PRA OMB Supporting Statement Credit Risk Retention (Re-proposal) v2

SUPPORTING STATEMENT FOR PROPOSED RULES UNDER THE SECURITIES
ACT OF 1934 AND DODD-FRANK WALL STREET REFORM AND CONSUMER
PROTECTION ACT
This supporting statement is part of a submission under the Paperwork Reduction Act of
1995, 44 U.S.C. §3501, et seq.
A.

JUSTIFICATION
1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

In Release No. 34-70277,1 the Commission re-proposed rules, jointly with other Federal
agencies,2 to implement section 15G of the Securities and Exchange Act of 1934 (15 U.S.C. §
78o-11), as added by section 941(b) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 (Dodd-Frank Act).3 The proposed rules would be titled “Regulation RR.”
The proposal would generally require a securitizer of any asset-backed security (ABS) to
retain an economic interest equal to not less than five percent of the credit risk of the assets
collateralizing the security that the securitizer transfers, sells, or conveys to a third party in a
transaction within the scope of section 15G. The proposal specifies the permissible types, forms,
and amounts of credit risk retention, and establishes certain exemptions for securitizations
collateralized by assets that meet specified underwriting standards or that otherwise qualify for
an exemption, including an exemption for ABS that is collateralized exclusively by residential
mortgages that qualify as “qualified residential mortgages,” as defined in the proposed rule by
the Agencies.
The information collection pursuant to Regulation RR is triggered by specific events.
There are no required reporting forms associated with Regulation RR.
2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

The purpose of Regulation RR is to implement section 15G of the Exchange Act, as
added by section 941(b) of the Dodd-Frank Act. Section 15G generally requires the securitizer
of ABS to retain not less than five percent of the credit risk of the assets collateralizing the ABS.
Section 15G includes a variety of exemptions from these requirements, including an exemption
for ABS that are collateralized exclusively by residential mortgages that qualify as “qualified
residential mortgages,” as such term is defined by the Agencies by rule.

1

Credit Risk Retention, Release No. 34-70277 (Aug. 28, 2013) [78 FR 57928].
The agencies that are party to this rulemaking are the Office of the Comptroller of the Currency (OCC), the Board
of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the U.S.
Securities and Exchange Commission (Commission) and, in the case of the securitization of any “residential
mortgage asset,” together with the Federal Housing Finance Agency (FHFA) and the Department of Housing and
Urban Development (HUD), and are collectively, and as appropriate, referred to as the Agencies. For the purposes
of this supporting statement, the OCC, Board, and FDIC are collectively referred to as the Federal banking agencies.
3
Pub. L. No. 111-203, 124 Stat. 1376 (2010).
2

The proposed rules include disclosure requirements that are an integral part of and
specifically tailored to each of the permissible forms of risk retention. The disclosure
requirements are integral to the proposed rules because they would provide investors with
material information concerning the sponsor’s retained interests in a securitization transaction,
such as the amount and form of interest retained by sponsors, and the assumptions used in
determining the aggregate value of ABS to be issued (which generally affects the amount of risk
required to be retained). Further, the disclosures would provide investors and the Agencies with
an efficient mechanism to monitor compliance with the risk retention requirements of the
proposed rules.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The proposed rule does not contain any express requirement that the collection of
information be electronically filed with the Commission using the Commission’s Electronic Data
Gathering and Retrieval (EDGAR) system.
4.

DUPLICATION OF INFORMATION
We are not aware of any rules that conflict with or substantially duplicate the final rules.

5.

REDUCING THE BURDEN ON SMALL ENTITIES

The proposed rule implements the risk retention requirements of section 15G of the
Exchange Act, which, in general, requires the securitizer of ABS to retain not less than five
percent of the credit risk of the assets collateralizing the ABS. Under the proposed rule, the risk
retention requirements would apply to “sponsors,” as defined in the proposed rule. As discussed
in Release No. 34-70277, based on our data, we did not find a significant number of sponsors
that are small entities. As such, the Commission does not believe that the final rules would have
a significant economic impact on a substantial number of small entities.
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

The disclosure requirements provide investors with material information concerning the
sponsor’s retained interests in a securitization transaction, as well as provide investors and the
Agencies with an efficient mechanism to monitor compliance with the risk retention requirements
of the proposed rules. Less frequent collection would frustrate the statutory intent of section 15G
of the Exchange Act because investors in ABS would have less information on which to base an
investment decision.
7.

SPECIAL CIRCUMSTANCES
None

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8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY
On September 20, 2013, a joint notice of proposed rulemaking was published in
the Federal Register (78 FR 57928) requesting comment on the implementation of the
recordkeeping and disclosure requirements for the Credit Risk Retention rules. The
comment period expires on October 30, 2013.

9.

PAYMENT OR GIFT TO RESPONDENTS
Not applicable.

10.

CONFIDENTIALITY
Not applicable.

11.

SENSITIVE QUESTIONS
Not applicable.

12/13. ESTIMATES OF HOUR AND COST BURDENS
The estimated total annual burden for the recordkeeping and disclosure requirements of
this information collection by the Commission is 12,355 hours, as shown in the table below. The
table provides the estimated annual burden for the 107 sponsors and 574 offerings per year
assigned to the Commission to which Regulation RR applies.
To determine the total paperwork burden for the requirements contained in this proposed
rule, the Federal banking agencies and the Commission first estimated the universe of sponsors
that would be required to comply with the proposed disclosure and recordkeeping requirements.
The Agencies estimate that approximately 249 unique sponsors conduct ABS offerings per year.
This estimate was based on the average number of ABS offerings from 2004 through 2012
reported by the ABS database AB Alert for all non-CMBS transactions and by Securities Data
Corporation for all CMBS transactions. Of the 249 sponsors, 43 percent (107) of these sponsors
were assigned to the Commission.4
Next, the Federal banking agencies and the Commission estimated the burden per
response that would be associated with each disclosure and recordkeeping requirement, and then
estimated how frequently the entities would make the required disclosure by estimating the
proportionate amount of offerings per year for each Agency. In making this determination, the
estimate was based on the average number of ABS offerings from 2004 through 2012 (1,334
total annual offerings per year).5 The following additional estimates were made:

4

The remaining 12 percent were assigned to the OCC, 37 percent were assigned to the FDIC, and 8 percent were
assigned to the Board.
5
We use the ABS issuance data from Asset-Backed Alert on the initial terms of offerings, and supplement that data
with information from Securities Data Corporation. This estimate includes registered offerings, offerings made

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




12 offerings per year would be subject to disclosure and recordkeeping requirements
under sections §__.11, which are divided equally among the four Agencies (i.e., 3
offerings per year per Agency);
100 offerings per year would be subject to disclosure and recordkeeping requirements
under section §__.13, which are divided proportionately among the four Agencies based
on the entity percentages described above (i.e., 8 offerings per year for the Board; 12
offerings per year for the OCC; 37 offerings per year for the FDIC; and 43 offerings per
year for the Commission); and
120 offerings per year would be subject to disclosure requirements under §__.15, which
are divided proportionately among the four Agencies based on the entity percentages
described above (i.e., 10 offerings per year subject to §__.15 for the Board, 14 offerings
per year subject to §__.15 for the OCC; 44 offerings per year subject to §__.15 for the
FDIC, and 52 offerings per year subject to §__.15 for the Commission). Of these 120
offerings per year, 40 offerings per year would be subject to disclosure and recordkeeping
requirements under §§__.16, __.17, and __.18, respectively, which are divided
proportionately among the four Agencies based on the entity percentages described above
(i.e., 3 offerings per year subject to each section for the Board, 5 offerings per year
subject to each section for the OCC; 15 offerings per year subject to each section for the
FDIC, and 17 offerings per year subject to each section for the Commission).

To obtain the estimated number of responses (equal to the number of offerings) for each
option in Subpart B of the proposed rule, the Agencies multiplied the number of offerings
estimated to be subject to the base risk retention requirements (i.e., 1,114)6 by the sponsor
percentages described above. The result was the number of base risk retention offerings per year
per Agency. For the Commission, this was calculated by multiplying 1,114 offerings per year by
43 percent, which equals 479 offerings per year. This number was then divided by the number of
base risk retention options under Subpart B of the proposed rule (i.e., nine)7 to arrive at the
estimate of the number of offerings per year per Agency per base risk retention option. For the
Commission, this was calculated by dividing 479 offerings per year by nine options, resulting in
53 offerings per year per base risk retention option.
The total estimated annual burden for each Agency was then calculated by multiplying
the number of offerings per year per section for such Agency by the number of burden hours
estimated for the respective section, then adding these subtotals together. For example, under
§__.10, the Commission multiplied the estimated number of offerings per year for §__.10 (i.e.,
53 offerings per year) by the estimated annual frequency of the response for §__.10 of one
response, and then by the disclosure burden hour estimate for §__.10 of 4.0 hours. Thus, the
estimated annual burden hours for respondents to which the Commission accounts for the burden
hours under §__.10 is 212 hours (53 * 1 * 4.0 hours = 212 hours).
under Securities Act Rule 144A, and traditional private placements. We also note that this estimate is for offerings
that are not exempted under §§ _.19 and _.20 of the proposed rule.
6

Estimate of 1,334 offerings per year minus the estimate of the number of offerings qualifying for an exemption
under §__.13 and §__.15 (220 total).
7
For purposes of this calculation, the horizontal, vertical, and combined horizontal and vertical risk retention
methods under the standard risk retention option are each counted as a separate option under Subpart B of the
proposed rule.

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a) Detailed table of proposed changes to annual burden compliance in Collection of
Information.
Estimated
number of
offerings
§__.4, Standard Risk Retention
Horizontal Interest
Recordkeeping
Disclosures
Payment Date Disclosures
Vertical Interest
Recordkeeping
Disclosures
Combined Horizontal and
Vertical Interests
Recordkeeping
Disclosures
Payment Date Disclosures
§__.5, Revolving Master Trusts
Recordkeeping
Disclosures
§__.6, Eligible ABCP Conduits
Recordkeeping
Disclosures
§__.7, Commercial MBS
Recordkeeping
Disclosures
§__.8, FNMA and FHLMC
ABS
Disclosures
§__.9, Open Market CLOs
Disclosures
§__.10, Qualified Tender
Option Bonds
Disclosures
§__.11, Allocation of Risk
Retention to an Originator
Recordkeeping
Disclosures
§__.13, Exemption for
Qualified Residential
Mortgages
8

Estimated
annual
frequency

Estimated
average hours
per response

Estimated
annual
burden
hours8

53
53
53

1
1
12

0.5
3.0
1.0

27
159
636

53
53

1
1

0.5
2.5

27
133

53
53
53

1
1
12

0.5
4.0
1.0

27
212
636

53
53

1
1

0.5
4.0

27
212

53
53

1
1

20.0
3.0

1,060
159

53
53

1
1

30.0
20.75

1,590
1,100

53

1

1.5

53

1

20.25

53

1

4.0

212

3
3

1
1

20.0
2.5

60
8

Rounded to nearest whole number.

5

80
1,073

Recordkeeping
Disclosures
§__.15, Exemptions for
Qualifying Commercial Loans,
Commercial Real Estate
Loans, and Automobile Loans
Disclosures
§__.16, Underwriting
Standards for Qualifying
Commercial Loans
Recordkeeping
Disclosures
§__.17, Underwriting
Standards for Qualifying CRE
Loans
Recordkeeping
Disclosures
§__.18, Underwriting
Standards for Qualifying
Automobile Loans
Recordkeeping
Disclosures

43
43

1
1

40.0
1.25

1,720
54

52

1

20.0

1,040

17
17

1
1

40.0
1.25

680
21

17
17

1
1

40.0
1.25

680
21

17
17

1
1

40.0
1.25

680
21
12,355

Total

We estimate the proposed new Regulation RR will result in a total annual estimated cost
burden of $1,539,125 in professional costs.
14.

COSTS TO FEDERAL GOVERNMENT

We estimate that the cost to the Commission for preparing the rules will be
approximately $100,000.
15.

REASON FOR CHANGE IN BURDEN
This is a new collection of information.

16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL PURPOSES
Not applicable.

17.

DISPLAY OF OMB APPROVAL DATE
Not applicable.

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18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION ACT
SUBMISSIONS
Not applicable.

B.

STATISTICAL METHODS
Not applicable.

7