By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.
With regard to the conflict of interest provision in Dodd-Frank co-authored by Senators Carl Levin and Jeff Merkley, the American Securitization Forum urged the SEC to, consistent with legislative intent, adopt regulations specifically tailored to prohibit transactions that create a material incentive for firms to intentionally design asset-backed securities to fail or default. Section 621, one of the Volcker provisions of Dodd-Frank, prohibits firms from packaging and selling asset-backed securities to their clients and then engaging in transactions that create conflicts of interest between them and their clients. In the Forum’s view, a broad reading of Section 621 could effectively lead to a contraction of available credit for consumer finance and small business, where securitization has provided a significant source of funding, including mortgage loans and auto loans.