Compliance by Asset-Backed Issuers with Exchange Act Rules 13a-14 and 15d-14
Staff of the Division of Corporation Finance
February 21, 2003
This statement revises and replaces the staff statement we issued on August 27, 2002 regarding compliance by asset-backed issuers with Exchange Act Rules 13a-14 and 15d-14. This revised statement represents the views of the Division of Corporation Finance. It is not a rule, regulation or statement of the Securities and Exchange Commission. Further, the Commission has neither approved nor disapproved its content.
On August 27, 2002 the Commission published Release No. 33-8124, "Certification of Disclosure in Companies' Quarterly and Annual Reports." As directed by Section 302(a) of the Sarbanes-Oxley Act of 2002, the Commission adopted rules requiring an issuer's principal executive and financial officers each to provide specified certifications regarding the financial and other information contained in the issuer's quarterly and annual reports, as well as aspects of an issuer's disclosure controls and procedures and internal controls.
As noted in the release, entities that issue asset-backed securities in public offerings have a reporting obligation under either Section 13(a) or 15(d) of the Securities Exchange Act of 1934, at least for a period of time. Because of the nature of asset-backed issuers, the staff has granted requested relief allowing asset-backed issuers to comply with their Exchange Act reporting obligations by filing modified periodic reports.1 This relief has been granted conditioned on issuers, depositors, or servicers filing the modified reports meeting the specified requirements. If the specified requirements are not satisfied, the relief is not available.
The modified reports filed by asset-backed issuers are generally required to include reports on Form 8-K that are tied to the payments on the securities and specific information about the performance of the underlying assets that service the payment obligations of the asset-backed securities, rather than the information specified in the Commission's rules, including Regulation S-K and Regulation S-X, for inclusion in filings on Form 10-K and Form 10-Q. Required disclosure in the reports of asset-backed issuers includes:
- a copy of the servicing or distribution report required by the pooling and servicing, or similar, agreement; and
- information on the performance of the assets, payments on the asset-backed securities and any other material developments that affect the issuer.
The modified Form 10-K includes:
- an annual statement from the servicer or other relevant entity as to its compliance with its obligations under the pooling and servicing, or similar, agreement and
- an annual report from the independent public accountants as to compliance by the servicer with particular servicing standards.
Financial statements are not required.
Because the required information in these reports for asset-backed issuers differs significantly from that provided by other issuers, and because of the structure of these issuers, the requirements for complying with certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 must be tailored specifically for asset-backed issuers. The Commission adopted Exchange Act Rules 13a-14 and 15d-14 to require asset-backed issuers, as defined in each of those rules, to provide a signed certification addressing:
- review by the certifying officer of the annual report and other reports containing distribution information for the period covered by the annual report;
- the absence in these reports, to the best of the certifying officer's knowledge, of any untrue statement of material fact or omission of a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading;
- the inclusion in these reports, to the best of the certifying officer's knowledge, of the financial information required to be provided to the trustee under the governing documents of the issuer; and
- compliance by the servicer with the servicing obligations and minimum servicing standards.
Because asset-backed issuers do not typically have a principal executive officer or principal financial officer, the signature requirements for the certifications relating to asset-backed issuers differ from those for other issuers. Rules 13a-14(f) and 15d-14(f) require the certification to be signed by the trustee of the trust (if the trustee signs the periodic report) or the senior officer in charge of securitization of the depositor (if the depositor signs the periodic report). Alternatively, the senior officer in charge of the servicing function of the servicer (or entity performing equivalent functions) should sign the certification (if the servicer signs the periodic report). To the extent there is a master servicer and one or more underlying servicers, the references in this statement, including the attached form of certification, relate to the master servicer. As is the case for all certifications under Section 302 of the Sarbanes-Oxley Act, a natural person must sign the certification in his or her individual capacity, although the title of that person in the organization of which he or she is an officer may be included under the signature.
The reports referred to in the certification are those reports required to be filed under the Exchange Act pursuant to the relief discussed above. The certification, as revised, also makes clear that the compliance statement of the servicer, or other relevant entity, and the accountants' report referenced in the certification are included in the reports required to be filed under the Exchange Act.
Because the signer of the certification must rely in certain circumstances on information provided by unaffiliated parties outside of the signer's control, we have included a statement in the certification that the signer in such situation may reasonably rely on information that unaffiliated trustees, depositors, servicers, sub-servicers or co-servicers have provided. We are not specifying the manner in which reasonable reliance may be established. The staff does not object to parties obtaining back-up certifications from the unaffiliated parties on which it is relying. The use of back-up certifications does not affect the responsibility of the signer for the certification or the requirement that any reliance be reasonable.
Because pooling and servicing, or similar, agreements typically require only the servicer to deliver a compliance statement, stating that it has reviewed its performance of its servicing obligations under that agreement and stating that it is in compliance except as disclosed in the statement, paragraph four of the certification contains two alternative paragraphs. The first version of paragraph four should be used by all servicers that file and sign periodic reports and certifications. The second version of paragraph four should be used by trustees or depositors that file and sign periodic reports and certifications.
It is the view of the staff of the Division of Corporation Finance that an asset-backed issuer is in compliance with the certification requirement of Rule 13a-14 or Rule 15d-14, as applicable, if the issuer includes a certification in the following form in each Form 10-K that it files with the Commission.2
I, [identify the certifying individual], certify that:
1. I have reviewed this annual report on Form 10-K, and all reports on Form 8-K containing distribution or servicing reports filed in respect of periods included in the year covered by this annual report, of [identify issuer];
2. Based on my knowledge, the information in these reports, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading as of the last day of the period covered by this annual report;
3. Based on my knowledge, the distribution or servicing information required to be provided to the trustee by the servicer under the pooling and servicing, or similar, agreement, for inclusion in these reports is included in these reports;
4. [I am responsible for reviewing the activities performed by the servicer under the pooling and servicing, or similar, agreement and based upon my knowledge and the annual compliance review required under that agreement, and except as disclosed in the reports, the servicer has fulfilled its obligations under that agreement; and]
[Based on my knowledge and upon the annual compliance statement included in the report and required to be delivered to the trustee in accordance with the terms of the pooling and servicing, or similar, agreement, and except as disclosed in the reports, the servicer has fulfilled its obligations under the servicing agreement; and]
5. The reports disclose all significant deficiencies relating to the servicer's compliance with the minimum servicing standards based upon the report provided by an independent public accountant, after conducting a review in compliance with the Uniform Single Attestation Program for Mortgage Bankers or similar procedure, as set forth in the pooling and servicing, or similar, agreement, that is included in these reports.
[In giving the certifications above, I have reasonably relied on information provided to me by the following unaffiliated parties: [name of the servicer, sub-servicer, co-servicer, depositor or trustee.]]
1 See, e.g., Release No. 34-16520 (January 23, 1980) (order granting application pursuant to Section 12(h) of Home Savings and Loan Association); Release No. 34-14446 (February 6, 1978) (order granting application pursuant to Section 12(h) of Bank of America National Trust and Savings Association); Bay View Securitization Corporation (January 15, 1998); Key Bank USA, National Association (May 9, 1997).
2 Consistent with the transition provisions accompanying the new rules (See Section V of Release No. 33-8124), paragraphs 1, 2 and 3 of the asset-backed issuer certification apply to Form 10-K reports filed after August 29, 2002, while paragraphs 4 and 5 apply to these reports filed for periods ending after that date.