Item 1122 Form 10-K Report(s) on Assessments of Compliance with Servicing Criteria and Accountant's Attestation
To be included as an exhibit in each Form 10-K filing from servicers are the following for Regulation AB Item 1122:
Report on Assessments of Compliance with Servicing Criteria [for asset-backed securities].
Registered Public Accounting Firm Attestation Reports.
Item 1122: Report on Assessments of Compliance with Servicing Criteria
It is NDB's interpretation of Regulation AB Item 1122 that the phrase Report on Assessments of Compliance with Servicing Criteria for servicers, should be looked upon as a of a collection of statements that ultimately comprise a report, based on the fact that three of its four requirements mandate servicers to issue "statements". NDB views requirement #3, which is stated below as "the party's assessment of compliance", as more of an in-depth discussion of the servicers assessment. This assessment will require significant time and effort by servicers, and is a critical component that constitutes the overall deliverable, known as the Report on Assessments of Compliance with Servicing Criteria.
Listed below are the four (4) key areas that must be undertaken for achieving Item 1122 compliance in regards to the first deliverable, Report on Assessments of Compliance with Servicing Criteria:
(1). A statement of the party's responsibility for assessing compliance with the servicing criteria applicable to it.
(2). A statement that the party used the servicing criteria to assess compliance with the applicable servicing criteria.
(3). The party's assessment of compliance with the applicable servicing criteria as of and for the period ending the end of the fiscal year covered by the Form 10-K report. The discussion must include disclosure of any material instance of noncompliance identified by the party.
(4). A statement that a registered (i.e., PCAOB only) public accounting firm has issued an attestation report on the party's assessment of compliance with the applicable servicing criteria as of and for the period ending the end of the fiscal year covered by the Form 10-K report. (1)
Please Note: The deliverable for item (4) described above will consist of conducting an agreed upon procedure (AUP) engagement for the servicer. This AUP engagement will require significant time and resources from your organization and ours. The end product will be the Registered Public Accounting Firm Attestation Reports, which is discussed in detail below.
Item 1122: Registered Public Accounting Firm Attestation Reports
The second deliverable, Registered Public Accounting Firm Attestation Reports, is an attest engagement conducted by a registered (PCAOB) CPA firm, which culminates with the issuance of a report, in which the CPA firm either expresses and opinion or states that an opinion cannot be expressed regarding the servicers assertion on their assessment of compliance with servicing criteria. Additionally, these reports must adhere to the Statement on Standards for Attestation Engagements (SSAE) rulings as adopted by the Public Company Accounting Oversight Board (PCAOB), along with being filed as an exhibit to the Form 10-K, and available for general use.
As stated in the Regulation AB ruling put forward by the Securities and Exchange Commission (SEC), "We [SEC] proposed that a registered public accounting firm would be required to attest to, and report on, the assessment of compliance made by the single responsible party through performance of an examination engagement." The SEC also believes that a registered CPA firm is fundamentally important to this critical area in that "independence and objectivity" is maintained. (2)
Moreover, as noted earlier, conducting the necessary attest procedures that culminate with the issuing a report of this type will require considerable time and resources from servicers. One can clearly see how Item 1122 is not a simple, check the box program, rather, a multi-party effort necessary for ensuring Regulation AB compliance.
(1) Securities and Exchange Commission 17 CFR Parts 210, 228, et al. Asset Backed Securities: Final Rule
(2) Securities and Exchange Commission 17 CFR Parts 210, 228, et al. Asset Backed Securities: Final Rule
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