Reflections and Improvements on China’s Asset-Backed Securities Information Disclosure System

Zhao Mingxin

Shenzhen University

Abstract: Asset-backed securities are developed through complex processes such as asset restructuring and credit enhancement.Therefore,the information asymmetry between issuers and investors is greater compared to traditional securities,which imposes higher requirements on information disclosure for asset-backed securities.Asset-backed securities have characteristics such as diversified disclosers,differentiated disclosure content,and specialized risk factors.China has already formulated a series of rules and regulations regarding information disclosure of asset-backed securities.It is imperative to develop specialized laws and regulations for asset-backed securities,encompass original equity holders and credit enhancement agencies as information disclosers,incorporate information such as underlying asset details,cash flow projections,and credit ratings and enhancements into the disclosure content,and improve the legal liability rules to effectively address false disclosures.

Keywords: asset-backed securities; asset securitization; information disclosure

Asset-backed securities (“ABS”) are the products of asset securitization.The so-called “asset securitization” is commonly understood as the process of pooling illiquid assets with future stable cash inflows,structurally restructuring them,and enhancing their creditworthiness,thereby transforming them into securities that can be issued and traded in the securities market to achieve the purpose of financing (Zhou,2020,p.86).From this definition,asset securitization is a process or behavior that results in the creation of ABS.However,some scholars use the terms “asset securitization” and “asset-backed securities” interchangeably,often abbreviating both concepts as ABS.This is not precise,and it is necessary to clarify the distinction.Asset securitization originated in the United States in the 1970s and was embraced by China’s securities market in the early 21st century,quickly becoming one of the market’s hot topics.Over the past decade,although ordinary individual investors have not paid much attention to asset securitization,experts,scholars,and securities practitioners in the fields of economics,finance,and law have increasingly felt its growing influence.As of June 2023,there were a total of 4,311 ABSs listed on the Shanghai Stock Exchange,and their market value reached RMB 1,448.365 billion (SSE.Com.,2023),surpassing that of noncorporate bonds.However,due to the late start of asset securitization in China and the limited duration of practice,the institutional development is still in its early stages.As a result,it has not received sufficient attention and extensive research from the academic community.This limitation has not only affected the research level of asset securitization in China but also indirectly impacted the construction of China’s legal system for asset securitization.On December 28,2019,theSecurities Law of the People’s Republic ofChina(“New Securities Law”) underwent its second amendment.In theNew Securities Law,ABS has been officially recognized as a type of securities.①Paragraph 3 of Article 2 of the Securities Law of the People’s Republic of China states that “The measures for the administration of the offerings of and trading in asset-backed securities and asset management products shall be developed by the State Council under the principles of this Law.”Although the specific rules for its issuance and trading need to be determined by the State Council in the form of administrative regulations,it has secured a position in China’s fundamental securities law,providing upper-level legal support for the construction of a more operational institutional system.Since ABS is a form of securities,it needs to comply with various rules for the issuance,listing,and trading of securities,including the information disclosure rules.

Peculiarity of ABS Information Disclosure

Significance of Information Disclosure for ABS

One important change in theNew Securities Lawis the expansion of the “information disclosure” section to a whole chapter.②Since the initial promulgation of the Securities Law of the People’s Republic of China in 1998,a section entitled “Information Publicity” was included in Chapter III “Trading of Securities”.It was not until the revision of the Securities Law in 2019 that an “Information Disclosure” chapter (i.e.,Chapter V) was formally established.Furthermore,in China’s securities legislation,“information publicity” and “information disclosure” are essentially synonymous terms.This paper also holds the same viewpoint.This demonstrates the legislators’ emphasis on information disclosure.As a part of the capital market,the securities market relies on the distribution and application of pertinent information as one of its fundamental drivers.Effective information transmission serves as one of the important guarantees for the capital market to fulfill its role of resource allocation (Mao et al.,2013).Securities,by their nature,can be regarded as an information product,and investors’ decisions to buy or sell securities are often influenced by certain information.This is particularly true for securities issued through registration,making them highly information-intensive products(Chen,2019).Therefore,the timely,accurate,and complete disclosure of information regarding the operation and management,financial performance,credit status,and other relevant details of the securities issuer has a decisive impact on investors’ investment decisions.It safeguards investors’ rights to know and choose,and it is crucial for protecting investors’ rights to returns.Since the implementation of theNew SecuritiesLaw,China has been shifting from the previous approval-based system to a comprehensive registration-based system for securities listing.This signifies a reduction in the threshold for securities listing.In this context,in order to safeguard investors’ legitimate rights and interests,it is imperative to strengthen the supervision of listed companies’ behavior,and strict regulation of information disclosure is an inevitable outcome of this approach.Therefore,the significance of the information disclosure system in the field of securities law has been increasingly emphasized,to the extent that some scholars have referred to it as the “Publicity is justly commended as a remedy for social and industrial diseases.Sunlight is said to be the best of disinfectant; electric light the most efficient policeman.”(Brandeis,1914) The role of information disclosure in the securities market has been recognized among all circles,requiring no further elaboration.

ABS is a product of financial innovation that emerged half a century ago.This new type of security is crafted around the cash flows generated by specific assets as its return for investors.It involves a series of complex processes such as asset transfer,asset pool construction,credit rating,and credit enhancement.The complexity of its financing structure and the diversity of participants make the risks involved in ABS evidently more hidden and dangerous than traditional securities.Therefore,for ABS,if there is no genuine,accurate,and complete information disclosure,the asymmetry of information between securities issuers and investors will be significantly expanded.Investors may even be trapped in what is called an “information cocoon” and unable to see the true market situation.Hence,to protect investors’ legitimate rights and interests,maintain the healthy and orderly development of the securities market,and ensure the proper issuance and trading of ABS products,it is imperative to impose more rigorous requirements for ABS information disclosure.

Differences Between ABS and Traditional Securities in Terms of Information Disclosure

As mentioned earlier,ABS is a financial derivative that emerged as an innovative product in modern times.As a financial technology,ABS is regarded as one of the three major trends in the field of international financial innovation,along with financial liberalization and globalization (Xiong & Wu,2006).Although ABS belongs to the category of securities,there are significant differences in the structure of its products and the issuance models compared to traditional securities.These differences inevitably manifest in the area of information disclosure.

More Diversified Information Disclosers

In traditional securities,the primary duty of information disclosure falls upon the issuer.As jointly liable persons,the controlling shareholders,actual controllers,directors,supervisors,senior managers,and other directly responsible persons of the issuer,as well as the sponsors,underwriting securities companies,and their directly responsible persons,are also liable for the truthfulness,accuracy,and completeness of the disclosed information.However,ABS involves more complex issues due to its unique issuance process.The typical issuance process of ABS: First,the original equity holder(originator) of the underlying assets truly sells the loan claims,accounts receivable claims,intellectual property rights,and other assets to a third-party Special Purpose Vehicle (SPV),which ensures the bankruptcy isolation between relevant asset credit and originator credit.Then,the SPV packages multiple assets into an asset pool through a series of fragmentation and combination,and after credit rating and credit enhancement processes,issues them to investors.The funds invested by investors are used for financing by the original equity holders,while the continuous cash flows generated by the asset pool are distributed to investors as investment returns according to the agreed terms.This process involves various participants,including the original equity holder,SPV,securities custodian,fund manager,credit rating agency,credit enhancement institution,and intermediaries.The range of participants in ABS is clearly broader than that in traditional securities.All these participants have some form of obligation towards information disclosure.Any participant that signs the ABS disclosure documents shall be defined as a legal obligor who bears the corresponding liability under the law for ensuring that the disclosed information is not false,materially misleading or omitting any material facts (Huang,2013).

Information Disclosure Content With the Underlying Assets as the Core

One significant difference between ABS and traditional securities is that the issuance of ABS as a form of asset securitization is backed by assets with stable cash flow income,while the issuance of traditional securities such as stocks and bonds relies on the creditworthiness of the issuer (Zhou,2020,p.86).Therefore,the content of information disclosure for traditional securities primarily focuses on the issuer’s operation and management status,particularly the issuer’s financial condition and changes thereof.In contrast,ABS is a “security” backed by “assets.” The term “backed”here essentially refers to the credit foundation for the issuance and repayment of the securities (Zhou,2020,p.87).In its birthplace,the United States,ABS is considered a part of the fixed-income market and,along with the U.S.Treasury bond,municipal bond,and corporate bond,it has contributed to the establishment of a massive fixedincome market (Fabozzi,2017,p.3).In China,all ABSs have been issued in the form of bonds.Therefore,the focus of information disclosure lies in the repayment ability.Most importantly,such repayment ability does not refer to the issuer’s repayment ability,but rather the cash f low generation capacity of the underlying assets.Thus,the creditworthiness of the ABS issuer does not matter; what matters is the underlying assets stripped from the original equity holder and transferred to the SPV.Underlying assets generally refer to property rights or assets that comply with laws and regulations,have clear ownership,can generate independent and predictable cash flows,and can be specified.These assets should have a high level of homogeneity and the ability to generate predictable cash flow income.①Article 19 of the Measures for Supervising and Administrating the Securitization of Credit Assets by Financial Institutions issued by the former China Banking Regulatory Commission (the former CBRC) stipulates that “The credit assets to be securitized by a sponsoring institution of credit assets securitization shall meet the following conditions: (1) having high homogeneity; (2) being able to produce divinable cash flow yields; and (3) complying with the laws,administrative regulations and the relevant provisions set forth by the CBRC and other supervisory and regulatory authorities.”As a Wall Street saying goes,“If it’s cash flows,it goes (into a securitization).” Therefore,the stripping of underlying assets from the overall assets of the original equity holder to enable the repayment capacity of the assets to be separated from the creditworthiness of the original equity holder is a typical characteristic of ABS.Therefore,the primary focus of ABS information disclosure is not on the relevant information of the security issuer,such as the issuer’s production and operations,financial accounting data,changes in shareholders and management,and major operational decisions.Instead,it focuses on the quality (superior or inferior) of the underlying assets to be securitized,the SPV transaction structure,and the forecasted future cash flow conditions.

Peculiarity of Risk Factors

Regardless of the type of securities,an important aspect of information disclosure is to reveal the risk factors associated with such securities.In traditional securities,these risk factors are typically reflected through the issuer’s significant investment projects,major guarantee projects,disposal of important assets,and involvement in large-scale litigation.However,ABS is different.Typically,the original equity holder achieves risk isolation by truly selling the assets to be securitized to the SPV.The SPV,as the issuer,is essentially a “shell entity” that primarily acts as a conduit.Its main function is to acquire and manage the assets transferred by the original equity holder and issue securities backed by the assets (Huang,2013).In this case,due to the risk isolation mechanism for the true sale of assets,the risk factors involved in ABS are generally unrelated to the condition and behavior of the original equity holder.Even if the original equity holder goes bankrupt,the SPV can still achieve bankruptcy isolation between the underlying assets and the original equity holder.Therefore,the risk information on ABS is primarily revealed and reflected through factors such as the rationality of the asset pool construction,the validity of the true sale,the effectiveness of the risk isolation mechanism,and the effectiveness of the credit enhancement mechanism.In summary,ABS differs significantly from traditional securities in terms of information disclosure regarding risk factors.

Current Status and Challenges of the ABS Information Disclosure System in China

Current Status of the ABS Information Disclosure System in China

The development history of asset securitization in China is relatively short.Although the earliest ABS project can be traced back to 1996 when the Zhuhai Expressway construction project commenced,asset securitization did not actually start to develop until 2005.In 2005,the People’s Bank of China issued thePilotAdministrative Measures for the Securitization of Credit Assets(the “Pilot Administrative Measures”),and the former China Banking Regulatory Commission (the former CBRC)①The China Banking and Insurance Regulatory Commission (CBIRC) was established in March 2018 by a merger of China’s banking and insurance regulators,namely,the former China Banking Regulatory Commission (the former CBRC) and the China Insurance Regulatory Commission (CIRC).In March 2023,the CPC Central Committee and the State Council issued the Plan for the Reform of Party and State Institutions.Based on the China Banking and Insurance Regulatory Commission (CBIRC),a new institution called the National Financial Regulatory Administration (NFRA) was established,and the CBIRC was no longer retained.issued a series of regulations,including theMeasures for Supervising and Administrating the Pilot Securitization of Credit Assets by Financial Institutions(the “Supervision and Administration Measures”),to promote the development of credit asset securitization products.However,in 2007,the outbreak of the subprime mortgage crisis in the United States led to widespread criticism of ABS backed by credit assets,causing the development of ABS in China to come to a halt.After a period of dormancy,in 2012,the Chinese government recognized the institutional value of ABS as a new type of security that could reduce financing costs for market participants,change the risk management model in the securities industry,enhance financing security,and potentially help address many challenges during the transformation of the financial market.As a result,there was a need for continued development of ABS in China.Therefore,the People’s Bank of China,the former CBRC,and the Ministry of Finance jointly issued theNotice on Relevant Matters Concerning Further Expandingthe Pilot Securitization of Credit Assets,restarting the development process of ABS in China.Furthermore,the scope of assets involved in ABS was expanded.At that time,there were primarily two types of ABS in China: (a) credit asset securitization,with banks and other financial institutions as originators and trust companies as the SPV for issuance; (b) enterprise receivables asset securitization,with non-financial institutions as originators and securities company asset special management plans as the vehicle for issuance.In 2019,the state issued theOpinions of the CPC Central Committee and the State Council on Supporting Shenzhen in Building a Pioneering Demonstration Zone for Socialism with Chinese Characteristics(the “Opinions”),proposing to vigorously promote intellectual property rights securitization.This significantly enriched the content of ABS in China and accelerated its development process.By 2020,the implementation of theNew Securities Lawofficially recognized ABS as statutory securities.

With the development of ABS,China has also begun to establish information disclosure rules for ABS.In thePilot Administrative Measuresand theSupervisionand Administration Measuresissued in 2005,some principled provisions were made for the ABS information disclosure.Shortly afterward,the People’s Bank of China issued theRules for the Information Disclosure of Asset-backed Securities(the “Information Disclosure Rules”),which provided more professional and targeted regulations for the ABS information disclosure.In 2014,the China Securities Regulatory Commission (“CSRC”)issued theGuidelines for the Disclosure of Information about the Asset Securitization Business of Securities Companies and the Subsidiaries of Fund Management Companies(the “Information Disclosure Guidelines”),further enhancing China’s ABS information disclosure system.Undoubtedly,the provisions regarding information disclosure in Chinese laws and regulations,such as theCompany Law,theSecurities Law,and theSecurities Investment Fund Lawcan also be applied to the ABS information disclosure.In addition,the Securities Association of China,National Association of Financial Market Institutional Investors,Shanghai Stock Exchange,and Shenzhen Stock Exchange have issued a series of self-regulatory rules on the ABS information disclosure,such as theGuidelines for Interim Report Information Disclosure of Asset-backed Securitiesof the Shenzhen Stock Exchange,thus forming a relatively comprehensive system for the ABS information disclosure.

Challenges of the ABS Information Disclosure System in China

The aforementioned series of laws,regulations,rules,and normative documents provide a basic legal basis for the ABS information disclosure in China.However,as a system,there are still some challenges in China’s ABS information disclosure rules that need to be addressed to enhance its effectiveness.These mainly include:

Low Legal Hierarchy and Overlapping Rules

Judging from the norms summarized above,the rules regarding ABS information disclosure in China lack legislation at the level of laws and administrative regulations.The only regulations that can be included in the legal framework are the regulations issued by financial regulatory authorities such as the People’s Bank of China and the CSRC.More operable norms include self-regulatory rules issued by institutions such as the Securities Association of China,the National Association of Financial Market Institutional Investors,and stock exchanges.These rules are at a comparatively lower level,which limits their applicability.The makers and publishers of the aforementioned rules include various entities such as financial regulatory authorities,financial industry associations,and stock exchanges.The presence of multiple rule-making bodies in the same domain leads to a fragmented set of ABS information disclosure rules,which poses numerous challenges for practical implementation.

Insufficient Coverage of Information Disclosers

TheInformation Disclosure Guidelinesstipulate that the manager and other obligated parties are required to disclose information.Other information disclosure obligors include but are not limited to the custodian and credit rating agencies.In the process of asset securitization,there are other participants involved,such as the original equity holder and other service providers apart from the manager,including asset service agencies,custodians,credit enhancement institutions,law firms,accounting firms,and liquidity support providers.According to theInformation Disclosure Guidelines,these participants have contractual obligations to provide information to the manager and ensure that the information is true,accurate,and complete.It can be seen that the main ABS information discloser is the project management organization,which in practice is the SPV.As the issuer of ABS,the SPV assumes the obligation of information disclosure,which seems reasonable and conforms to the basic rules of the securities law.Nonetheless,this stipulation overlooks the distinctive characteristics of ABS transactions: (a) Although the SPV is the issuer,the actual financier is the original equity holder rather than the SPV.This is different from traditional securities.For traditional securities,the issuer is also the financier who obtains funds through the issuance of securities and uses them for financing purposes.Therefore,it is reasonable for the issuer to assume various obligations,including information disclosure.However,ABS is different.In order to obtain financing funds,the original equity holder needs to “truly sell” its specific assets to the SPV,making the SPV the nominal owner of those assets.The SPV then issues securities based on those assets.However,the funds raised from the issuance of securities do not belong to the SPV but need to be transferred to the original equity holder.This leads to a paradox,i.e.,the original equity holder benefits from the issuance of ABS but bears no obligations of the issuer,while the SPV,which does not receive any benefits,has to assume the obligations of the issuer.This clearly contradicts the principle of correlating rights with their respective obligations.(b) As mentioned earlier,the SPV is not actually a real market participant but rather a “shell participant” or “shadow participant.” This makes it difficult for the SPV to fulfill its information disclosure obligations in practice.In the traditional securities field,the issuer of securities is usually a listed company,which has a complete and effective corporate governance structure and can provide sufficient human,physical,and financial resources to fulfill a series of issuer obligations,including information disclosure.However,the SPV lacks this capability.Its market behavior capability is completely incomparable to that of traditional listed companies,making it extremely difficult for the SPV to assume the issuer’s obligations.Therefore,it is not appropriate to limit the scope of the main ABS information disclosers to the SPV.The scope should be expanded.

Information Disclosure Content Needs to Be Enriched

Compared to traditional securities,ABS has a more complex trading structure,involves more participants,and has greater uncertainties,thereby entailing higher risks.The purpose of information disclosure is to fully disclose the risk factors to investors and help them avoid investment risks.Therefore,the content of ABS information disclosure should be more comprehensive and enriched.Additionally,since asset securitization relies on the assets for repayment,the disclosure content should not focus primarily on the creditworthiness of the issuer like traditional securities.Instead,it should concentrate on the quality and risk factors of the assets,such as the composition of the underlying asset pool and the quality information of the assets included in the pool.These pieces of information are generally unrelated to the financial condition of the issuer and are not reflected on the balance sheet of the company.They constitute off-balance sheet non-financial information,which is not required to be disclosed in traditional securities.However,the core of ABS information disclosure lies in the underlying asset information,which must be disclosed.Another example is cash flow forecast information,also known as “soft information.” In traditional securities law,securities information disclosure is mainly limited to “hard information,” which refers to the description of objective,verifiable historical events.The main characteristic of soft information is that: it is a predictive statement,such as forecasts,expectations,and statements about future prospects.The person making the statement often lacks existing data to verify its accuracy and mainly relies on subjective estimation and evaluation.In terms of results,predictive information may not match the objective situation.In traditional securities law,predictive information falls under voluntary disclosure,meaning that even if the issuer has the right to voluntarily disclose predictive information,it may choose not to disclose such information.Furthermore,according to the “safe harbor” rule,even if there is a significant difference between the predictive information and the actual situation,it,in principle,does not constitute a false statement.However,stable cash flow is a fundamental factor for establishing asset securitization as it represents the source of funds for repaying investors.Therefore,the predictive information about the future trends of cash flow stability is a critical factor for investors to consider when investing in ABS.If the rules of traditional securities information disclosure are applied,it could potentially harm the legitimate rights and interests of investors.

Legal Liability System for False Information Disclosure

During the information disclosure process,making false records or misleading statements that contradict the truth regarding major events,or engaging in major omissions or improper disclosure of information,constitutes false disclosure.False disclosure not only harms the rights and interests of investors but also poses serious hidden dangers to a country’s securities market order and economic security (Liu,2016).Therefore,false disclosure carries legal liability,and the same applies to false ABS information disclosure.Legal liabilities mainly include civil liability,administrative liability,and criminal liability.Due to the limitations of theLegislationLaw,criminal liability can only be defined by laws,and its key elements are very strict,resulting in its less frequent application.Therefore,we will not delve into it extensively in this paper.Over the years,in China’s liability system for false disclosures,administrative liability has accounted for the major portion,while civil liability has played a smaller role.This has resulted in a “heavy punishment and light compensation” scenario.Although it effectively punishes the violators,it fails to provide adequate relief to the investors who have suffered losses.Additionally,stock exchanges have the right to impose disciplinary measures such as public criticism,condemnation,or punitive fines against the violators.However,the liability for such violations is insufficient,and the cost of non-compliance is too low.Moreover,the penalties imposed by exchanges do not fall under administrative punishment but are categorized as “non-administrative punishment regulatory measures,” and there is still a gap between their deterrent effect and the legal liability for non-compliant behaviors.In summary,it is necessary to further improve and refine the legal liability rules for false ABS information disclosure.

Reflections on Improving China’s ABS Information Disclosure System

Based on the previous introduction and analysis,we have gained a general understanding of the current status and issues of China’s ABS information disclosure system,and we have briefly analyzed the causes of these issues.This is a necessary prerequisite for us to take measures to solve the problems.Undoubtedly,the ABS information disclosure system is not just a single law or regulation,but rather a system.In this system,theSecurities Law,as the fundamental law regulating the securities industry,needs to establish principled provisions for the ABS information disclosure,thereby providing legislative basis and guidance for the development of lower-level laws.Relevant administrative regulations for ABS formulated by the State Council should include specific rules for ABS information disclosure in a dedicated chapter.The CSRC,the People’s Bank of China,and other relevant institutions should,within the scope of their functions and powers,further refine the provisions of upper-level laws and regulations by formulating administrative regulations,and issue implementation rules,guidelines,and other departmental regulations.This can be supplemented by normative rules,such as industry association rules and securities market rules,to collectively form a systematic and complete ABS information disclosure rule system.Due to the limitations of this paper’s length,it is not possible to conduct a comprehensive study and interpretation of the entire system.Instead,some ideas are proposed to address only a few key issues involved in the system.

Expanding the Scope of ABS Information Disclosers

As mentioned earlier,the scope of ABS information disclosers in China is a little narrow,mainly including the SPV,custodians,and credit rating agencies.Other participants are only obliged to provide information to the disclosers but bear no disclosure obligation.Among them,the original equity holder is the direct beneficiary of asset securitization,i.e.,the financier of ABS projects.It should not only enjoy the benefits but also bear obligations.Additionally,the original equity holder has an advantageous position in terms of information concerning issues such as the quality of underlying assets and the stability of cash flows.Therefore,excluding the original equity holder from the scope of information disclosers is not so rational.Considering credit enhancement institutions have stronger capabilities in obtaining and possessing information regarding credit enhancement methods and risk transfer levels than any other participant.Therefore,credit enhancement institutions should also be included in the scope of information disclosers.As for other participants who have access to ABS-related information within the scope of their responsibilities,they must disclose the information as long as the information is relevant to investors (Shen,2008).Therefore,the information disclosure model where the issuer of traditional securities is responsible for information disclosure and other participants provide information to the issuer does not apply to ABS information disclosure.Instead,original equity holders,credit enhancement institutions,and other relevant parties should be directly included as participants in the scope of information disclosers.

Improving the Content of ABS Information Disclosure

The core of information disclosure lies in its content,i.e.what information should be disclosed,how it should be disclosed,and to what extent it should be disclosed.As mentioned earlier,ABS information disclosure differs from traditional securities as it focuses more on the information and risk factors related to the “assets” that back the ABS.

Disclosure of Underlying Asset Information

As asset securitization involves the fragmentation and combination of underlying assets to construct an asset pool,as well as rating and credit enhancement of assets in the pool,ultimately using the cash flow generated by the underlying assets as the basis for issuing securities.Therefore,the disclosure of relevant information about the underlying assets is undoubtedly an essential aspect of information disclosure.Specifically,the focus of disclosure is on the quality and risk information of the underlying assets.First,it is necessary to determine the type of assets to be securitized,such as whether the assets are superior or inferior.Second,it should be determined whether the asset pool to be disclosed is static or dynamic.If it is determined in the transaction that the principal repayments for a specific period will be used as new assets for reinvestment,then this structure is referred to as a cyclical structure,and the specific period is called a cyclical period.In this structure,the asset pool is essentially dynamic (Fabozzi,2017,p.57).A dynamic asset pool is undoubtedly riskier than a static one.Another important issue is the risk analysis of the asset pool and the proposed structure.These risks include credit risk,interest rate risk,early repayment risk,overdue risk,exchange rate risk,service risk,legal risk,and tax risk (Fabozzi,2017,p.58).When identifying and disclosing risks,it is also important to reveal whether the asset pool is static or dynamic.The former has a constant number of assets and relatively stable risk attributes within the repayment cycle; the latter requires separate identification and disclosure of risks each time during disclosure as there are continuous outflows of old assets and inflows of new assets into the pool.

Disclosure of Cash Flow Forecast Information

As mentioned earlier,ABS information disclosure involves disclosing both historical information and future information on cash flows generated by the underlying assets.Disclosure of cash flow forecast information is one of the core elements of asset securitization,and only by reasonably regulating cash flow forecast information can the goal of ensuring financial security be achieved most effectively (Zhao & Tang,2019).However,the disclosure of cash flow forecast information contradicts the rules for disclosure of “hard information” in traditional securities law,and objectively speaking,there are also significant difficulties faced in practice.Although a series of regulations and normative documents issued in China mandate the disclosure of ABS cash flow forecast information,it is often distorted in reality and presented as voluntary disclosure under the guise of mandatory disclosure.Therefore,the existing rules for disclosing cash flow forecast information still need further optimization.In my opinion,since the cash flow generated by underlying assets is the basis for ABS to deliver returns to investors,the prediction of future cash flow trends should not be considered as“soft information” but rather as crucial “hard information,” and its disclosure should undoubtedly be mandatory.In reality,many SPVs are unwilling to conduct in-depth analysis and forecasting of various factors that may impact the profitability of underlying assets.Instead,they rely more on their own experience to make judgments about factors affecting cash flow,mainly due to cost considerations.Therefore,we need to refine the content of disclosure related to factors influencing predictive information.Also,the “safe harbor” rule should not apply to information disclosers in cases where their intentional or gross negligence leads to significant misrepresentation of cash flow forecast information.This prevents the disclosers from simply being exempted and thus increases their cost of non-compliance,encouraging them to fulfill their disclosure obligations with greater care when disclosing cash flow forecast information.

Disclosure of Credit Rating and Credit Enhancement Information

In the process of asset securitization,credit rating and credit enhancement are indispensable steps for ABS to reduce credit risk and improve the credit rating of ABS.Investors are most concerned about the credit level and degree of credit risk associated with ABS.In the ABS field,credit risk includes both participant credit risk and asset credit risk.The former involves the basic information of the original equity holder and the SPV,while the latter refers to the risk inherent in the underlying assets,indicating the possibility that the assets that back the ABS cannot generate a sustained and stable cash flow.Credit rating agencies should conduct a reasonable assessment of participant credit risk and asset credit risk in the trading structure,and provide ABS credit rating information and credit risk information as assessment results to the discloser for classified disclosure.Additionally,credit enhancement is a necessary condition for ABS to pass the issuance review.Typically,ABS without credit enhancement is rated at grade C,which is clearly not an attractive credit level for investors.Therefore,through a series of internal and external credit enhancement techniques,the credit risk faced by investors is transferred to the guarantee institution,thereby reducing the credit risk.This can effectively raise the credit rating of ABS to B+ or even A,allowing ABS to gain recognition from more investors and achieve better issuance performance.As the guarantee institution bears the credit risk,it is more concerned about and sensitive to the risk factors inherent in ABS.Therefore,the disclosure of credit enhancement information,including the qualifications of the guarantee institution,methods of credit enhancement,and the results of credit enhancement,can better reveal the credit level of ABS and the stability of ABS cash flow,thus providing a reference for investors’ choices.

Improving Legal Liability for False Information Disclosure

As mentioned earlier,in the past,China imposed “heavy punishment and light compensation” for false disclosures.This approach not only failed to effectively protect investors but also reduced the deterrent effect of legal liability.In fact,for market participants,the deterrent effect of civil compensation liability is no less significant than that of various administrative liabilities.However,under the backdrop of the implementation of theNew Securities Law,civil liability has been strengthened with the support of the securities investor representative litigation system.The high-profile“Kangmei Pharmaceutical case” is a typical example.This case not only set a precedent for high compensation for false statements in China’s securities field but also had a strong demonstration effect on the representative group litigation and the joint liability of directors,supervisors,and senior managers of the issuer.Since theNew SecuritiesLawapplies to the entire securities field,its provisions regarding legal liability for false statements also apply to ABS information disclosure.This largely addresses the previous lack of civil liability.In addition,at the end of 2021,the Supreme People’s Court issued theSeveral Provisions of the Supreme People’s Court on the Trial of Civil Cases for Damages for the Tort of Misrepresentation in the Securities Market(“Several Provisions”).These provisions not only classify the legal liability arising from false statements as civil liability but also provide detailed regulations on specific issues related to the process of pursuing civil liability,such as the determination of false statements,materiality,causality,faults,liable participants,and losses.The implementation of theSeveral Provisionshas provided more detailed and operable rules for pursuing civil liability for false statements.However,theSeveral Provisions,in nature,are judicial interpretations rather than laws or regulations.While they can serve as a basis for court judgments,using them as enforcement grounds for law enforcement agencies may be a little strained.The scope of their application is somewhat limited.Therefore,it would be preferable to upgrade the achievements of theSeveral Provisionsinto laws or administrative regulations as soon as possible.

As a product of financial innovation in the late 20th century,ABS has become a vibrant branch of China’s securities industry.In the process of its development,investors,as the foundation of the securities market,rely heavily on true,accurate and complete information disclosure for the protection of their rights and interests.Therefore,the ABS information disclosure system is an indispensable component of securities laws and regulations.Only with the gradual establishment and improvement of the ABS information disclosure system can we create a brighter future for the development of asset securitization in China.