SEC grants no action relief from paragraph (a)(3)(iii) of Rule 192

On May 16, 2025, the Division of Corporation Finance (the “Division”) of the Securities and Exchange Commission (the “SEC”) issued a no-action relief letter¹ (the “no-action letter”) regarding paragraph (a)(3)(iii)²of Rule 192 (“Rule 192”) under the Securities Act of 1933, as amended (the “Securities Act”).³ Rule 192, finalized in January 2024, implements Section 621 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and generally prohibits certain securitization participants⁴  (such as underwriters, placement agents, sponsors and their affiliates) from engaging in transactions that create material conflicts of interest with investors in asset-backed securities⁵ (“ABS”). The no-action letter responds to industry requests for interpretive clarity on how paragraph (a)(3)(iii) applies in practice, particularly with respect to the role of Non-Deal Team Employees⁶ and internal information controls. For background on the scope and requirements of Rule 192 more broadly, please see our earlier Client Alert.

As noted in the SEC’s adopting release (the “Adopting Release”), paragraph (a)(3)(iii) (the “Catch-All Prong”) was intended to capture transactions that are not covered by the specific categories in paragraphs (a)(3)(i)(a short sale of the ABS) or (ii) (the purchase of a credit default swap or other credit derivative to which the securitization participant would be entitled to receive payments upon the occurrence of specified credit events in respect of the ABS) but nonetheless present similar conflicts risks to the investors in the  ABS. Whether any individual transaction falls within this provision was deemed to be a facts-and-circumstances determination that must be made by the securitization participant. In practice, market participants have struggled with how to interpret and comply with this provision.

In a welcome development, the no-action letter provides a workable compliance framework for transactions entered into by Non-Deal Team Employees, indicating that it will not recommend enforcement action under Rule 192(a)(3)(iii) where the person entering into such transaction is a Non-Deal Team Employee and the following conditions are satisfied:

1. the securitization participant has written policies and procedures reasonably designed to prevent:
   1. coordination between ABS Deal Teams⁷ and Non-Deal Team Employees in connection with the relevant ABS; and
   2. access to, or receipt of, Restricted ABS Information⁸ by Non-Deal Team Employees from ABS Deal Teams⁹;
2. the Non-Deal Team Employees did not engage in such coordination and did not access or receive Restricted ABS Information from ABS Deal Teams¹⁰; and
3. even if technical compliance with (a) and (b) is established, the individuals involved were not part of a plan or scheme to evade Rule 192(a)(1)’s prohibition on conflicted transactions.¹¹

The no-action comes amidst a flurry of action at the SEC, including the withdrawal of its litigation defense of its climate disclosure rules, changed enforcement positions and different policy priorities compared to those in force during the previous presidential administration and the tenure of former chair Gary Gensler. In that sense, it may share in common with those actions a greater willingness of an SEC with a differently composed set of commissioners and new chair Paul Atkins to work with regulated entities. However, it differs in the sense that the SEC’s new policy positions in a number of those other areas reflect a perception that the SEC may have exceeded or misinterpreted the statutory basis for its actions. In contrast, Rule 192 was promulgated to implement Section 27B of the Securities Act (as part of the Dodd-Frank Act enacted following the global financial crisis).¹² Thus, Rule 192 remains in effect as written but reflects a more measured interpretive approach under the current SEC leadership and provides meaningful clarity for market participants as they finalize compliance protocols.

Next Steps

Securitization participants are required to comply with Rule 192 for any ABS where the closing of the first sale is expected to close on or after June 9, 2025. In light of the no-action relief, securitization participants should:

1. review and, where needed, update their “need-to-know” policies and procedures to ensure they are reasonably designed to prevent coordination between ABS Deal Teams and Non-Deal Team Employees and to restrict the flow of Restricted ABS Information; and
2. continue monitoring SEC guidance and preparing for Rule 192 compliance on upcoming transactions.

Our team is available to discuss the implications of the no-action letter in more detail.

This note is for guidance only and should not be relied on as legal advice in relation to a particular transaction or situation. Please contact your normal contact at Hogan Lovells if you require assistance or advice in connection with any of the above.

Authored by Emil Arca, Lauren Kimmel, and Pablo Castiella.