Supporting Statement ABS due diligence 4-8-11

SUPPORTING STATEMENT FOR FINAL RULES UNDER THE SECURITIES
ACT OF 1933, SECURITIES EXCHANGE 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. 33-9176,1 the Commission adopted a new rule and amendments to
implement Section 945 of the Dodd-Frank Wall Street Reform and Consumer Protection
Act (“Dodd-Frank Act”). Section 945 of the Dodd-Frank Act amended Section 7 of the
Securities Act of 1933 (“Securities Act”) to require the Commission to issue rules
requiring an issuer of asset-backed securities (“ABS”) to perform a review of the assets
underlying the ABS and to disclose the nature of that review.
The Commission adopted amendments to the disclosure requirements for
Securities Act registration statements used by ABS issuers. These amendments would
require certain disclosure of the nature of a review of the assets performed by the issuer,
as well as the findings and conclusion of the review of the assets by the issuer, sponsor or
appropriate third party. As a result of the amendments, ABS issuers also will be required
to disclose how the assets in the pool deviate from the disclosed underwriting criteria,
and include data on the amount and characteristics of those assets that did not meet the
disclosed standards.
The final amendments contain “collection of information” requirements within
the meaning of the Paperwork Reduction Act of 1995. The titles of the collections of
information impacted by the amendments are:
“Form S-1” (OMB Control No. 3235-0065); and
“Form S-3” (OMB Control No. 3235-0073).
2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

The purpose of the new rule and amendments is to implement Section 945 of the
Dodd-Frank Act. Section 945 amended Section 7 of the Securities Act to require the
Commission to issue rules relating to the registration statement required to be filed by an
issuer of ABS. Pursuant to new Section 7(d), the Commission must issue rules to require
that an issuer of an ABS perform a review of the assets underlying the ABS, and disclose
the nature of such review.
1

Issuer Review of Assets in Offerings of Asset-Backed Securities, Release No. 33-9176 (Jan. 20, 2011)
[76 FR 4231].

3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The collection of information requirements of the amendments will be set forth in
Forms S-1 and S-3. These forms are filed electronically 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 final rules relate to the registration, disclosure and reporting requirements for
issuers and underwriters of ABS under the Securities Act and the Exchange Act. As
discussed in Release No. 33-9176, based on our data, we did not find a significant
number of issuers or underwriters 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 forms set forth the disclosure requirements for registration statements filed by
issuers to help investors make informed investment decisions. Less frequent collection
would frustrate the statutory intent of Section 7(d) of the Securities Act because investors
in ABS would have less information on which to base an investment decision.
7.

SPECIAL CIRCUMSTANCES
None

8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

The Commission issued a release soliciting comment on the new “collection of
information” requirements and associated paperwork burdens.2 Comments on the
Commission’s releases are generally received from registrants, investors, and other
market participants. In addition, the Commission and staff participate in an ongoing
dialogue with representatives of various market participants through public conferences,
meetings and informal exchanges. The Commission considers all comments received.
No comments were received in response to the Commission’s solicitation of comment on
the new “collection of information” requirements and associated paperwork burdens.
Comments received on the proposal are available at http://www.sec.gov/comments/s7-2610/s72610.shtml. A copy of the adopting release is attached.
2

See Issuer Review of Assets in Offerings of Asset-Backed Securities, Release No. 33-9150 (Oct.
13, 2010) [75 FR 64182].

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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 paperwork burden estimates associated with the final rules include the
burdens attributable to collecting, preparing, reviewing and retaining records.
Our PRA burden estimates for the final amendments are based on information that
we receive on entities assigned to Standard Industrial Classification Code 6189, the code
used with respect to asset-backed securities, as well as information from outside data
sources. When possible, we base our estimates on an average of the data that we have
available for each of the years from 2004 through 2009.
Forms S-1 and S-3
We adopted amendments to Item 1111 of Regulation AB3 to increase the
disclosure that is required in offerings of ABS registered on either Forms S-1 or S-3. The
amendment to Item 1111 requires issuers to provide disclosure regarding the assets
underlying the asset-backed security.
We also adopted Rule 193 under the Securities Act to implement Section 945 of
the Dodd-Frank Act. New Rule 193 requires issuers of ABS in registered offerings to
perform a review of the assets underlying the ABS. The review, at a minimum, must be
designed and affected to provide reasonable assurance that the disclosure regarding the
pool assets in the prospectus is accurate in all material respects. Under new Rule 193, if
an issuer engages a third party to assist in performing the review, the issuer may rely on
the third-party’s review to satisfy its obligations under Rule 193 provided the third party
is named in the registration statement and consents to being named as an “expert” in
3

Regulation S-K includes the item requirements in Regulation AB and contains the disclosure
requirements for filings under both the Securities Act and the Exchange Act. The paperwork burden from
Regulation S-K is imposed through the forms that are subject to the disclosures in Regulation S-K, and is
reflected in the analysis of those forms. To avoid a Paperwork Reduction Act inventory reflecting
duplicative burdens, for administrative convenience we estimate the burdens imposed by Regulation S-K
(which includes sub-part Regulation AB) to be a total of one hour.

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accordance with Section 7 of the Securities Act and Rule 436 under the Securities Act.
We anticipate that where issuers employ a third party to comply with Rule 193, issuers
will incur a burden in obtaining a consent from the third party.
We believe that the amendments will increase the annual incremental burden to
issuers by 30 hours per form. For registration statements, we estimate that 25% of the
burden of preparation is carried by the company internally and that 75% of the burden is
carried by outside professionals retained by the registrant at an average cost of $400 per
hour. From 2004 through 2009, an estimated average of four offerings was registered
annually on Form S-1 by issuers of asset-backed securities. We believe that the final
requirements will result in an increase to the internal burden to prepare Form S-1 of 30
burden hours (0.25 x30 x 4) and an increase in outside costs of $36,000 ($400 x 0.75 x 30
x 4). During 2004 through 2009, we estimate an annual average of 929 offerings of
asset-backed securities registered on Form S-3. Therefore, we believe that the
amendments will result in an increase to the internal burden to prepare Form S-3 filings
of 6,968 burden hours (0.25 x 30 x 929) and a total cost of $8,361,000 (400 x 0.75 x 30 x
929).
a. Summary of final changes to annual burden compliance in
Collection of Information

Form
S-1
S-3
Total

14.

Current
Annual
Responses

Proposed
Annual
Responses

Current
Burden
Hours

768
2,065

768
2,065

186,657
236,959

Increase
in
Burden
Hours
30
6,968
6,998

Proposed
Burden
Hours

Current
Professional
Costs

Increase in
Professional
Costs

Proposed
Professional
Costs

186,687
243,927

$223,988,000
$284,350,500

$36,000
$8,361,000
$8,397,000

$224,024,000
$292,711,500

COSTS TO FEDERAL GOVERNMENT
We estimate that the cost of preparing the amendments is approximately $50,000.

15.

REASON FOR CHANGE IN BURDEN

As explained in further detail in Items 12 and 13 above, the final rules in Release
No. 33-9176 implement the requirements of Section 945 of the Dodd-Frank Act.
The changes in burden of Forms S-1 and S-3 relate to enhanced disclosure
requirements in Regulation AB relating to asset-backed securities. These disclosure
requirements implement Section 945 of the Dodd-Frank Act by requiring issuers to
“disclose the nature of the review” performed by an issuer, as required under Section 945.
The Commission’s rules also implement Section 945 by requiring issuers to disclose
certain information regarding the assets underlying asset-backed securities. The change
in burdens for Forms S-1 and S-3 correspond to these new disclosure requirements.

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16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL
PURPOSES
Not applicable.

17.

DISPLAY OF OMB APPROVAL DATE
Not applicable.

18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION
ACT SUBMISSIONS
Not applicable.

B.

STATISTICAL METHODS
Not applicable.

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