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

    \295\ See 17 CFR 240.18a-3(c)(1)(ii) and FCA Application at 32-
35.
    \296\ See 17 CFR 240.18a-3(c)(1)(ii) and FCA Application at 40-
43.
    \297\ See 17 CFR 240.18a-3(d)(2)(i) and FCA Application at 21.
    \298\ See 17 CFR 240.18a-3(d)(2)(i) and FCA Application at 23-
27. The Commission must approve the use of an initial margin model.
17 CFR 240.18a-3(d)(2)(i). UK EMIR article 11(15) directs European
supervisory authorities to develop regulatory technical standards
under which initial margin models have to be approved (initial and
ongoing approval). UK requirements currently provide that, upon
request, counterparties using an initial margin model shall provide
the regulators with any documentation relating to the risk
management procedures relating to such model at any time. UK EMIR
Margin RTS article 2(6).
    \299\ See 17 CFR 240.18a-3(c)(1)(iii) and FCA Application at 52-
60.
    \300\ See 17 CFR 240.18a-3(c)(1)(iii) and FCA Application at 52-
60.
---------------------------------------------------------------------------

    In the UK Substituted Compliance Notice and Proposed Order, the
Commission stated substituted compliance with respect to the margin
requirements accordingly would be conditioned on Covered Entities being
subject to those UK provisions that, the Commission has determined, in
the aggregate, establish a framework that produces outcomes comparable
to those associated with the requirements under the Exchange Act rule
18a-3.\301\ A commenter supported the proposed Order to grant
substituted compliance in connection with margin requirements for
Covered Entities, subject to technical comments with respect to
refining the UK laws cited in the UK Order.\302\ In particular, this
commenter recommended that the citations to the UK CRR, FCA IFPRU
2.2.18R, FCA SYSC 4.1.1R, and PRA Internal Capital Adequacy Assessment
Rule 4.2 be deleted from the final order, and that the Commission
narrow the scope of the reference to UK EMIR article 11 to article
11(3).\303\
---------------------------------------------------------------------------

    \301\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18386.
    \302\ See SIFMA 5/3/2021 Letter at 10, Appendix A.
    \303\ See SIFMA 5/3/2021 Letter Appendix A.
---------------------------------------------------------------------------

    The Commission disagrees with the commenter that the scope of the
citation to UK EMIR article 11 should be narrowed. Other provisions of
UK EMIR article 11 relate to margin requirements, including the
provisions regarding intragroup transactions. Therefore, the Commission
is not modifying this citation in the final order. Further, the
Commission agrees with the commenter that it is appropriate to delete
the citations to FCA IFPRU 2.2.18R and FCA SYSC 4.1.1R from the final
order since it is likely that only PRA-designated investment firms will
rely on the substituted compliance determination for margin. These
firms are not subject to FCA IFPRU requirements, and are subject to
general organizational requirements in the PRA rulebook that were
already included in the proposed Order.\304\ With respect to the
remaining suggestions by the commenter to delete references to the UK
CRR requirements and PRA Internal Capital Adequacy Assessment Rule 4.2,
the Commission concludes that these requirements which were set out in
the proposed Order, contribute to the conclusion that UK law produces a
comparable regulatory outcome to the margin requirements under the
Exchange Act.\305\ For the foregoing reasons, the first margin
condition requires the covered entity to be subject to and comply with
certain identified UK margin requirements.\306\
---------------------------------------------------------------------------

    \304\ See PRA General Organisational Requirements Rule 2.1.
    \305\ The references to the UK CRR and PRA Internal Capital
Adequacy Assessment Rule 4.2 were included in the comparability
assessment for margin requirements, and in the Commission's view the
holistic approach for comparing regulatory outcomes should seek to
reflect the whole of a jurisdiction's relevant requirements, rather
than select subsets of those requirements.
    \306\ See para. (c)(2)(i) of the Order. The first margin
condition requires that Covered Entities must be subject to and
comply with UK EMIR article 11; UK EMIR Margin RTS; UK CRR articles
103, 105(3); 105(10); 111(2), 224, 285, 286, 286(7), 290, 295,
296(2)(b), 297(1), 297(3), and 298(1); UK MiFID Org Reg article
23(1); PRA General Organisational Requirements Rule 2.1; and PRA
Internal Capital Adequacy Assessment Rule 4.2.
---------------------------------------------------------------------------

    The proposed Order did not contain any additional conditions for
substituted compliance with respect to the margin requirements of
Exchange Act section 15F(e) and Exchange Act rule 18a-3. The
Commission, however, requested comment on whether there were any
conditions that should be applied to substituted compliance for the
margin requirements to promote comparable regulatory outcomes.\307\ As
discussed below, in response to comments received, the Order includes
two additional margin conditions designed to produce comparable
regulatory outcomes with respect to collecting variation and initial
margin from counterparties.\308\
---------------------------------------------------------------------------

    \307\ French Substituted Compliance Notice and Proposed Order,
85 FR at 85737.
    \308\ See paras. (c)(2)(ii) and (iii) of the Order.
---------------------------------------------------------------------------

    In particular, a commenter raised general concerns with the
Commission's regulatory outcomes approach to substituted compliance,
and suggested additional general principles that the Commission should
consider in evaluating applications for substituted compliance.\309\
This commenter believed regulatory arbitrage within and outside the
United States was one of the key factors that led to and exacerbated
the 2008 financial crisis, and stated that the Dodd-Frank Act was
enacted in response, which includes the Commission's authority to
promulgate capital, margin, and other rules for non-cleared security-
based swaps ``to reduce the possibility and severity of another crisis
related to excessive buildup of risk in the swaps markets.'' \310\
---------------------------------------------------------------------------

    \309\ See Better Markets Letter at 3.
    \310\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    The Commission responds to the comments on the Commission's
approach to substituted compliance in part II.C.1 above. However, as
stated above, the commenter raises concerns about regulatory arbitrage
and the potential impacts of differences in requirements that merit re-
consideration of whether additional margin conditions are needed to
produce comparable regulatory outcomes.\311\ When proposing margin
requirements for non-cleared security-based swaps, the Commission
stated that the ``Dodd-Frank Act seeks to address the risk of
uncollateralized credit risk exposure arising from OTC derivatives by,
among other things, mandating margin requirements for non-cleared
security-based swaps and swaps.'' \312\ Further, the comparability
criteria for margin requirements under Exchange Act rule 3a71-6
provides that prior to making a substituted compliance determination,
the Commission intends to consider (in addition to any conditions
imposed) whether the foreign financial regulatory system requires
registrants to adequately cover their current and future exposure to
OTC derivatives counterparties, and ensures registrants' safety and
soundness, in a manner comparable to the applicable provisions arising
under the Exchange Act and its rules and

regulations.\313\ In adopting this comparability criteria for margin
requirements, the Commission stated that obtaining collateral is one of
the ways OTC derivatives dealers manage their credit risk exposure to
OTC derivatives counterparties.\314\
---------------------------------------------------------------------------

    \311\ See Better Markets Letter at 2-3.
    \312\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers; Proposed
Rule, Exchange Act Release No. 68071 (Oct. 18, 2021), 77 FR 70214,
70258 (Nov. 23, 2012).
    \313\ See 17 CFR 240.3a71-6(d)(5)(i) and (ii).
    \314\ See Capital and Margin Adopting Release, 84 FR at 43949
(``Obtaining collateral is one of the ways OTC derivatives dealers
manage their credit risk exposure to OTC derivatives counterparties.
Prior to the financial crisis, in certain circumstances,
counterparties were able to enter into OTC derivatives transactions
without having to deliver collateral. When ``trigger events''
occurred during the financial crisis, those counterparties faced
significant liquidity strains when they were required to deliver
collateral.).
---------------------------------------------------------------------------

    To address the risk of uncollateralized exposures, Exchange Act
rule 18a-3 requires SBS Entities without a prudential regulator to
collect variation margin from all counterparties, including affiliates,
unless an exception applies.\315\ Under the UK margin requirements,
there are exceptions from the variation margin requirements for certain
intragroup transactions (i.e., transactions between affiliates).\316\
In addition, Exchange Act rule 18a-3 requires firms to collect initial
margin from all counterparties, unless an exception applies.\317\ This
initial margin requirement under Exchange Act rule 18a-3 requires the
firm to collect initial margin from a financial counterparty such as a
hedge fund without regard to whether the counterparty has material
exposures to non-cleared security-based swaps and uncleared swaps. In
contrast, UK margin requirements do not require Covered Entities to
collect initial margin from financial counterparties, if their notional
exposure to non-centrally cleared derivatives does not exceed a certain
threshold on a group basis.\318\
---------------------------------------------------------------------------

    \315\ See 17 CFR 240.18a-3(c)(ii)(A)(1) and (2).
    \316\ See FCA Application at 57.
    \317\ See 17 CFR 240.18a-3(c)(ii)(B).
    \318\ See FCA Application at 20. These thresholds are being
phased-in with the last initial margin threshold set at EUR 8
billion.
---------------------------------------------------------------------------

    In some cases these differences may result in a Covered Entity not
being adequately collateralized to cover its current or future exposure
to these counterparties with respect to its OTC derivatives
transactions. In addition, differences in the counterparty exceptions
could potentially incentivize market participants to engage in non-
cleared security-based swap transactions outside of the United
States.\319\ Consequently, it is appropriate to impose additional
margin conditions to produce comparable regulatory outcomes in terms of
counterparty exceptions between Exchange Act rule 18a-3 and the UK
requirements.
---------------------------------------------------------------------------

    \319\ The Commission recognizes there are also cases where the
UK margin rules are more restrictive than Exchange Act rule 18a-3.
UK margin rules require Covered Entities to post initial margin to
covered counterparties, while the Exchange Act rule 18a-3 would
permit posting but not require it. In addition, UK margin rules also
require a Covered Entity to collect (and post) initial margin to
financial and non-financial counterparties if their notional
exposure to non-centrally cleared derivatives exceeds a certain
threshold on a group basis. In contrast, Exchange Act rule 18a-3
does not require (but permits) a nonbank security-based swap dealer
to collect initial margin from counterparties that are financial
market intermediaries. 17 CFR 240.18a-3(c)(1)(iii)(B). The
comparability analysis, however, focuses on determining whether the
UK margin rules are comparable to Exchange Act rule 18a-3.
---------------------------------------------------------------------------

    The first additional condition addresses differences in the
counterparty exceptions with respect to variation margin. It requires a
Covered Entity to collect variation margin, as defined in the UK EMIR
Margin RTS, from a counterparty with respect to a transaction in non-
cleared security-based swaps, unless the counterparty would qualify for
an exception under Exchange Act rule 18a-3 from the requirement to
deliver variation margin to the Covered Entity.\320\ This condition
defines variation margin by referencing UK EMIR Margin RTS to
facilitate implementation of the condition by Covered Entities. Under
this condition, for example, Covered Entities would be required to
collect variation margin from their affiliates, but would be permitted
to comply with all other UK margin requirements, including calculation,
collateral, documentation, and timing of collection requirements. The
first additional condition will close the gap between the counterparty
exceptions of Exchange Act rule 18a-3 and the UK margin rules with
respect to variation margin.
---------------------------------------------------------------------------

    \320\ See para. (c)(2)(ii) of the Order.
---------------------------------------------------------------------------

    The second additional condition addresses differences in the
counterparty exceptions with respect to initial margin. It requires a
Covered Entity to collect initial margin, as defined in the UK EMIR
Margin RTS, from a counterparty with respect to transactions in non-
cleared security-based swaps, unless the counterparty would qualify for
an exception under Exchange Act rule 18a-3 from the requirement to
deliver initial margin to Covered Entity.\321\ The condition defines
initial margin by referencing UK EMIR Margin RTS to facilitate
implementation of the condition by Covered Entities. Under this
condition, for example, Covered Entities would be required to collect
initial margin from their certain counterparties, but would be
permitted to comply with all other UK margin requirements, including
calculation, collateral, documentation, and timing of collection
requirements. The second additional condition will close the gap
between the counterparty exceptions of Exchange Act rule 18a-3 and the
UK margin rules with respect to initial margin.
---------------------------------------------------------------------------

    \321\ See para. (c)(2)(iii) of the Order.
---------------------------------------------------------------------------

    Finally, for the reasons discussed above in part III.B.2.k of this
release, the third additional condition is that the Covered Entity
applies substituted compliance with respect to Exchange Act rules 18a-
5(a)(12) (a record making requirement).\322\ This record making
requirement is directly linked to the margin requirements of Exchange
Act rule 18a-3. The proposed Order conditioned substituted compliance
with respect to this record making requirement on the Covered Entity
applying substituted compliance with respect to Exchange Act rule 18a-
3.\323\ This additional condition is designed to provide clarity as to
the Covered Entity's obligations under this record making requirement
when applying substituted compliance with respect to Exchange Act rule
18a-3 pursuant this Order.
---------------------------------------------------------------------------

    \322\ See para. (c)(2)(iv) of the Order.
    \323\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18396-98, 18416.
---------------------------------------------------------------------------

VI. Substituted Compliance for Internal Supervision, Chief Compliance
Officers and Additional Exchange Act Section 15F(j) Requirements

A. Proposed Approach

    The FCA Application further requested substituted compliance in
connection with requirements relating to:
     Internal supervision--Diligent supervision and conflict of
interest provisions that generally require SBS Entities to establish,
maintain, and enforce supervisory policies and procedures that
reasonably are designed to prevent violations of applicable law, and
implement certain systems and procedures related to conflicts of
interest.
     Chief compliance officers--Chief compliance officer
provisions that generally require SBS Entities to designate individuals
with the responsibility and authority to establish, administer, and
review compliance policies and procedures, to resolve conflicts of
interest, and to prepare and certify annual compliance reports to the
Commission.
     Additional Exchange Act section 15F(j) requirements--
Certain additional

requirements related to information-gathering and antitrust
prohibitions.\324\
---------------------------------------------------------------------------

    \324\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18389. Section 15F(j)(4)(A) requires firms to have systems
and procedures to obtain necessary information to perform functions
required under section 15F. Section 15F(j)(6) prohibits firms from
adopting any process or taking any action that results in any
unreasonable restraint of trade, or to impose any material
anticompetitive burden on trading or clearing.
---------------------------------------------------------------------------

    Taken as a whole, those requirements generally help to advance SBS
Entities' use of structures, processes, and responsible personnel
reasonably designed to promote compliance with applicable law, identify
and cure instances of noncompliance, and manage conflicts of interest.
    In proposing to provide conditional substituted compliance in
connection with this part of the FCA Application, the Commission
preliminarily concluded that the relevant UK requirements in general
would produce comparable regulatory outcomes by providing that UK SBS
Entities have structures and processes that reasonably are designed to
promote compliance with applicable law, to identify and cure instances
of non-compliance, and to manage conflicts of interest.
    Substituted compliance under the proposed Order was to be
conditioned in part on SBS Entities being subject to and complying with
specified UK provisions that in the aggregate help to produce
regulatory outcomes that are comparable to those associated with those
internal supervision, chief compliance officer and related requirements
under the Exchange Act.\325\
---------------------------------------------------------------------------

    \325\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18389 n.109. Each of the comparable UK internal supervision
and chief compliance officer requirements listed in the proposed
Order applies to a uniquely defined set of UK-authorized firms. See
UK Substituted Compliance Notice and Proposed Order, 86 FR at 18390
and n.112. To assist UK firms in determining whether they are
subject to these requirements, the Commission preliminarily
determined that any Covered Entity that is an ``IFPRU investment
firm,'' ``UK bank'' or ``UK designated investment firm,'' each as
defined for purposes of UK law, would be subject to all of the
required UK requirements related to internal supervision and chief
compliance officer requirements and thus eligible to apply
substituted compliance for internal supervision and chief compliance
officer requirements. See UK Substituted Compliance Notice and
Proposed Order, 86 FR at 18390.
---------------------------------------------------------------------------

    Under the proposed Order, substituted compliance would be subject
to certain additional conditions to help ensure the comparability of
outcomes. First, substituted compliance in connection with Exchange Act
internal supervision requirements (including related information
gathering requirements under Exchange Act section 15F(j)(4)(A) and
related conflict of interest systems and procedures requirements under
Exchange Act section 15F(j)(5)) would be conditioned on the Covered
Entity complying with applicable UK supervisory and compliance
provisions as if those provisions also require the Covered Entity to
comply with applicable requirements under the Exchange Act and the
other applicable conditions of the Order. This condition reflects that,
even with substituted compliance, Covered Entities still directly would
be subject to a number of requirements under the Exchange Act and
conditions to the final Order.\326\ Under the proposed Order,
substituted compliance for Exchange Act internal supervision
requirements would not extend to internal supervision in connection
with the internal risk management requirements, certain information
reporting requirements or anti-trust requirements.\327\
---------------------------------------------------------------------------

    \326\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18390. These residual Exchange Act requirements could, for
example, relate to requirements for which substituted compliance is
not available, requirements for which the Order does not make a
positive substituted compliance determination, security-based swap
business for which the Covered Entity is unable to satisfy the
conditions of the Order, and/or requirements or security-based swap
business for which the Covered Entity decides not to use substituted
compliance. The condition was designed to allow a Covered Entity to
use their existing internal supervision and compliance frameworks to
comply with the relevant Exchange Act requirements and Order
conditions, rather than having to establish separate special-purpose
supervision and compliance frameworks.
    \327\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18389 and n.108.
---------------------------------------------------------------------------

    For similar reasons, the proposed Order conditioned substituted
compliance in connection with compliance report requirements on the
Covered Entity at least annually providing the Commission with all
compliance reports required pursuant to UK MiFID Org Reg article
22(2)(c). Those reports would be required to be in English and
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 applicable conditions to the substituted
compliance order.\328\
---------------------------------------------------------------------------

    \328\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18390. The condition was designed to allow a Covered Entity
to leverage the compliance reports that it must produce pursuant to
UK requirements, by extending those reports to address compliance
with the conditions to the proposed Order.
---------------------------------------------------------------------------

    The Commission preliminarily did not provide substituted compliance
for Exchange Act antitrust provisions, based on the preliminary
conclusion that allowing an alternative means of compliance would not
lead to comparable regulatory outcomes.\329\
---------------------------------------------------------------------------

    \329\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18390.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    After considering commenters' recommendations regarding internal
supervision, chief compliance officer and related requirements, the
Commission is making positive substituted compliance determinations in
connection with internal supervision (including related information
gathering requirements under Exchange Act section 15F(j)(4)(A) and
related conflict of interest systems and procedures requirements under
Exchange Act section 15F(j)(5)) and chief compliance officer
requirements.
    One commenter expressed general support for the proposed approach
toward substituted compliance for the risk control provisions.\330\
Another commenter stated that UK requirements are not sufficiently
comparable to Exchange Act requirements.\331\ As discussed below, the
final Order has been changed from the proposed Order in certain
respects in response to comments.\332\ The Commission continues to
conclude that, taken as a whole, applicable requirements under UK law
require that SBS Entities have structures and processes that reasonably
are designed to promote compliance with applicable law, to identify and
cure instances of non-compliance, and to manage conflicts of interest,
and thus produce regulatory outcomes that are comparable to those
associated with the above-described internal supervision and chief
compliance officer requirements. Although there are differences between
the approaches taken by the relevant internal supervision and chief
compliance officer requirements under the Exchange Act and relevant UK
requirements, the Commission continues to believe that

those differences on balance should not preclude substituted compliance
for these requirements, as the relevant UK requirements taken as a
whole help to produce comparable regulatory outcomes.
---------------------------------------------------------------------------

    \330\ See SIFMA 5/3/2021 Letter at 20-21. The commenter also
requested that the Commission not require a Covered Entity to be
subject to and comply with some of the UK internal supervision and
chief compliance officer requirements listed in the proposed Order.
In addition, the commenter requested that the Commission amend the
conditions to substituted compliance for chief compliance officer
requirements. See SIFMA 5/3/2021 Letter at 20-21 and Appendix A part
(d). The Commission addresses those requests in the relevant
sections of this part VI below.
    \331\ See Better Markets Letter at 2. The commenter also stated
that, if the Commission nevertheless makes a positive substituted
compliance determination, it must at a minimum ensure that the
conditions in the proposed Order ``are applied with full force and
without exceptions or dilution.'' The Commission addresses that
comment in the relevant sections of this part VI below.
    \332\ See para. (d) of the Order.
---------------------------------------------------------------------------

    To help ensure the comparability of outcomes, substituted
compliance for internal supervision and chief compliance officer
requirements is subject to certain conditions. Substituted compliance
in connection with those requirements is conditioned on the Covered
Entity being subject to, and complying with, relevant UK requirements.
In addition, consistent with the proposed Order, substituted compliance
for internal supervision requirements (1) is conditioned on the Covered
Entity complying with the relevant UK requirements as if they also
require compliance with applicable Exchange Act requirements and other
applicable conditions under the Order and (2) does not extend to
certain specified internal supervision requirements.\333\ Consistent
with the proposed Order, substituted compliance in connection with
chief compliance officer requirements is conditioned on the Covered
Entity at least annually providing the Commission with an English-
language copy of all compliance reports required pursuant to UK MiFID
Org Reg article 22(2)(c). As described below, in response to comments
the Commission is amending the certification of each report to better
align with the certification in Exchange Act rule 15Fk-
1(c)(2)(ii)(D),\334\ requiring each report to address the Covered
Entity's compliance with applicable Exchange Act requirements and other
applicable conditions under the Order, amending the deadline by which
such reports must be provided to the Commission and clarifying that all
such reports together must cover the entire period that the Covered
Entity's Exchange Act annual compliance report would be required to
cover. 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.
---------------------------------------------------------------------------

    \333\ See para. (d)(1)(iii) of the Order. In particular, the
Order does not extend to internal supervision requirements under
Exchange Act rule 15Fh-3(h) related to compliance with internal risk
management requirements in Exchange Act rule 15F(j)(2) (which are
addressed by paragraph (b)(1) of the Order in connection with
internal risk management), requirements to disclose or provide
information to the Commission and any relevant U.S. prudential
regulator pursuant to Exchange Act sections 15F(j)(3) and (j)(4)(B)
(for which substituted compliance is not available), or the anti-
trust provisions of Exchange Act section 15F(j)(6) (for which the
Commission is not making a positive substituted compliance
determination).
    \334\ 17 CFR 240.15Fk-1(c)(2)(ii)(D).
---------------------------------------------------------------------------

    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 to 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.
    The Commission details below its consideration of comments on the
proposed Order.
1. Applicable UK Internal Supervision and Chief Compliance Officer
Requirements
    Exchange Act rule 15Fh-3(h) requires an SBS Entity to establish and
maintain a system to supervise, and to diligently supervise, its
business and the activities of its associated persons. This system must
be reasonably designed to prevent violations of the provisions of
applicable Federal securities laws relating to its business as an SBS
Entity. The rule specifies detailed minimum requirements for this
internal supervision system. Exchange Act sections 15F(j)(4)(A) and
(j)(5) similarly require a registered SBS Entity to establish and
enforce internal systems and procedures to obtain any necessary
information to perform any regulated functions in its capacity as an
SBS Entity and to implement conflict of interest systems and
procedures, respectively. Exchange Act section 15F(k) \335\ and
Exchange Act rule 15Fk-1 require an SBS Entity to designate a chief
compliance officer with specified duties, including requirements to
report directly to the SBS Entity's board of directors or senior
officer, review and ensure the SBS Entity's compliance with applicable
Exchange Act requirements, resolve conflicts of interest that may
arise, administer the policies and procedures required by the Exchange
Act, and establish and follow procedures for addressing noncompliance.
In addition, the chief compliance officer must submit to the Commission
an annual report of the SBS Entity's assessment of the effectiveness of
its policies and procedures, material changes to the policies and
procedures, areas for improvement, potential changes to its compliance
program, material noncompliance matters identified, and the resources
for its compliance program. Exchange Act rule 15Fk-1 further provides
that the compensation and removal of the chief compliance officer must
require the approval of a majority of the SBS Entity's board of
directors.
---------------------------------------------------------------------------

    \335\ 15 U.S.C. 78o-10(k).
---------------------------------------------------------------------------

    A commenter requested that the Commission not require a Covered
Entity to be subject to and comply with certain of the UK requirements
specified in the proposed Order.\336\ By contrast, another commenter
stated that, if the Commission makes a positive substituted compliance
determination, it must at a minimum ensure that the conditions in the
proposed Order ``are applied with full force and without exceptions or
dilution.'' \337\ The Commission details below its consideration of
each of these comments.
---------------------------------------------------------------------------

    \336\ See SIFMA 5/3/2021 Letter at 20-21 and Appendix A part
(d)(3).
    \337\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    The commenter stated that the Commission should delete from the
Order the provisions of FCA IFPRU, FCA BIPRU, and FCA SYSC 19A listed
in paragraphs (d)(3)(iii) and (d)(3)(vi) of the proposed Order. These
provisions apply only to IFPRU investment firms, and the commenter
stated that it expects only ``banks and PRA-designated investment
firms'' will register as SBS Entities.\338\ For the reasons described
in part III.B.2.e above, the Commission is retaining the references to
these provisions.
---------------------------------------------------------------------------

    \338\ See SIFMA 5/3/2021 Letter Appendix A part (d)(3).

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

    Similarly, the commenter stated that the Commission should delete
from the Order the provisions of FSMA and FCA COND listed in paragraph
(d)(3)(vii) of the proposed Order that apply to firms regulated only by
the FCA, rather than to firms dually regulated by both the FCA and the
PRA.\339\ The commenter again stated that it expects only dually
regulated ``banks and PRA-designated investment firms'' will register
as SBS Entities.\340\ The proposed Order would not require a Covered
Entity that is a dually regulated firm to be subject to and comply with
these provisions. Rather, paragraph (d)(3)(vii) of the proposed Order
would require the Covered Entity to be subject to and comply with
either the provisions of FSMA and FCA COND that apply to solo-regulated
firms or analogous provisions that apply to dually regulated firms.
Accordingly, the Commission is retaining the references to these
provisions.
---------------------------------------------------------------------------

    \339\ See SIFMA 5/3/2021 Letter Appendix A part (d)(3).
    \340\ See SIFMA 5/3/2021 Letter Appendix A part (d)(3).
---------------------------------------------------------------------------

    The commenter also recommended that the Commission delete from the
Order the following provisions because they do not correspond to and go
beyond Exchange Act internal supervision and chief compliance officer
requirements: \341\
---------------------------------------------------------------------------

    \341\ See SIFMA 5/3/2021 Letter Appendix A part (d)(3).
---------------------------------------------------------------------------

     FCA CASS 6.2.1R and 7.12.1R, which implement MiFID
articles 16(8) and (9), require a Covered Entity to make adequate
arrangements to safeguard client assets and client money held by the
Covered Entity and to prevent the use of client assets or client money
for the Covered Entity's own account. FCA CASS 7.11.1R, which
implements MiFID article 16(10), prohibits a Covered Entity from
entering into, as part of its implementation of organizational
arrangements, arrangements for a retail client to transfer full
ownership of money to the Covered Entity as collateral for the client's
obligations to the Covered Entity.
     PRA Internal Capital Adequacy Assessment Rules 4.1 through
4.4, 5.1, 6.1, 7.1, 7.2, 8.1 through 8.5, 9.1, 10.1, 10.2, and 11.1
through 11.3 and PRA Internal Liquidity Adequacy Assessment Rules 3.1
through 3.3, 4.1, 7.2, 8.1, 9.2, 11.1, 11.2, 11.4, 12.1, 12.3, and
12.4, which implement CRD articles 79 through 87, are described in part
IV.B.1.
     FCA SYSC 4.1.1R(1), 4.1.2R, 7.1.4R, 7.1.17R, 7.1.18R,
7.1.18BR, 7.1.19R, 7.1.20R, 7.1.21R, 7.1.22R, and 19D.2.1R, PRA
Remuneration Rule 6.2, and PRA Risk Control Rules 2.3, 2.7, and 3.1
through 3.5, which implement parts of CRD articles 74 and 76, are
described in part IV.B.1.
     FCA SYSC 4.3A.1R, which implements parts of CRD article
88(1), requires a Covered Entity to ensure that the management body
defines, oversees, and is accountable for the implementation of
governance arrangements that ensure effective and prudent management of
the Covered Entity, including segregation of duties and prevention of
conflicts of interest.
     PRA Senior Management Functions Rule 8.2, which implements
CRD article 88(1)(e), requires a Covered Entity to ensure that the same
person does not serve as both the chair of the Covered Entity's
governing body and the Covered Entity's chief executive officer.\342\
---------------------------------------------------------------------------

    \342\ To ensure that Covered Entities regulated only by the FCA
and not the PRA must be subject to and comply with a similar
requirement, the Commission is adding FCA SYSC 4.3A.2R to the list
of UK requirements in paragraph (d)(3) of the Order.
---------------------------------------------------------------------------

     FCA SYSC 4.3A.3R, which implements parts of CRD article
91(1), (2), (7), and (8), requires members of a Covered Entity's
management body to have certain qualifications to be able to perform
their duties, understand the Covered Entity's activities and main
risks, effectively assess and challenge senior management decisions,
and effectively oversee and monitor management decision-making.
     FCA SYSC 4.3A.4R, which implements parts of CRD article
91(9), requires a Covered Entity to devote adequate human and financial
resources to the induction and training of members of the management
body.
     FCA SYSC 9.1.1AR and PRA Record Keeping Rule 2.1, which
implement MiFID article 16(6), require a Covered Entity to arrange to
keep business records sufficient to assess its compliance with
applicable UK legal requirements.
     FCA SYSC 10A.1.6R, 10A.1.8R, and 10A.1.11R, which
implement MiFID article 16(7), require a Covered Entity to take all
reasonable steps to make and keep records of telephone and electronic
communications and to notify clients that telephone communications will
be recorded.
     FCA SYSC 19D.3.1R, 19D.3.3R, 19D.3.7R through 19D.3.11R,
19D.3.15R, 19D.3.17R, and 19D.3.37R and PRA Remuneration Rules 3.1,
4.2, 5.1, 6.2, 8.2, and 15.2, which implement parts of CRD article 92,
address implementation of a Covered Entity's remuneration policy in a
manner that avoids conflicts of interest and that is consistent with
sound and effective risk management, as well as internal supervision
and review of this implementation for compliance with the policies and
procedures adopted by the management body.
     PRA Fundamental Rule 5,\343\ which contains provisions
similar to MiFID articles 16(4) and (5), requires a Covered Entity to
have effective risk strategies and risk management systems.
---------------------------------------------------------------------------

    \343\ The commenter stated that these requirements are more
appropriately addressed in connection with substituted compliance
for internal risk management requirements. As discussed below, the
Commission believes that these UK requirements are relevant to
substituted compliance for Exchange Act internal supervision and
chief compliance officer requirements.
---------------------------------------------------------------------------

     UK CRR articles 286 through 288 and 293 \344\ are
described in part IV.B.1.
---------------------------------------------------------------------------

    \344\ The commenter also stated that these requirements are more
appropriately addressed in connection with substituted compliance
for capital and margin requirements. See SIFMA 5/3/2021 Letter
Appendix A part (d)(3). As discussed below, the Commission believes
that these UK requirements are relevant to substituted compliance
for Exchange Act internal supervision and chief compliance officer
requirements.
---------------------------------------------------------------------------

     UK EMIR Margin RTS article 2 \345\ is described in part
IV.B.1.
---------------------------------------------------------------------------

    \345\ See supra note 344.
---------------------------------------------------------------------------

     UK MiFID Org Reg articles 23,\346\ 27, 30 through 32, 35,
36, and 72 through 76 and Annex IV address a Covered Entity's policies
and procedures governing risk management, remuneration, and
documentation of compliance, the Covered Entity's supervision of and
responsibility for outsourced functions and documentation of conflicts
of interest relevant to the Covered Entity's compliance with conflict
of interest requirements.
---------------------------------------------------------------------------

    \346\ See supra note 343.
---------------------------------------------------------------------------

    Taken as a whole, these UK requirements help to produce regulatory
outcomes comparable to Exchange Act requirements to establish internal
systems to supervise the Covered Entity's business and associated
persons, obtain information necessary to perform regulated functions in
its capacity as an SBS Entity and address conflicts of interest, as
well as Exchange Act requirements to submit an annual compliance report
to the Commission and to ensure that the chief compliance officer's
removal and compensation is subject to approval by a majority of the
board of directors. The comparability analysis requires consideration
of Exchange Act requirements as a whole against analogous UK
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 UK requirements that establish comparability with
the applicable regulatory outcome, and helps to avoid ambiguity in the
application of substituted compliance. It would be inconsistent with
the holistic approach to excise relevant requirements and leave only
the residual UK provisions that most closely resemble the analogous
Exchange Act requirements.\347\ Moreover, because Exchange Act internal
supervision and chief compliance officer requirements serve the purpose
of causing SBS Entities to have systems and follow practices to help
ensure they conduct their businesses as required, it would be
paradoxical to conclude that an SBS Entity that fails to implement
requisite internal risk management, documentation, capital, and/or
margin systems and practices nonetheless may be considered to be
following internal supervision and chief compliance officer standards
that are sufficient to meet the regulatory outcomes required under the
Exchange Act. An internal risk management, documentation, capital, or
margin-related failure necessarily constitutes a compliance failure.
For these reasons, the Commission believes that these UK provisions
appropriately constitute part of the substituted compliance conditions
for internal supervision and chief compliance officer requirements and
is retaining the references to these provisions. In reaching this
conclusion, the Commission emphasizes the importance of ensuring that
substituted compliance is grounded on the comparability of regulatory
outcomes. Retaining conditions of the Order necessary to help produce
regulatory outcomes comparable to Exchange Act internal risk management
requirements also should address another commenter's concern that any
substituted compliance determination not weaken the internal
supervision and chief compliance officer conditions in the proposed
Order.\348\
---------------------------------------------------------------------------

    \347\ The Commission further believes that those conditions to
substituted compliance do not expand the scope of Exchange Act
requirements because substituted compliance is an option available
to non-U.S. person SBS Entities--not a mandate.
    \348\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    The Commission is making two changes to the proposed Order's list
of UK requirements to which a Covered Entity must be subject and with
which it must comply if it uses substituted compliance for internal
supervision and/or chief compliance officer requirements. First, the UK
Substituted Compliance Notice and Proposed Order requested comment on
whether the Commission should revise the Order to require compliance
with UK provisions that implement CRD articles 93 to 95 which relate to
a Covered Entity's remuneration policies.\349\ The proposed additions
were intended to promote compliance goals similar to those of the other
UK requirements listed in paragraph (d)(3) of the proposed Order.\350\
No commenters addressed this issue, and the Commission has determined
to add a requirement for the Covered Entity to be subject to and comply
with certain provisions of either FCA SYSC 19A (in the case of a
Covered Entity that is an IFPRU investment firm) or FCA SYSC 19D (in
the case of a Covered Entity that is a UK bank or UK designated
investment firm).\351\ These provisions together implement CRD articles
94 and 95 and address additional aspects of a Covered Entity's internal
systems for preventing and addressing conflicts of interest related to
compensation. The Commission is not adding provisions that implement
CRD article 93, as they relate to remuneration policies for
institutions that benefit from exceptional government intervention. The
Commission believes that the UK provisions implementing CRD articles 94
and 95 are necessary to better promote regulatory outcomes comparable
to the relevant Exchange Act requirements on a holistic, outcomes-
oriented basis. Second, the Commission is requiring a Covered Entity
using substituted compliance for internal supervision and/or chief
compliance officer requirements to be subject to and comply with FCA
SYSC 4.3A.2R. This requirement implements parts of CRD article 88(1)
and is nearly identical to PRA Senior Management Functions Rule 8.2,
which appeared in the proposed Order.\352\ Including FCA SYSC 4.3A.2R
will ensure that Covered Entities regulated by only the FCA, rather
than by the FCA and the PRA together, will be subject to a requirement
similar to PRA Senior Management Functions Rule 8.2. In deciding to
make a positive substituted compliance determination for UK internal
supervision and chief compliance officer requirements, the Commission
considers that the Order's condition requiring a Covered Entity to be
subject to and comply with all of the UK requirements listed in
paragraph (d)(3) of the Order help to produce regulatory outcomes
comparable to Exchange Act internal supervision and chief compliance
officer requirements. The Commission recognizes that some of the UK
requirements related to internal supervision and chief compliance
officers follow a more granular approach than the high-level approach
of Exchange Act internal supervision and chief compliance officer
requirements, but these UK requirements, taken as a whole, are crafted
to promote a Covered Entity's compliance with applicable law and
ability to identify and cure instances of noncompliance and manage
conflicts of interest. Within the requisite outcomes-oriented approach
for analyzing comparability, the Commission concludes that a Covered
Entity's failure to comply with any of those UK internal supervision
and chief compliance officer requirements would be inconsistent with a
Covered Entity's obligations under Exchange Act internal supervision
and chief compliance officer requirements and that compliance with the
full set of UK requirements listed in paragraph (d)(3) of the Order
would promote comparable regulatory outcomes.
---------------------------------------------------------------------------

    \349\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18409.
    \350\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18409.
    \351\ See para. (d)(3)(vi) of the Order.
    \352\ See supra note 342 and accompanying text.
---------------------------------------------------------------------------

2. Compliance Reports
    A commenter requested that the Commission amend three aspects of
the proposed Order's compliance report-related condition to a Covered
Entity's use of substituted compliance for chief compliance officer
requirements.\353\ Another commenter stated that, if the Commission
makes a positive substituted compliance determination, it must at a
minimum ensure that the conditions in the proposed Order ``are applied
with full force and without exceptions or dilution.'' \354\ The
Commission details below its consideration of each of these requests.
---------------------------------------------------------------------------

    \353\ See SIFMA 5/3/2021 Letter at 20-21 and Appendix A part
(d)(2)(ii).
    \354\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    First, the proposed Order would require all compliance reports
required by UK law to include a certification that, under penalty of
law, the report is accurate and complete.\355\ The commenter requested
that the Commission revise this certification to conform more closely
with the required certification of annual compliance reports pursuant
to Exchange Act rule 15Fk-1.\356\ Rule 15Fk-1 requires an

annual compliance report to 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.'' \357\ The Commission concurs that the
Order's required certification should align with that of Exchange Act
rule 15Fk-1. It would seem incongruous and not within the intent of
substituted compliance to apply a higher standard of certification to
Covered Entities relying on substituted compliance than required under
that rule. Therefore, the Commission is amending the Order to require
that all required UK compliance reports include a certification signed
by the chief compliance officer or senior officer of the Covered Entity
that, to the best of the certifier's knowledge and reasonable belief
and under penalty of law, the report is accurate and complete in all
material respects.\358\ In addition, the Order has been updated to
clarify that each UK compliance report, and therefore also the chief
compliance officer or senior officer certification, must address the
Covered Entity's compliance with applicable Exchange Act requirements,
consistent with the Order's conditions with respect to internal
supervision.\359\ The Commission believes that this clarification is
necessary to promote comparable regulatory outcomes, particularly in
light of the granular approach to substituted compliance, to ensure
that the compliance report covers applicable Exchange Act requirements
if the Covered Entity uses substituted compliance for chief compliance
officer requirements, whether or not the Covered Entity relies on
substituted compliance for internal supervision.
---------------------------------------------------------------------------

    \355\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 85692.
    \356\ See SIFMA 5/3/2021 Letter at 20 and Appendix A part (d)(2)
(stating that paragraph (d)(2)(ii)(B) of the Order, consistent with
Exchange Act rule 15Fk-1(c)(2)(ii)(D), should be amended so that a
Covered Entity's certification would include statements that the
certification is ``to the best of the certifier's knowledge and
reasonable belief'' and that the report is accurate and complete
``in all material respects'').
    \357\ 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'').
    \358\ See para. (d)(2)(ii)(B) of the Order.
    \359\ See para. (d)(4) of the Order. In practice, a Covered
Entity may satisfy this condition by identifying relevant Order
conditions and reporting on the implementation and effectiveness of
its controls with regard to compliance with applicable Exchange Act
requirements and relevant provisions of the Order.
---------------------------------------------------------------------------

    Second, because Covered Entities may prepare multiple UK compliance
reports per year, the commenter requested that the Commission permit a
Covered Entity ``to either (a) make an annual submission of these
multiple reports with a supplement of information regarding compliance
with conditions to substituted compliance or (b) create and submit a
single, annual report regarding its SBS Entity business, including
information regarding compliance with conditions to substituted
compliance.'' \360\ The Commission is persuaded that additional
clarification regarding the timing of these UK compliance reports is
warranted, but believes that submission of multiple outdated and/or
subsequently superseded UK compliance reports at the end of each year
likely would not promote regulatory outcomes comparable to Exchange Act
compliance report requirements. Rather, in the case of a Covered Entity
that prepares multiple UK compliance reports each year, the Commission
believes that it is appropriate for the Commission to receive
compliance reports shortly after their submission to the management
body. Providing these reports to the Commission near the times that the
Covered Entity submits them to the management body also will better
align with the UK regulatory framework, which permits a Covered Entity
to prepare and submit to the management body multiple compliance
reports throughout the year, but does not contemplate a Covered Entity
preparing multiple internal compliance reports throughout the year and
submitting those reports to the management body only at the end of the
year. The Commission thus is changing the Order to clarify that a
Covered Entity must provide the Commission each UK compliance report
prepared pursuant to UK MiFID Org Reg article 22(2)(c) no later than 15
days following the earlier of its submission to the Covered Entity's
management body or the time the report is required to be submitted to
the management body.\361\ In line with UK MiFID Org Reg article
22(2)(c), a Covered Entity must provide at least one report annually to
the Commission but if a Covered Entity makes more than one report
pursuant to UK MiFID Org Reg article 22(2)(c), the Covered Entity must
provide and certify each such report within the required 15-day
deadline. The Commission views 15 days as providing a reasonable time
to translate reports, if needed, and convey them to the Commission, and
this change is consistent with the same commenter's suggested
clarification of the French Substituted Compliance Notice and Proposed
Order.\362\ This deadline is intended to promote timely notice of
compliance matters in a manner comparable to Exchange Act requirements,
while also accounting for the annual deadline required under UK MiFID
Org Reg article 22(2)(c) as well as the possibility that the Covered
Entity may submit reports ahead of this annual deadline. In addition,
reports required to be provided under UK 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.\363\ This requirement prevents a
Covered Entity from notifying the Commission just prior to the due date
of its annual Exchange Act compliance report that it will use
substituted compliance for chief compliance officer requirements and
then providing the Commission a UK compliance report that covers only a
part of the year that would have been covered in the Exchange Act
report.
---------------------------------------------------------------------------

    \360\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(d)(2). With regard to the French Substituted Compliance Notice and
Proposed Order, SIFMA supported an additional timing standard that
would provide for an annual submission 15 days after the submission
to the French regulatory authority. The Commission addresses SIFMA's
comment in connection with its consideration of French authorities'
application for substituted compliance.
    \361\ See para. (d)(2)(ii)(D) of the Order.
    \362\ In its comment on the same provision in the French
Substituted Compliance Notice and Proposed Order, the commenter
asked the Commission to permit a Covered Entity to make an annual
submission of the foreign compliance report within 15 days after
submission of that report to the foreign regulatory authority. The
commenter explained that, absent clarification, the Order would
appear to require a Covered Entity to provide the Commission its
foreign compliance report within 30 days following the deadline for
the Covered Entity to file its annual financial report with the
Commission, without regard to when the Covered Entity prepares its
foreign compliance report. See SIFMA 5/3/2021 Letter at 19-20 and
Appendix A part (d)(2), available at: https://www.sec.gov/comments/s7-22-20/s72220.htm.
    \363\ See para. (d)(2)(ii)(E) of the Order.
---------------------------------------------------------------------------

    The Commission recognizes that a Covered Entity preparing multiple
UK compliance reports each year may find it difficult to submit to the
Commission multiple UK compliance reports throughout the year, each
with a chief compliance officer or senior officer certification and a
section addressing the Covered Entity's compliance with U.S.
requirements. However, on balance the Commission believes that these
elements are necessary to achieve a regulatory outcome comparable to
the Exchange Act, and is retaining the requirement for all reports to
include them. The commenter's suggested alternative--to allow a Covered
Entity to create a single annual report regarding its SBS business--
amounts to a request to allow a Covered Entity to prepare a bespoke
compliance report outside of the requirements of both the Exchange Act
and the UK regulatory framework. The Commission believes this bespoke

report would be inconsistent with its mandate to make a positive
substituted compliance determination only when the Covered Entity
complies with comparable foreign requirements, and is not amending the
Order to provide this option. A Covered Entity that produces multiple
UK compliance reports each year, but wishes to prepare a single annual
compliance report addressing its compliance with Exchange Act
requirements, is not required to use substituted compliance for chief
compliance officer requirements, even if it chooses to use substituted
compliance for other Exchange Act requirements. Such a Covered Entity
instead could choose to comply directly with Exchange Act chief
compliance officer requirements, including requirements related to the
annual compliance report, rather than use substituted compliance for
those requirements.
    Third, the commenter requested that the proposed Order be modified
to narrow the scope of the compliance reports provided to the
Commission, stating that the Covered Entity should be permitted to
provide the Commission its UK compliance reports only ``to the extent
that they are related to a Covered Entity's business as an [SBS
Entity].'' \364\ The commenter stated that it would be
``disproportionate and unnecessary'' to require the Covered Entity to
provide the Commission all of its UK compliance reports prepared
pursuant to UK MiFID Org Reg article 22(2)(c).\365\ The Commission
disagrees, and believes that the Commission should be fully informed--
consistent with the scope of UK 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 providing the Commission reports in only one of the
buckets, does not match the analytic approach of considering the
Exchange Act and UK frameworks as a whole. Accordingly, the Commission
is retaining the requirement that a Covered Entity provide all reports
required pursuant to UK MiFID Org Reg article 22(2)(c) to the
Commission.
---------------------------------------------------------------------------

    \364\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(d)(2).
    \365\ See SIFMA 5/3/2021 Letter at 21.
---------------------------------------------------------------------------

3. Antitrust Requirements
    The Commission did not receive any comments on the absence of a
positive substituted compliance determination for antitrust
requirements in Exchange Act section 15F(j)(6) (and related internal
supervision requirements of Exchange Act rule 15Fh-3(h)(2)(iii)(I)) in
the proposed Order. The Commission continues to believe that allowing
an alternative means of compliance would not lead to outcomes
comparable to the Exchange Act, and is not making a positive
substituted compliance determination for those requirements.\366\
---------------------------------------------------------------------------

    \366\ Non-U.S. SBS Entities should assess the applicability of
the Exchange Act's antitrust prohibitions to their security-based
swap businesses.
---------------------------------------------------------------------------

VII. Substituted Compliance for Counterparty Protection Requirements

A. Proposed Approach

    The FCA 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 [entities] to treat parties to these transactions fairly.''
\367\
---------------------------------------------------------------------------

    \367\ See Business Conduct Adopting Release, 81 FR at 30065.
These transaction-level requirements apply only to a non-U.S. SBS
Entity's transactions with U.S. counterparties (apart from certain
transactions conducted through a foreign branch of the U.S.
counterparty), or to transactions arranged, negotiated, or executed
in the United States. See Exchange Act rule 3a71-3(c) (exception
from business conduct requirements for a security-based swap
dealer's ``foreign business''); see also Exchange Act rule 3a71-
3(a)(3), (8), and (9) (definitions of ``transaction conducted
through a foreign branch,'' ``U.S. business'' and ``foreign
business'').
---------------------------------------------------------------------------

    The proposed Order provided for substituted compliance 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.\368\ In proposing to provide
conditional substituted compliance for these requirements, the
Commission preliminarily concluded that the relevant UK requirements in
general would produce regulatory outcomes that are comparable to
requirements under the Exchange Act, by subjecting Covered Entities to
obligations that promote standards of professional conduct,
transparency, and the fair treatment of parties.
---------------------------------------------------------------------------

    \368\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18414-15.
---------------------------------------------------------------------------

    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
disclosure of material risks and characteristics, disclosure of
material incentives or conflicts of interest, ``know your
counterparty,'' suitability, and fair and balanced communications
requirements would be conditioned on Covered Entities being subject to,
and complying with, relevant UK requirements.\369\ Second, the

proposed Order would additionally condition substituted compliance for
suitability requirements on the counterparty being a per se
``professional client'' as defined in FCA COBS (rather an elective
professional client or a retail client \370\) and not a ``special
entity'' as defined in Exchange Act section 15F(h)(2)(C) and Exchange
Act rule 15Fh-2(d).\371\ Finally, in the proposed Order the Commission
preliminarily viewed UK daily portfolio reconciliation requirements as
comparable to Exchange Act daily mark disclosure requirements.\372\
These daily portfolio reconciliation requirements apply to portfolios
of a financial counterparty or a non-financial counterparty subject to
the clearing obligation in UK EMIR in which the counterparties have 500
or more OTC derivatives contracts outstanding with each other.\373\ The
Commission preliminarily viewed UK portfolio reconciliation
requirements for other types of portfolios, which may be reconciled
less frequently than each business day, as not comparable to Exchange
Act daily mark requirements.\374\ 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 pursuant to relevant UK requirements.\375\
---------------------------------------------------------------------------

    \369\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18392 n.134. Each of the comparable UK requirements listed
in the proposed Order applies to a uniquely defined set of UK-
authorized firms. See UK Substituted Compliance Notice and Proposed
Order, 86 FR at 18392 n.137. To assist UK firms in determining
whether they are subject to these requirements, the Commission
preliminarily determined that any Covered Entity would be subject to
the required UK requirements related to disclosure of material risks
and characteristics, disclosure of material incentives or conflicts
of interest, suitability, and fair and balanced communications and
thus eligible to apply substituted compliance in these areas. The
Commission also preliminarily determined that any Covered Entity
that is an ``IFPRU investment firm,'' ``UK bank'' or ``UK designated
investment firm,'' each as defined for purposes of UK law, would be
subject to all of the required UK requirements related to ``know
your counterparty'' requirements and thus eligible to apply
substituted compliance for ``know your counterparty'' requirements.
Finally, the Commission preliminarily determined that any Covered
Entity that is a ``financial counterparty'' would be subject to all
of the required UK requirements related to daily mark disclosure and
thus eligible to apply substituted compliance for daily mark
disclosure requirements. See UK Substituted Compliance Notice and
Proposed Order, 86 FR at 18392-93.
    \370\ FCA COBS 3.5 describes which clients are ``professional
clients.'' FCA COBS 3.5.2R describes the types of clients considered
to be professional clients unless the client elects non-professional
treatment; these clients are per se professional clients. FCA COBS
3.5.3R describes the types of clients who may be treated as
professional clients on request; these clients are elective
professional clients. See FCA COBS 3.5. Retail clients are those
that are not professional clients (nor eligible counterparties, in
contexts other than suitability assessments in which treatment as an
eligible counterparty is permitted). See FCA COBS 3.4.1R.
    \371\ 15 U.S.C. 78o-10(h)(2)(C); 17 CFR 240.15Fh-2(d). See UK
Substituted Compliance Notice and Proposed Order, 86 FR at 18393-94.
    \372\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18393.
    \373\ See UK EMIR RTS article 13(3)(a)(i); UK EMIR article 10.
    \374\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18393.
    \375\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18393.
---------------------------------------------------------------------------

    The proposed 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).\376\ The FCA Application argued that certain UK provisions
related to a counterparty's clearing rights in the UK are comparable to
requirements to disclose the counterparty's Exchange Act-based clearing
rights. Because these UK provisions do not require disclosure of these
clearing rights, the Commission preliminarily viewed the UK clearing
provisions as not comparable to Exchange Act clearing rights disclosure
requirements.
---------------------------------------------------------------------------

    \376\ 15 U.S.C. 78c-3(g)(5).
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    Having considered commenters' recommendations regarding 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.
With respect to Exchange Act clearing rights disclosure requirements,
however, consistent with the proposed Order the Commission is not
providing substituted compliance. The Order is largely consistent with
the proposed Order except for removing one UK requirement listed in two
sections of the Order and correcting a typographical error.\377\
---------------------------------------------------------------------------

    \377\ See paras. (e)(1)(i), (e)(5)(ii) and (e)(4)(i)(A) of the
Order.
---------------------------------------------------------------------------

    One commenter expressed general support for the proposed approach
toward substituted compliance for the counterparty protection
provisions.\378\ Another commenter stated that UK requirements are not
sufficiently comparable to Exchange Act requirements.\379\ The
Commission continues to believe that, taken as a whole, applicable
requirements under UK law subject 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. 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 UK requirements, on the other hand. The Commission
continues to view those differences as not so material as to be
inconsistent with substituted compliance within the requisite outcomes-
oriented context.
---------------------------------------------------------------------------

    \378\ See SIFMA 5/3/2021 Letter at 21. The commenter also
requested that the Commission not require a Covered Entity to be
subject to and comply with some of the UK counterparty protection
requirements listed in the proposed Order. See SIFMA 5/3/2021 Letter
at 21 and Appendix A part (e). The Commission addresses those
requests in the relevant sections of this part VII below.
    \379\ See Better Markets Letter at 2. The commenter also stated
that, if the Commission nevertheless makes a positive substituted
compliance determination, it must at a minimum ensure that the
conditions in the proposed Order ``are applied with full force and
without exceptions or dilution.'' The Commission addresses that
comment in the relevant sections of this part VII below.
---------------------------------------------------------------------------

    To help ensure the comparability of outcomes, substituted
compliance for counterparty protection requirements is subject to
certain conditions. Substituted compliance for disclosure of material
risks and characteristics, disclosure of material incentives or
conflicts of interest, ``know your counterparty,'' suitability, and
fair and balanced communications requirements is conditioned on the
Covered Entity being subject to, and complying with, relevant UK
requirements.\380\ 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
UK requirements.\381\ Substituted compliance for suitability
requirements additionally is conditioned on the counterparty being a
per se ``professional client'' mentioned in FCA COBS 3.5.2R (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).\382\ 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.
---------------------------------------------------------------------------

    \380\ See paras. (e)(1) through (5) of the Order.
    \381\ See para. (e)(6) of the Order.
    \382\ See para. (e)(4)(ii) of the Order.
---------------------------------------------------------------------------

    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 balanced 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 to 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.
    The Commission details below its consideration of comments on the
proposed Order.
1. Disclosure of Information Regarding Material Risks and
Characteristics
    A commenter requested that the Commission not require a Covered
Entity to be subject to and comply with some of these specified
requirements.\383\ By contrast, another commenter stated that, if the
Commission makes a positive substituted compliance determination, it
must at a minimum ensure that the conditions in the proposed Order
``are applied with full force and without exceptions or dilution.''
\384\ The Commission details below its consideration of each of these
requests.
---------------------------------------------------------------------------

    \383\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(1).
    \384\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    First, the commenter stated that FCA COBS 2.2A.2R(1)(d), 6.1ZA.11R,
6.1ZA.12R, and 6.1ZA.14UK and UK MiFID Org Reg article 50 relate to
disclosure of costs and charges and thus go beyond the scope of
Exchange Act material risks and characteristics disclosure
requirements. 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.
    Second, the commenter stated that FCA COBS 2.2A.2R(1)(c) relates to
insurance-based investments and thus goes beyond the scope of Exchange
Act material risks and characteristics disclosure requirements. FCA
COBS 2.2A.2R(1)(c) would require a Covered Entity to provide its client
in good time appropriate information about the distribution of
``insurance-based investment products.'' The Commission is not making a
determination whether an ``insurance-based investment product,'' as
defined for purposes of this provision, could also be a security-based
swap. However, even without this provision, FCA COBS 2.2A.2R(b) would
require the Covered Entity to provide its client in good time
appropriate information about any relevant ``financial instruments,''
which are a defined set of instruments to which this and other MiFID-
based provisions apply. The general condition in paragraph (a)(3) of
the Order would require any Covered Entity using substituted compliance
for Exchange Act material risks and characteristics disclosure
requirements to ensure that its relevant security-based swap activities
(in this case, disclosure to counterparties before entering into a
security-based swap) constitute ``MiFID or equivalent third country
business,'' which is defined to include the same set of instruments in
the definition of ``financial instruments.'' As a result, the
disclosures of a Covered Entity applying substituted compliance for
Exchange Act material risks and characteristics disclosure requirements
would always be in relation to a security-based swap that is a
``financial instrument.'' Accordingly, the Commission believes it is
appropriate to delete the reference to FCA COBS 2.2A.2R(1)(c) in the
Order.
    Third, the commenter stated that FCA COBS 6.1ZA.9UK and UK MiFID
Org Reg article 49 relate to information about the safeguarding of
client assets and thus go beyond the scope of Exchange Act material
risks and characteristics disclosure requirements. These provisions
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 non-
UK jurisdiction and indicate that client rights relating to the
security-based swap may differ from those under UK 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 FCA COBS 6.1ZA.9UK and UK MiFID Org Reg article 49 would
require the Covered Entity to disclose. Accordingly, the Commission is
retaining the references to these provisions.
    Finally, the commenter stated that FCA COBS 6.2B.33R and 9A.3.6R
relate to disclosure about whether a firm is providing independent
advice or will undertake a periodic suitability assessment and thus go
beyond the scope of Exchange Act material risks and characteristics
disclosure

requirements.\385\ As described 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's advice and the presence or absence of a periodic suitability
assessment in the counterparty's assessment of these risks and
characteristics. 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.
---------------------------------------------------------------------------

    \385\ See SIFMA 5/3/2021 Letter Appendix A part (e)(1).
---------------------------------------------------------------------------

2. Disclosure of Information Regarding Material Incentives or Conflicts
of Interest
    A commenter requested that the Commission not require a Covered
Entity to be subject to and comply with FCA COBS 2.3A.5R, 2.3A.6R,
2.3A.7E, or 2.3A.11R through 2.3A.14R, stating 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.\386\ By contrast, another commenter stated that, if the
Commission makes a positive substituted compliance determination, it
must at a minimum ensure that the conditions in the proposed Order
``are applied with full force and without exceptions or dilution.''
\387\ 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 FCA COBS 2.3A.5R, 2.3A.6R, 2.3A.7E, and
2.3A.11R through 2.3A.14R would require the Covered Entity to disclose.
Accordingly, the Commission is retaining the references to these
provisions.
---------------------------------------------------------------------------

    \386\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(1).
    \387\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

3. ``Know Your Counterparty''
    A commenter requested that the Commission not require a Covered
Entity to be subject to and comply with some of these specified
requirements.\388\ By contrast, another commenter stated that, if the
Commission makes a positive substituted compliance determination, it
must at a minimum ensure that the conditions in the proposed Order
``are applied with full force and without exceptions or dilution.''
\389\ The Commission details below its consideration of each of these
requests.
---------------------------------------------------------------------------

    \388\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(3).
    \389\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    First, the commenter stated that UK MiFID Org Reg articles 21, 22,
25, and 26 and applicable parts of Annex I relate to organizational
requirements, compliance, responsibility of senior management,
complaints handling, and associated recordkeeping and thus go beyond
the scope of Exchange Act ``know your counterparty'' requirements. In
addition to these provisions cited by the commenter, the proposed Order
would require (with no objection from the commenter) a Covered Entity
using substituted compliance for Exchange Act ``know your
counterparty'' requirements to be subject to and comply with FCA SYSC
6.1.1R, which implements MiFID article 16(2) in the UK and would
require a Covered Entity to establish, implement, and maintain adequate
policies and procedures sufficient to ensure the Covered Entity's
compliance with its obligations under UK financial services laws. This
requirement relates to the requirement in Exchange Act rules 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. UK MiFID Org Reg articles 21, 22, 25, and 26 and
applicable parts of Annex I are regulations that implement MiFID
article 16(2). They provide additional detail about the Covered
Entity's required policies and procedures under the UK 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.
    Second, the commenter stated that FCA SYSC 4.1.1R(1) relates to
general organizational requirements and thus goes beyond the scope of
Exchange Act ``know your counterparty'' requirements. FCA SYSC
4.1.1R(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. This
requirement relates 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
reference to this provision.
    Third, the commenter recommended deleting FCA IFPRU 2.2.7R(2) and
2.2.32R because they do not apply to banks or PRA-designated investment
firms and the commenter expects only banks and PRA-designated
investment firms to apply substituted compliance pursuant to the Order.
These FCA IFPRU provisions apply to smaller investment firms not
regulated by the PRA and are nearly identical to provisions that apply
to banks and PRA-designated investment firms. The proposed Order would
not require a Covered Entity that is a bank or PRA-designated
investment firm to be subject to and comply with these provisions.
Rather, the proposed Order would require each Covered Entity to be
subject to and comply with either these IFPRU provisions (if it is a
smaller investment firm) or analogous PRA requirements (if it is a bank
or PRA-designated investment firm). Moreover, the FCA Application
requested substituted compliance for all MiFID

investment firms and third country investment firms, and was not
limited to banks and PRA-designated investment firms. Accordingly, the
Commission is retaining the references to these provisions.
    Fourth, the commenter stated that PRA General Organisational
Requirement 2.1 relates to high-level governance requirements and thus
goes beyond the scope of Exchange Act ``know your counterparty''
requirements. The provision is identical in all material respects to
FCA SYSC 4.1.1R(1) and serves as the PRA's version of that requirement
for PRA-regulated Covered Entities. Accordingly, the Commission is
retaining the reference to this provision.
    Finally, the commenter stated that PRA Internal Capital Adequacy
Assessment Rule 10.1 relates to assessment of the capital needed to
cover risks and thus goes beyond the scope of Exchange Act ``know your
counterparty'' requirements. This provision would require a Covered
Entity to implement policies and processes to evaluate and manage the
exposure to operational risk. These policies and processes are related
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 reference to this provision.
4. Suitability
    A commenter requested that the Commission amend these
conditions.\390\ By contrast, another commenter stated that, if the
Commission makes a positive substituted compliance determination, it
must at a minimum ensure that the conditions in the proposed Order
``are applied with full force and without exceptions or dilution.''
\391\ The Commission details below its consideration of each of these
requests.
---------------------------------------------------------------------------

    \390\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(4).
    \391\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    First, the commenter requested that the Commission not require a
Covered Entity to be subject to and comply with some of the UK
suitability requirements specified in the proposed Order.\392\ The
commenter stated that FCA COBS 4.2.1R is more appropriately addressed
in the section of the order relating to fair and balanced
communications and that MiFID Org Reg article 21(1)(b) is more
appropriately addressed in the section of the order relating to
internal supervision. The commenter further stated that FCA SYSC
5.1.5AAR and 5.1.5ABR and UK MiFID Org Reg article 21(1)(d) go beyond
the scope of Exchange Act suitability requirements.
---------------------------------------------------------------------------

    \392\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(4).
---------------------------------------------------------------------------

    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).\393\ FCA SYSC 5.1.5AAR and 5.1.5ABR,
which implement MiFID article 25(1), 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 FCA rules that implement MIFID articles 24 and 25
and the related provisions of the UK MiFID Org Reg. FCA COBS 9A.2.1R
and 9A.2.16R, which implement MiFID article 25(2), 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. FCA SYSC 5.1.5AAR and 5.1.5ABR thus 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 FCA COBS 9A.2.1R and 9A.2.16R to make only
suitable recommendations. This knowledge and competence requirement in
FCA SYSC 5.1.5AAR and 5.1.5ABR is directly related to the Exchange Act
reasonable basis suitability standard.
---------------------------------------------------------------------------

    \393\ See Exchange Act rule 15Fh-3(f)(1).
---------------------------------------------------------------------------

    Moreover, FCA COBS 4.2.1R, which implements MiFID article 24(3), is
particularly relevant to the Exchange Act reasonable basis standard.
FCA COBS 4.2.1R, together with FCA SYSC 5.1.5AAR and 5.1.5ABR, 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 FCA
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
articles 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 communicate about the relevant security-based
swap in a way that complies with its communication and suitability
obligations in FCA COBS and FCA SYSC.
    For these reasons, the Commission is retaining in the Order the
references to these UK requirements that the commenter asked to delete,
and thus is requiring a Covered Entity to be subject to and comply with
these UK requirements if the Covered Entity wishes to make use of
substituted compliance for Exchange Act suitability requirements.
Separately, as stated by the commenter, the proposed Order erroneously
referred to FCA COBS 9A.1.16R instead of FCA COBS 9A.2.16R, and the
Commission is amending the Order to correct this error.\394\
---------------------------------------------------------------------------

    \394\ See para. (e)(4)(i)(A) of the Order.
---------------------------------------------------------------------------

    Second, 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 FCA COBS 3.5.2R. Professional
clients mentioned in FCA COBS 3.5.2R 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 replace FCA COBS 3.5.2R with FCA COBS 3.5.1R, a
provision that refers to both per se and elective professional clients.
Elective professional clients generally have less experience,
knowledge, expertise, and/or resources than per se professional

clients.\395\ Because UK suitability requirements permit a Covered
Entity, when conducting a suitability analysis for elective
professional clients, to make certain assumptions,\396\ while the
Exchange Act permits a similar mechanism only for institutional
counterparties, the Commission believes that UK suitability
requirements are comparable only in respect of per se professional
clients. 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.
---------------------------------------------------------------------------

    \395\ See, e.g., FCA COBS 3.5.3R.
    \396\ See, e.g., UK MiFID Org Reg article 54(3).
---------------------------------------------------------------------------

5. Fair and Balanced Communications
    A commenter requested that the Commission not require a Covered
Entity to be subject to and comply with some of these specified
requirements.\397\ By contrast, another commenter stated that, if the
Commission makes a positive substituted compliance determination, it
must at a minimum ensure that the conditions in the proposed Order
``are applied with full force and without exceptions or dilution.''
\398\ The Commission details below its consideration of each of these
requests.
---------------------------------------------------------------------------

    \397\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(5).
    \398\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    First, the commenter asked the Commission not to require a Covered
Entity to be subject to and comply with FCA COBS 2.2A.2R(1)(d),
6.1ZA.11R, 6.1ZA.12R, and 6.1ZA.13R because they relate to disclosure
of costs and charges and thus go beyond the scope of Exchange Act fair
and balanced communications requirements.\399\ Exchange Act rule 15Fh-
3(g)(1) requires a Covered Entity's communications to provide a sound
basis for evaluating the facts with regard to any particular security-
based swap or trading strategy involving a security-based swap. The
Commission believes that information about costs and charges required
to be disclosed under these UK requirements is comparable to one type
of information that would help to provide a sound basis for evaluating
the facts as required under 15Fh-3(g)(1). Accordingly, the Commission
is retaining the references to these provisions.
---------------------------------------------------------------------------

    \399\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(5).
---------------------------------------------------------------------------

    Second, the commenter asked the Commission not to require a Covered
Entity to be subject to and comply with FCA COBS 2.2A.2R(1)(c) because
it relates to insurance-based investments and thus goes beyond the
scope of Exchange Act fair and balanced communications
requirements.\400\ FCA COBS 2.2A.2R(1)(c) would require a Covered
Entity to provide its client in good time appropriate information about
the distribution of ``insurance-based investment products.'' The
Commission is not making a determination whether an ``insurance-based
investment product,'' as defined for purposes of this UK provision,
could also be a security-based swap. However, even without this
provision, FCA COBS 2.2A.2R(1)(b) would require the Covered Entity to
provide its client in good time appropriate information about any
relevant ``financial instruments,'' which are a defined set of
instruments to which this and other MiFID-based provisions apply. The
general condition in paragraph (a)(3) of the Order would require any
Covered Entity using substituted compliance for Exchange Act fair and
balanced communications requirements to ensure that its relevant
security-based swap activities (in this case, communications with
counterparties) constitute ``MiFID or equivalent third country
business,'' which is defined to include the same set of instruments in
the definition of ``financial instruments.'' As a result, the
communications of a Covered Entity applying substituted compliance for
Exchange Act fair and balanced communications requirements would always
be in relation to a security-based swap that is a ``financial
instrument.'' Accordingly, the Commission believes it is appropriate to
delete the reference to FCA COBS 2.2A.2R(1)(c) in the Order.
---------------------------------------------------------------------------

    \400\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(5).
---------------------------------------------------------------------------

    Third, the commenter asked the Commission not to require a Covered
Entity to be subject to and comply with FCA COBS 2.2A.3R because it
relates to the format of disclosure and thus goes beyond the scope of
Exchange Act fair and balanced communications requirements.\401\
Exchange Act rule 15Fh-3(g)(1) requires a Covered Entity's
communications to provide a sound basis for evaluating the facts with
regard to any particular security-based swap or trading strategy
involving a security-based swap. FCA COBS 2.2A.3R would require the
Covered Entity to provide the information required by FCA COBS 2.2A.2R
in a comprehensive form in such a manner that the client is reasonably
able to understand the nature and risks of the investment service and
of the specific type of financial instrument that is being offered and,
consequently, to take investment decisions on an informed basis. This
requirement to provide information in a manner that the client is
reasonably able to take informed investment decisions is well within
the scope of the Exchange Act requirement to provide counterparties a
sound basis for evaluating the relevant facts of a transaction or
strategy. Accordingly, the Commission is retaining the reference to
this provision.
---------------------------------------------------------------------------

    \401\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(5).
---------------------------------------------------------------------------

    Fourth, the commenter asked the Commission not to require a Covered
Entity to be subject to and comply with FCA COBS 6.1ZA.8UK because it
relates to portfolio management services and thus goes beyond the scope
of Exchange Act fair and balanced communications requirements. FCA COBS
6.1ZA.8UK would require a Covered Entity, when providing or proposing
to provide portfolio management services, to provide certain
information to its client to enable the client to assess the Covered
Entity's performance. The Commission is not making a determination
whether particular examples of ``portfolio management,'' as the term is
used in this provision, also constitute dealing in a security-based
swap for purposes of the Exchange Act. However, to the extent that FCA
COBS 6.1ZA.8UK applies to a Covered Entity's communication, it is an
element of the UK's fair and balanced communications framework that
compares to Exchange Act requirements to provide a sound basis for
evaluating the facts with regard to a security-based swap or trading
strategy involving a security-based swap. If the Covered Entity is
applying substituted compliance in relation to such a communication,
the Commission believes that it is appropriate to require the Covered
Entity to comply with this requirement. Accordingly, the Commission is
retaining the reference to this provision.
    Fifth, the commenter asked the Commission not to require a Covered
Entity to be subject to and comply with UK MAR Investment
Recommendations Regulation articles 3 and 4 and UK MAR articles
12(1)(c), 15, and 20(1) because they relate to investment
recommendations and market manipulation and thus go beyond the scope of
Exchange Act fair and balanced communications requirements. Exchange
Act rule 15Fh-3(g) requires in relevant part that an SBS Entity's
communications with counterparties provide a sound basis for evaluating
the facts with regard to a particular security-based swap or trading
strategy involving a security-based swap; not imply that

past performance will recur; not make exaggerated or unwarranted
claims, opinions, or forecasts; and balance statements about potential
opportunities or advantages of a security-based swap with an equally
detailed statement of the corresponding risks. UK 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. UK 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 substantially material sources of
information; and include only reliable information or a clear
indication when there is doubt about reliability. UK 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. UK MAR articles 12(1)(c) and 15
would require the Covered Entity to refrain from disseminating
information that gives or is likely to give false or misleading signals
as to the supply of, demand for, or price of, a financial instrument or
secures or is likely to secure the price of one or several financial
instruments at an abnormal or artificial level, if the Covered Entity
knows or ought to know that the information is false or misleading.
These requirements form part of the UK's framework for fair and
balanced communications, and the Commission believes that together they
relate to Exchange Act rule 15Fh-3(g)'s requirements regarding
presentation of factual information described above. Accordingly, the
Commission is retaining the references to these provisions.
6. Daily Mark Disclosure
    A commenter requested that the Commission not require a Covered
Entity to be subject to and comply with UK EMIR article 11(2), stating
that it is not related to portfolio reconciliation.\402\ By contrast,
another commenter stated that, if the Commission makes a positive
substituted compliance determination, it must at a minimum ensure that
the conditions in the proposed Order ``are applied with full force and
without exceptions or dilution.'' \403\ UK EMIR article 11(2) would
require the Covered Entity to mark-to-market or mark-to-model its non-
centrally cleared contracts. Other UK 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 UK EMIR article 11(2).\404\ As UK 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.\405\
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    \402\ See SIFMA 5/3/2021 Letter at 21 and Appendix A part
(e)(6).
    \403\ See Better Markets Letter at 2.
    \404\ See UK EMIR article 13(2).
    \405\ See para. (e)(6) of the Order.
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7. Clearing Rights Disclosure
    Because UK 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.

VIII. Substituted Compliance for Recordkeeping, Reporting and
Notification Requirements

A. Proposed Approach

    The FCA 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.\406\
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    \406\ See 17 CFR 240.18a-5. The FCA Application discusses UK
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 FCA Application Appendix B category 2 at 101-28, 136-39.
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     Record Preservation--Exchange Act rule 18a-6 requires
preservation of records.\407\
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    \407\ See 17 CFR 240.18a-6. The FCA Application discusses UK
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 FCA
Application Appendix B category 2 at 140-71.
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     Reporting--Exchange Act rule 18a-7 requires certain
reports.\408\
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    \408\ See 17 CFR 240.18a-7. The FCA Application discusses UK
requirements that address firms' obligations to make certain
reports. See FCA Application Appendix B category 2 at 172-80, 185-
89.
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     Notification--Exchange Act rule 18a-8 requires
notification to the Commission when certain financial or operational
problems occur.\409\
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    \409\ See 17 CFR 240.18a-8. The FCA Application discusses UK
requirements that address firms' obligations to make certain
notifications. See FCA Application Appendix B category 2 at 181-85.
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     Securities Count--Exchange Act rule 18a-9 requires non-
prudentially regulated security-based swap dealers to perform a
quarterly securities count.\410\
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    \410\ See 17 CFR 240.18a-9. The FCA Application discusses UK
requirements that address firms' obligations to perform securities
counts. See FCA Application Appendix B category 2 at 129-36.
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     Daily Trading Records. Exchange Act section 15F(g)
requires SBS Entities to maintain daily trading records.\411\
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    \411\ See 15 U.S.C. 78o-10(g). The FCA Application discusses UK
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 FCA
Application Appendix B category 2 at 140-71.
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    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.\412\
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    \412\ 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.''
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    In proposing to provide conditional substituted compliance in
connection with this part of the FCA Application, the Commission
preliminarily concluded that the relevant UK 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'').\413\
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    \413\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18394-404, 18415-20.
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    Finally, the proposed 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) would have
permitted 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)).\414\ Moreover, the proposed structure
of the substituted compliance determinations with respect to the
recordkeeping rules would have provided Covered Entities with greater
flexibility to select distinct requirements within the broader rules
for which they want to apply substituted compliance.
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    \414\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18395-96.
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    Because the Exchange Act Recordkeeping and Reporting Requirements
were entity-level requirements, the Covered Entity needed to apply
substituted compliance at the entity level for each of the substituted
compliance determinations with respect to these requirements with one
limited exception. Under the exception, a Covered Entity could apply
substituted compliance at the transaction level with respect to
requirements in Exchange Act rules 18a-5 and 18a-6 linked to
counterparty protection rules (i.e., Exchange Act rules 15Fh-3(b), (c),
(e), (f), and (g)).

B. Commenter Views and Final Provisions

1. General Considerations
    The Commission structured its preliminary substituted compliance
determinations in the proposed Order with respect to 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.\415\ 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.
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    \415\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18394-404, 18415-20.
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    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.\416\ The Commission preliminarily
found that the comparable UK recordkeeping rules achieve these outcomes
with respect to compliance with the substantive UK requirements for
which preliminary 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 preliminarily found it appropriate to make substituted
compliance determinations at this level of Exchange Act rules 18a-5 and
18a-6.
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    \416\ See, e.g., Exchange Act Release No. 71958 (Apr. 17, 2014),
79 FR 25194, 25199-200 (May 2, 2014).
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    A commenter generally supported the Commission's proposed granular
approach to making substituted compliance determinations.\417\ The
Order implements this granular approach substantially as proposed.
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    \417\ See SIFMA 5/3/2021 Letter at 21-23.
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    The Commission's preliminary 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 UK laws.\418\ Further, the Commission
proposed limitations and additional conditions for certain of the
proposed preliminary substituted compliance determinations. The
limitations and conditions are discussed below as well any comments on
them and the Commission's response to those comments.
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    \418\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18394-404, 18415-20.
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    First, the Commission did not make a preliminary 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 preliminary positive substituted compliance determination was
not being made.\419\ In this regard, the Commission linked a
requirement in Exchange Act rule 18a-5 to Exchange Act rule 10b-
10.\420\ A commenter pointed out that Covered Entities will not be
subject to Exchange Act rule 10b-10.\421\ 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.
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    \419\ See UK Substituted Compliance Notice and Proposed Order,
86 FR at 18395 (discussing this limitation).
    \420\ 17 CFR 240.10b-10.
    \421\ See SIFMA 5/3/2021 Letter at 22-23.
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    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 granted, 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).\422\
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