compliance reports required pursuant to regulations under MiFID Org Reg
22(2)(C). Those reports must be in English, be accompanied by a
certification under penalty of law that the report is accurate and
complete, and would have to address the SBS Entity's compliance with
other conditions to the substituted compliance order.\339\ In addition,
substituted compliance under the proposal would not extend to antitrust
provisions under the Exchange Act, based on the preliminary conclusion
that allowing an alternative means of compliance would not lead to
comparable regulatory outcomes.\340\
---------------------------------------------------------------------------

    \339\ See id. at 85728.
    \340\ See id.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    Following the release of the proposed Order, commenters requested
that the conditions to substituted compliance in connection with the
internal supervision and compliance requirements be narrowed by
eliminating references to recordkeeping requirements pursuant to MiFID,
and CRD provisions related to the treatment of risk. In the commenter's
view, compliance with those provisions are not necessary to justify
substituted compliance.\341\
---------------------------------------------------------------------------

    \341\ See SIFMA Letter at 6-7.
---------------------------------------------------------------------------

    Partially in response to the initial comments to the proposed
Order, the Reopening Release requested comment on a revision to the
Order to include two additional prerequisites in connection with
internal supervision: CRR articles 286 through 288 and 293, which
address counterparty credit risk and risk management generally; and
EMIR Margin RTS article 2, which addresses collateral-related risk
management procedures.\342\ The proposed additions were intended to
promote analogous compliance goals as the other requirements identified
within paragraph (d)(3) of the proposed Order.\343\ The only commenter
to address the proposed additions did not support them.\344\
---------------------------------------------------------------------------

    \342\ See Reopening Release, 86 FR at 18384.
    \343\ See id.
    \344\ See SIFMA Letter II at 18-19 (stating that ``[g]iven that
paragraph (d) of the French Order does not extend to the risk
management requirements of Exchange Act Section 15F(j)(2) or related
requirements of Exchange Act rule 15Fh-3(h), which the French Order
instead addresses separately in paragraph (b)(1), we fail to see the
justification for adding these requirements to paragraph (d)(3)'').
---------------------------------------------------------------------------

    Commenters requested additional alterations to the internal
supervision conditions aside from those identified in the Reopening
Release. Specifically, commenters recommended changes to the compliance
report certification language described in paragraph (d)(2)(ii)(B) of
the proposed Order, that ``under penalty of law, the report is accurate
and complete,'' to language ``consistent with the requirement of the
linked Exchange Act rule, Exchange Act rule 15Fk-1(c)(2)(ii)(D).''
\345\ Additionally, one commenter requested that the condition
requiring Covered Entities to provide certain reports pursuant to MiFID
Org Reg Article 22(2)(c) should ``apply solely to the extent [the
reports] are related to a Covered Entity's business as an SBS Entity.''
\346\ Commenters also requested that the timing of compliance report
submissions for reports required under MiFID Org Reg Article 22(2)(c)
be ``15 days after the Covered Entity completes its annual MiFID report
as required by MiFID'' \347\ and alternatively ``15 days after [the
report's] submission to the AMF in April each year.'' \348\
---------------------------------------------------------------------------

    \345\ Id. at 19. See also, FBF Letter II at 3 (stating that
``the attestation language a bank would need to use when furnishing
home country reports is stricter than that required under the SEC
rule itself.'')
    \346\ SIFMA Letter II at 19.
    \347\ Id. at 19-20.
    \348\ FBF Letter II at 3.
---------------------------------------------------------------------------

    The Commission has considered commenter's views, and is making
changes to the final Order related to compliance report certification,
the timing of submission of compliance reports to the Commission, and
certain French and EU predicates to substituted compliance. In large
part, however, the Commission is adopting this part of the Order as it
was proposed.
1. French and EU Predicate Conditions to Internal Supervision and
Compliance Requirements
    In the French Substituted Compliance Notice and Proposed Order, the
Commission preliminarily proposed to make a positive substituted
compliance determination for supervisory and compliance requirements
conditioned on Covered Entities complying with specified French and EU
requirements that promote internal supervision within those
entities.\349\ A commenter requested that the Commission not require a
Covered Entity to be subject to and comply with certain of these
specified requirements because the commenter argued the provisions were
related to risk management and therefore should be deleted or addressed
elsewhere or alternatively the provisions do not correspond to, and go
beyond, the requirements of the Exchange Act.\350\ The Commission
details below its consideration of these comments.
---------------------------------------------------------------------------

    \349\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85740.
    \350\ See SIFMA Letter II at Appendix A. Specifically, SIFMA
recommends the deletion of the following conditions from paragraph
(d)(3) of the proposed Order: (i) MiFID articles 16(6) through (10);
(ii) MiFID Org Reg articles 23, 27, 30 through 32, 72 through 76 and
Annex IV; (iii) CRD articles 79 through 87 and 92 through 95; (iv)
MFC articles L. 511-71 through 86, L. 511-89 through 97 and L. 511-
102; (v) French Internal Control Order articles 111, 121 and 130
through 134; (vi) MFC article R. 511-16-3; and (vii) Prudential
Supervision and Risk Assessment Order article 7.
---------------------------------------------------------------------------

    One commenter objected to the proposed inclusion of the risk
control requirements of CRD articles 79 through 87, and French
implementing provisions, Internal Control Order articles 111, 121 and
130 through 134, within the prerequisites to substituted compliance for
internal supervision and control, on the grounds that the inclusion of
those provisions ``are not necessary'' to justify substituted
compliance.\351\ The commenter also recommended deleting the reference
to MiFID Org Reg article 23 related to risk management and which the
commenter believed was more appropriately addressed with the risk
control requirements found in paragraph (b) of the proposed Order.\352\
Following the comment period reopening, that commenter further objected
to the Commission's suggested inclusion of CRR articles 286-88 and 293
(addressing counterparty credit risk and risk management generally) and
EMIR Margin RTS article 2 (addressing

collateral-related risk management procedures) to the
prerequisites.\353\ The commenter argued that those additions
inappropriately would ``expand the substantive ambit of the linked
Exchange Act requirements.'' \354\ The Commission nonetheless concludes
that those CRD, CRR, MiFID Org Reg, and EMIR Margin RTS provisions
appropriately constitute part of the substituted compliance conditions
for internal supervision and compliance. Supervision and compliance
requirements serve the purpose of causing registered entities to have
systems and follow practices to help ensure they conduct their business
as required. It would be paradoxical to conclude that an SBS Entity
that fails to implement requisite internal risk management systems and
practices nonetheless may be considered to be following supervision and
compliance standards that are sufficient to meet the regulatory
outcomes required under the Exchange Act. A risk management failure
necessarily constitutes a compliance failure. Accordingly, the
Commission is retaining the references to these provisions. The
commenter also requested the removal of MFC R. 511-16-3, based on the
claim that it does not exist.\355\ However, the Commission has not
determined that to be the case.\356\
---------------------------------------------------------------------------

    \351\ SIFMA Letter I at 6-7.
    \352\ See id. at Appendix A.
    \353\ See Reopening Release, 86 FR at 18348 (stating that those
provisions ``promote analogous compliance goals'' as the other
proposed conditions to substituted compliance for internal
supervision and compliance).
    \354\ SIFMA Letter II at 18-19 (``Simply asserting that these
requirements `promote analogous compliance goals' is not enough;
under that theory, seemingly every provision of EU or French law
would be relevant to internal supervision and compliance, but this
cannot be the case.'').
    \355\ SIFMA Letter II at Appendix A.
    \356\ MFC R. 511-16-3 acts as the French implementing provision
for CRD article 91(8), which the commenter did not object to
including, and both of which were included in the proposed Order and
are now included in paragraph (d)(3) of the Order.
---------------------------------------------------------------------------

    One commenter recommended that the Commission delete MiFID article
16(6) through 16(10) related to recordkeeping and client asset
safeguarding requirements and the corresponding French implementing
provisions; \357\ CRD articles 92 through 95, MFC articles L. 511.71
through L. 511.86, and MiFID Org Reg article 27 related to
remuneration, MiFID Org Reg articles 30 through 32 related to
outsourcing; \358\ and MFC articles L. 511-89 through L. 511-97 and L.
511-102 related to risk and remuneration committees. The commenter
stated that those provisions ``do not correspond to, and go beyond,''
the applicable requirements of the Exchange Act.\359\ In addition, the
commenter stated that the MiFID provisions ``did not relate to
supervisory or compliance requirements.'' \360\ The Commission believes
that the MiFID and corresponding French implementing provisions and
MiFID Org Reg conditions taken as a whole are relevant to its
substituted compliance determination for internal supervision and
compliance and taken together the specified French and EU provisions
promote adequate supervision within the Covered Entities complying with
those requirements. Accordingly, the Commission is retaining the
references to these provisions with one exception.\361\
---------------------------------------------------------------------------

    \357\ MiFID articles 16(6) through 16(10) is implemented in
France in MFC articles 1.533-10.II 6 through 9 and L. 533-10.III
which are included as conditions to supervisory and compliance
substituted compliance in paragraph (d)(3) of the Order.
    \358\ See SIFMA Letter II at Appendix A. Paragraph (d)(3) of the
proposed Order also included MiFID Org Reg articles 23 and 72
through 76 and Annex IV as conditions to internal supervision
substituted compliance. These MiFID Org Reg articles relate to risk
management and recordkeeping, respectively, and are addressed
elsewhere in this section.
    \359\ See SIFMA Letter at II Appendix A.
    \360\ Id.
    \361\ The Commission is deleting the requirements related to CRD
article 93 and related implementing provisions, as they were not
part of the French Authorities' Application, and relate to
remuneration policies for institutions that benefit from exceptional
(French and EU) government intervention.
---------------------------------------------------------------------------

    The comparability analysis requires consideration of Exchange Act
requirements as a whole against analogous French and EU requirements as
a whole, recognizing that U.S. and non-U.S. regimes may follow
materially different approaches in terms of specificity and technical
content. This ``as a whole'' approach--which the Commission is
following in lieu of requiring requirement-by-requirement similarity--
further means that the conditions to substituted compliance should
encompass all French and EU requirements that establish comparability
with the applicable regulatory outcome. It would be inconsistent with
the holistic approach to excise relevant requirements and leave only
the residual French and EU provisions that most closely resemble the
analogous Exchange Act requirements.\362\ In reaching this conclusion,
the Commission emphasizes the importance of ensuring that substituted
compliance is grounded on the comparability of regulatory
outcomes.\363\
---------------------------------------------------------------------------

    \362\ The Commission believes that those conditions to
substituted compliance do not ``expand the substantive ambit of the
linked Exchange Act requirements'' given that substituted compliance
is an option available to non-U.S. SBS Entities--not a mandate.
    \363\ See Better Markets Letter at 3 (addressing need for a
``compelling showing'' of comparability).
---------------------------------------------------------------------------

2. Compliance Report Certifications
    Commenters requested that the standard applied to the certification
of required compliance reports upon their submission to the Commission
be revised to conform more closely with the requirements set forth in
Exchange Act rule 15Fk-1.\364\ Rule 15Fk-1 states that the required
reports must include ``a certification by the chief compliance officer
or senior officer that, to the best of his or her knowledge and
reasonable belief and under penalty of law, the information contained
in the compliance report is accurate and complete in all material
respects.'' \365\ The standard applied in the proposed Order required
certification that ``under penalty of law, the report is accurate and
complete.'' \366\ The Commission concurs that alignment of the Order's
certification requirement with that of the applicable Exchange Act rule
is appropriate in this instance. Therefore, the Order has been updated
to clarify that the required reports should be certified by ``the chief
compliance officer or senior officer'' of the Covered Entity and that
the same certification standard contained in Exchange Act rule 15Fk-1
applies.\367\ In addition, the Order has been updated to clarify that
the certification must cover compliance with applicable Exchange Act
requirements, consistent with the requirements regarding internal
supervision.\368\ The Commission believes that this clarification is
necessary, particularly in light of its granular approach to
substituted compliance, to ensure that the report covers applicable
Exchange Act requirements whether or not the SBS Entity relies on
substituted compliance for internal supervision.
---------------------------------------------------------------------------

    \364\ See SIFMA Letter I at 7 n.14; SIFMA Letter II at 19
(stating that ``paragraph (d)(2)(ii)(B) of the French Order should
be conformed to be consistent with the linked Exchange Act
requirement.''); see also FBF Letter at 3 (stating that ``the
attestation language a bank would need to use when furnishing home
country reports is stricter than that required under the SEC rule
itself.'').
    \365\ See Exchange Act rule 15Fk-1(c)(2)(ii)(D). See also
Exchange Act rule 15Fk-1(e)(2) (defining ``senior officer'' as ``the
chief executive officer or other equivalent officer'').
    \366\ French Substituted Compliance Notice and Proposed Order,
81 FR at 85740.
    \367\ See para. (d)(2)(ii)(B) of the Order.
    \368\ See para. (d)(4) of the Order.
---------------------------------------------------------------------------

3. Timing of Compliance Report Submission
    Commenters requested that the Order be amended to clarify the
timing for

Covered Entities to submit compliance reports to the Commission, and
suggested standards by which ``the Covered Entity may make an annual
submission of this report 15 days after submission to the AMF.'' \369\
One commenter explained that absent such a clarification, submission of
the report seemingly would be required within 30 days following the
deadline for the Covered Entity to file its annual financial report
with the Commission, without regard to when the entity prepares its
report pursuant to MiFID.\370\ Another commenter stated that providing
a clarified 15 day timeline would accommodate ``the need to account for
translation as well as other conditions in the French Order.'' \371\
---------------------------------------------------------------------------

    \369\ See SIFMA Letter II at 19-20; see also FBF Letter II at 3
(requesting that the report be submitted to the SEC ``15 days after
its submission to the AMF in April each year''). With regard to the
UK Substituted Compliance Notice and Proposed Order, SIFMA supported
a single annual submission for multiple reports without reference to
a 15 day timing standard. See SIFMA UK Letter at 21.
    \370\ SIFMA Letter II at 19-20, 31. The ``15 days after
submission to the AMF'' language is incorporated into the
commenter's ``detailed recommendations'' (at page 31). The
commenter's general discussion of the issue separately alludes to a
``15 days after the Covered Entity completes its annual MiFID report
as required by MiFID'' standard (at page 20).
    \371\ FBF Letter II at 3.
---------------------------------------------------------------------------

    The Commission is persuaded that additional clarification is
warranted, concurs that it is appropriate for the Commission to receive
compliance reports shortly after their preparation, and views 15 days
as providing a reasonable time to translate and convey reports. At the
same time, the Commission does not believe that the suggested ``15 days
after submission to the AMF'' standard sets forth an optimal timing
condition, in part given that MiFID Org Reg article 22(2)(c) requires
reports to the firm management body--not to authorities such as the
AMF.
    Instead, to promote timely notice comparable to what the Exchange
Act rule provides, the Commission is incorporating a timing standard
that accounts for MiFID-required timing as well as the possibility that
the relevant reports may be submitted to the management body early.
Under the Order, the applicable compliance reports are to be provided
to the Commission no later than 15 days following the earlier of: (i)
The submission of the report to the Covered Entity's management body;
or (ii) the time the report is required to be submitted to the
management body.\372\ In addition, reports required to be provided
under MiFID Org Reg article 22(2)(c) must together cover the entire
period that an Exchange Act rule 15Fk-1 annual report would have
covered. This requirement would prevent a Covered Entity from applying
for substituted compliance just prior to the due date of its Exchange
Act annual report and then providing the Commission its next MiFID Org
Reg report covering only a part of the year that would have been
covered in the Exchange Act report.
---------------------------------------------------------------------------

    \372\ See para. (d)(2)(ii)(D) of the Order.
---------------------------------------------------------------------------

4. Compliance Reports Subject to Disclosure
    One commenter requested that the proposed Order be modified to
narrow the scope of the compliance reports provided to the Commission,
stating that the conditions to substituted compliance should require
that the Commission be provided with the compliance reports only ``to
the extent they are related to a Covered Entity's business as an SBS
Entity.'' \373\ The commenter argued that it would be
``disproportionate and unnecessary'' to require that the Commission
receive all reports prepared pursuant to MiFID Org Reg article
22(2)(c).\374\
---------------------------------------------------------------------------

    \373\ SIFMA Letter II at 19.
    \374\ Id.
---------------------------------------------------------------------------

    The Commission disagrees, and believes that the Commission should
be fully informed--consistent with the scope of MiFID Org Reg article
22(2)(c)--as to the ``implementation and effectiveness'' of the Covered
Entity's ``overall control environment for investment services and
activities,'' as well as associated risks, complaints handling and
remedies. The alternative approach of apportioning compliance reports
into two buckets, and only providing one bucket to the Commission, does
not match the analytic approach of considering the Exchange Act and
French/EU frameworks ``as a whole.''
5. Compliance Conditions Related to Recordkeeping
    The Commission also is not adopting a commenter's suggestion that
MiFID Org Reg articles 72 through 76 and Annex IV recordkeeping
requirements be removed from the conditions for substituted compliance
for internal supervision and compliance.\375\ Documentation is an
important component of an effective compliance system, and a firm that
has failed to comply with relevant EU recordkeeping requirements cannot
reasonably be viewed as having engaged in supervisory and compliance
practices that are sufficiently rigorous to satisfy the regulatory
outcome established by the relevant requirements under the Exchange
Act.
---------------------------------------------------------------------------

    \375\ SIFMA Letter I at 6-7.
---------------------------------------------------------------------------

6. Additional Considerations and Final Order Provisions
    For these reasons, the Commission is adopting the requirements
related to internal supervision and compliance largely as proposed,
subject to the specific changes addressed above.\376\ Consistent with
the proposed Order, substituted compliance in connection with internal
supervision further is conditioned on the Covered Entity being subject
to and complying with the applicable French and EU supervisory and
compliance provisions listed in paragraph (d)(3) of the Order, as if
those provisions also require SBS Entities to comply with applicable
requirements under the Exchange Act and the other applicable conditions
to the Order.\377\ Similarly, substituted compliance in connection with
the chief compliance officer requirements further is conditioned on the
compliance reports provided to the Commission addressing the SBS
Entity's compliance with other applicable conditions of the Order.\378\
A Covered Entity that is unable to comply with an applicable
condition--and thus is not eligible to use substituted compliance for
the Exchange Act internal supervision and/or chief compliance officer
requirements related to that condition--nevertheless may use
substituted compliance for another set of Exchange Act requirements
addressed in the Order if it complies with the conditions to the
relevant parts of the Order.
---------------------------------------------------------------------------

    \376\ See para. (d)(3) of the Order. Consistent with the
discussion above related to internal risk management (part IV.B.1),
the condition has been modified from the proposed Order by removing
Prudential Supervision and Risk Assessment Order article 7.
    \377\ See para. (d)(4) of the Order. The Order provides that the
Covered Entity must comply with relevant French and EU provisions as
if those provisions address applicable conditions of the Order
connected to requirements for which the Covered Entity is relying on
substituted compliance. That part of the condition does not apply to
parts of the Order for which the Covered Entity does not rely on
substituted compliance.
    \378\ See para. (d)(2)(ii) of the Order. For the reasons
discussed in the proposal, the substituted compliance Order does not
extend to antitrust provisions under the Exchange Act.
---------------------------------------------------------------------------

    Under the Order, substituted compliance for internal supervision
and chief compliance officer requirements is not subject to a condition
that the Covered Entity apply substituted compliance for related
recordkeeping requirements in Exchange Act rules 18a-5 and 18a-6. A
Covered Entity that applies substituted compliance for

internal supervision and/or chief compliance officer requirements, but
does not apply substituted compliance for the related recordkeeping
requirements in Exchange Act rules 18a-5 and 18a-6, will remain subject
to the relevant provisions of Exchange Act rules 18a-5 and 18a-6. Those
rules require the Covered Entity to make and preserve records of its
compliance with Exchange Act internal supervision and chief compliance
officer requirements and of its security-based swap activities required
or governed by those requirements. A Covered Entity that applies
substituted compliance for internal supervision and/or chief compliance
officer requirements, but complies directly with related recordkeeping
requirements in rules 18a-5 and 18a-6, therefore must make and preserve
records of its compliance with the relevant conditions of the Order and
of its security-based swap activities required or governed by those
conditions and/or referenced in the relevant parts of rules 18a-5 and
18a-6.
    Finally, for the reasons discussed in the proposed Order, moreover,
the substituted compliance Order does not extend to antitrust
provisions under the Exchange Act.\379\
---------------------------------------------------------------------------

    \379\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85728.
---------------------------------------------------------------------------

VII. Substituted Compliance for Counterparty Protection Requirements

A. Proposed Approach

    The French Authorities' Application in part requested substituted
compliance in connection with counterparty protection requirements
relating to:
     Disclosure of material risks and characteristics and
material incentives or conflicts of interest--Requirements that an SBS
Entity disclose to certain security-based swap counterparties certain
information about the material risks and characteristics of the
security-based swap, as well as material incentives or conflicts of
interest that the SBS Entity may have in connection with the security-
based swap.
     ``Know your counterparty''--Requirements that an SBS
Entity establish, maintain and enforce written policies and procedures
to obtain and retain certain information regarding a security-based
swap counterparty that is necessary for conducting business with that
counterparty.
     Suitability--Requirements for a security-based swap dealer
to undertake reasonable diligence to understand the potential risks and
rewards of any recommendation of a security-based swap or trading
strategy involving a security-based swap that it makes to certain
counterparties and to have a reasonable basis to believe that the
recommendation is suitable for the counterparty
     Fair and balanced communications--Requirements that an SBS
Entity communicate with security-based swap counterparties in a fair
and balanced manner based on principles of fair dealing and good faith.
     Daily mark disclosure--Requirements that an SBS Entity
provide daily mark information to certain security-based swap
counterparties.
     Clearing rights disclosure--Requirements that an SBS
Entity provide certain counterparties with information regarding
clearing rights under the Exchange Act.
    Taken as a whole, these counterparty protection requirements help
to ``bring professional standards of conduct to, and increase
transparency in, the security-based swap market and to require
registered SBS Entities to treat parties to these transactions
fairly.'' \380\
---------------------------------------------------------------------------

    \380\ See Business Conduct Adopting Release, 81 FR at 30065.
---------------------------------------------------------------------------

    The proposed Order provided for conditional substituted compliance
in connection with fair and balanced communications, disclosure of
material risks and characteristics, disclosure of material incentives
or conflicts of interest, ``know your counterparty,'' suitability and
daily mark disclosure requirements.\381\ In proposing to provide
conditional substituted compliance for these requirements, the
Commission preliminarily concluded that the relevant French and EU
requirements in general would produce regulatory outcomes that are
comparable to requirements under the Exchange Act, by subjecting French
Covered Entities to obligations that promote standards of professional
conduct, transparency and the fair treatment of parties.
---------------------------------------------------------------------------

    \381\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85728-29.
---------------------------------------------------------------------------

    As proposed, substituted compliance for these requirements would be
subject to certain conditions to help ensure the comparability of
outcomes. First, under the proposed Order, substituted compliance for
fair and balanced communications, disclosure of material risks and
characteristics, disclosure of material incentives or conflicts of
interest, ``know your counterparty,'' and suitability requirements
would be conditioned on Covered Entities being subject to, and
complying with, relevant French and EU requirements.\382\ Second, the
proposed Order would additionally condition substituted compliance for
suitability requirements on the counterparty being a ``professional
client'' as defined in MiFID (rather than a ``retail client'' or an
elective ``professional client'') \383\ and not a ``special entity'' as
defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule
15Fh-2(d).\384\ Finally, in the proposed Order the Commission
preliminarily viewed certain types of EU daily portfolio reconciliation
requirements as comparable to Exchange Act daily mark disclosure
requirements.\385\ These daily portfolio reconciliation requirements
apply to portfolios of a financial counterparty or a non-financial
counterparty subject to the clearing obligation in EMIR in which
counterparties have 500 or more OTC derivatives contracts outstanding
with each other.\386\ The Commission preliminarily viewed EU portfolio
reconciliation requirements for other types of portfolios, which may be
reconciled less frequently than each business day or may not require
disclosure to counterparties, as not comparable to Exchange Act daily
mark requirements.\387\ Accordingly, the proposed Order would condition
substituted compliance for daily mark requirements on the Covered
Entity being required to reconcile, and in fact reconciling, the
portfolio containing the relevant security-based swap on each business
day and exchanging valuations of those contracts directly between
counterparties, pursuant to relevant EU requirements.\388\
---------------------------------------------------------------------------

    \382\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85729 n.72.
    \383\ Annex II of MiFID describes which clients are
``professional clients.'' Section I of Annex II describes the types
of clients considered to be professional clients unless the client
elects non-professional treatment; these clients are per se
professional clients. Section II of Annex II describes the types of
clients who may be treated as professional clients on request; these
clients are elective professional clients. See MiFID Annex II.
Retail clients are those that are not professional clients. See
MiFID article 4(1)(11).
    \384\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85730.
    \385\ Id. at 85729-85730.
    \386\ See EMIR RTS article 13(3)(a)(i); EMIR article 10.
    \387\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85730.
    \388\ Id.
---------------------------------------------------------------------------

    The Order would not provide substituted compliance in connection
with Exchange Act requirements for SBS Entities to disclose a
counterparty's clearing rights under Exchange Act section 3C(g)(5). The
French Authorities' Application cited certain

EU provisions related to a counterparty's clearing rights in the
European Union. However, those provisions do not require disclosure of
Exchange Act section 3C(g)(5) clearing rights, and the Commission
preliminarily viewed the EU clearing provisions as not comparable to
Exchange Act clearing rights disclosure requirements.\389\
---------------------------------------------------------------------------

    \389\ Id.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    Having considered the commenter recommendations for the
counterparty protection requirements, the Commission is making positive
substituted compliance determinations in connection with disclosure of
material risks and characteristics, disclosure of material incentives
or conflicts of interest, ``know your counterparty,'' suitability, fair
and balanced communications and daily mark disclosure requirements. The
Order is largely consistent with the proposed Order, except for adding
additional EU requirements in two sections of the Order, moving one EU
requirement from the fair and balanced communications section of the
Order to the disclosure of material incentives and conflicts of
interest section and adding text to clarify that substituted compliance
for counterparty protection requirements is applied at the transaction
level.\390\ This action is grounded in the Commission's conclusion
that, taken as a whole, applicable requirements under French and EU law
subject French Covered Entities to obligations that promote standards
of professional conduct, transparency and the fair treatment of
parties, and thus produce regulatory outcomes that are comparable to
the outcomes associated with the relevant counterparty protection
requirements under the Exchange Act.
---------------------------------------------------------------------------

    \390\ See para. (e) of the Order.
---------------------------------------------------------------------------

    To help ensure the comparability of outcomes, substituted
compliance is subject to certain conditions. Substituted compliance for
disclosure of material risks and characteristics,\391\ disclosure of
material incentives or conflicts of interest,\392\ ``know your
counterparty'',\393\ suitability \394\ and fair and balanced
communications \395\ requirements is conditioned on a Covered Entity
being subject to, and complying with, relevant French and EU
requirements. Substituted compliance for daily mark disclosure
requirements is conditioned on the Covered Entity being required to
reconcile, and in fact reconciling, the portfolio containing the
relevant security-based swap on each business day pursuant to relevant
EU requirements.\396\ Substituted compliance for suitability
requirements is conditioned on the counterparty being a per se
``professional client'' as defined in MiFID (i.e., not an elective
professional client or a retail client) and not a ``special entity'' as
defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule
15Fh-2(d).\397\ A Covered Entity that is unable to comply with a
condition--and thus is not eligible to use substituted compliance for
the particular set of Exchange Act counterparty protection requirements
related to that condition--nevertheless may use substituted compliance
for another set of Exchange Act requirements addressed in the Order if
it complies with the conditions to the relevant parts of the Order.
---------------------------------------------------------------------------

    \391\ See para. (e)(1) of the Order.
    \392\ See para. (e)(2) of the Order.
    \393\ See para. (e)(3) of the Order.
    \394\ See para. (e)(4)(i) of the Order.
    \395\ See para. (e)(5) of the Order.
    \396\ Covered Entities must be required to reconcile, and in
fact reconcile, the portfolio containing the security-based swap for
which substituted compliance is applied, on each business day
pursuant to EMIR articles 11(1)(b) and 11(2) and EMIR RTS article
13. See para. (e)(6) of the Order.
    \397\ See para. (e)(4)(ii) of the Order.
---------------------------------------------------------------------------

    The Commission recognizes that there are differences between the
approaches taken by disclosure of material risks and characteristics,
disclosure of material incentives or conflicts of interest, ``know your
counterparty,'' suitability, fair and balanced communications and daily
mark disclosure requirements under the Exchange Act, on the one hand,
and relevant French and EU requirements, on the other hand. The
Commission continues to view those differences, when coupled with the
conditions described above, as not so material as to be inconsistent
with substituted compliance within the requisite outcomes-oriented
context. With respect to Exchange Act clearing rights disclosure
requirements, however, consistent with the proposed Order the
Commission is not providing substituted compliance.
    Under the Order, substituted compliance for counterparty protection
requirements (relating to disclosure of information regarding material
risks and characteristics, disclosure of information regarding material
incentives or conflicts of interest, ``know your counterparty,''
suitability, fair and balance communications and daily mark disclosure)
is not subject to a condition that the Covered Entity apply substituted
compliance for related recordkeeping requirements in Exchange Act rules
18a-5 and 18a-6. A Covered Entity that applies substituted compliance
for one or more counterparty protection requirements, but does not
apply substituted compliance for the related recordkeeping requirements
in Exchange Act rules 18a-5 and 18a-6, will remain subject to the
relevant provisions of Exchange Act rules 18a-5 and 18a-6. Those rules
require the Covered Entity to make and preserve records of its
compliance with Exchange Act counterparty protection requirements and
of its security-based swap activities required or governed by those
requirements. A Covered Entity that applies substituted compliance for
a counterparty protection requirement, but complies directly with
related recordkeeping requirements in rules 18a-5 and 18a-6, therefore
must make and preserve records of its compliance with the relevant
conditions of the Order and of its security-based swap activities
required or governed by those conditions and/or referenced in the
relevant parts of rules 18a-5 and 18a-6.
    One commenter requested that the Commission make several changes to
the conditions in the proposed Order.\398\ The Commission details its
response to each of those requests below.
---------------------------------------------------------------------------

    \398\ See SIFMA Letter II at Appendix A.
---------------------------------------------------------------------------

1. Disclosure of Information Regarding Material Risks and
Characteristics
    The commenter requested that the Commission not require a Covered
Entity to be subject to and comply with MIFID Org Reg articles 49 and
50 and requested that the requirement for a Covered Entity to be
subject to and comply with MiFID article 24(4) and MFC D. 533-15 be
narrowed to include only MiFID article 24(4)(b) and MFC D. 533-
15.2[deg], respectively.\399\ The commenter described the proposed
removal of conditions as addressing requirements ``which do not
correspond to, and go beyond, the requirements in Exchange Act rule
15Fh-3(b).'' \400\
---------------------------------------------------------------------------

    \399\ Id.
    \400\ Id.
---------------------------------------------------------------------------

    The commenter stated that MiFID Org Reg article 49 relates to
information about the safeguarding of client financial instruments or
client funds and thus goes beyond the scope of Exchange Act material
risks and characteristics disclosure requirements.\401\ This provision
would require a Covered Entity to inform its client about the risks of
the Covered Entity placing client assets, which

would include the relevant security-based swap and funds related to it,
to be held by a third party, the risks of the Covered Entity holding
client assets in an omnibus account, the risks of holding client assets
that are not segregated from the assets of the Covered Entity or a
third party holding the client's assets and the risks of the Covered
Entity entering into securities financing transactions using client
assets. A Covered Entity also would have to inform the client when the
relevant security-based swap is held in an account subject to the laws
of a jurisdiction other than France and indicate that client rights
relating to the security-based swap may differ from those under French
law. A Covered Entity also would have to inform the client about any
security interest, lien or right of set-off that the Covered Entity or
a depository may have over client assets. In comparison, Exchange Act
rule 15Fh-3(b)(1) requires a Covered Entity, before entering into a
security-based swap, to disclose to certain counterparties material
information about the security-based swap in a manner reasonably
designed to allow the counterparty to assess the material risks and
characteristics of the security-based swap, which may include market,
credit, liquidity, foreign currency, legal, operational and any other
applicable risks of the security-based swap. Legal and operational
risks of a security-based swap include the types of risks to client
assets that MiFID Org Reg article 49 would require the Covered Entity
to disclose. Accordingly, the Commission is retaining the references to
these provisions.
---------------------------------------------------------------------------

    \401\ Id.
---------------------------------------------------------------------------

    The commenter stated that MiFID Org Reg 50 relates to the
disclosure of costs and charges and thus goes beyond the scope of
Exchange Act material risks and characteristics disclosure
requirements.\402\ Exchange Act rule 15Fh-3(b)(1) requires a Covered
Entity, before entering into a security-based swap, to disclose to
certain counterparties material information about the security-based
swap in a manner reasonably designed to allow the counterparty to
assess the material risks and characteristics of the security-based
swap, which may include the material economic terms of the security-
based swap and the rights and obligations of the parties during the
term of the security-based swap. The material economic terms of a
security-based swap and the rights and obligations of the parties
include the costs and charges associated with the security-based swap.
Accordingly, the Commission is retaining the references to these
provisions.
---------------------------------------------------------------------------

    \402\ Id.
---------------------------------------------------------------------------

    Additionally, the commenter requested that MiFID article 24(4) and
MFC D. 533-15 be narrowed to only require compliance with MiFID article
24(4)(b) and MFC D. 533-15.2[deg], because the parts proposed for
removal ``relate[ ] to whether the advice is provided on an independent
basis and . . . to costs and charges.'' \403\ As noted above, Exchange
Act rule 15Fh-3(b)(1) requires a Covered Entity, before entering into a
security-based swap, to disclose to certain counterparties material
information about the security-based swap in a manner reasonably
designed to allow the counterparty to assess the material risks and
characteristics of the security-based swap, which may include the
material economic terms of the security-based swap and the rights and
obligations of the parties during the term of the security-based swap.
The Commission believes that a counterparty would consider the
independence of the Covered Entity in the counterparty's assessment of
these risks and characteristics. The Commission addressed the
provisions related to costs and charges above. The holistic approach
taken by the Commission in considering whether regulatory requirements
are comparable further warrants the inclusion of these provisions in
the Order. Accordingly, the Commission is retaining the references to
these provisions.
---------------------------------------------------------------------------

    \403\ Id.
---------------------------------------------------------------------------

2. Disclosure of Information Regarding Material Incentives or Conflicts
of Interest
    The commenter requested that the Commission not require a Covered
Entity to be subject to and comply with MiFID article 24(9) and MFC L.
533-12-4.\404\ The commenter stated that these provisions relate to
third-party payments and thus go beyond the scope of Exchange Act
material incentives or conflicts of interest disclosure requirements.
These provisions would require a Covered Entity to refrain from paying
to, or accepting from, third parties certain fees, commissions or non-
monetary benefits in connection with providing an investment service
(inducements) and, in circumstances in which the general prohibition on
inducements does not apply, to disclose to the client the existence,
nature and amount of the inducement prior to providing the service and
in a manner that is comprehensive, accurate and understandable. In
comparison, Exchange Act rule 15Fh-3(b)(2) requires a Covered Entity,
before entering into a security-based swap, to disclose to certain
counterparties material information about the security-based swap in a
manner reasonably designed to allow the counterparty to assess the
material incentives or conflicts of interest that the Covered Entity
may have in connection with the security-based swap, including any
compensation or other incentives from any source other than the
counterparty. Disclosure of this compensation or other incentives would
include disclosure of the existence, nature and amount of an inducement
that MiFID article 24(9) and MFC L. 533-12-4 would require the Covered
Entity to disclose. Accordingly, the Commission is retaining the
references to these provisions.
---------------------------------------------------------------------------

    \404\ Id.
---------------------------------------------------------------------------

    The Commission is issuing the disclosure of information regarding
material incentives or conflicts of interest section of the Order
largely as proposed, with the inclusion of two additional EU
requirements.\405\ MAR Investment Recommendations Regulation articles 5
and 6 enumerate specific obligations in relation to disclosure of
interests or of conflicts of interest. Article 5 requires that persons
who produce recommendations disclose in their recommendations all
relationships and circumstances that may reasonably be expected to
impair the objectivity of the recommendation, including interests or
conflicts of interest. Article 6 imposes additional obligations on
certain entities, including the disclosure of information on their
interests and conflicts of interest concerning the issuer to which a
recommendation relates. The Commission believes that requiring Covered
Entities to be subject to and comply with MAR Investment
Recommendations Regulation articles 5 and 6 contributes to a
determination that relevant French and EU requirements produce
regulatory outcomes that are comparable to relevant requirements of
Exchange Act rule 15Fh-3(b). Accordingly, the Commission is adding
these two requirements to the Order's list of French and EU disclosure
of information regarding material incentives or conflicts of interest
requirements that the Covered Entity must be subject to and comply
with.\406\
---------------------------------------------------------------------------

    \405\ See para. (e)(2) of the Order.
    \406\ See id.
---------------------------------------------------------------------------

3. ``Know your counterparty''
    The commenter requested that the Commission not require a Covered
Entity to be subject to and comply with a series of French and EU
``know your

counterparty'' requirements specified in the proposed Order, including:
MiFID article 16(2); MFC L. 533-10.II(2); MiFID Org Reg articles 21 and
22, 25 and 26 and applicable parts of Annex I; CRD articles 74(1) and
85(1); MFC L. 511-55 and L. 511-41-1-B; MLD articles 11 and 13; L. 561-
6, L. 561-10, L. 561-4-1, R. 561-5-2, R. 561-7, R. 561-10-3, R. 561-11-
1; MLD articles 8(3) and 8(4)(a) as applied to internal policies,
controls and procedures regarding recordkeeping of customer due
diligence activities; and MFC L. 561-4-1 as applied to vigilance
measures regarding recordkeeping of customer due diligence
activities.\407\ The commenter also proposed the addition of MFC
article L. 561-12 to the Order's ``know your counterparty'' conditions.
Similar to other elements of the counterparty protection requirements,
the commenter asserted that the conditions identified for removal ``do
not correspond to, and go beyond, the requirements of Exchange Act rule
15Fh-3(e).'' \408\ However, the commenter's reasons for this
overarching claim are unconvincing.
---------------------------------------------------------------------------

    \407\ SIFMA Letter II at Appendix A.
    \408\ Id.
---------------------------------------------------------------------------

    The commenter describes MiFID article 16(2) and MFC L. 533-10.II(2)
as relating to ``broad organizational requirements'' without explaining
how such characteristics preclude their inclusion when considering
whether regulatory requirements are comparable for purposes of
substituted compliance.\409\ MiFID article 16(2) requires a Covered
Entity to establish, implement and maintain adequate policies and
procedures sufficient to ensure the Covered Entity's compliance with
its obligations under French financial services laws. This requirement
relates to the requirement in Exchange Act rule 15Fh-3(e)(1) and (2)
for the Covered Entity to establish, maintain and enforce written
policies and procedures to obtain and retain a record of the essential
facts about the counterparty that are necessary for complying with
applicable laws, regulations and rules and for implementing the Covered
Entity's credit and operational risk management policies. Accordingly,
the Commission is retaining the references to these provisions.
---------------------------------------------------------------------------

    \409\ Id.
---------------------------------------------------------------------------

    The commenter similarly describes the other conditions proposed for
removal, including the MiFID Org Reg articles as ``organizational
requirements, compliance, responsibility of senior management,
complaints handling and associated recordkeeping.'' \410\ However,
MiFID Org Reg articles 21, 22, 25, 26 and applicable parts of Annex I
are regulations that implement MiFID article 16(2). They provide
additional detail about the Covered Firm's required policies and
procedures under the French regulatory framework, and as such are
relevant to the policies and procedures required under Exchange Act
rule 15Fh-3(e). Accordingly, the Commission is retaining the references
to these provisions.
---------------------------------------------------------------------------

    \410\ Id.
---------------------------------------------------------------------------

    The commenter states that CRD articles 74(1) and 85(1), and MFC L.
511-55 and L. 511-41-1-B are ``governance and prudential
requirements,'' and thus go beyond the scope of Exchange Act ``know
your counterparty'' requirements.\411\ CRD article 74(1) would require
the Covered Entity to have robust governance arrangements, including
effective processes to identify, manage, monitor and report the risks
it is or might be exposed to. CRD article 85(1) would require the
Covered Entity to implement policies and processes to evaluate and
manage the exposures to operational risk. These requirements relate to
the requirement in Exchange Act rule 15Fh-3(e)(2) for the Covered
Entity to establish, maintain and enforce written policies and
procedures to obtain and retain a record of the essential facts about
the counterparty that are necessary for implementing the Covered
Entity's credit and operational risk management policies. Accordingly,
the Commission is retaining the references to these provisions.
---------------------------------------------------------------------------

    \411\ Id.
---------------------------------------------------------------------------

    The commenter states that MLD articles 8(3), 8(4)(a), 11 and 13,
are simply ``overbroad,'' and therefore ``do not correspond to, and go
beyond, the requirements of Exchange Act rule 15Fh-3(e).'' \412\
Similarly, the commenter states that MFC articles L. 561-6, L. 561-10,
R. 561-5-2, R. 561-7, R. 561-10-3 and R. 561-11-1, which in part
implement MLD articles 11 and 13, and MFC article L. 561-4-1, which
implements MLD articles 8(3) and 8(4)(a), are related to ``AML
requirements other than KYC'' and that ``it is not appropriate for the
Commission effectively to expand the scope and content of its
requirements.'' \413\ MLD articles 11 and 13, and the corresponding
provisions of the MFC, require obliged entities such as a Covered
Entity to apply customer due diligence measures at defined points of a
business relationship. Those customer due diligence measures include
verifying that any person purporting to act on behalf of a customer is
so authorized. The customer due diligence measures required by MLD
articles 11 and 13 and the corresponding provisions of the MFC thus are
directly related to the requirement in Exchange Act 15Fh-3(e)(3) for a
Covered Entity to establish, maintain and enforce written policies and
procedures to obtain and retain a record of the essential facts about
the authority of any person acting for a counterparty. MLD articles
8(3) and 8(4)(a) and MFC article L. 561-4-1 would require a Covered
Entity to have in place policies, controls and procedures to mitigate
and manage effectively the risks of money laundering and terrorist
financing. These policies and processes are related to the requirement
in Exchange Act rule 15Fh-3(e)(1) and (2) for the Covered Entity to
establish, maintain and enforce written policies and procedures to
obtain and retain a record of the essential facts about the
counterparty that are necessary for complying with applicable laws,
regulations and rules and for implementing the Covered Entity's credit
and operational risk management policies. Accordingly, the Commission
is retaining the references to these provisions.
---------------------------------------------------------------------------

    \412\ Id.
    \413\ Id.
---------------------------------------------------------------------------

    The commenter provided no rationale for the proposed inclusion of
MFC L. 561-12. Accordingly, the Commission is not adding this provision
to the Order.
4. Suitability
    The commenter requested that the Commission not require a Covered
Entity to be subject to and comply with some of the French and EU
suitability requirements specified in the proposed Order, including:
MiFID articles 24(3) and 25(1); MFC L. 533-24, L. 533-12(I), and L.
533-12-6; and MiFID Org Reg articles 21(1)(b) and (d). The commenter
stated that each of these recommended deletions, ``do not correspond
to, and go beyond, the requirements in Exchange Act rule 15Fh-3(f).''
\414\ The commenter stated that MiFID article 24(3) and MFC article L.
533-12(I) ``relate to the requirement that any information communicated
to clients is fair, clear and not misleading''; that MiFID article
25(1), MFC article L. 533-12-6, and MiFID Org Reg article 21(1)(d)
``refer to the skills, knowledge and expertise of the firm's
personnel''; that MFC article L. 533-24 ``relates to obligations
imposed on firms who design financial instruments''; and that MiFID Org
Reg article 21(1)(b) requires ``that relevant

persons are aware of the procedures which must be followed for the
proper discharge of their responsibilities.'' \415\
---------------------------------------------------------------------------

    \414\ Id.
    \415\ Id.
---------------------------------------------------------------------------

    Exchange Act rule 15Fh-3(f) requires an SBS Entity, when making
certain security-based swap recommendations to a counterparty, to
undertake reasonable diligence to understand the potential risks and
rewards associated with the recommendation (the reasonable basis
suitability standard) and to have a reasonable basis to believe that
the recommendation is suitable for the counterparty (the counterparty-
specific suitability standard).\416\ MiFID article 25(1) and MFC
article L. 533-12-6 would require a Covered Entity to ensure that
individuals making personal recommendations to clients in relation to a
relevant security-based swap have the necessary knowledge and
competence so as to ensure that the Covered Entity is able to meet its
obligations under MiFID articles 24 and 25 and the related provisions
of the MiFID Org Reg. MiFID article 25(2) and MFC article L. 533-13(I)
would require the Covered Entity to obtain information about a client
necessary to ensure that it makes only recommendations that are
suitable for the client, and thus are relevant to the Exchange Act
counterparty-specific suitability standard. Thus, MiFID article 25(1)
and MFC article L. 533-12-6 would require the Covered Entity to ensure
that recommendations to clients are made with the knowledge and
competence necessary to fulfill the Covered Entity's obligation under
MiFID article 25(1) and MFC article L. 533-12-6 to make only suitable
recommendations. This knowledge and competence requirement in MiFID
article 25(1) and MFC article L. 533-12-6 is directly related to the
Exchange Act reasonable basis standard.
---------------------------------------------------------------------------

    \416\ See Exchange Act rule 15Fh-3(f)(1).
---------------------------------------------------------------------------

    Moreover, MiFID article 24(3) and MFC Article L. 533-12(I), are
particularly relevant to the Exchange Act reasonable basis standard.
MiFID article 24(3), together with MiFID article 25(1), would require
the Covered Entity to ensure that individuals making recommendations
have the knowledge and competence to communicate about the relevant
security-based swap in a way that is fair, clear and not misleading.
The Commission believes that in order to meet the French requirement to
communicate in a fair, clear, and not misleading manner, the Covered
Entity's due diligence would reflect that individuals engaged in such
communication understand the potential risks and rewards of the
recommendation in a manner that is comparable to the requirement in
Exchange Act rule 15Fh-3(f)(1)(i). MiFID Org Reg article 21(1)(b) and
(d), in turn, would require the Covered Entity to ensure that its
personnel have the skills, knowledge and expertise, and be aware of the
procedures, necessary to properly discharge their responsibilities,
which include their suitability obligations. These requirements again
relate to the Exchange Act reasonable basis standard because they would
require the Covered Entity to ensure that personnel making
recommendations are equipped with the requisite training and
information to be able to properly communicate about the relevant
security-based swap in a way that complies with its French and EU
communication and suitability obligations. For these reasons, the
Commission is retaining in the Order the references to the French and
EU requirements that the commenter asked to delete.\417\
---------------------------------------------------------------------------

    \417\ See para. (e)(4)(i) of the Order.
---------------------------------------------------------------------------

    Additionally, the commenter requested that the Commission change
the condition to substituted compliance for Exchange Act suitability
requirements that would require the Covered Entity's counterparty to be
a ``professional client'' mentioned in MiFID Annex II section I and MFC
article D. 533-11.\418\ Professional clients mentioned in MiFID Annex
II section I and MFC article D. 533-11 are per se professional clients,
a category of clients that generally includes those with more
experience, knowledge, expertise and resources and that excludes
elective professional clients and retail clients. The commenter
requested that the Commission expand the condition's definition of
``professional client'' to include elective professional clients
mentioned in MiFID Annex II section II and MFC article D. 533-12.\419\
Elective professional clients generally have less experience,
knowledge, expertise and/or resources than per se professional
clients.\420\ Because French and EU suitability requirements permit a
Covered Entity, when conducting a suitability analysis for elective
professional clients, to make certain assumptions,\421\ while the
Exchange Act permits a similar mechanism only for institutional
counterparties, the Commission believes that French and EU suitability
requirements are comparable only with respect to per se professional
clients.\422\ Accordingly, the Commission is retaining the condition
requiring the Covered Entity's counterparty to be a per se professional
client and is not expanding that condition to permit Covered Entities
to apply substituted compliance for Exchange Act suitability
requirements when its counterparty is an elective professional client.
---------------------------------------------------------------------------

    \418\ SIFMA Letter II at Appendix A.
    \419\ Id.
    \420\ See MiFID Annex II section II.1. (stating that elective
professional clients ``shall not, however, be presumed to possess
market knowledge and experience comparable to that of the categories
listed in Section I.'').
    \421\ See, e.g., MiFID Org Reg article 54(3).
    \422\ See para. (e)(4) of the Order.
---------------------------------------------------------------------------

5. Fair and Balanced Communications
    The Commission is issuing the fair and balanced communications
section of the Order largely as proposed, except for two changes.\423\
First, the Commission believes that French and EU fair and balanced
communications requirements are more comparable to Exchange Act
requirements when considering three additional EU requirements: MAR
article 20(1) would require the Covered Entity to present
recommendations in a manner that ensures the information is objectively
presented and to disclose interests and conflicts of interest
concerning the financial instruments to which the information relates.
MAR Investment Recommendations Regulation article 3 would require a
Covered Entity to communicate only recommendations that present facts
in a way that they are clearly distinguished from interpretations,
estimates, opinions and other types of non-factual information; label
clearly and prominently projections, forecasts and price targets;
indicate the relevant material assumptions and substantial material
sources of information; and include only reliable information or a
clear indication when there is doubt about reliability. MAR Investment
Recommendations Regulation article 4 would require the Covered Entity
to provide in its recommendation additional information about the
factual basis of its recommendation. Accordingly, the Commission is
adding these three requirements to the Order's list of French and EU
fair and balanced communications requirements that the Covered Entity
must be subject to and comply with.\424\ Second, the proposed Order
would have required the Covered Entity to be subject to and comply with
MAR Investment Recommendations Regulation article 5,\425\ which relates
to obligations to disclose conflicts of interest. As discussed above,
the Commission is requiring Covered

Entities to comply with this requirement and with MAR Investment
Recommendations Regulation article 6 when using substituted compliance
for disclosure of material incentives and conflicts of interest
requirements. Accordingly, the Commission believes that MAR Investment
Recommendations Regulation article 5 is less relevant to comparability
of fair and balanced communications requirements and is deleting the
reference to it in relation to substituted compliance for fair and
balanced communications.
---------------------------------------------------------------------------

    \423\ See para. (e)(5) of the Order.
    \424\ See para. (e)(5) of the Order.
    \425\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85741.
---------------------------------------------------------------------------

    The Commission did not receive comments on the fair and balanced
communications requirements of the counterparty protection section of
the proposed Order.
6. Daily Mark Disclosure
    A commenter requested that the Commission not require a Covered
Entity to be subject to and comply with EMIR article 11(2), stating
that it ``is not related to portfolio reconciliation'', but, rather,
``concerns the daily mark-to-market or mark-to-model of contracts.''
\426\ The commenter is correct that EMIR article 11(2) would require
the Covered Entity to mark-to-market or mark-to-model its non-centrally
cleared contracts. Other French portfolio reconciliation requirements
contemplate that counterparties will use this valuation as an input to
the reconciliation process. For example, a portfolio reconciliation
must include at least the valuation attributed to each contract in
accordance with EMIR article 11(2).\427\ As EMIR article 11(2) sets the
standards under which a Covered Entity must calculate this key input in
the portfolio reconciliation process, the Commission has determined
that this provision is related to portfolio reconciliation and
accordingly is retaining the Order's reference to it.\428\
---------------------------------------------------------------------------

    \426\ SIFMA Letter II at Appendix A.
    \427\ See EMIR RTS article 13(2).
    \428\ See para. (e)(6) of the Order.
---------------------------------------------------------------------------

7. Clearing Rights Disclosure
    In the proposed Order, the Commission preliminarily determined that
French and EU requirements are not comparable to Exchange Act clearing
rights disclosure requirements and proposed not to make a positive
substituted compliance determination with respect to those
requirements.\429\ Because French and EU clearing provisions do not
require disclosure of a counterparty's clearing rights under Exchange
Act section 3C(g)(5), the Commission views those provisions as not
comparable to Exchange Act clearing rights disclosure requirements.
Commenters did not address this conclusion and, consistent with the
proposed Order, the Commission is not providing substituted compliance.
---------------------------------------------------------------------------

    \429\ French Substituted Compliance Notice and Proposed Order,
81 FR at 85730.
---------------------------------------------------------------------------

8. Clarifications Related to Conditions
    A commenter asked the Commission to revise the Order to follow the
approach in the UK Proposed Order, in which the Commission clarified
that a Covered Entity may apply substituted compliance for Exchange Act
rule 15Fh-3(f)'s suitability requirements to ``one or more
recommendations of a security-based swap or trading strategy involving
a security-based swap'' subject to those Exchange Act suitability
requirements.\430\ The commenter proposed adding this same text to the
Order.\431\ The UK Proposed Order contains similar text with respect to
substituted compliance for the other counterparty protection
requirements.
---------------------------------------------------------------------------

    \430\ SIFMA Letter II at Appendix A.
    \431\ Id.
---------------------------------------------------------------------------

    Because the counterparty protection requirements are transaction-
level requirements, a Covered Entity may decide to apply substituted
compliance for those requirements to some of its security-based swap
business and decide to comply directly with the Exchange Act (or to
comply with another suitable substituted compliance order) for other
parts of its security-based swap business. The Commission agrees that
the commenter's requested change would help to clarify that substituted
compliance for suitability is available for one or more of a Covered
Entity's recommendations and also believes that similar changes to the
other counterparty protection sections of the Order, consistent with
the UK Proposed Order, would clarify those sections of the Order as
well. Accordingly, the Commission is modifying each paragraph of the
counterparty protection section of the Order to clarify that
substituted compliance for counterparty protection requirements is
available for one or more of a Covered Entity's relevant
activities.\432\
---------------------------------------------------------------------------

    \432\ See paras. (e)(1) through (6) of the Order.
---------------------------------------------------------------------------

VIII. Substituted Compliance for Recordkeeping, Reporting,
Notification, and Securities Count Requirements

A. Proposed Approach

    The French Authorities' Application in part requested substituted
compliance for requirements applicable to SBS Entities under the
Exchange Act relating to:
     Record Making--Exchange Act rule 18a-5 requires prescribed
records to be made and kept current.\433\
---------------------------------------------------------------------------

    \433\ See 17 CFR 240.18a-5. The French Authorities' Application
discusses EU and French requirements that address firms' record
creation obligations related to matters such as financial condition,
operations, transactions, counterparties and their property,
personnel and business conduct. See French Authorities' Application
Annex I category 2 at 2-42.
---------------------------------------------------------------------------

     Record Preservation--Exchange Act rule 18a-6 requires
preservation of records.\434\
---------------------------------------------------------------------------

    \434\ See 17 CFR 240.18a-6. The French Authorities' Application
discusses EU and French requirements that address firms' record
preservation obligations related to records that firms are required
to create, as well as additional records such as records of
communications. See French Authorities' Application Annex I category
2 at 43-81.
---------------------------------------------------------------------------

     Reporting--Exchange Act rule 18a-7 requires certain
reports.\435\
---------------------------------------------------------------------------

    \435\ See 17 CFR 240.18a-7. The French Authorities' Application
discusses EU and French requirements that address firms' obligations
to make certain reports. See French Authorities' Application Annex I
category 2 at 82-95, 98-104.
---------------------------------------------------------------------------

     Notification--Exchange Act rule 18a-8 requires
notification to the Commission when certain financial or operational
problems occur.\436\
---------------------------------------------------------------------------

    \436\ See 17 CFR 240.18a-8. The French Authorities' Application
discusses EU and French requirements that address firms' obligations
to make certain notifications. See French Authorities' Application
Annex I category 2 at 95-98.
---------------------------------------------------------------------------

     Securities Count--Exchange Act rule 18a-9 requires non-
prudentially regulated security-based swap dealers to perform a
quarterly securities count.\437\
---------------------------------------------------------------------------

    \437\ See 17 CFR 240.18a-9. The French Authorities' Application
discusses EU and French requirements that address firms' obligations
to perform securities counts. See French Authorities' Application
Annex I category 2 at 32-38.
---------------------------------------------------------------------------

     Daily Trading Records. Exchange Act section 15F(g)
requires SBS Entities to maintain daily trading records.\438\
---------------------------------------------------------------------------

    \438\ See 15 U.S.C. 78o-10(g). The French Authorities'
Application discusses EU and French requirements that address firms'
record preservation obligations related to records that firms are
required to create, as well as additional records such as records of
communications. See French Authorities' Application Annex I category
2 at 43-81.
---------------------------------------------------------------------------

    Taken as a whole, the recordkeeping, reporting, notification, and
securities count requirements that apply to SBS Entities are designed
to promote the prudent operation of the firm's security-based swap
activities, assist the Commission in conducting compliance examinations
of those activities, and alert the Commission to potential financial or
operational problems that could impact the firm and its customers.\439\
---------------------------------------------------------------------------

    \439\ Rule 3a71-6 sets forth additional analytic considerations
in connection with substituted compliance for the Commission's
recordkeeping, reporting, notification, and securities count
requirements. In particular, Exchange Act rule 3a71-6(d)(6) provides
that the Commission intends to consider (in addition to any
conditions imposed) ``whether the foreign financial regulatory
system's required records and reports, the timeframes for recording
or reporting information, the accounting standards governing the
records and reports, and the required format of the records and
reports'' are comparable to applicable provisions under the Exchange
Act, and whether the foreign provisions ``would permit the
Commission to examine and inspect regulated firms' compliance with
the applicable securities laws.''

---------------------------------------------------------------------------

    In proposing to provide conditional substituted compliance in
connection with this part of the French Authorities' Application, the
Commission preliminarily concluded that the relevant EU and French
requirements, subject to conditions and limitations, would produce
regulatory outcomes that are comparable to the outcomes associated with
the vast majority of the recordkeeping, reporting, notification, and
securities count requirements under the Exchange Act applicable to SBS
Entities pursuant to Exchange Act rules 18a-5, 18a-6, 18a-7, 18a-8, and
18a-9 and Exchange Act section 15F(g) (collectively, the ``Exchange Act
Recordkeeping and Reporting Requirements'').\440\
---------------------------------------------------------------------------

    \440\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85731-34.
---------------------------------------------------------------------------

    In the Reopening Release, the Commission sought comment on whether
the structure of the substituted compliance determinations with respect
to Exchange Act rules 18a-5, 18a-6, 18a-7, 18a-8, and 18a-9 as well as
Exchange Act Section 15F(g) should permit a covered entity to apply
substituted compliance with respect to certain of these rules (e.g.,
Exchange Act rules 18a-5 and 18a-6) and comply with the Exchange Act
requirements of the remaining rules and statute (i.e., Exchange Act
rules 18a-7, 18a-8, and 18a-9, as well as Exchange Act Section
15F(g)).\441\ Moreover, the Commission sought comment on whether the
structure of the substituted compliance determinations with respect to
the recordkeeping rules should provide Covered Entities with greater
flexibility to select distinct requirements within the broader rules
for which they want to apply substituted compliance.\442\
---------------------------------------------------------------------------

    \441\ See Reopening Release, 86 FR at 18347-48.
    \442\ Id. The Commission directed commenters to the UK
Substituted Compliance Notice and Proposed Order to indicate how the
approaches discussed above would be implemented in ordering
language. See also UK Substituted Compliance Notice and Proposed
Order, 86 FR at 18394-404, 18415-20.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

1. General Considerations
    The Commission received comments addressing the proposed
conditional substituted compliance determinations for the Exchange Act
Recordkeeping and Reporting Requirements, including with respect to the
potential approaches for which comment was sought in the Reopening
Release.\443\ The comments and the Commission's response to them are
discussed below.
---------------------------------------------------------------------------

    \443\ See SIFMA Letter II at 17-18 and Appendix A.
---------------------------------------------------------------------------

    The Commission received comment requesting the elimination of
references to EU or French requirements that do not apply to third-
country branches or that apply to multiple countries' branches of an
SBS Entity.\444\ The same commenter suggested as another possible
solution that SBS Entities be permitted to elect to comply directly
with U.S. law instead of EU or French requirements.\445\ Accordingly,
in the Reopening Release, the Commission solicited comment on whether
to structure its preliminary substituted compliance determinations for
Exchange Act rules 18a-5, 18a-6, 18a-7, and 18a-8 to provide Covered
Entities with greater flexibility to select which distinct requirements
within the broader rules for which they want to apply substituted
compliance.\446\ This flexibility was intended to permit Covered
Entities to leverage existing recordkeeping and reporting systems that
are designed to comply with the broker-dealer recordkeeping and
reporting requirements on which the recordkeeping and reporting
requirements applicable to SBS Entities are based. For example, it may
be more efficient for a Covered Entity to comply with certain Exchange
Act requirements within a given recordkeeping or reporting rule (rather
than apply substituted compliance) because it can utilize systems that
its affiliated broker-dealer has implemented to comply with them.
---------------------------------------------------------------------------

    \444\ See SIFMA Letter I at 2-4.
    \445\ See SIFMA Letter I at 8-9.
    \446\ See Reopening Release, 86 FR at 18347-48.
---------------------------------------------------------------------------

    As applied to Exchange Act rules 18a-5 and 18a-6, this approach of
providing greater flexibility resulted in preliminary substituted
compliance determinations with respect to the different categories of
records these rules require SBS Entities to make, keep current, and/or
preserve. The objectives of these rules--taken as a whole--is to assist
the Commission in monitoring and examining for compliance with Exchange
Act requirements applicable to SBS Entities as well as to promote the
prudent operation of these firms.\447\ The Commission preliminarily
found that the comparable EU and French recordkeeping rules achieve
these outcomes with respect to compliance with EU and French
requirements for which positive substituted compliance determinations
were made (e.g., capital and margin requirements). At the same time,
the recordkeeping rules address different categories of records through
distinct requirements within the rules. Each requirement with respect
to a specific category of records (e.g., paragraph (a)(2) of Exchange
Act rule 18a-5 addressing ledgers (or other records) reflecting all
assets and liabilities, income and expense and capital accounts) can be
viewed in isolation as a distinct recordkeeping rule. Therefore, the
Commission solicited comment on whether it would be appropriate to make
substituted compliance determinations at this level of Exchange Act
rules 18a-5 and 18a-6.\448\
---------------------------------------------------------------------------

    \447\ See, e.g., Exchange Act Release No. 71958 (Apr. 17, 2014),
79 FR 25194, 25199-200 (May 2, 2014).
    \448\ See Reopening Release, 86 FR 18347. The Commission
directed commenters to the UK Substituted Compliance Notice and
Proposed Order to indicate how this approach would be implemented in
ordering language. See also UK Substituted Compliance Notice and
Proposed Order, 86 FR at 18396-404, 18415-18.
---------------------------------------------------------------------------

    A commenter generally supported the Commission's proposed granular
approach to making substituted compliance determinations.\449\ The
Order takes this granular approach.
---------------------------------------------------------------------------

    \449\ See SIFMA Letter II at 17-18.
---------------------------------------------------------------------------

    The Commission's substituted compliance determinations for the
Exchange Act Recordkeeping and Reporting Requirements were subject to
the condition that the Covered Entity is subject to and complies with
the relevant EU and French laws.\450\ Further, the Commission proposed
or solicited comment on limitations and additional conditions for
certain of the proposed substituted compliance determinations. The
limitations and conditions are discussed below as well any comments on
them and the Commission's response to those comments.
---------------------------------------------------------------------------

    \450\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85731-34; Reopening Release, 86 FR at 18347-48.
---------------------------------------------------------------------------

    First, the Commission solicited comment on not making a positive
substituted compliance determination with respect to a discrete
provision of the Exchange Act Recordkeeping and Reporting Requirements
if it was fully or partially linked to a substantive Exchange Act
requirement for which substituted compliance was not available or for
which a positive substituted compliance determination was not being
made.\451\ The

Commission linked a requirement in Exchange Act rule 18a-5 to Exchange
Act rule 10b-10. A commenter pointed out that Covered Entities will not
be subject to Exchange Act rule 10b-10.\452\ The Commission agrees with
the commenter that there are no provisions in the Exchange Act
Recordkeeping and Reporting Requirements that are linked to Exchange
Act rule 10b-10. Consequently, the Order does not contain this
exclusion.
---------------------------------------------------------------------------

    \451\ See Reopening Release, 86 FR at 18347-48 (discussing this
limitation). The Commission directed commenters to the UK
Substituted Compliance Notice and Proposed Order to indicate how
this approach would be implemented in ordering language. See also UK
Substituted Compliance Notice and Proposed Order, 86 FR at 18395,
18415-20.
    \452\ See SIFMA Letter II at 18.
---------------------------------------------------------------------------

    Aside from this modification, the Order does not extend substituted
compliance to discrete Exchange Act Recordkeeping and Reporting
Requirements that are linked to substantive Exchange Act requirements
for which there is no substituted compliance. In particular, a positive
substituted compliance determination is not being made, in full or in
part, for recordkeeping, reporting, or notification requirements linked
to the following Exchange Act rules for which substituted compliance is
not available or a positive substituted compliance determination is not
being made: (1) Exchange Act rule 15Fh-4; (2) Exchange Act rule 15Fh-5;
(3) Exchange Act rule 15Fh-6; (4) Exchange Act rule 18a-2; (5) Exchange
Act rule 18a-4; Exchange Act rule 18a-7(i); and (6) Regulation SBSR.
    In addition, Exchange Act rule 18a-6(c) in part requires firms to
preserve Forms SBSE, SBSE-A, SBSE-C, SBSE-W, all amendments to these
forms, and all other licenses or other documentation showing the firm's
registration with any securities regulatory authority or the U.S.
Commodity Futures Trading Commission. Because these requirements are
linked to the Commission's and other U.S. regulators' registration
rules, for which substituted compliance is not available, the Order
excludes the requirement to preserve these records from the
Commission's positive substituted compliance determination with respect
to Exchange Act rule 18a-6(c).\453\
---------------------------------------------------------------------------

    \453\ See para. (f)(2)(i)(L) of the Order.
---------------------------------------------------------------------------

    Second, the Commission did not make a positive substituted
compliance determination with respect to the inspection requirement of
Exchange Act section 15F(f) and the records production the requirement
of Exchange Act rule 18a-6(g).\454\ The Commission did not receive
comment on this approach and the Order does not extend substituted
compliance to these requirements.
---------------------------------------------------------------------------

    \454\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85734 (discussing this condition).
---------------------------------------------------------------------------

    Third, the Commission solicited comment on conditioning substituted
compliance with discrete provisions of the Exchange Act Recordkeeping
and Reporting Requirements that were fully or partially linked to a
substantive Exchange Act requirement for which substituted compliance
was available on the Covered Entity applying substituted compliance
with respect to the linked Exchange Act requirement.\455\ In
particular, substituted compliance for a provision of the Exchange Act
Recordkeeping and Reporting Requirements that is linked to the
following Exchange Act rules is conditioned on the SBS Entity applying
substituted compliance to the linked substantive Exchange Act rule: (1)
Exchange Act rule 15Fh-3; (2) Exchange Act rule 15Fi-2; (3) Exchange
Act rule 15Fi-3; (4) Exchange Act rule 15Fi-4; (5) Exchange Act rule
15Fi-5; (6) Exchange Act rule 15Fk-1; (7) Exchange Act rule 18a-1
(``Rule 18a-1 Condition''); (8) Exchange Act rule 18a-3; (8) Exchange
Act rule 18a-5; and (9) Exchange Act rule 18a-7. The Commission did not
receive comment on this approach and is adopting it in the Order. The
only difference is that the positive substituted compliance
determination for Exchange Act rule 18a 6(b)(1)(viii) is now
conditioned on the Covered Entity applying substituted compliance for
the requirements of Exchange Act rule 18a-7(a)(1), (b), (c) through
(h), and Exchange Act rule 18a-7(j) as applied to these requirements,
rather than on the entirety of Exchange Act rule 18a-7, to reflect that
substituted compliance with respect to Exchange Act rule 18a-7 is
granted on a paragraph-by-paragraph basis and not all paragraphs of
Exchange Act rule 18a-7 are pertinent to Exchange Act rule 18a-
6(b)(1)(viii).
---------------------------------------------------------------------------

    \455\ See Reopening Release, 86 FR at 18348 (discussing this
condition). The Commission directed commenters to the UK Substituted
Compliance Notice and Proposed Order to indicate how this approach
would be implemented in ordering language. See also UK Substituted
Compliance Notice and Proposed Order, 86 FR 18395, 18415-20.
---------------------------------------------------------------------------

    Moreover, for the reasons discussed above in part III.B.2.e. of
this release, substituted compliance with respect to paragraphs (a)(1),
(b), and (c) through (h) of Exchange Act rule 18a-7 is subject to the
additional condition that the Covered Entity applies substituted
compliance with respect to Exchange Act rule 18a-6(b)(1)(viii) (a
record preservation requirement).\456\ This record preservation
requirement is directly linked to the financial and operational
reporting requirements of paragraphs (a)(1), (b), and (c) through (h)
of Exchange Act rule 18a-7. The UK Proposed Order conditioned
substituted compliance with respect to this record preservation
requirement on the Covered Entity applying substituted compliance with
respect to Exchange Act rule 18a-7(a)(1).\457\ This additional
condition is designed to provide clarity as to the Covered Entity's
obligations under this record preservation requirement when applying
substituted compliance with respect to paragraphs (a)(1), (b), and (c)
through (h) of Exchange Act rule 18a-7 pursuant this Order.
---------------------------------------------------------------------------

    \456\ See para. (f)(3)(i)(D) of the Order.
    \457\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18399, 18417. The Commission sought comment in the
Reopening Release on whether this approach should be taken in the
final Order. See Reopening Release, 86 FR at 18348.
---------------------------------------------------------------------------

    Fourth, the Commission conditioned substituted compliance with
discrete provisions of the Exchange Act Recordkeeping and Reporting
Requirements that would be important for monitoring or examining
compliance with the capital rule for nonbank security-based swap
dealers on the Covered Entity applying substituted compliance with
respect to the capital rule (i.e., the Rule 18a-1 Condition).\458\ The
Commission did not receive comment on this aspect of the Reopening
Release and the Order includes the Rule 18a-1 condition for discrete
provisions of the Exchange Act Recordkeeping and Reporting Requirements
that would be important for monitoring or examining compliance with the
capital rule for nonbank security-based swap dealers, as proposed.\459\
---------------------------------------------------------------------------

    \458\ See Reopening Release, 86 FR at 18348 (discussing this
condition). The Commission directed commenters to the UK Substituted
Compliance Notice and Proposed Order to indicate how this approach
would be implemented in ordering language. See also UK Substituted
Compliance Notice and Proposed Order, 86 FR 18395, 18415-20.
    \459\ The Commission included the Rule 18a-1 condition in the UK
Substituted Compliance Notice and Proposed Order as part of the
substituted compliance determination for the daily trading records
requirement of Exchange Act section 15F(g). UK Substituted
Compliance Notice and Proposed Order, 86 FR at 18420. A commenter
asked that the condition be modified so that it applies only if the
Covered Entity is not prudentially regulated (and therefore subject
to Rule 18a-1). SIFMA UK Letter at 23. Instead, the Commission has
determined to delete this condition from the substituted compliance
determination with respect to Exchange Act section 15F(g) generally
because the requirements of Exchange Act section 15 F(g) are not
important for monitoring or examining for compliance with Exchange
Act rule 18a-1. Therefore, all Covered Entities--whether or not
subject to Exchange Act rule 18a-1--can apply substituted compliance
with respect to Exchange Act section 15F(g).

---------------------------------------------------------------------------

    Fifth, the proposed Order included a condition that Covered
Entities must promptly furnish to a representative of the Commission
upon request an English translation of any record, report, or
notification of the Covered Entity that is required to be made,
preserved, filed, or subject to examination pursuant to Exchange Act
section 15F of this Order.\460\ In response, commenters requested that
the Commission provide a time period for furnishing such translations
that is commensurate with the scope of the Commission's request.\461\
Records requested by the Commission staff must be provided promptly.
Requests for translations of those records may require additional time.
The facts and circumstances of a particular requests (i.e., the volume
of records requested and the extent to which they contain narrative
text as opposed to figures) will implicate the timing of production.
Therefore, the Commission does not believe it would be appropriate to
prescribe a timeframe for production. The Commission is adopting the
English translation requirement in paragraph (f)(7) of the final Order
as proposed.
---------------------------------------------------------------------------

    \460\ See French Substituted Compliance Notice and Proposed
Order, 85 FR at 85734 (discussing this condition).
    \461\ See FBF Letter at 2; SIFMA Letter I at 14.
---------------------------------------------------------------------------

    Sixth, the Commission conditioned substituted compliance with
Exchange Act rule 18a-7 on Covered Entities filing periodic unaudited
financial and operational information with the Commission or its
designee in the manner and format required by Commission rule or order.
Commenters made suggestions about the scope and requirements of such a
Commission order or rule in addition to reiterating comments previously
made in response to the same condition in the German order.\462\ First,
if SBS Entities are required to prepare FOCUS Report Part II, and a
positive substituted compliance determination is made with respect to
the Commission's capital requirements, a commenter proposed that the
Commission permit an SBS Entity to submit capital computations in a
manner consistent with its home country capital standards and related
reporting rules.\463\ Second, some commenters asked that Covered
Entities be permitted to file their unaudited financial information
less frequently (e.g., quarterly) and provide a later submission
deadline to match the frequency of reporting and reporting deadline
required by the Covered Entity's home country regulator,\464\ while
other comment urged that Covered Entities be subject to monthly instead
of quarterly reporting of their financial condition.\465\ Third,
commenters supported a potential approach identified by the Commission
under which Covered Entities would be permitted to satisfy their
Exchange Act rule 18a-7 obligations for a two-year period by filing the
FOCUS Report Part IIC with only a limited number of the required line
items completed.\466\ Fourth, the Commission received comment
recommending that the FOCUS Report be modified to omit certain line
items either permanently or during a two-year transition.\467\ The
Commission will consider these comments as it works towards completing
a Commission order or rule pursuant to the provision in this Order that
substituted compliance with respect to Exchange Act rule 18a-7's FOCUS
Report filing requirement is conditioned on Covered Entities filing
unaudited financial and operational information in the manner and
format specified by Commission order or rule. The Commission will
consider these comments as it works towards completing a Commission
order or rule pursuant to the provision in this Order that substituted
compliance with respect to Exchange Act rule 18a-7's FOCUS Report
filing requirement is conditioned on Covered Entities filing unaudited
financial and operational information in the manner and format
specified by Commission order or rule.
---------------------------------------------------------------------------

    \462\ See SIFMA Letter I at 15; SIFMA Letter II at Appendix B.
    \463\ See SIFMA Letter I at 15.; SIFMA Letter II at Appendix B.
See also FBF Letter at 3 (supporting the SIFMA Letter I's
observations and recommendations that would provide additional
flexibility for SBS Entities with respect to their financial
reporting obligations).
    \464\ See SIFMA Letter I at 15-16; SIFMA Letter II at Appendix
B. See also FBF Letter at 3 (supporting the SIFMA Letter I's
observations and recommendations that would provide additional
flexibility for SBS Entities with respect to their financial
reporting obligations).
    \465\ See AFR Letter at 1.
    \466\ See SIFMA Letter I at 16; SIFMA Letter II at Appendix B;
FBF Letter at 3.
    \467\ See SIMA Letter II at Appendix B.
---------------------------------------------------------------------------

    Seventh, the Commission's positive substituted compliance
determination for Exchange Act rule 18a-7 identifies a number of
conditions regarding the requirement to file annual audited reports
pursuant to Exchange Act rule 18a-7. The third condition states SBS
Entities that are not required under French or EU laws to file a report
of an independent public accountant covering their financial statements
must file such an accountant's report. In its proposal, the Commission
requested comment on whether the independent public accountant must
meet the Commission's independence standards for public accountants.
The Commission did not receive comment on this point, but to ensure
that the SBS Entity's accountant is subject to independence standards,
the Commission is adding to the third condition the requirement that
the SBS Entity's accountant complies with French independence
requirements.\468\
---------------------------------------------------------------------------

    \468\ See para. (f)(3)(iii)(C) of the Order.
---------------------------------------------------------------------------

    Eighth, in its proposal, the Commission requested comment on
whether there are any French SBS Entities that are not expected to be
exempt from Exchange Act rule 18a-4, and therefore should be required
to file certain supporting schedules under Exchange Act rule 18a-7 that
relate to Exchange Act rule 18a-4. The Commission did not receive
comment on this point, but in case such entities exist, paragraph
(f)(3)(E) of the Order now includes a condition requiring SBS Entities
to file with the Commission the supporting schedules required by
Exchange Act rule 18a-7(c)(2)(ii) and (iii) that relate to Exchange Act
rule 18a-4 (i.e., Computation for Determination of Security-Based Swap
Customer Reserve Requirements and Information Relating to the
Possession or Control Requirements for Security-Based Swap Customers)
if the SBS Entity is not exempt from Exchange Act rule 18a-4.
Substituted compliance is not available for Exchange Act rule 18a-4
and, therefore, this condition is designed to provide the Commission
with similar compliance information.
    The Commission also received comment suggesting certain
modifications to the ordering language. Specifically, a commenter
suggested revising paragraph (f)(4) of the French Substituted
Compliance Notice and Proposed Order, which requires a Covered Entity
to send a copy of any notice required to be sent by EU and French laws
cited in paragraph (f)(4) simultaneously to the Commission. The
commenter recommended revising this provision to require the notices
that a Covered Entity would be required to send to the Commission be
limited to those notices required by EU and French law that are
comparable to Exchange Act rule 18a-8(d) instead of the entirety of
Exchange Act rule 18a-8. Furthermore, the commenter recommended
conditioning the requirement to provide these notices to the Commission
to be limited to those notifications that are related to (1) a breach
of the EU and French laws cited in the relevant portions of paragraphs

(f)(1) or (2) of the Order, which, in the case of a Covered Entity that
is prudentially regulated, also relates to the Covered Entity's
business as a security-based swap dealer or major security-based swap
participant, or (2) a deficiency relating to capital requirements.\469\
The commenter reasoned that the provisions of EU and French law
requiring notification contained in paragraph (f)(4) require
notification of a far wider array of matters than those described in
Exchange Act rule 18a-8. The Commission disagrees. Exchange Act rule
18a-8 requires security-based swap dealers and major security-based
swap participants for which there is no prudential regulator to notify
the Commission of a failure to meet minimum net capital. Exchange Act
rule 18a-8 also specifies several events that trigger a requirements
that a security-based swap dealer or major security-based swap
participant for which there is no prudential regulator must sent notice
within twenty-four hours to the Commission. These notices are designed
to provide the Commission with ``early warning'' that the SBS entity
may experience financial difficulty. Furthermore, Exchange Act rule
18a-8 requires bank security-based swap dealers to give notice to the
Commission when it files an adjustment of its reported capital category
with its prudential regulator. Additional notification requirements
arise with respect to the failure to maintain and keep current required
books and records, the discovery of material weaknesses, and failure to
make a required deposit into the special reserve account for the
exclusive benefit of security-bases swap customers.\470\ While the
specific EU and French requirements cited with respect to Exchange Act
rule 18a-8 are different from the specific requirements set forth in
Exchange Act rule 18a-8, the Commission believes the EU and French
notice requirements cited in paragraph (f)(4) of the Order provide for
comparable regulatory outcomes by requiring notification of events or
conditions which may impact an SBS Entity's capital or signal the
potential for financial difficulty, indicate the failure to maintain
and keep current books and records, or the potential for the failure to
comply with other requirements related to the protection of customer
assets. The recommended revisions would reduce the scope of
notifications the Commission would receive. Consequently, the
Commission is not making the recommended revisions with respect to
paragraph (f)(4).
---------------------------------------------------------------------------

    \469\ See SIFMA Letter II at Appendix A.
    \470\ See Exchange Act rule 18a-8, 17 CFR 240.18a-8.
---------------------------------------------------------------------------

    The commenter also recommended revising paragraphs (f)(2)(i)(H)(1),
(f)(3)(i)(A), and (f)(3)(ii)(A) to include the qualifier ``as
applicable'' with respect to citations to CRR Reporting ITS annexes.
The commenter stated that not all firms submit all of the CRR Reporting
ITS annexes.\471\ Accordingly, the Commission is modifying these
paragraphs to include the qualifier ``as applicable.'' \472\
---------------------------------------------------------------------------

    \471\ See SIFMA Letter II at Appendix A.
    \472\ See paras. (f)(2)(i)(H)(1), (f)(3)(i)(A), and
(f)(3)(ii)(A) of the Order.
---------------------------------------------------------------------------

2. Citations to EU and French Law
    The Commission also received comment recommending changes to the
French Substituted Compliance Notice and Proposed Order to refine the
scope of French law provisions that would operate as conditions to
substituted compliance.\473\ The Commission reviewed each of the EU or
French law citations that the commenter recommended adding or removing
from the Order for relevance to the comparable Exchange Act requirement
while also keeping in mind that each EU or French law citation was
included in the French Authorities' Application intentionally. The
Commission's conclusion and reasoning with respect to the commenter's
recommendations is discussed in further detail below. In addition to
refining the scope of EU and French law citations in response to
comment, the Order reflects changes to the EU and French law citations
after cite checking the EU and French law provisions in the French
Substituted Compliance Notice and Proposed Order against the EU and
French law provisions cited in the French Authorities' Application, as
well as the UK implementation of the EU law provisions cited in the UK
Proposed Order Granting Substituted Compliance in Connection with
Certain Requirements Applicable to Non-U.S. Security-Based Swap Dealers
and Major Security-Based Swap Participants Subject to Regulation in the
French Republic.
---------------------------------------------------------------------------

    \473\ See SIFMA Letter II at Appendix A. See also SIFMA Letter I
at 4-7; FBF Letter at 2-3.
---------------------------------------------------------------------------

a. Global
    The commenter recommended deleting references to MiFID Org Reg,
reasoning that these provisions could raise issues due to the
discrepancy between Exchange Act requirements, which apply on an
entity-level basis, and these EU requirements, which are territorially
limited. As explained in part III.C. above, conducting business outside
France does not preclude a firm from relying on substituted compliance
for the business it conducts within France. Accordingly, unless
specified otherwise below, the Commission is not removing references to
these EU and French law requirements from the Order's list of EU and
French law requirements comparable to the Commission's recordkeeping,
reporting, notification, and securities count requirements.
    The commenter recommended deleting references to MiFID article
25(2) and MLD articles 11 and 13 and their French implementing
provisions, which relate to customer information and suitability
requirements, reasoning that these provisions do not correspond to, and
go beyond, the Commission's recordkeeping, reporting, notification, and
securities count requirements. The Commission agrees with the
commenter's reasoning, except with respect to Exchange Act rule 18a-
5(a)(7) and (b)(7) (customer account records), Exchange Act rule 18a-
5(a)(17) and (b)(13) (suitability record creation), and Exchange Act
rule 18a-6 (b)(1)(xii) (suitability record preservation). Therefore,
the Commission is removing references to these requirements from the
Order's list of EU and French law requirements comparable to the
Commission's recordkeeping, reporting, notification, and securities
count requirements, except for Exchange Act rules 18a-5(a)(7), (a)(17),
(b)(7), and (b)(13).\474\
---------------------------------------------------------------------------

    \474\ See paras. (f)(1)(i)(D)(1), (f)(1)(i)(G)(1),
(f)(1)(i)(I)(1), (f)(2)(i)(A), (f)(2)(i)(B), and (f)(2)(i)(D) of the
Order.
---------------------------------------------------------------------------

    The commenter recommended deleting references to MiFID Org Reg
article 76, MiFID article 16(7) and its French implementing provisions,
and MFC article L. 533-10 III, which relate to the recording of
telephone and electronic communications, reasoning that they do not
correspond to, and go beyond, the requirements of the Commission's
recordkeeping, reporting, notification, and securities count rules. The
Commission agrees with the commenter's reasoning, except with respect
to Exchange Act rules 18a-6(b)(1)(iv) and (b)(2)(ii), which relate to
communications including telephonic communications. Therefore, the
Commission is removing references to these requirements from the
Order's list of EU and French law requirements comparable to the
Commission's recordkeeping, reporting, notification, and securities
count requirements,

except for Exchange Act rules 18a-6(b)(1)(iv) and (b)(2)(ii).\475\
---------------------------------------------------------------------------

    \475\ See paras. (f)(1)(i)(A)(1), (f)(1)(i)(D)(1),
(f)(1)(i)(F)(1), (f)(1)(i)(G)(1), (f)(1)(i)(I)(1), (f)(1)(i)(M),
(f)(2)(i)(A), (f)(2)(i)(B), and (f)(2)(i)(O)(1) of the Order.
---------------------------------------------------------------------------

    The commenter recommended deleting references to the EBA Guidelines
on Outsourcing, reasoning that they only contain nonbinding guidance.
The Commission agrees with the commenter's reasoning and is therefore
removing references to this requirement from the Order's list of EU and
French law requirements comparable to the Commission's recordkeeping,
reporting, notification, and securities count requirements.\476\
---------------------------------------------------------------------------

    \476\ See para. (f)(2)(i)(R) of the Order.
---------------------------------------------------------------------------

b. Exchange Act Rules 18a-5 and 18a-6
    The commenter recommended deleting references to MiFIR article
25(1), which sets a duration of five years for firms to keep relevant
data relating to orders and transactions in financial instruments,
reasoning that this does not correspond to, and goes beyond, the
requirements of Exchange Act rules 18a-5 and 18a-6. With respect to
Exchange Act rule 18a-6, the five year record retention period is
directly relevant to the record preservation requirement in Exchange
Act rule 18a-6. With respect to Exchange Act rule 18a-5, while this
requirement contains a record retention element, it also contains a
record creation requirement that is relevant to Exchange Act rule 18a-
5. Accordingly, the Commission is not removing references to this
requirement from the Order's list of EU and French law requirements
comparable to Exchange Act rules 18a-5 and 18a-6.
    The commenter recommended deleting references to CRD article 73 and
its French implementing provisions, reasoning that it relates to
substantive capital requirements. CRD article 73 requires firms to
``have in place sound, effective and comprehensive strategies and
processes to assess and maintain . . . internal capital'' which the
French Authorities' Application states in practice will require ``the
maintenance of full records of the Investment Firm's assets,
liabilities, income and expense and capital accounts to be maintained
on an on-going basis.'' \477\ Accordingly, the Commission is not
removing references to this requirement from the Order's list of EU and
French law requirements comparable to Exchange Act rules 18a-5 and 18a-
6.
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    \477\ See French Authorities' Application Annex I category 2 at
14.
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    The commenter recommended deleting references to MiFID Delegated
Directive article 2 and its French implementing provisions, reasoning
that they do not relate to recordkeeping. The Commission disagrees
because MiFID Delegated Directive article 2 requires, among other
things, that firms ``keep records and accounts enabling them . . . to
distinguish assets held for one client from assets held for any other
client and from its other own assets'' which directly implicates record
creation and preservation. Accordingly, the Commission is not removing
references to these requirements from the Order's list of EU and French
law requirements comparable to Exchange Act rules 18a-5 and 18a-6.
    The commenter recommended deleting references to EMIR article 11,
which relates to timely confirmation of transactions, and EMIR article
39, which relates to a firm's requirement to segregate the positions
they clear for a client with a central counterparty from their own
positions, reasoning that they do not correspond to, and go beyond, the
requirements of Exchange Act rules 18a-5 and 18a-6. While these
requirements contain segregation and confirmation requirements, they
also contain record creation requirements that are relevant to Exchange
Act rule 18a-5. Accordingly, the Commission is not removing references
to these requirements from the Order's list of EU and French law
requirements comparable to Exchange Act rule 18a-5, except with respect
to Exchange Act rule 18a-5(a)(12) for which the Commission agrees with
the commenter's reasoning.\478\ However, the Commission agrees these
provisions do not relate to record preservation is removing references
to these requirements from the Order's list of EU and French law
requirements comparable to Exchange Act rule 18a-6.\479\
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    \478\ See para. (f)(1)(i)(L)(1) of the Order.
    \479\ See paras. (f)(2)(i)(A), (f)(2)(i)(B), (f)(2)(i)(D),
(f)(2)(i)(F)(1), (f)(2)(i)(G)(1), and (f)(2)(i)(Q) of the Order.
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    The commenter recommended deleting references to MiFID articles
25(5) and 25(6) and their French implementing provisions, reasoning
that they do not correspond to, and go beyond, the requirements of
Exchange Act rules 18a-5 and 18a-6. Both provisions contain record
creation elements, because MiFID article 25(5) requires firms to
``establish a record'' setting out the rights and obligations of the
firm and the client, and MiFID article 25(6) requires firms to prepare
client reports ``in a durable medium.'' Accordingly, the Commission is
not removing references to these requirement from the Order's list of
EU and French law requirements comparable to Exchange Act rule 18a-5.
However, the Commission agrees that these provisions do not relate to
record preservation and is removing references to these requirements
from the Order's list of EU and French law requirements comparable to
Exchange Act rule 18a-6,\480\ except with respect to Exchange Act rule
18a-6(d)(4) and (d)(5) which implicates record creation in addition to
record preservation.\481\
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    \480\ See para. (f)(2)(i)(P)(1) of the Order.
    \481\ See paras. (f)(2)(i)(A), (f)(2)(i)(B), (f)(2)(i)(C)(1),
(f)(2)(i)(D), (f)(2)(i)(G)(1), (f)(2)(i)(I)(1), and (f)(2)(i)(O)(1)
of the Order.
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    The commenter recommended deleting references to CRR articles 103,
105(3), and 105(10), which relate to the firm's management of trading
book exposures, reasoning that they do not correspond to, and go
beyond, the requirements of Exchange Act rules 18a-5 and 18a-6.
However, the French Authorities' Application states that these
requirements in practice require firms to have ``a record of their long
and short positions to enable these to be monitored'' which is relevant
to Exchange Act rules 18a-5 and 18a-6.\482\ Accordingly, the Commission
is not removing references to these requirements from the Order's list
of EU and French law requirements comparable to Exchange Act rules 18a-
5 and 18a-6.
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    \482\ See French Authorities' Application Annex 1 category 2 at
16.
---------------------------------------------------------------------------

    The commenter recommended deleting references to MiFID article
16(6) and its French implementing provisions, reasoning that they do
not correspond to, and go beyond, the requirements of Exchange Act
rules 18a-5 and 18a-6. MiFID article 16(6) requires firms to ``arrange
for records to be kept of all services, activities and transactions
undertaken by it'' which is relevant to record creation and
preservation. Accordingly, the Commission is not removing references to
these requirements from the Order's list of EU and French law
requirements comparable to Exchange Act rules 18a-5 and 18a-6.
    The commenter recommended deleting references to CRR article
104(1)(j) from the Order, reasoning that the provision does not exist.
The Commission confirmed with the French Authorities that references to
CRR article 104(1)(j) were intended to reference CRD article 104(1)(j).
However, CRD article 104(1)(j) relates to

supervisory power of authorities to impose additional reporting
requirements which the Commission believes does not correspond to, and
goes beyond the requirements of Exchange Act rule 18a-6. Therefore,
references in the Order to CRD article 104(1)(j) and its French
implementing provisions are not included.\483\
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    \483\ See paras. (f)(2)(i)(E)(1) and (f)(2)(i)(H)(1) of the
Order.
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    The commenter recommended deleting references to MiFID Org Reg
article 59, which sets out the requirement to confirm execution of an
order to the client, reasoning that it does not correspond to, and goes
beyond, the requirements of Exchange Act rules 18a-5 and 18a-6. MiFID
Org Reg article 59 identifies specific data elements that are relevant
to the records required to be created under Exchange Act rule 18a-5, so
the Commission is not removing references to this requirement from the
Order's list of EU and French law requirements comparable to Exchange
Act rule 18a-5. However, the Commission believes that MiFID Org Reg
article 59 relates to record creation but not record preservation and
is therefore removing references to this requirement from the Order's
list of EU and French law requirements comparable to Exchange Act rule
18a-6.\484\
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    \484\ See paras. (f)(2)(i)(A), (f)(2)(i)(B), (f)(2)(i)(D), and
(f)(2)(i)(G)(1) of the Order.
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    The commenter recommended adding to paragraphs (f)(1) and (f)(2) of
the Order references to Internal Control Order articles 85, 86, 92, and
93, which impose audit trail requirements. The Commission agrees these
requirements are relevant because they relate to record creation and
preservation, and is therefore adding them to the Order's list of EU
and French requirements comparable to Exchange Act rules 18a-5 and 18a-
6.\485\
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    \485\ See paras. (f)(1)(i)(A)(1), (f)(1)(i)(B)(1),
(f)(1)(i)(D)(1), (f)(1)(i)(F)(1), (f)(1)(i)(G)(1), (f)(1)(i)(H)(1),
(f)(1)(i)(I)(1), (f)(1)(i)(K), (f)(1)(i)(N)(1), (f)(1)(i)(O)(1),
(f)(2)(i)(C)(1), (f)(2)(i)(D), (f)(2)(i)(E)(1), and (f)(2)(i)(H)(1)
of the Order.
---------------------------------------------------------------------------

    The commenter recommended deleting from paragraphs (f)(2)(i)(A) and
(f)(2)(i)(B) of the Order references to MiFID article 69(2) and its
French implementing provisions, because these provisions relate to the
powers of the competent authorities rather than the obligations of the
entity. The Commission disagrees, because a regulator can only ``have
access to any document or data . . . relevant for the performance of
its duties'' as required by MiFID article 69(2) if firms are required
to preserve these documents and data. Accordingly, the Commission is
not removing references to these requirements from the Order's list of
EU and French law requirements comparable to Exchange Act rule 18a-
6(a)(1), (a)(2), (b)(1)(i), and (b)(2)(i).
    The commenter recommended adding to paragraphs (f)(2)(I)(1) and
(f)(2)(J)(1) of the Order references to Internal Control Order articles
94 through 96 and 99 through 102, which require firms to implement risk
analysis, measurement and management systems. The Commission agrees
these requirements are relevant because these systems in practice will
require preservation of risk management and counterparty credit risk
records, and is therefore adding them to the Order's list of EU and
French requirements comparable to Exchange Act rules 18a-6(b)(1)(ix)
and (b)(1)(x).\486\
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    \486\ See paras. (f)(2)(i)(I)(1) and (f)(2)(i)(J)(1) of the
Order.
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    The commenter recommended replacing in paragraph (f)(1)(i)(K) of
the Order references to MiFID Org Reg article 21(1)(a) with references
to MiFID Org Reg article 21(1)(d) due to an incorrect reference in the
French Authorities' Application with respect to Exchange Act rule 18a-
5(a)(10) and (b)(8). The Commission agrees with the commenter's
reasoning and is therefore replacing references to MiFID Org Reg
article 21(1)(a) with references to MiFID Org Reg article 21(1)(d) in
the Order's list of EU and French law requirements comparable to
Exchange Act rule 18a-5(a)(10) and (b)(8).\487\
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    \487\ See para. (f)(1)(i)(K) of the Order.
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    The commenter recommended replacing in paragraphs (f)(1)(i)(N)(1)
and (f)(1)(i)(O)(1) of the Order references to EMIR RTS article 15(1)
with EMIR RTS article 15(1)(a) with respect to Exchange Act rule 18a-
5(a)(18) and (b)(14) because the remainder of article 15(1) does not
include a record creation requirement. The Commission agrees with the
commenter's reasoning and is therefore replacing references to EMIR RTS
article 15(1) with EMIR RTS article 15(1)(a) in the Order's list of EU
and French law requirements comparable to Exchange Act rule 18a-
5(a)(18) and (b)(14).
    The commenter recommended deleting from paragraph (f)(2)(E)(1) of
the Order references to CRR and CRR Reporting ITS, which relate to
supervisory reports to be made, reasoning that they do not correspond
to, and go beyond, the requirements of Exchange Act rule 18a-
6(b)(1)(v). Although these laws relate to reporting requirements, the
information required to be included in these reports is relevant to the
records required by Exchange Act rule 18a-6(b)(1)(v). In addition, the
French Authorities' Application specifically cites these requirements
as comparable to Exchange Act rule 18a-6(b)(1)(v).\488\ Accordingly,
the Commission is not removing references to this requirement from the
Order's list of EU and French law requirements comparable to Exchange
Act rule 18a-6(b)(1)(v).
---------------------------------------------------------------------------

    \488\ See French Authorities' Application Annex I category 2 at
51-52.
---------------------------------------------------------------------------

    The commenter recommended adding to paragraphs (f)(2)(i)(F) and
(f)(2)(i)(K)(1) of the Order a reference to MFC article L. 561-12 with
respect to Exchange Act rules 18a-6(b)(1)(vi) and (b)(2)(iii) (records
of discretionary authority for security-based swap accounts) and
(b)(1)(xii) and (b)(2)(vii) (business conduct records). The Commission
agrees this provision is relevant because it requires firms to keep
documents relating to business relationships and customers for 5 years
after an account is closed. Therefore, the Commission is adding MFC
article L. 561-12 to the Order's list of EU and French requirements
comparable to Exchange Act rules 18a-6(b)(1)(vi), (b)(1)(xii),
(b)(2)(iii), and (b)(2)(vii).\489\
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    \489\ See paras. (f)(2)(i)(F) and (f)(2)(i)(K)(1) of the Order.
---------------------------------------------------------------------------

    The commenter recommended deleting from paragraph (f)(2)(i)(I)(1)
of the Order references to CRR articles 286 and 293(1)(d), which relate
to the use of internal models for credit risk, reasoning that they do
not correspond to, and go beyond, the requirements of Exchange Act rule
18a-6(b)(1)(ix). The ``policies, processes and systems'' (with respect
to CRR article 286) and ``adequate resources [ ] devoted to credit and
counterparty risk control'' (with respect to CRR article 293(1)(d)) in
practice require firms to maintain records relevant to Exchange Act
rule 18a-6(b)(1)(ix). Accordingly, the Commission is not removing
references to these requirements from the Order's list of EU and French
law requirements comparable to Exchange Act rule 18a-6(b)(1)(ix).
    The commenter recommended deleting from paragraph (f)(2)(i)(I)(1)
of the Order references to EMIR RTS, reasoning that referencing an
entire law without referencing a specific provision does not correspond
to, and goes beyond, the requirements of Exchange Act rule 18a-
6(b)(1)(ix). This provision is cited by the French Authorities'
Application as directly relevant because it requires firms to have
``formalised processes'' ``to measure, monitor and mitigate operational
risk and

counterparty credit risk,'' \490\ which is relevant to Exchange Act
rule 18a-6(b)(1)(ix). Accordingly, the Commission is not removing
references to this requirement from the Order's list of EU and French
law requirements comparable to Exchange Act rule 18a-6(b)(1)(ix).
---------------------------------------------------------------------------

    \490\ See French Authorities' Application Annex I category 2 at
60.
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    The commenter recommended removing from paragraph (f)(2)(i)(I)(1)
of the Order the reference to CRD articles 75 through 87 and their
French implementing provisions, reasoning that these provisions cover
various capital matters that do not correspond to, and go beyond, the
requirements of Exchange Act rule 18a-6(b)(1)(ix). The Commission
disagrees, because these provisions are cited in the French
Authorities' Application as directly relevant due to the ``risk
management arrangements, policies and procedures required to be
implemented'' under these provisions.\491\ Accordingly, the Commission