A Section 941 of the Dodd-Frank Act amended the Securities Exchange Act of 1934 by adding a new section 15G (Section 15G), which generally requires any sponsor or securitizer of asset-backed securities (ABS) to retain at least 5% of the credit risk of the assets supporting its securities. It also generally prohibits the sponsor from eliminating or reducing its credit exposure by hedging or otherwise transferring its retained credit risk. Section 15G exempts certain types of assets from the risk retention requirements and authorizes the implementing regulators to exempt or establish a lower risk retention requirement for other types of assets.

On August 28, 2013, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), and the Securities and Exchange Commission (Commission), and, with respect to the portions addressing residential mortgage assets, the Federal Housing Finance Agency (FHFA) and the Department of Housing and Urban Development (HUD) (Joint Regulators), issued a second Notice of Proposed Rulemaking (Re-Proposal) that would, if finalized, implement the risk retention requirement of Section 15G. The Joint Regulators initially proposed a similar rule on April 29, 2011 (Original Proposal) and received voluminous comments. In response to those comments, the Joint Regulators have issued the Re-Proposal and solicited additional comments by October 30, 2013.

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Mayer Brown’s Global Financial Markets Initiative helps clients deal with the legal and business challenges resulting from the ongoing turbulence in worldwide financial markets. By mobilizing the firm’s global resources from multiple practices and offices, the initiative provides clients with knowledgeable and timely counsel on a broad spectrum of their legal needs.