USA Law and Practice Contributed by: Bjorn Bjerke, Corey Reis and Joshua Kopel, A&O Shearman
An NRSRO must: • post specific portions of its Form NRSRO registration on its website; • maintain certain records, including in relation to its control structure, for three years; • furnish certain financial reports, including audited financial statements and an annual certification, to the SEC; • maintain and enforce written policies and pro - cedures to prevent misuse of material non- public information and to address conflicts of interest; and • abstain from engaging in certain abusive or anti-competitive conduct. Exchange Act Rule 17g-5 divides conflicts of interest into two categories: • conflicts that must be disclosed and man - aged by the NRSRO; and • prohibited conflicts. As part of the conflict rules in 17g-5, an NRSRO is required to obtain a representation from the issuer, sponsor or underwriter of an asset- backed security that it will post on a real-time basis information any of them provides to any hired NRSRO in connection with the initial cred - it rating or subsequent credit surveillance to a password-protected website. The purpose is to allow NRSROs that have not been hired to have access to the same information in real time that is provided to the hired NRSROs. Rule 17g-7 provides further transparency by requiring the NRSRO to prepare and disclose a comparison of the asset-level representations, warranties and enforcement mechanisms avail - able to investors that were disclosed in the offer - ing document for the relevant ABS and how they
differ from the corresponding provisions in other, similar, securitisations. The SEC has the power to enforce its rules. Pen - alties for violating the rules can include suspen - sion or revocation of an NRSRO’s registration if the SEC makes a finding under certain specified sections of the Exchange Act that the NRSRO violated the conflicts-of-interest rule and the vio - lation affected a credit rating. 4.6 Treatment of Securitisation in Financial Entities Banks The US bank regulators have generally imple - mented the Basel III capital and liquidity rules but with some important distinctions. The US bank capital rules distinguish between “tradi - tional” and “synthetic” securitisations, each with different operational requirements. The Basel III definition of securitisation is tied to a tranched exposure to a “pool” of underlying exposures. The corresponding rules as imple - mented in the USA also refer to tranched credit risk, but do not include the pool requirement. The minimum risk weight that will be given to a securitisation exposure is 20%. Re-securitisa - tions are subject to separate risk weight calcu - lations. The USA also does not include ABS among high-quality liquid assets (HQLA) in which a bank may invest to cover for its projected net cash outflows over a 30-day period (in the case of the liquidity coverage ratio). In July 2023, US banking regulators released their proposal for implementing Basel III “End - game” risk-based capital requirements in the US (“US B3E”). US B3E includes important changes
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