Final PRA OMB Supporting Statement Credit Risk Retention.010715

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. 34-73407,1 the Commission adopted a final rule, 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 final rule is titled “Regulation RR.”
The final rule generally requires 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 final rule 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 final 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. 34-73407 (October 22, 2014) [79 FR 77602].
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 final rule includes 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 final rule 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 final rule.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The final 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 rule.

5.

REDUCING THE BURDEN ON SMALL ENTITIES

The final 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 final rule, the risk retention
requirements would apply to “sponsors,” as defined in the proposed rule. As discussed in Release
No. 34-73407, 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 rule 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 final rule. 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

2

8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

The Commission issued a proposing release4 and a re-proposing release5, both soliciting
comment on the implementation of the recordkeeping and disclosure requirements for the Credit
Risk Retention rule. In response to the solicitations for comment in the proposing and reproposing releases, sponsors, investors and other market participants provided comments. In
addition, the Commission and staff participated in ongoing dialogues with the representations of
various market participants through public conferences and meetings. The Commission
considered all comments received prior to publishing the final rule as required by 5 CFR
1320.11(f). While commenters provided qualitative comments on the possible costs of the rule,
the Agencies did not receive any quantitative comments on the PRA analysis.
Comments received on both the proposal and the re-proposal are available at
http://www.sec.gov/comments/s7-14-11/s71411.shtml. A copy of the adopting release is
attached.
9.

PAYMENT OR GIFT TO RESPONDENTS
Not applicable.

10.

CONFIDENTIALITY
Not applicable.

11.

SENSITIVE QUESTIONS

No information of a sensitive nature would be required under this collection of
information. The information collection collects basic Personally Identifiable Information (PII)
that may include name, business address, and residential address (for sole proprietor only),
telephone/cellular/facsimile number, email address, and Tax ID Number (TIN). The information
collection is covered under the System of Records Notices (SORN), which may be found at the
following link: http://www.sec.gov/about/privacy/sorn/secsorn6.pdf. The Privacy Impact
Assessment (PIA) is provided as a supplemental document.
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 17,774 hours, as shown in the table below. The
table provides the estimated annual burden for the 181 sponsors and 854 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.
4
5

Credit Risk Retention, Release No. 34-64148 (Mar. 30, 2011) [76 FR 24090].
Credit Risk Retention, Release No. 34-70277 (Aug. 28, 2013) [78 FR 57927].

3

The Agencies estimate that approximately 270 unique sponsors conduct ABS offerings per year.
This estimate was based on the average number of ABS offerings from 2004 through 2013
reported by the ABS database Asset-Backed Alert for all non-CMBS transactions and by
Commercial Mortgage Alert for all CMBS transactions. Of the 270 sponsors, 67 percent (181)
of these sponsors were assigned to the Commission.6
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 2013 (1,275
total annual offerings per year).7 The following additional estimates were made:
 12 offerings per year would be subject to disclosure and recordkeeping requirements
under §__.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 §§__.13 and __.19(g), 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 FDIC; 13 offerings per year for the OCC; and 67 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 FDIC; 16 offerings per year subject to §__.15 for the
OCC, and 80 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 FDIC; 5 offerings per year subject to each section for the
OCC, and 27 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., 1,055)8 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 1,055 offerings per year by
67 percent, which equals 707 offerings per year. This number was then divided by the number of
6

The remaining 13 percent were assigned to the OCC, 12 percent were assigned to the FDIC, and 8 percent were
assigned to the Board.
7
We use the ABS issuance data from Asset-Backed Alert on the initial terms of offerings, and supplement that data
with information from Commercial Mortgage Alert. This estimate includes registered offerings, offerings made
under Securities Act Rule 144A, and traditional private placements. We also note that this estimate is for offerings
that are not exempted under §§ _.19(a)-(f) and _.20 of the proposed rule.
8
Estimate of 1,275 offerings per year minus the estimate of the number of offerings qualifying for an exemption
under §__.13, §__.15 and §__.19(g) (220 total).

4

base risk retention options under Subpart B of the proposed rule (i.e., nine)9 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 707 offerings per year by nine options, resulting in
79 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.,
79 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 6.0 hours. Thus, the
estimated annual burden hours for respondents to which the Commission accounts for the burden
hours under §__.10 is 474 hours (79 * 1 * 6.0 hours = 474 hours).
a) Detailed table of proposed changes to annual burden compliance in Collection of
Information.
Estimated
number of
offerings
§__B.4, Standard Risk
Retention
Horizontal Interest
Recordkeeping
Disclosures
Vertical Interest
Recordkeeping
Disclosures
Combined Horizontal and
Vertical Interests
Recordkeeping
Disclosures
§__B.5, Revolving Master
Trusts
Recordkeeping
Disclosures
§__B.6, Eligible ABCP
Conduits
Recordkeeping
Disclosures
§__B.7, Commercial MBS

Estimated
annual
frequency

Estimated
average hours
per response

Estimated
annual
burden
hours10

79
79

1
1

0.5
5.5

40
435

79
79

1
1

0.5
2.0

40
158

79
79

1
1

0.5
7.5

40
593

79
79

1
1

0.5
7.0

40
553

79
79

1
1

20.0
3.0

1,580
237

9

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.
10

Rounded to nearest whole number.

5

Recordkeeping
Disclosures
§__B.8, FNMA and FHLMC
Disclosures
§__B.9, Open Market CLOs
Disclosures
§__B.10, Qualified Tender
Option Bonds
Disclosures
§__C.11, Allocation of Risk
Retention to an Originator
Recordkeeping
Disclosures
§§__D.13 and __.19(g),
Exemption for Qualified
Residential Mortgages and
Qualifying 3-to-4 Unit
Residential Mortgage Loans
Recordkeeping
Disclosures
§__D.15, Exemptions for
Qualifying Commercial Loans,
Commercial Real Estate
Loans, and Automobile Loans
Recordkeeping
Disclosures
§__D.16, Underwriting
Standards for Qualifying
Commercial Loans
Recordkeeping
Disclosures
§__D.17, Underwriting
Standards for Qualifying CRE
Loans
Recordkeeping
Disclosures
§__D.18, Underwriting
Standards for Qualifying
Automobile Loans
Recordkeeping
Disclosures

79
79

1
1

30.0
20.75

2,370
1,639

79

1

1.5

79

1

20.25

79

1

6.0

474

3
3

1
1

20.0
2.5

60
8

67
67

1
1

40.0
1.25

2,680
84

80
80

1
1

0.5
20.0

40
1,600

27
27

1
1

40.5
1.25

1,094
34

27
27

1
1

40.5
1.25

1,094
34

27
27

1
1

40.5
1.25

1,094
34

119
1,600

17,774

Total

6

For disclosures made at the time of the securitization transaction,11 the Commission
allocates 25 percent of these hours (1,773 hours) to internal burden for all sponsors. For the
remaining 75 percent of these hours, (5,319 hours), the Commission uses an estimate of $400 per
hour for external costs for retaining outside professionals totaling $2,127,750. For disclosures
made after the time of sale in a securitization transaction,12 the Commission allocated 75 percent
of the total estimated burden hours (1,565 hours) to internal burden for all sponsors. For the
remaining 25 percent of these hours (522 hours), the Commission uses an estimate of $400 per
hour for external costs for retaining outside professionals totaling $208,650.
We estimate the new Regulation RR will result in a total annual estimated cost burden of
$2,336,400 in professional costs.
b) Detailed table of proposed changes to annual cost burden in Collection of
Information.

§__B.4,
Standard
Risk
Retention
Horizontal
Interest
Disclosures
Vertical
Interest
Disclosures
Combined
Horizontal
and Vertical
Interests
Disclosures
§__B.5,
Revolving
Master

Estimate
d annual
burden
hours

Burden
hours for
disclosures
at the time
of
transaction

Cost
Burden hours
Cost
burden for
for
burden for
disclosures disclosures
disclosures
at the time after the time
after the
of
of sale
time of sale
transaction

Total cost
burden

434.5

316

$94,800

118.5

$11,850

$106,650

158

118.5

$35,550

39.5

$,3950

$39,500

592.5

592.5

$177,750

$177,750

11

These are the disclosures required by §§_.4 (c)(1)(i) and (iii), and (c)(2)(i) (as applicable to horizontal interests,
vertical interests, or any combination of horizontal and vertical interests); §§_.5(k)(1)(i), (iii) and (iv) ; _.6(d);
_.7(b)(7)(i) through (viii); _.8(c); _.9(d); 10(e); _.11(a)(2); _.13(b)(4)(iii); _.15(a)(4) and (b)(3); _.16(a)(8)(iii);
_.17(a)(10)(iii); _.18(a)(8)(iii); and _.19(g)(2).
12

These are the disclosures required by §§_.4 (c)(1)(ii) and (c)(2)(ii) (as applicable to horizontal interests, vertical
interests, or any combination of horizontal and vertical interests); §§ _.5(k)(1)(ii); _.6(f)(2)(ii); _.7(c)(2)(B);
_.9(d)(1); _.11(b)(2)(B); _13(c)(3); _.16(b)(3); _17(b)(3); _.18(b)(3); and _.19(g)(3).

7

Trusts
Disclosures
§__B.6,
Eligible
ABCP
Conduits
Disclosures
§__B.7,
Commercial
MBS
Disclosures
§__B.8,
FNMA and
FHLMC
Disclosures
§__B.9, Open
Market
CLOs
Disclosures
§__B.10,
Qualified
Tender
Option Bonds
Disclosures
§__C.11,
Allocation of
Risk
Retention to
an Originator
Disclosures
§§__D.13 and
__.19(g),
Exemption
for Qualified
Residential
Mortgages
and
Qualifying 3to-4 Unit
Residential
Mortgage
Loans
Disclosures

553

513.5

$154,050

39.5

$3,950

$158,000

237

158

$47,400

79

$7,900

$55,300

1639.25

1560.25

$468,075

79

$7,900

$475,975

118.5

118.5

$35,550

1599.75

1599.75

$479,925

474

474

$142,200

7.5

4.5

$1,350

3

$300

$1,650

83.75

16.75

$5,025

67

$6,700

$11,725

8

$35,550

1580

$158,000

$637,925

$142,200

§__D.15,
Exemptions
for
Qualifying
Commercial
Loans,
Commercial
Real Estate
Loans, and
Automobile
Loans
Disclosures
§__D.16,
Underwriting
Standards for
Qualifying
Commercial
Loans
Disclosures
§__D.17,
Underwriting
Standards for
Qualifying
CRE Loans
Disclosures
§__D.18,
Underwriting
Standards for
Qualifying
Automobile
Loans
Disclosures
Total
14.

1600

1600

$480,000

33.75

6.75

$2,025

27

$2,700

$4,725

33.75

6.75

$2,025

27

$2,700

$4,725

33.75

6.75

$2,025

27

$2,700

$4,725

$2,127,750

$480,000

$208,650

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.

9

$2,336,400

16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL PURPOSES
Not applicable.

17.

DISPLAY OF OMB APPROVAL DATE
The Commission is not seeking approval to omit the expiration date.

18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION ACT
SUBMISSIONS
Not applicable.

B.

STATISTICAL METHODS
Not applicable.

10