US regulators have promised a risk retention release in Q2, but industry insiders expect a re-proposal not a final rule.
Even without the ruling taking effect, disparities between the April 2011 proposal and its European equivalent, CRD article 122a, are causing problems.
The six US regulators working on the rule, one of the most controversial aspects of Dodd-Frank, have received 13,000 comments. And US counsel have believe there is disagreement among the responsible agencies.
Speaking in his own capacity at the American Securitization Forum 2012 conference last week (ASF2012), Ryan Richards, a senior accounting policy analyst with the Board of Governors of the Federal Reserve, said: I dont think anybody is really in a position right now to call the exact timing, but Id be very comfortable in saying its not going to get done in the first quarter. Its going to be a very deliberative process.
The agencies have been meeting at a staff level twice a week. Commercial Real Estate Finance Councils Mike Flood, who used to work on Capitol Hill and with the White House, said the agencies staff are now briefing their respective agency-heads before regrouping.
The securitisation industrys consensus is that the Q2 release will and should be a re-proposal rather than a final rule.
It would be a mistake not to have a re-exposure because its so complicated, theyve needed to change so many things, said Jason Kravitt, Mayer Brown partner and deputy chair of the ASF.
Bingham McCutchen partner John Arnholz, speaking at ASF2012, expected a re-proposal and Flood gave a re-proposal 60/40 odds.
But the Feds Richards said: That decision hasnt been made...its too tough to call right now.
John Walsh, acting chief of the Office of the Comptroller of the Currency, was also evasive in his ASF2012 keynote, stating: There is no fixed time.
He implied that the final rule was a way off, though. The old adage if you want it bad youll get it bad could certainly apply to some of these rules so I think we need to take the time to get these things in shape, Walsh said.
The Securities and Exchange Commission, Federal Insurance Deposit Corporation and Department of Housing and Urban Development declined IFLRs request to comment on the timing because the rule writing is still in process.
European rules on top of American rules
Europes article 122a (which is already in effect) differs in some fundamental ways from the US proposal. Most notably, the investor is responsible for monitoring compliance, there are different risk holding methods, there is no premium capture cash reserve account requirement, and no exemptions for high quality assets.
These discrepancies are already proving difficult.
It is a problem and as an investor Im frequently looking at transactions where Im trying to get them [the issuer] to put European retention rules on top of the American retention rules, said Dominic Swan, head of ABS investments at HSBC Global Asset Management speaking at ASF2012.
If there isnt a lot of European demand for a deal, then it becomes impossible to invest, Swan said.
Christian Moor, a securitisation policy advisor with the European Banking Authority (EBA) which issues guidance on article 122a, said these discrepancies are something the EBA is concerned about.
We are quite happy with article 122a and the guidance on it, but we do recognise that we have a harmonisation and convergence problem, he said at ASF2012 (in his own capacity). Moor said this is a priority for the EBA and that it is already speaking with the US agencies.
From the EBA perspective we are very open and willing to start looking into ways to harmonise and try to converge parts of risk retention, he added.