SEC, Fed Release Volcker Rule FAQ
In addition to interim examination procedures issued by the Office of the Comptroller of the Currency, the Federal Reserve Board (Fed) and Securities and Exchange Commission (SEC) have released an updated set of Frequently Asked Questions (FAQ, available here for the Fed version and here for the SEC version) that provides further clarification to market participants where needed.

Important to SFIG members, one question asks whether the “rights or other assets” described in section 255.10(c)(8)(i)(B) as “servicing assets” are limited to “permitted securities,” or if other assets can qualify for purposes of the loan securitization exclusion.

According to the FAQ:

The exclusion from the definition of covered fund for loan securitizations provides that, in addition to loans, a loan securitization may hold rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities and rights or other assets that are related or incidental to purchasing or otherwise acquiring and holding the loans, provided that each asset meets the requirements of § 255.10(c)(8)(iii) of the final rule.

Under the final rule, servicing assets may be any type of asset. However, any servicing asset that is a security must be a permitted security under § 255.10(c)(8)(iii). Permitted securities under this section include cash equivalents and securities received in lieu of debts previously contracted as set forth in § 255.10(c)(8)(iii). The preamble to the final rule provides additional detail on the meaning of cash equivalents, noting that the Agencies interpret “cash equivalents” to mean high quality, highly liquid short-term investments whose maturity corresponds to the securitization’s expected or potential need for funds and whose currency corresponds to either the underlying loans or the asset-backed securities.

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