted that was material to investors at that time,” she said. Evaluating comments While there is not a draft rule on the table, and finalizing a new rule could take several years, the SEC will be evaluating comments received by industry participants in response to Atkins' requested staff review of Regulation S-K in January before any other moves are made, Razaq Sallis said. The comment period concluded April 13. However, ABS market participants should pay “close attention” as changes are considered, she said. “Chairman Atkins is signaling this philosophical reorientation I would call disclosure quality over disclosure quantity,” Razaq Sallis said. “There's a tension between what's disclosed and what investors need to know.” “There's a tension between what's disclosed and what investors need to know.” -- Sarah Razaq Sallis, partner, Husch Blackwell The SFA, which has approximately 370 institutional members that include law firms with former SEC staff, submitted a comment on Atkin’s request to ensure any impact on the structured finance industry was considered, Dwyer said. “The auto finance market is a big market,” and is important to auto companies and consumers, he said. “We want to make sure that the SEC, when they do go to propose any potential change, that they're mindful that they may be having an effect on a market that really does touch huge swaths of the American economy.” Auto Finance News will present multiple invaluable events for industry professionals in 2026, starting with Auto Finance Summit East and Auto Finance Capital Summit in May. To see event agendas and register, visit autofinance.live .

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Potential disclosure regulation reform could heighten enforcement risk for ABS issuers

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