Treatment of Financial Assets Transferred in Connection With a Securitization or Participation
Final rule.
CFR Part: "12 CFR Part 360"
RIN Number: "RIN 3064-AE32"
Citation: "80 FR 73087"
Page Number: "73087"
"Rules and Regulations"
SUMMARY: The
EFFECTIVE DATE: Effective
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION: The
Paragraph (b)(5)(i) of the Securitization Safe Harbor Rule sets forth the conditions relating to credit risk retention that apply to transfers of financial assets in connection with securitizations that are not grandfathered by the Securitization Safe Harbor Rule. Under paragraph (b)(5)(i)(A) of the Securitization Safe Harbor Rule as currently in effect, prior to the effective date of regulations required under Section 15G of the Securities Exchange Act, 15 U.S.C. 78a et seq. ("Section 15G"), the documents governing such securitization must require that the sponsor retain an economic interest in not less than five (5) percent of the credit risk of the financial assets relating to the securitization. The requirement in paragraph (b)(5)(i)(A) of the Securitization Safe Harbor Rule, that the documents require retention of an economic interest, is consistent with many other provisions of the Securitization Safe Harbor Rule, which are similarly expressed as requirements for the securitization documentation, rather than as conditions requiring actual compliance with the provision that is required to be included in the documentation. As currently in effect, paragraph (b)(5)(i)(B) of the Securitization Safe Harbor Rule does not explicitly refer to the securitization documentation, but provides that, upon the effective date of the regulations required under Section 15G (the Section 15G Regulations), such regulations shall exclusively govern the requirement to retain an economic interest in the credit risk of the financial assets.
Section 15G provides that regulations issued thereunder become effective with respect to residential mortgage securitizations one year after the date on which the regulations are published in the
FOOTNOTE 1 See 79 FR 77602 (
In connection with the notice of proposed rulemaking relating to the Section 15G Regulations,
On
FOOTNOTE 2 80 FR 5076 (
The second is a clarification that paragraph (b)(5)(i)(B) of the Securitization Safe Harbor Rule does not require that any action be taken with respect to issuances of asset-backed securities that close prior to the applicable compliance date of the Section 15G Regulations.
These two clarifications, which were included in the Proposed Rule, together with an additional change suggested by a comment letter relating to the Proposed Rule, are included in the Final Rule.
II. Comment Received on the Proposed Rule
The FDIC received one comment letter, from an industry trade association, in response to the Proposed Rule. This letter supported the changes included in the Proposed Rule and requested that the Final Rule include one additional change relating to the credit risk retention condition of the Securitization Safe Harbor Rule. The commenter referred to the applicable compliance dates for the Section 15G Regulations and proposed that the Final Rule provide securitization sponsors the option, with respect to a securitization transaction, to comply with the credit risk retention condition of the Securitization Safe Harbor Rule by adopting the Section 15G risk retention requirements during the period preceding the applicable compliance date for such transaction, even though the Section 15G Regulations do not require such compliance before such applicable compliance date. The commenter stated that providing such optionality "would effectuate the principle underlying the credit risk retention condition of the Securitization Safe Harbor Rule." /3/
FOOTNOTE 3 Letter dated
III. Policy Objective
The policy objective underlying the Final Rule is to create certainty and eliminate unnecessary burdens in connection with the transition to the Section 15G Regulations requirements as to credit risk retention.
IV. The Final Rule
Overview
The Final Rule clarifies that the Securitization Safe Harbor Rule condition relating to credit risk retention requires that the documents governing a securitization transaction that closes on or after the applicable compliance date under the Section 15G Regulations must require that an economic interest in the credit risk of the financial assets is retained in accordance with the Section 15G Regulations. The Final Rule provision effecting this clarification also makes clear that the migration of the Securitization Safe Harbor Rule to the Section 15G Regulations governing credit risk retention will not require changes to documents governing securitizations that closed prior to the applicable compliance date. The provision also makes clear that the transition to the Section 15G standard is a documentation requirement and, thus, does not put investors at risk if a securitization sponsor, in violation of transaction documents, does not retain credit risk in accordance with the Section 15G Regulations.
Because securitization investors have relied on the Securitization Safe Harbor Rule to obtain an understanding of how the
Consistent with the clarifications to the process for migration to the Section 15G Regulations included in the Proposed Rule, the Final Rule follows the commenter's suggestion and permits securitization sponsors to comply with the credit risk retention requirements of the Securitization Safe Harbor Rule by opting in the securitization's governing documents to require compliance with the Section 15G Regulations earlier than required by the Section 15G Regulations. It is the
Section-by-Section Analysis
Definitions
The Final Rule adds a new definition, "applicable compliance date" to paragraph (a) of the Securitization Safe Harbor Rule. This definition reflects that the Section 15G Regulations impose two dates for compliance:
Paragraph (b)(5)(i)
The Final Rule revises paragraph (b)(5)(i) of the Securitization Safe Harbor Rule to make the following three points clear:
(i) In order to qualify for the benefits of the Securitization Safe Harbor Rule, the documents governing the issuance of asset-backed securities in a securitization transaction must require retention of an economic interest in the credit risk of the financial assets relating to the securitization transaction in compliance with the Section 15G Regulations if such issuance occurs upon or following the date on which compliance with Section 15G is required for such type of securitization transaction;
(ii) The Securitization Safe Harbor Rule does not require inquiry as to whether the sponsor or other applicable party in fact complies with the risk retention requirements of the documentation; and
(iii) The Securitization Safe Harbor Rule requirements as to the Section 15G Regulations do not require changes to securitization documents governing asset-backed security issuances that are closed prior to the applicable compliance date under the Section 15G Regulations.
In addition, the Final Rule revises paragraph (b)(5)(i) of the Securitization Safe Harbor Rule to permit a securitization transaction, that closes between the date of the publication of the Final Rule in the
V. Regulatory Analysis and Procedure
A. Paperwork Reduction Act
This rule would entail an information collection for sponsors that exercise the option to become subject to the Section 15G Regulations earlier than otherwise required. Because the information to be collected is the same, however, as that encompassed by the collection of information that was approved under OMB No. 3064-0183, no new submission is being made to OMB with respect to the Paperwork Reduction Act (44 U.S.C. 3501, et seq.). /4/
FOOTNOTE 4 The specific method of defining the respondent population differed in some respects for purposes of the
B. Regulatory Flexibility Act
The Regulatory Flexibility Act 5 U.S.C.
FOOTNOTE 5 See 5 U.S.C. 603, 604 and 605. END FOOTNOTE
C. Small Business Regulatory Enforcement Act
The Office of Management and Budget has determined that the Final Rule is Not a "major rule" within the meaning of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), (5 U.S.C.
D. Plain Language
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat.1338, 1471), requires the Federal banking agencies to use plain language in all proposed and final rules published after
List of Subjects in 12 CFR Part 360
Banks, Banking, Bank deposit insurance, Holding companies, National banks, Participations, Reporting and recordkeeping requirements, Savings associations, Securitizations.
For the reasons stated above, the Board of Directors of the
PART 360--RESOLUTION AND RECEIVERSHIP RULES
1. The authority citation for part 360 continues to read as follows:
Authority: 12 U.S.C. 1817(b), 1818(a)(2), 1818(t), 1819(a) Seventh, Ninth and Tenth, 1820(b)(3), (4), 1821(d)(1), 1821(d)(10)(c), 1821(d)(11), 1821(d)(15)(D), 1821(e)(1), 1821(e)(8)(D)(i), 1823(c)(4), 1823(e)(2); Sec. 401(h), Pub. L. 101-73, 103 Stat. 357.
2. Amend
a. Redesignate paragraphs (a)(1) through (11) as (a)(2) through (12) and add a new paragraph (a)(1).
b. Revise paragraph (b)(5)(i).
The addition and revision read as follows:
(a) * * *
(1) Applicable compliance date means, with respect to a securitization, the date on which compliance with Section 15G of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is required with respect to that securitization.
* * * * *
(b) * * *
(5) * * *
(i) Requirements applicable to all securitizations. (A) Prior to the applicable compliance date for regulations required under Section 15G of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the documents creating the securitization shall require that the sponsor retain an economic interest in a material portion, defined as not less than five (5) percent, of the credit risk of the financial assets. This retained interest may be either in the form of an interest of not less than five (5) percent in each of the credit tranches sold or transferred to the investors or in a representative sample of the securitized financial assets equal to not less than five (5) percent of the principal amount of the financial assets at transfer. This retained interest may not be sold, pledged or hedged, except for the hedging of interest rate or currency risk, during the term of the securitization.
(B) For any securitization that closes upon or following the applicable compliance date for regulations required under Section 15G of the Securities Exchange Act, 15 U.S.C. 78a et seq., added by Section 941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the documents creating the securitization shall instead require retention of an economic interest in the credit risk of the financial assets in accordance with such regulations, including the restrictions on sale, pledging and hedging set forth therein.
(C) Notwithstanding paragraph (b)(5)(i)(A) of this section, for any securitization that closes following ________
* * * * *
Dated at
By order of the Board of Directors.
Executive Secretary.
[FR Doc. 2015-29822 Filed 11-23-15;
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