Asset-Backed Securitization Third-Party Due Diligence Services: Increased Transparency via Exchange Act Rule 15Ga-2 and Rule 17g-10

Abstract

One of the mandates of the Dodd–Frank Wall Street Reform Act of 2010 to the U.S. SEC concerns the role that third-party due diligence providers should play in the issuance of asset-backed securities (ABS). Rule 15Ga-2 defines “Exchange Act-ABS” and delineates public reporting obligations of the issuer or underwriter of an Exchange Act-ABS that is to be rated by a nationally recognized statistical rating organization (NRSRO), and Rule 17g-10 details what services qualify as Exchange Act-ABS due diligence services and what the reporting obligations are for such third-party service providers. The rules are intended 1) to require third-party due diligence providers to describe the scope and manner of the due diligence they have conducted and to clearly explain their findings and conclusions and 2) to require issuers and underwriters of a registered or registered ABS offering to publicly disclose all findings and conclusions from third-party due diligence providers. The third-party due diligence services that will be conducted in anticipation of a rated Exchange Act-ABS will now be transparent to the public and available for detailed analysis.