Rule 17g-10 and Form ABS Due Diligence-15E SS FINAL

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 17g-10 - “Certification of providers of third-party due diligence services in
connection with asset-backed securities” and Form ABS Due Diligence-15E
A.

Justification
1.

Necessity of Information Collection

The Credit Rating Agency Reform Act of 2006 1 (“Rating Agency Act”), enacted on
September 29, 2006, defined the term “nationally recognized statistical rating organization”
(“NRSRO”) and provided authority for the Securities and Exchange Commission
(“Commission”) to implement registration, recordkeeping, financial reporting, and oversight
rules with respect to credit rating agencies registered with the Commission as NRSROs. The
Rating Agency Act added new Section 15E, “Registration of Nationally Recognized Statistical
Rating Organizations,” 2 to the Securities Exchange Act of 1934 (“Exchange Act”). In 2007, the
Commission adopted rules to implement specific provisions of the Rating Agency Act, as well as
other registration, recordkeeping, financial reporting and oversight rules. 3
The Dodd-Frank Wall Street Reform and Consumer Protection Act 4 (“Dodd-Frank Act”)
was enacted on July 21, 2010. Title IX, Subtitle C of the Dodd-Frank Act, “Improvements to the
Regulation of Credit Rating Agencies,” among other things, established new self-executing
requirements applicable to NRSROs, required certain studies, and required that the Commission
adopt rules applicable to NRSROs, providers of due diligence services, and issuers and
underwriters of asset-backed securities in a number of areas. 5
Section 932 of the Dodd-Frank Act amended Section 15E of the Exchange Act to add
paragraph (s). 6 Section 15E(s)(4)(B) of the Exchange Act requires that in any case in which
third-party due diligence services are employed by an NRSRO, an issuer, or an underwriter, the
person providing the due diligence services shall provide to any NRSRO that produces a rating
to which such services relate, written certification in a format as provided in Exchange Act
Section 15E(s)(4)(C) which, in turn, provides that the Commission shall establish the appropriate
format and content for the written certifications required under Section 15E(s)(4)(B) to ensure
that providers of due diligence services have conducted a thorough review of data,

1

Pub. L. No. 109-291 (Sept. 29, 2006).

2

15 U.S.C. 78o-7.

3

Oversight of Credit Rating Agencies Registered as Nationally Recognized Statistical Rating Organizations,
Exchange Act Release No. 55857 (June 5, 2007), 72 FR 33564 (June 18, 2007).

4

Pub. L. No. 111-203, 124 Stat. 1376, H.R. 4173 (July 21, 2010).

5

See Pub. L. No. 111-203 §§ 931-939H; see also Pub. L. No. 111-203 § 943.

6

Pub. L. No. 111-203 § 932.

1

documentation, and other relevant information necessary for an NRSRO to provide an accurate
rating.
In May 2011, the Commission proposed new rules and rule amendments, including
proposed new Rule 17g-10 (17 CFR 240.17g-10) and new Form ABS Due Diligence-15E (17
CFR 249b.500) to implement certain provisions of the Dodd Frank Act and improve oversight of
NRSROs. 7 On August 27, 2014, the Commission adopted new Rule 17g-10 and new Form ABS
Due Diligence-15E, in part to implement rulemaking mandated in Sections 15E(s)(4)(B) and (C)
of the Exchange Act. 8
Rule 17g-10 and Form ABS Due Diligence-15E contain disclosure requirements for
providers of third-party due diligence services. 9 These disclosure requirements involve a
collection of information within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
The collection of information obligations imposed by the rule are mandatory.
Paragraph (a) of Rule 17g-10 provides that the written certification providers of thirdparty due diligence services must provide to NRSROs pursuant to Section 15E(s)(4)(B) of the
Exchange Act must be made on Form ABS Due Diligence-15E. 10 Paragraph (b) of Rule 17g-10
provides that the written certification must be signed by an individual who is duly authorized by
the person providing the third-party due diligence services to make such a certification. 11
Paragraph (c) of Rule 17g-10 provides a “safe harbor” for a provider of third-party due diligence
services to meet its obligation under Section 15E(s)(4)(B). 12 Paragraph (d) of Rule 17g-10
contains four definitions to be used for the purposes of Section 15E(s)(4)(B) and Rule 17g-10;
namely, definitions of due diligence services, 13 issuer, 14 originator, 15 and securitizer. 16

7

Proposed Rules for Nationally Recognized Statistical Rating Organizations, Exchange Act Release No.
64514 (May 18, 2011), 76 FR 33420 (June 8, 2011) (“Proposing Release”).

8

Nationally Recognized Statistical Rating Organizations, Exchange Act Release No. 72936 (August 27,
2014), 79 FR 55078 (Sept. 15, 2014) (“Adopting Release”).

9

The Office of Management and Budget (“OMB”) Control Number for Rule 17g-10 is 3235-0694.

10

See 17 CFR 240.17g-10(a).

11

See 17 CFR 240.17g-10(b).

12

See 17 CFR 240.17g-10(c).

13

See 17 CFR 240.17g-10(d)(1).

14

See 17 CFR 240.17g-10(d)(2).

15

See 17 CFR 240.17g-10(d)(3).

16

See 17 CFR 240.17g-10(d)(4).

2

Form ABS Due Diligence-15E contains five line items identifying information the
provider of third-party due diligence services must provide. 17 The form also contains a signature
line with a corresponding representation. 18 Item 1 elicits the identity and address of the provider
of third-party due diligence services. 19 Item 2 elicits the identity and address of the issuer,
underwriter, or NRSRO that paid the provider to provide the services. 20 Item 3 requires the
provider of the due diligence services to identify each NRSRO whose published criteria for
performing due diligence the third party intended to satisfy in performing the due diligence
review. 21 Item 4 requires the provider of third-party due diligence services to describe the scope
and manner of the due diligence performed. 22 Item 5 requires the provider of third-party due
diligence services to describe the findings and conclusions resulting from the review. 23
2.

Purpose and Use of the Information Collection

The purpose of Rule 17g-10 and Form ABS Due Diligence-15E is to achieve the
objective stated in Section 15E(s)(4)(B) of the Exchange Act; namely, that a provider of thirdparty due diligence services conducts a thorough review of data, documentation, and other
relevant information necessary for an NRSRO to provide an accurate credit rating. The
disclosure of information about third-party due diligence services on Form ABS Due Diligence15E pursuant to Rule 17g-10 will be used by NRSROs, investors, and other market participants
to evaluate the adequacy and level of the reviews of the assets underlying an asset-backed
security24 (“Exchange Act-ABS”) performed by the third party. 25

17

See 17 CFR 249b.500 (Form ABS Due Diligence-15E).

18

See id.

19

See 17 CFR 249b.500, Item 1.

20

See 17 CFR 249b.500, Item 2.

21

See 17 CFR 249b.500, Item 3.

22

See 17 CFR 249b.500, Item 4.

23

See 17 CFR 249b.500, Item 5.

24

The term ‘‘asset-backed security’’, as defined in Section 3(a)(79) of the Exchange Act, (A) means a fixedincome or other security collateralized by any type of self-liquidating financial asset (including a loan, a
lease, a mortgage, or a secured or unsecured receivable) that allows the holder of the security to receive
payments that depend primarily on cash flow from the asset, including (i) a collateralized mortgage
obligation; (ii) a collateralized debt obligation; (iii) a collateralized bond obligation; (iv) a collateralized
debt obligation of asset-backed securities; (v) a collateralized debt obligation of collateralized debt
obligations; and (vi) a security that the Commission, by rule, determines to be an asset-backed security for
purposes of this section; and (B) does not include a security issued by a finance subsidiary held by the
parent company or a company controlled by the parent company, if none of the securities issued by the
finance subsidiary are held by an entity that is not controlled by the parent company. See 15 U.S.C.
§78c(a)(79).

25

See Nationally Recognized Statistical Rating Organizations, 79 FR at 55188, 55194 (providing a more
detailed discussion of Rule 17g-10 and Form ABS Due Diligence-15E).

3

3.

Consideration Given to Information Technology

Rule 17g-10 requires a third-party due diligence provider to submit a written certification
on Form ABS Due Diligence-15E signed by an individual who is duly authorized by the person
providing the third-party due diligence services to make such a certification. The Commission
anticipates, however, that much of the material required in Form ABS Due Diligence-15E could
be drawn directly from the due diligence reports the Commission expects that providers of thirdparty due diligence services generate with respect to their performance of due diligence services.
As such, the Commission anticipates that much of the work necessary to complete the form
could be performed electronically.
4.

Duplication

The Commission has not identified any duplication with respect to the information
required by Rule 17g-10 and Form ABS Due Diligence-15E.
5.

Effect on Small Entities

Small entities may be affected by Rule 17g-10 and Form ABS Due Diligence-15E
because all third-party due diligence providers, regardless of size, will be required to comply
with the rule. The Commission stated in the Adopting Release that it estimates that there are
approximately fifteen providers of third-party due diligence services and that it believes that all
of these firms will be small entities. 26
The Commission solicited comment in the Proposing Release regarding the rule’s burden
on small entities and considered potential alternatives to minimize the burden of the collection of
information requirements on small entities. 27 In the Adopting Release, the Commission
modified proposed Rule 17g-10 and Form ABS Due Diligence-15E in ways that it believes will
reduce the burden on small entities. 28 In particular, Rule 17g-10, established a “safe harbor” to
provide certainty to providers of third-party due diligence services with respect to how they can
meet their obligation under Section 15E(s)(4)(B) of the Exchange Act to provide Form ABS Due
Diligence-15E to any NRSRO that produces a credit rating to which the due diligence services
relate. Under the safe harbor, a provider of third-party due diligence services will be deemed to
have satisfied its obligations under Section 15E(s)(4)(B) if the due diligence provider promptly
delivers an executed Form ABS Due Diligence-15E after completion of the due diligence
services to: (1) an NRSRO that provided a written request for the Form ABS Due Diligence-15E
prior to the completion of the due diligence services stating that the services relate to a credit
rating the NRSRO is producing; (2) an NRSRO that provides a written request for the Form ABS
Due Diligence-15E after the completion of the due diligence services stating that the services
relate to a credit rating the NRSRO is producing; and (3) the issuer or underwriter of the
Exchange Act-ABS for which the due diligence services relate that maintains the Internet
26

See Nationally Recognized Statistical Rating Organizations, 79 FR at 55257.

27

See Proposed Rules for Nationally Recognized Statistical Rating Organizations, 76 FR 33420.

28

See Nationally Recognized Statistical Rating Organizations, 79 FR at 55256.

4

website with respect to the asset-backed security pursuant to Rule 17g-5(a)(3). 29 Consequently,
small third-party due diligence providers will not be required to identify every NRSRO that is
producing a credit rating. The Commission believes that these modifications will reduce the
burden on all providers of third-party due diligence services, including small entities.
6.

Consequences of Not Conducting Collection

If the information required under Rule 17g-10 and Form ABS Due Diligence-15E were
not collected, the objectives of Section 15E(s)(4) of the Exchange Act would not be achieved and
the public would have less information to determine the adequacy and level of services from
providers of third-party due diligence services. Further, if the information required were not
collected, the Commission would be less able to ensure that providers of third-party due
diligence services have conducted a thorough review of data, documentation, and other relevant
information necessary for an NRSRO to provide an accurate rating.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The Commission solicited comment on the estimated PRA burden associated with the
proposed collection of information requirements in the Proposing Release. 30 Comments on the
Proposing Release were generally received from registrants, investors, and other market
participants. In addition, the Commission and staff participate in ongoing dialogue with
representatives of various market participants through public conferences, meetings and informal
exchanges. Any comments received during the rulemaking are posted on the Commission’s
public website, and are available through http://www.sec.gov/comments/s7-18-11/s71811.shtml.
The Commission received a number of comments relating to Rule 17g-10 and Form ABS Due
Diligence-15E and considered all comments received prior to publishing the adopted rule, and
explained in the Adopting Release how the adopted rule responds to such comments, in
accordance with 5 C.F.R. 1320.11(f). 31 However, the Commission did not receive comments on
its estimates of the PRA burdens associated with Rule 17g-10 and Form ABS Due Diligence15E.
9.

Payment or Gift

The Commission did not provide any payment or gift to respondents in connection with
Rule 17g-10 and Form ABS Due Diligence-15E.

29
30

31

See 17 CFR 240.17g-10(c).
See Proposed Rules for Nationally Recognized Statistical Rating Organizations, 76 FR at 33511.
See Nationally Recognized Statistical Rating Organizations, 79 FR at 55078.

5

10.

Confidentiality

The information collections under Rule 17g-10 and Form ABS Due Diligence-15E will
not be confidential.
11.

Sensitive Questions

Not applicable. No inquiries of a sensitive nature were made. The information collection
does not collect any personally identifiable information.
12.

Burden of Information Collection

The Commission adopted Rule 17g-10 and Form ABS Due Diligence-15E on August 27,
2014. 32 Rule 17g-10 requires a provider of third-party due diligence services to provide a
written certification to an NRSRO on Form ABS Due Diligence-15E. 33
In the Proposing Release, the Commission estimated that there would be ten providers of
third-party due diligence services and each would spend an average of approximately 300 hours
per firm developing certain processes and protocols to provide the required information and
submit the certifications, and that 75% of these burden hours (225 hours) would be internal
burden and 25% of these burden hours (75 hours) would be external burden to hire outside
counsel to provide legal advice on the requirements of the new rule and form. 34 The
Commission did not receive comment on these estimates. Further, the modifications to Rule
17g-10 and Form ABS Due Diligence-15E in the Adopting Release do not impact the one-time
hour burden or allocation of that burden to internal and external burdens because the
modifications – which create a “safe harbor” from the requirement to provide the forms to
NRSROs – do not require the third party due diligence provider to expend more effort to meet
the statutory requirement because they will make the process more certain and efficient.
Consequently, the processes and protocols to meet the safe harbor are no more complex than
would have been the case if the provider of third-party due diligence services had to determine
each NRSRO that was producing a credit rating in order to provide the NRSRO with the
certification as required by Section 15E(s)(4)(B) of the Exchange Act. For these reasons, the
Commission is not revising the estimated one-time and annual hour burdens for providers of
third-party due diligence services.
However, the Commission now estimates that there are approximately fifteen providers
of third-party due diligence services. 35 Accordingly, the Commission estimates an industry-wide
one-time disclosure burden for providers of third-party due diligence services of approximately
4,500 hours (based on the Commission’s burden estimate of 300 hours per firm to develop
32

See Nationally Recognized Statistical Rating Organizations, 79 FR at 55078.

33

See 17 CFR 240.17g-10(a).

34

See Proposed Rules for Nationally Recognized Statistical Rating Organizations, 76 FR at 33509.

35

See Nationally Recognized Statistical Rating Organizations, 79 FR at 55088.

6

processes and protocols to provide the required information and submit the certifications). 36 In
addition, the Commission allocated 75% of these burden hours (3,375 hours) to internal burden
and 25% of these burden hours (1,125 hours) to external burden to hire outside counsel to
provide legal advice on the requirements of Rule 17g-10 and Form ABS Due Diligence-15E. 37
With respect to the annual burden, the Commission stated in the Proposing Release that
the estimate should be based on the number of issuances per year of Exchange Act-ABS because
the requirement to produce the certification and provide it to NRSROs and issuers or
underwriters will be triggered when an issuer, underwriter, or NRSRO hires a provider of thirdparty due diligence services. The Commission estimated in the Proposing Release that a
provider of third-party due diligence services would spend approximately thirty minutes to
complete and transmit Form ABS Due Diligence-15E and that there would be an average of
2,067 Exchange Act-ABS offerings per year, for an industry-wide annual burden of
approximately 1,034 hours. 38 The Commission did not receive comments on this estimate. The
Commission believed that the modification to the proposal creating the “safe harbor” will
decrease the annual burden as compared to the burden estimated in the Proposing Release. In
particular, the provider of third-party due diligence services in many cases may need to submit
only one certification to another party; namely, to the issuer or underwriter that maintains the
Rule 17g-5 website. Without a safe harbor, the provider of third-party due diligence services
would have needed to submit the certification to each NRSRO producing a credit rating for the
Exchange Act-ABS, which frequently would include two or more hired NRSROs and possibly
additional non-hired NRSROs. Moreover, the certainty of meeting the “safe harbor” provisions
eliminates the additional time a third party may have spent seeking to determine whether it has
identified all NRSROs producing a credit rating and provided them with the certification in
accordance with its statutory obligation to provide the certification to every NRSRO rating the
applicable Exchange Act-ABS. For these reasons, the Commission estimates that the
modifications to the rule in the Adopting Release will reduce the burden attributable to Form
ABS Due Diligence-15E from thirty minutes to twenty minutes to complete and transmit Form
ABS Due Diligence-15E.
36

15 providers of third-party due diligence services x 300 hours = 4,500 hours. The estimate of 300 hours
remains unchanged from the Commission’s preliminary estimate in the Proposing Release. See Proposed
Rules for Nationally Recognized Statistical Rating Organizations, 76 FR at 33509. This estimate is based
on the Commission’s estimate for the amount of time it would take a securitizer to set-up a system to make
the disclosures required by Form ABS-15G. See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 76 FR at 4507-4506.
The Commission, however, has reduced the hour estimate of 850 hours used for Form ABS-15G by
approximately two-thirds because information required to be provided in proposed Form ABS Due
Diligence-15E is substantially less detailed and complex than the information required in Form ABS-15G.

37

4,500 hours x 0.75 = 3,375 hours; 4,500 hours x 0.25 = 1,150 hours. This allocation remains unchanged
from the Commission’s preliminary allocation in the Proposing Release. For the purposes of Form 83-I,
the industry-wide one-time internal hourly burden has been annualized over the three year approval period
to an hourly burden of 1,125 hours per year (3,375 hours/3 years). This equates to an annual burden of 75
hours per provider of due diligence services (1,125 hours/15 providers of due diligence services) during the
three year approval period.

38

See Proposed Rules for Nationally Recognized Statistical Rating Organizations, 76 FR at 33509 (2,067
offerings x 30 minutes = 1,034 hours).

7

The Commission estimates that there will be 715 Exchange Act-ABS offerings per
year. 39 For these reasons, the Commission estimates that the industry-wide annual hour
disclosure burden for providers of third-party due diligence services resulting from Rule 17g-10
and Form ABS Due Diligence-15E is approximately 238 hours. 40
In summary, the Commission estimates that Rule 17g-10 and Form ABS Due Diligence15E will result in a total industry-wide one-time disclosure burden for providers of third-party
due diligence services to develop processes and protocols to provide the required information
and submit the certifications of approximately 3,375 hours, 41 and a total industry-wide one-time
cost for providers of third-party due diligence services to develop processes and protocols to
provide the required information and submit the certifications of $955,125. 42 The total industrywide annual hour disclosure burden to provide the required information and submit the
certifications is approximately 238 hours, and the total industry-wide annual costs for providers
of third-party due diligence services to provide the required information and submit the
certifications is approximately $67,000. 43
13.

Costs to Respondents

As discussed above, the Commission estimates that providers of third-party due diligence
services would spend an average of approximately 300 hours per firm developing the processes
and protocols required to provide the information and submit the certification required by Rule
17g-10, resulting in a one-time industry-wide hour burden of 4,500 hours. In addition, the
Commission allocated 75% of these burden hours (3,375 hours) to internal burden and the
remaining 25% (1,125 hours) to external burden for outside professionals. The Commission

39

See Nationally Recognized Statistical Rating Organizations, 79 FR at 55088, Table 6.

40

715 Exchange Act-ABS offerings x 20 minutes = 238.33 hours, rounded to 238 hours.

41

For the purposes of Form 83-I, the industry-wide one-time hourly burden has been annualized over the
three year approval period to an hourly burden of 1,125 hours per year (3,375 hours/3 years). This equates
to an annual burden of 75 hours per provider of due diligence services (1,125 hours/15 providers of due
diligence services) during the three year approval period.

42

3,375 hours x $283 per hour for a compliance manager = $955,125. The salary figures provided in this
Supporting Statement are from SIFMA’s Management & Professional Earnings in the Securities Industry
2013, modified by Commission staff to account for a 1,800-hour work-year and multiplied by 5.35 to
account for bonuses, firm size, employee benefits, and overhead. See Nationally Recognized Statistical
Rating Organizations, 79 FR at 55245 (PRA analysis providing cost and hour burden estimates). For the
purposes of this PRA submission, the industry-wide one-time cost has been annualized over the three year
approval period to a cost of $318,375 per year ($955,125/3 years). This equates to an annual cost of
$21,225 per provider of due diligence services ($318,375/15 providers of due diligence services) during the
three year approval period.

43

238 hours x $283 per hour for a compliance manager = $67,354, rounded to $67,000. See id.

8

estimates that the hourly cost of such outside professionals would be $400, resulting in a onetime cost burden of $450,000 (1,125 hours x $400). 44
14.

Costs to Federal Government

The Commission does not anticipate that Rule 17g-10 and Form ABS Due Diligence-15E will
result in any costs to the federal government beyond normal full-time employee labor costs, nor does the
Commission anticipate that the rule and form will require the Commission to hire any new employees or
reallocate existing employees to ensure compliance with the rule.
15.

Changes in Burden

Rule 17g-10 and Form ABS Due Diligence-15E are a new rule and form.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

The Commission is not requesting authorization to omit the OMB expiration date.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

Collection of Information Employing Statistical Methods

The collection of information does not employ statistical methods, or analyze the
information for the Commission.

44

For the purposes of Form 83-I, the industry-wide one-time cost has been annualized over the three year
approval period to an annual cost of $150,000 per year ($450,000/3 years). This equates to an annual cost
of $10,000 per provider of due diligence services ($150,000/15 providers of due diligence services) during
the three year approval period.

9