[Federal Register Volume 85, Number 249 (Tuesday, December 29, 2020)]
[Notices]
[Pages 85686-85700]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28703]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90765; File No. S7-16-20]


Order Granting Conditional Substituted Compliance in Connection 
With Certain Requirements Applicable to Non-U.S. Security-Based Swap 
Dealers and Major Security-Based Swap Participants Subject to 
Regulation in the Federal Republic of Germany

December 22, 2020.

I. Overview

    The Bundesanstalt f[uuml]r Finanzdienstleistungsaufsicht 
(``BaFin''), the German financial authority, has submitted a 
``substituted compliance'' application requesting that the Commission 
determine, pursuant to the Securities Exchange Act of 1934 (``Exchange 
Act'') rule 3a71-6, that security-based swap dealers and major-security 
based swap participants (``SBS Entities'') subject to regulation in 
Germany conditionally may satisfy requirements under the Exchange Act 
by complying with comparable German and European Union (``EU'') 
requirements.\1\ BaFin's request particularly sought substituted 
compliance in connection with certain Exchange Act requirements related 
to risk control (but not including nonbank capital and margin 
requirements), internal supervision and compliance, counterparty 
protection, and books and records. The application incorporated 
comparability analyses regarding applicable German and EU law, as well 
as information regarding German supervisory and enforcement frameworks.
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    \1\ See Letter from Elisabeth Roegele, Chief Executive Director 
of Securities Supervision and Deputy President, BaFin, to Vanessa 
Countryman, Secretary, Commission, dated Nov. 6, 2020 (``BaFin 
Application''). The application is available on the Commission's 
website at: https://www.sec.gov/files/germany-BaFin-complete-application-substituted-compliance-11062020.pdf.
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    On November 13, 2020, the Commission published a notice of BaFin's 
completed application, accompanied by a proposed Order to conditionally 
grant substituted compliance in connection with the application.\2\ The 
proposal incorporated a number of conditions to tailor the scope of 
substituted compliance consistent with the prerequisite that relevant 
German and EU requirements produce regulatory outcomes that are

[[Page 85687]]

comparable to relevant requirements under the Exchange Act.
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    \2\ Exchange Act Release No. 90378 (Nov. 9, 2020), 85 FR 72726 
(Nov. 13, 2020) (``German Substituted Compliance Notice and Proposed 
Order'').
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    This Order has been modified from the proposal in certain respects 
to address commenter concerns or to make clarifying changes, as 
discussed below. In making these substituted compliance determinations, 
the Commission continues to recognize that other regulatory regimes 
will have exclusions, exceptions and exemptions that may not align 
perfectly with the corresponding requirements under the Exchange Act. 
Where the German regime produces comparable outcomes notwithstanding 
those particular differences, the Commission has made a positive 
substituted compliance determination. Conversely, where those 
exclusions, exemptions and exceptions lead to outcomes that are not 
comparable, the Commission has not made a positive substituted 
compliance determination.
    Under the substituted compliance framework, failure to comply with 
the applicable foreign requirements and other conditions to the Order 
would lead to a violation of the applicable requirements under the 
Exchange Act and potential enforcement action by the Commission (as 
opposed to automatic revocation of the substituted compliance order).

II. Substituted Compliance Framework and Prerequisites

A. Substituted Compliance Availability and Purpose

    As discussed in the German Substituted Compliance Notice and 
Proposed Order, rule 3a71-6 provides a framework whereby non-U.S. SBS 
Entities may satisfy certain requirements under Exchange Act section 
15F by complying with comparable regulatory requirements of a foreign 
jurisdiction. Because substituted compliance does not constitute 
exemptive relief, but instead provides an alternative method by which 
non-U.S. SBS Entities may comply with applicable Exchange Act 
requirements, the non-U.S. SBS Entities would remain subject to the 
relevant requirements under section 15F. The Commission accordingly 
will retain the authority to inspect, examine and supervise those SBS 
Entities' compliance and take enforcement action as appropriate.\3\
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    \3\ Id. at 72727.
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    Under rule 3a71-6, substituted compliance potentially is available 
in connection with section 15F requirements regarding: Business conduct 
and supervision; chief compliance officers; trade acknowledgment and 
verification; capital; margin; recordkeeping and reporting; and 
portfolio reconciliation, portfolio compression and trading 
relationship documentation.\4\
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    \4\ Id.
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    Substituted compliance is not available in connection with 
antifraud prohibitions and certain other requirements under the Federal 
securities laws, however.\5\ SBS Entities in Germany accordingly must 
comply directly with those requirements notwithstanding the 
availability of substituted compliance for other requirements.
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    \5\ Id. (addressing unavailability of substituted compliance in 
connection with antifraud provisions, as well as provisions related 
to transactions with counterparties that are not eligible contract 
participants (``ECPs''), segregation of customer assets, required 
clearing upon counterparty election, regulatory reporting and public 
dissemination, and registration of offerings).
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    The substituted compliance framework reflects the cross-border 
nature of the security-based swap market, and is intended to promote 
efficiency and competition by helping to address potential duplication 
and inconsistency between relevant U.S. and foreign requirements.\6\ In 
practice, substituted compliance may be expected to help achieve those 
goals by making it possible for SBS Entities to leverage their existing 
systems and practices to comply with relevant Exchange Act requirements 
in conjunction with their compliance with relevant foreign 
requirements. The registration compliance date for SBS Entities is 
October 6, 2021,\7\ and substituted compliance should assist relevant 
non-U.S. security-based swap market participants in preparing for 
registration.
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    \6\ See generally Exchange Act Release No. 77617 (Apr. 14, 
2016), 81 FR 29960, 30073 (May 13, 2016) (``Business Conduct 
Adopting Release'') (noting that the cross-border nature of the 
security-based swap market poses special regulatory challenges, in 
that relevant U.S. requirements ``have the potential to lead to 
requirements that are duplicative of or in conflict with applicable 
foreign business conduct requirements, even when the two sets of 
requirements implement similar goals and lead to similar results'').
    \7\ See ``Key Dates for Registration of Security-Based Swap 
Dealers and Major Security-Based Swap Participants,'' available at 
https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants.
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B. Specific Prerequisites

1. Comparability of Regulatory Outcomes
    As provided by rule 3a71-6, substituted compliance in part is 
conditioned on the Commission determining the analogous foreign 
requirements are ``comparable'' to applicable requirements under the 
Exchange Act, after accounting for factors such as ``the scope and 
objectives of the relevant foreign regulatory requirements'' and ``the 
effectiveness of the supervisory compliance program administered, and 
the enforcement authority exercised'' by the foreign authority. The 
comparability assessments are to be based on a ``holistic approach'' 
that ``will focus on the comparability of regulatory outcomes rather 
than predicating substituted compliance on requirement-by-requirement 
similarity.'' \8\
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    \8\ See German Substituted Compliance Notice and Proposed Order, 
85 FR at 72727. In the German Substituted Compliance Notice and 
Proposed Order, the Commission preliminarily concluded that this 
comparability prerequisite was met in connection with a number of 
requirements under the Exchange Act, in some cases with the addition 
of conditions to help ensure the comparability of regulatory 
outcomes.
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2. Memorandum of Understanding
    Exchange Act rule 3a71-6(a)(2)(ii) further predicates the 
availability of substituted compliance on the Commission and the 
foreign financial regulatory authority having entered into a 
supervisory and enforcement memorandum of understanding and/or other 
arrangement with the relevant foreign financial regulatory authority 
``addressing supervisory and enforcement cooperation and other matters 
arising under the substituted compliance determination.'' The 
Commission and BaFin recently entered into the relevant memorandum of 
understanding, thus satisfying this prerequisite.\9\
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    \9\ The Commission and BaFin have entered into a memorandum of 
understanding to address substituted compliance cooperation, a copy 
of which the Commission expects to publish on its website at 
www.sec.gov under the ``Substituted Compliance'' tab, which is 
located on the ``Security-Based Swap Markets'' page in the Division 
of Trading and Markets section of the site. BaFin and the ECB share 
responsibility for supervising compliance with certain provisions of 
EU and German law. The MOU contemplates that there may be books and 
records and information related to Covered Entities that are in the 
possession of the ECB's single supervisory mechanism (``SSM'') or 
otherwise cannot be shared by BaFin without the consent of the ECB/
SSM (``ECB Information''). The MOU provides that upon the SEC's 
request BaFin will use its best efforts to assist the SEC in 
obtaining ECB information in a prompt manner. This arrangement 
addresses BaFin's cooperation with respect to ECB information in 
connection with the current application, which does not include 
capital and margin requirements. Compare with Exchange Act Release 
No. 34-90766 (December 22, 2020) (``French Substituted Compliance 
Notice and Proposed Order''). As discussed below, under the Order 
reliance on substituted compliance is conditioned in part on the 
applicable MOU remaining in force. See part III.B, infra.

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[[Page 85688]]

III. General Availability of Substituted Compliance Under the Order

A. Covered Entities

1. Proposed Approach
    Under the proposal, the definition of ``Covered Entity'' specified 
which entities could make use of substituted compliance. Consistent 
with the availability of substituted compliance under Exchange Act rule 
3a71-6, the proposed definition in part would limit the availability of 
substituted compliance to SBS Entities that are not U.S. persons. In 
addition, to help ensure that firms that rely on substituted compliance 
are subject to relevant German and EU requirements and oversight, the 
proposed definition would require that Covered Entities be investment 
firms or credit institutions that BaFin has authorized to provide 
investment services or perform investment activities in Germany.\10\
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    \10\ German Substituted Compliance Notice and Proposed Order, 85 
FR at 72729.
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2. Final Provisions
    Commenters did not address the proposed ``Covered Entity'' 
definition, and the Commission is issuing the definition as 
proposed.\11\ Substituted compliance accordingly is available only to 
non-U.S. firms, and requires relevant German and EU requirements and 
oversight.
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    \11\ See paragraph (f)(1) to the Order.
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B. Additional General Conditions

1. Proposed Approach
    The proposal also incorporated a number of additional general 
conditions intended to predicate a positive substituted compliance 
determination on the applicability of relevant German and EU 
requirements needed to establish comparability:
    <bullet> ``Subject to and Complies with'' applicability condition--
For each relevant section of the proposed Order, a positive substituted 
compliance determination would be predicated on the entity being 
subject to and complying with the applicable German and EU requirements 
needed to establish comparability.\12\
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    \12\ The Commission noted, as an example, that this proposed 
condition would not be satisfied when the comparable German or EU 
requirements would not apply to the security-based swap activities 
of a third-country branch of a German SBS Entity. German Substituted 
Compliance Notice and Proposed Order, 85 FR at 72730.
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    <bullet> MiFID ``investment services or activities''--The Covered 
Entity's security-based swap activities would have to constitute 
``investment services or activities'' for purposes of applicable 
provisions \13\ under MiFID, WpHG and related EU and German 
requirements, and must fall within the scope of the firm's 
authorization from BaFin.\14\
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    \13\ Under this condition, a Covered Entity's security-based 
swap activities must constitute ``investment services or 
activities'' only to the extent that the relevant part of the Order 
requires the Covered Entity to be subject to and comply with a 
provision of MiFID, WpHG and related EU and German requirements. If 
the relevant part of the Order does not require the Covered Entity 
to be subject to and comply with one of those provisions, then the 
Covered Entity's security-based swap activities do not have to 
constitute ``investment services or activities'' to be able to use 
substituted compliance under that part of the Order.
    \14\ German Substituted Compliance Notice and Proposed Order, 85 
FR at 72730. The EU's Markets in Financial Instruments Directive 
(``MiFID''), Directive 2014/65/EU, has been implemented in Germany 
via amendments to the Securities Trading Act--
Wertpapierhandelsgesetz (``WpHG''). MiFID and WgHG address, inter 
alia, organizational, compliance and conduct requirements applicable 
to nonbank ``investment firms.'' In significant part, those 
requirements also apply to credit institutions that provide 
investment services or perform investment activities. Commission 
Delegated Regulation (EU) 2017/565 (``MiFID Org Reg'') in part 
supplements MiFID with respect to organizational requirements for 
firms. The Markets in Financial Instruments Regulation (``MiFIR''), 
Regulation (EU) 648/2012, generally addresses trading venues and 
transparency. Commission Delegated Directive (EU) 2017/593 (``MiFID 
Delegated Directive'') in part supplements MiFID with regard to 
safeguarding client property, and in Germany is implemented in 
relevant part by the WpHG. Directive (EU) 2015/849 (``MLD'') 
addresses requirements on the prevention of the use of the financial 
system for the purposes of money laundering or terrorist financing, 
and in Germany has been implemented by the Money Laundering Act--
Geldw[auml]schegesetz (``GwG'').
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    <bullet> MiFID ``clients''--The Covered Entity's counterparties (or 
potential counterparties) would have to be ``clients'' (or potential 
``clients'') for purposes of MiFID, WpHG and related EU and German 
requirements.\15\
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    \15\ German Substituted Compliance Notice and Proposed Order, 85 
FR at 72730.
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    <bullet> MiFID ``financial instruments''--The relevant security-
based swaps would have to be ``financial instruments'' for purposes of 
[applicable provisions under] MiFID, WpHG and related EU and German 
requirements.\16\
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    \16\ Id.
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    <bullet> CRD ``institutions''--The Covered Entity would have to be 
an ``institution'' for purposes of applicable provisions under CRD, KWG 
and CRR and related EU and German requirements.\17\
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    \17\ Id. The EU's Capital Requirements Directive IV (``CRD''), 
Directive 2013/36/EU has been adopted in Germany via amendments to 
the Banking Act--Kreditwesengesetz (``KWG''). CRD and KWG set forth 
prudential requirements and certain related requirements applicable 
to credit institutions and certain nonbank investment firms. Certain 
CRD requirements regarding reporting obligations have been 
incorporated into German law by the 
Finanzdienstleistungsaufsichtsgesetz (``FinDAG''). The Capital 
Requirements Regulation (``CRR''), Regulation (EU) 575/2013 further 
addresses prudential requirements and related recordkeeping 
requirements for credit institutions and certain investment firms. 
Commission Implementing Regulation (EU) 680/2014 (``CRR Reporting 
ITS'') sets forth implementing technical standard regarding 
supervisory reporting.
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    In addition, consistent with the requirements of rule 3a71-6 and 
the Commission's need for access to information regarding registered 
entities, substituted compliance under the proposal further would be 
conditioned on the Commission and BaFin having an applicable memorandum 
of understanding or other arrangement addressing cooperation with 
respect to the substituted compliance Order at the time the Covered 
Entity makes use of substituted compliance.\18\
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    \18\ Id. at 72730. The Commission and BaFin have entered into a 
memorandum of understanding to address substituted compliance 
cooperation. See note 9, supra. Consistent with the final Order, 
Covered Entities must ensure that this memorandum of understanding 
remains in place at the time the Covered Entity relies on 
substituted compliance.
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    Also, to assist the Commission's oversight over firms that avail 
themselves of substituted compliance, a Covered Entity relying on the 
substituted compliance order must provide notice of its intent to rely 
on the order by notifying the Commission in writing.\19\
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    \19\ Id.
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2. Final Provisions
    Commenters did not address the proposed general conditions, and the 
Commission is issuing those general conditions largely as proposed.\20\ 
The Commission is making two technical changes to the introductory 
paragraph and definitions section of the Order, however.\21\ In the 
Commission's view, the conditions are structured appropriately to 
predicate a positive substituted compliance determination on the 
applicability of relevant German and EU requirements needed to 
establish comparability, as well as on the continued effectiveness of 
the requisite MOU, and the provision of notice to the Commission 
regarding the Covered Entity's intent to rely on substituted 
compliance.
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    \20\ See paragraphs (a)(1) through (6) to the Order.
    \21\ The introductory paragraph of the Order adds ``as may be 
amended or superseded from time to time'' to clarify that the Order, 
including the Order's conditions, may be amended or superseded from 
time to time. Similarly, the EU and German laws defined in the Order 
clarify that the EU and German laws referenced therein may be 
``amended or superseded from time to time.''
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C. European Union Cross-Border Matters

1. Proposed Approach
    The proposal also included general conditions addressing the cross-
border

[[Page 85689]]

application of MiFID, MAR and EU and German requirements adopted 
pursuant to MiFID or MAR. For some requirements under MiFID (and other 
EU and Member State requirements adopted pursuant to MiFID), EU law 
allocates the responsibility for supervising and enforcing those 
requirements to authorities of the Member State where an entity 
provides certain services. Similarly, for some requirements under MAR 
(and other EU and Member State requirements adopted pursuant to MAR), 
EU law allocates the responsibility for supervising and enforcing those 
requirements to authorities of potentially multiple Member States. To 
help ensure that the prerequisites to substituted compliance with 
respect to supervision and enforcement are satisfied in fact, the 
proposal provided substituted compliance only if BaFin is responsible 
for supervision and enforcement of those requirements.\22\
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    \22\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72730, 72743-44.
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2. Commenter Views and Final Provisions
    As noted above, commenters did not address the general conditions, 
including those related to EU cross-border matters. The Commission is 
issuing as proposed the general conditions related to EU cross-border 
matters.\23\ In the Commission's view, these conditions are structured 
appropriately to permit the use of substituted compliance only when 
BaFin is the entity responsible for supervising a Covered Entity's 
compliance with a relevant provision of MiFID, MAR or related EU or 
German requirements.
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    \23\ See paragraphs (a)(7)(i) and (ii) to the Order.
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IV. Substituted Compliance for Risk Control Requirements

A. Proposed Approach

    BaFin's application in part requested substituted compliance in 
connection with risk control requirements relating to:
    <bullet> Risk management systems--Internal risk management system 
requirements that address the obligation of registered entities to 
follow policies and procedures reasonably designed to help manage the 
risks associated with their business activities.
    <bullet> Trade acknowledgment and verification--Trade 
acknowledgment and verification requirements intended to help avoid 
legal and operational risks by requiring definitive written records of 
transactions and procedures to avoid disagreements regarding the 
meaning of transaction terms.
    <bullet> Portfolio reconciliation and dispute reporting--Portfolio 
reconciliation and dispute reporting provisions that require that 
counterparties engage in portfolio reconciliation and resolve 
discrepancies in connection with uncleared security-based swaps, and to 
provide prompt notification to the Commission and applicable prudential 
regulators regarding certain valuation disputes.
    <bullet> Portfolio compression--Portfolio compression provisions 
that require that SBS Entities have procedures addressing bilateral 
offset, bilateral compression and multilateral compression in 
connection with uncleared security-based swaps.
    <bullet> Trading relationship documentation--Trading relationship 
documentation provisions that require SBS Entities to have procedures 
to execute written security-based swap trading relationship 
documentation with their counterparties prior to, or contemporaneously 
with, executing certain security-based swaps.\24\
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    \24\ German Substituted Compliance Notice and Proposed Order, 85 
FR at 72730-31.
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    Taken as a whole, these risk control requirements help to promote 
market stability by mandating that registered entities follow practices 
that are appropriate to manage the market, counterparty, operational 
and legal risks associated with their security-based swap businesses.
    In proposing to provide conditional substituted compliance in 
connection with this part of BaFin's application, the Commission 
preliminarily concluded that the relevant German and EU requirements in 
general would produce regulatory outcomes that are comparable to those 
associated with those risk control requirements, by subjecting German 
entities to financial responsibility, risk mitigation and documentation 
practices that are appropriate to the risks associated with their 
security-based swap businesses.\25\ Substituted compliance under the 
proposal was to be conditioned in part on Covered Entities being 
subject to the specified German and EU provisions that in the aggregate 
produce regulatory outcomes that are comparable to those associated 
with the risk control requirements under the Exchange Act.\26\
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    \25\ Id. at 72731.
    \26\ Id. at 72731 n.48. Those proposed conditions in part 
addressed compliance with certain requirements arising under the 
European Market Infrastructure Regulation (``EMIR''), Regulation 
(EU) 648/2012. EMIR in part imposes certain risk-mitigation 
requirements on counterparties in connection with uncleared OTC 
transactions. Delegated Regulation (EU) 149/2013 (``EMIR RTS'') 
supplements EMIR with various regulatory technical standards, 
including standards addressing confirmations, portfolio 
reconciliation, portfolio compression and dispute resolution. 
Delegated Regulation (EU) 2016/2251 (``EMIR Margin RTS'') further 
supplements EMIR with regulatory technical standards related to risk 
mitigation techniques.
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    Substituted compliance under the proposal further would be subject 
to certain additional conditions to help ensure the comparability of 
outcomes. First, substituted compliance in connection with the trading 
relationship documentation provisions would be conditioned on the 
requirement that the Covered Entity not treat its counterparties as 
``eligible counterparties'' for purposes of relevant MiFID 
provisions.\27\ In addition, substituted compliance related to trading 
relationship documentation under the proposal would not extend to 
certain disclosures regarding legal and bankruptcy status.\28\ Finally, 
substituted compliance in connection with dispute reporting 
requirements would be conditioned on the Covered Entity having to 
provide the Commission with reports regarding disputes between 
counterparties on the same basis as they provide those reports to 
competent authorities pursuant to EU law.\29\
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    \27\ Id. at 72731. Certain relevant German and EU requirements 
that provide for this type of documentation do not apply to 
investment firms' transactions with ``eligible counterparties.''
    \28\ Id. The trading relationship documentation provisions of 
rule 15F(b)(5) requires certain disclosures regarding the status of 
the SBS Entity or its counterparty as an insured depository 
institution or financial counterparty, and regarding the possible 
application of the insolvency regime set forth under Title II of the 
Dodd-Frank Act or the Federal Deposit Insurance Act. Documentation 
requirements under applicable German and EU law would not be 
expected to address the disclosure of information related to 
insolvency procedures under U.S. law.
    \29\ Id. Under the Exchange Act requirement, SBS Entities must 
promptly report, to the Commission, valuation disputes in excess of 
$20 million that have been outstanding for three or five business 
days (depending on counterparty types). EU requirements provide that 
firms must report at least monthly, to competent authorities, 
disputes between counterparties in excess of [euro]15 million and 
outstanding for at least 15 business days.
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B. Commenter Views and Final Provisions

    Commenters expressed general support for the proposed approach 
toward substituted compliance for the risk control provisions, but 
requested that the Commission modify aspects of the proposal related to 
risk management systems, trade acknowledgement and verification, and 
trading relationship documentation.\30\ After considering

[[Page 85690]]

commenter views, the Commission is providing for substituted compliance 
in connection with the risk control requirements largely as provided by 
the proposal, with certain discrete changes discussed below.
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    \30\ See Letter from Kyle Brandon, Managing Director, Head of 
Derivative Policy, SIFMA (Dec. 8, 2020) (``SIFMA Letter''). The 
other comments expressed generally concurrence with the SIFMA 
Letter, but did not otherwise comment specifically on the risk 
control requirements. See Letter from Jan Ford, Head of Compliance, 
Americas and Co-Head of SBS Council, Deutsche Bank, and Gary Kane, 
Co-Head Institutional Client Group, Americas and Co-Head of SBS 
Council, Deutsche Bank (Dec. 8, 2020) (``Deutsche Bank Letter'') at 
2 (``strongly endorse the comments and recommendations'' in the 
SIFMA Letter); Letter from Wim Mijs, Chief Executive Officer, 
European Banking Federation (Dec. 8, 2020) (``EBF Letter'') at 1 
(``strongly support'' the SIFMA Letter). Comments may be found on 
the Commission's website at: https://www.sec.gov/comments/s7-16-20/s71620.htm.
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    The Commission continues to conclude that, taken as a whole, 
applicable requirements under German and EU law subject German entities 
to financial responsibility, risk mitigation and documentation 
practices that are appropriate to the risks associated with their 
security-based swap businesses, and thus produce regulatory outcomes 
that are comparable to the outcomes associated with the relevant risk 
control requirements under the Exchange Act. Although the Commission 
recognizes that there are differences between the approaches taken by 
the relevant risk control requirements under the Exchange Act and 
relevant German and EU requirements, the Commission continues to 
believe that those differences on balance should not preclude 
substituted compliance for these requirements, as the relevant German 
and EU requirements taken as a whole produce comparable regulatory 
outcomes.
    Substituted compliance for risk management system requirements is 
conditioned on Covered Entities complying with specified German and EU 
requirements that promote risk management within those entities, 
consistent with the proposal.\31\ The Commission has considered 
commenter views recommending that those underlying German and EU 
requirements be targeted in certain respects, but concludes that those 
requirements as a whole are crafted to produce a regulatory outcome 
comparable to requirements under the Exchange Act and to avoid 
ambiguity in application.\32\
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    \31\ Substituted compliance for the risk management system 
requirements particularly is conditioned on Covered Entities being 
subject to and complying with: MiFID art. 16(4)-(5) and WpHG sec. 80 
(addressing administrative and accounting procedures, internal 
control mechanisms, risk assessment procedures and information 
processing system safeguards); MiFID Org Reg art. 21-24 (addressing 
risk management and internal audit); CRD art. 74, 76 and 79-87 and 
KWG sections 25a, 25b, 25c (other than 25c(2)), 25d (other than 
25d(3) and 25d(11)) (addressing internal governance and the 
treatment of various categories of risk); and EMIR Margin RTS art. 2 
(addressing required risk management procedures for the exchange of 
collateral for non-centrally cleared over-the-counter derivatives 
contracts); CRR art. 286-88 and 293 (addressing counterparty credit 
risk management and risk management systems); EMIR Margin RTS art. 2 
(addressing general provisions for risk management procedures). See 
paragraph (b)(1) to the Order.
    \32\ SIFMA recommended that the predicates to substituted 
compliance not include MiFID Org Reg article 22 (related to 
compliance), or the CRD, KWG and CRR provisions noted above. In the 
Commission's view, removal of those compliance, risk management, 
audit, governance and related conditional would fail to promote risk 
management consistent with the requisite regulatory outcome. SIFMA 
also recommended the addition of an ``in each case relating to risk 
management'' limitation to those prerequisites, on the grounds that 
not all of the applicable provisions are limited in scope to 
internal risk management. In the Commision's view, however, this 
type of limitation would be expected to lead to ambiguity, resulting 
in uncertainty regarding the availability and application of 
substituted compliance.
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    For trade acknowledgment and verification requirements, substituted 
compliance is conditioned on Covered Entities complying with 
confirmation requirements pursuant to EMIR and MiFID, consistent with 
the proposal.\33\ The Commission has considered commenter views 
recommending that substituted compliance should only be conditioned on 
compliance with the EMIR confirmation requirements, but concludes that 
both sets of requirements contribute to the conclusion that German and 
EU law produces a comparable regulatory outcome to the trade 
acknowledgement and verification requirements under the Exchange 
Act.\34\
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    \33\ Substituted compliance for the trade acknowledgement and 
verification requirements particularly is conditioned on the Covered 
Entity being subject to and complying with: MiFID art. 25(6) and 
WpHG sec. 63(12) (addressing reports on services), MiFID Org Reg 
art. 59-61 (addressing essential information regarding executed 
orders and portfolio management), EMIR art. 11(1)(a) (addressing 
required bilateral confirmations for uncleared over-the-counter 
derivatives) and EMIR RTS art. 12 (addressing timeliness of 
confirmations). See para (b)(2) to the Order.
    \34\ SIFMA recommended that substituted compliance for trade 
acknowledgement and verification need only be conditioned on 
compliance with EMIR confirmation requirements, consistent with the 
CFTC's approach to substituted compliance. The MiFID confirmation 
requirement specifies data elements that are not directly addressed 
by the EMIR confirmation requirement, 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.
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    Substituted compliance for trading relationship documentation 
requirements has been modified from the proposal after taking into 
account issues raised by commenters.\35\ In contrast to the proposal--
which would not have provided substituted compliance in connection with 
the rule 15Fi-5(b)(5) disclosures regarding the status of the entity or 
its counterparty as an insured depository institution or financial 
counterparty (on the grounds that the relevant German and EU provisions 
do not address the disclosure of that type of information)--the Order 
will provide for substituted compliance in connection with that 
disclosure unless the counterparty to the Covered Entity is a U.S. 
person.\36\ Also, the portion of the Order that conditions substituted 
compliance on the Covered Entity not treating its counterparties as 
``eligible counterparties'' for purposes of relevant MiFID provisions 
has been modified from the proposal to better clarify the targeted 
nature of that condition.\37\ The Order also has been modified to 
better target the German and

[[Page 85691]]

EU law prerequisites to substituted compliance for those 
requirements.\38\
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    \35\ Substituted compliance in connection with trading 
relationship documentation requirements is conditioned on Covered 
Entities being subject to and complying with: MiFID art. 25(5) and 
WpHG sec. 83(2) (addressing required records of documents regarding 
parties' rights and obligations and other terms on which the 
investment firm will provide services); MiFID Org Reg art. 24, 58, 
73 and applicable parts of Annex I (addressing audit requirements, 
records related to appropriateness assessments, client agreements 
and parties' rights and obligations); and EMIR Margin RTS art. 2 
(addressing general provisions for risk management procedures, 
including procedures providing for or specifying the terms of 
agreements). See para. (b)(5)(i) to the Order. Those EMIR 
requirements apply only to ``OTC derivatives contracts,'' which are 
defined as derivatives contracts not executed on certain ``regulated 
markets'' or equivalent ``third-country markets.'' See EMIR art. 
2(7). The EMIR-related conditions accordingly will not impede 
substituted compliance in connection with exchange-traded or market-
traded security-based swaps that do not constitute ``OTC derivatives 
contracts.''
    \36\ See paragraph (b)(5) to the Order. After considering 
commenter views, the Commission concludes that the absence of such 
disclosure would not preclude a comparable regulatory outcome when 
the counterparty is not a U.S. person, as the insolvency-related 
consequences that are the subject of the disclosure would not be 
applicable to non-U.S. counterparties in most cases. In this respect 
the Commission notes that the requirements of EMIR Margin art. 2 in 
part address procedures providing for or specifying the terms of 
agreements entered into by the counterparties, including applicable 
governing law for non-cleared derivatives. EMIR Margin RTS art. 2 
further provides that counterparties which enter into a netting or 
collateral exchange agreement must perform an independent legal 
review regarding enforceability.
    \37\ In particular, the Order condition that does not allow for 
application of the MiFID ``eligible counterparty'' exception has 
been modified from the proposal by including ``in relation to the 
MiFID and WpHG provisions specified in paragraph (b)(5)(i)'' 
language. This technical change clarifies that the condition does 
not address a Covered Entity's use of the ``eligible counterparty'' 
exception in unrelated circumstances (such as when the Covered 
Entity's relies on the exception in connection with its non-SBS 
business, or in connection with activities and business for which 
the Covered Entity does not seek substituted compliance).
    \38\ In particular, the Order has been modified from the 
proposal by removing MiFID Org Reg article 56, related to records of 
appropriateness assessments, as those records do not advance the 
purposes behind the trading relationship documentation requirement 
to the same extent as the other relevant provisions. The Order, 
however, does not incorporate the suggested addition of ``in each 
case relating to written agreements with security-based swap 
counterparties'' language that may be expected to be ambiguous in 
application.
---------------------------------------------------------------------------

    The Commission received no comments related to substituted 
compliance in connection with portfolio reconciliation and dispute 
reporting requirements, and the Commission is providing for substituted 
compliance in connection with those requirements as proposed.\39\ 
Substituted compliance in connection with the dispute reporting 
requirements is conditioned in part on the Covered Entities providing 
the Commission with reports regarding disputes between counterparties 
on the same basis as the entities provide those reports to competent 
authorities pursuant to EU law, to allow the Commission to obtain 
notice regarding key information in a manner that makes use of existing 
obligations under EU law.\40\
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    \39\ See paragraph (b)(3) to the Order. Substituted compliance 
in connection with those requirements is conditioned in part on 
Covered Entities being subject to and complying with EMIR art. 
11(1)(b) (addressing required portfolio reconciliation and dispute 
resolution for uncleared over-the-counter derivatives) and EMIR RTS 
art. 13 and 15 (addressing further requirements related to portfolio 
reconciliation and dispute resolution). See para. (b)(3)(i) to the 
proposed Order.
    \40\ See paragraph (b)(3)(ii) to the Order. The Commission 
recognizes the differences between the two sets of requirements--
under which Exchange Act rule 15Fi-3 requires SBS Entities to report 
valuation disputes in excess of $20 million that have been 
outstanding for three or five business days (depending on 
counterparty types), while EMIR RTS art. 15(2) requires firms to 
report disputes between counterparties in excess of [euro]15 million 
and outstanding for at least 15 business days. In the Commission's 
view, the two requirements produce comparable regulatory outcomes 
notwithstanding those differences.
---------------------------------------------------------------------------

    Finally, the Commission received no comments related to substituted 
compliance in connection with portfolio compression requirements, and 
the Commission is providing for substituted compliance in connection 
with those requirements as proposed.\41\
---------------------------------------------------------------------------

    \41\ See paragraph (b)(4) to the Order. Substituted compliance 
in connection with portfolio compression requirements is conditioned 
on Covered Entities being subject to and complying with EMIR RTS 
art. 14 (also addressing portfolio protection).
---------------------------------------------------------------------------

V. Substituted Compliance for Internal Supervision and Compliance 
Requirements

A. Proposed Approach

    BaFin's application further requested substituted compliance in 
connection with requirements relating to:
    <bullet> 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 interest.
    <bullet> 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.
    <bullet> Additional Exchange Act section 15F(j) requirements--
Certain additional requirements related to information-gathering, and 
antitrust prohibitions.\42\
---------------------------------------------------------------------------

    \42\ German Substituted Compliance Notice and Proposed Order, 85 
FR at 72732.
---------------------------------------------------------------------------

    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 BaFin's application, the Commission 
preliminarily concluded that the relevant German and EU requirements in 
general would produce comparable regulatory outcomes by providing that 
German SBS Entities have structures and processes that reasonably are 
designed to promote compliance with applicable law and to identify and 
cure instances of non-compliance and manage conflicts of interest. 
Substituted compliance under the proposal was to be conditioned in part 
on SBS Entities being subject to and complying with specified German 
and EU provisions that in the aggregate produce regulatory outcomes 
that are comparable to those associated with those internal 
supervision, compliance and related requirements under the Exchange 
Act.\43\
---------------------------------------------------------------------------

    \43\ Id. at 72733 n.62.
---------------------------------------------------------------------------

    Under the proposal, substituted compliance would be subject to 
certain additional conditions to help ensure the comparability of 
outcomes. First, substituted compliance in connection with the internal 
supervision requirements would be conditioned on the SBS Entities 
complying with applicable German and EU supervisory and compliance 
provisions as if those provisions also require the entities to comply 
with applicable requirements under the Exchange Act and the other 
conditions to the Order. This condition was intended to reflect that, 
even with substituted compliance, SBS Entities still directly would be 
subject to a number of requirements under the Exchange Act and 
conditions to the final Order that fall outside the ambit of German and 
EU internal supervision and compliance requirements.\44\
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    \44\ Id. at 72733. The condition was intended to allow Covered 
Entities 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.
---------------------------------------------------------------------------

    For similar reasons, the proposal would condition substituted 
compliance in connection with compliance report requirements on the 
Covered Entity annually providing the Commission with certain 
compliance reports required pursuant to regulations under MiFID. Those 
reports must be in English, be accompanied by a certification under 
penalty of law that the report is accurate and complete, and would have 
to address the SBS Entity's compliance with other conditions to the 
substituted compliance order.\45\ In addition, substituted compliance 
under the proposal would not extend to antitrust provisions under the 
Exchange Act, based on the preliminary conclusion that allowing an 
alternative means of compliance would not lead to comparable regulatory 
outcomes.\46\
---------------------------------------------------------------------------

    \45\ Id. at 72733-34.
    \46\ Id. at 72734.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    Commenters expressed general support for the proposed approach 
toward substituted compliance, but requested that the Commission modify 
aspects of the proposed order. After considering commenter views, the 
Commission is providing for substituted compliance that generally is 
consistent with the proposal, with certain clarifying changes discussed 
below.\47\
---------------------------------------------------------------------------

    \47\ See paragraph (c) to the Order.
---------------------------------------------------------------------------

    The Commission continues to conclude that, taken as a whole, 
applicable requirements under German and EU law require that SBS 
Entities have structures and processes that reasonably are designed to 
promote

[[Page 85692]]

compliance with applicable law and to identify and cure instances of 
non-compliance and manage conflicts of interest, and thus produce 
regulatory outcomes that are comparable to those associated with the 
above-described internal supervision, chief compliance officer, 
conflict of interest and information-related requirements. Although 
there are differences between the approaches taken by the relevant risk 
control requirements under the Exchange Act and relevant German and EU 
requirements, the Commission continues to believe that the relevant 
German and EU requirements taken as a whole produce comparable 
regulatory outcomes.
    Substituted compliance in connection with those requirements is 
conditioned in part on Covered Entities being subject to and complying 
with specified German and EU provisions that promote compliance and 
address conflicts of interest.\48\ The Commission has considered 
commenter views regarding those prerequisites, but concludes that those 
German and EU provisions as a whole are appropriate to produce 
comparable regulatory outcomes.\49\
---------------------------------------------------------------------------

    \48\ In connection with the internal supervision, chief 
compliance officer and conflict of interest and information-
gathering provisions, Covered Entities particularly must comply 
with: MiFID art. 16 and 23 and WpHG sec. 63, 80 and 83-84 
(addressing organizational requirements and conflicts of interest); 
MiFID Org Reg art. 21-37 (addressing organizational requirements, 
compliance, risk management, internal audit, senior management 
responsibility, complaints handling, remuneration policies and 
practices, personal transaction restrictions, outsourcing, conflicts 
of interest and investment research and marketing); MiFID Org Reg 
72-76 and Annex IV (addressing recordkeeping, including records of 
orders, transactions and communications); and CRD articles 74, 76, 
79-87, 88(1) and 91(1)-(2), 91(7)-(9), 92-95 and KWG sections 25a, 
25b, 25c (other than 25c(2)), 25d (other than 25d(3) and 25d(11)), 
25e and 25f (addressing internal governance, recovery and resolution 
plans, risk management policies, and management body and 
remuneration policies). See paragraph (c)(3).
    \49\ SIFMA in part recommended removal of certain risk-related 
and record-related provisions from the conditions. The Commission, 
however, does not believe that excluding those provisions would 
promote supervisory and compliance goals consistent with the 
necessary regulatory outcome. The Commission also is not 
incorporating additional suggested language to focus the application 
of underlying German and EU provisions (by requiring compliance with 
German and EU requirements only to the extent they ``relate to'' 
oversight arrangements, compliance and conflict of interest 
management), as that type of limitation may cause ambiguity.
---------------------------------------------------------------------------

    The Order retains, with clarifications, proposed provisions to 
target substituted compliance as needed to promote the consistency of 
regulatory outcomes. Accordingly, substituted compliance in connection 
with internal supervision is conditioned on the Covered Entity 
complying with applicable German and EU supervisory and compliance 
provisions as if those provisions also require SBS Entities to comply 
with applicable requirements under the Exchange Act and the other 
applicable conditions to the Order.\50\ Similarly, substituted 
compliance in connection with the chief compliance officer requirements 
is conditioned on the Covered Entity annually providing certain 
compliance reports to the Commission, in English, with a certification 
under penalty of law that the report is accurate and complete, and with 
the report addressing the SBS Entity's compliance with other applicable 
conditions to the order.\51\ For the reasons discussed in the proposal, 
moreover, the substituted compliance Order does not extend to antitrust 
provisions under the Exchange Act.
---------------------------------------------------------------------------

    \50\ See paragraph (c)(4) to the Order. For clarity, the Order 
has been modified from the proposal to provide that the Covered 
Entity must comply with relevant German and EU provisions as if 
those provisions address ``applicable'' conditions to the Order 
connected to requirements for which the Covered Entity is relying on 
substituted compliance. That part of the condition does not apply to 
parts of the Order for which the Covered Entity does not rely on 
substituted compliance.
    \51\ See paragraph (c)(3)(ii) to the Order. Here too, the Order 
has been modified from the proposal to clarify that the compliance 
report need only address other applicable conditions to the Order. 
This condition is not intended to create an independent requirement 
that the Covered Entity provide the relevant compliance reports to 
German or EU authorities, and does not address the ability of German 
or EU authorities to obtain and review such records.
---------------------------------------------------------------------------

VI. Substituted Compliance for Counterparty Protection Requirements

A. Proposed Approach

    BaFin's application in part requested substituted compliance in 
connection with counterparty protection requirements relating to:
    <bullet> 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.
    <bullet> Daily mark disclosure--Requirements that an SBS Entity 
provide daily mark information to certain security-based swap 
counterparties.
    <bullet> 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.
    <bullet> Clearing rights disclosure--Requirements that an SBS 
Entity provide certain counterparties with information regarding 
clearing rights under the Exchange Act.
    <bullet> ``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.
    <bullet> 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.
    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.'' 
\52\
---------------------------------------------------------------------------

    \52\ See Business Conduct Adopting Release, 81 FR at 30065.
---------------------------------------------------------------------------

    The proposal provided for substituted compliance in connection with 
fair and balanced communications, disclosure of material risks and 
characteristics, disclosure of material incentives or conflicts of 
interest, ``know your counterparty,'' suitability and daily mark 
disclosure requirements. In proposing to provide conditional 
substituted compliance for these requirements, the Commission 
preliminarily concluded that the relevant German and EU requirements in 
general would produce regulatory outcomes that are comparable to 
requirements under the Exchange Act, by subjecting German Covered 
Entities to obligations that promote standards of professional conduct, 
transparency and the fair treatment of parties.
    As proposed, substituted compliance for these requirements would be 
subject to certain conditions to help ensure the comparability of 
outcomes. First, under the proposal, substituted compliance for fair 
and balanced communications, disclosure of material risks and 
characteristics, disclosure of material incentives or conflicts of 
interest, ``know your counterparty'' and suitability requirements would 
be conditioned on Covered Entities being subject to, and complying 
with, relevant

[[Page 85693]]

German and EU requirements.\53\ Second, the proposal would additionally 
condition substituted compliance for suitability requirements on the 
counterparty being a per se ``professional client'' as defined in MiFID 
(rather than a ``retail client'' or an elective ``professional client'' 
\54\) and not a ``special entity'' as defined in Exchange Act section 
15F(h)(2)(C) and Exchange Act rule 15Fh-2(d).\55\ Finally, in the 
proposal the Commission preliminarily viewed EU daily portfolio 
reconciliation requirements as comparable to Exchange Act daily mark 
disclosure requirements.\56\ These daily portfolio reconciliation 
requirements apply to portfolios of a financial counterparty or a non-
financial counterparty subject to the clearing obligation in EMIR in 
which the counterparties have 500 or more OTC derivatives contracts 
outstanding with each other.\57\ The Commission preliminarily viewed EU 
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.\58\ Accordingly, 
the proposal 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 EU requirements.\59\
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    \53\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72735 n.81.
    \54\ Annex II of MiFID describes which clients are 
``professional clients.'' Section I of Annex II describes the types 
of clients considered to be professional clients unless the client 
elects non-professional treatment; these clients are per se 
professional clients. Section II of Annex II describes the types of 
clients who may be treated as professional clients on request; these 
clients are elective professional clients. See MiFID Annex II. 
Retail clients are those that are not professional clients. See 
MiFID article 4(1)(11).
    \55\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72736.
    \56\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72735.
    \57\ See EMIR RTS article 13(3)(a)(i); EMIR article 10.
    \58\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72735.
    \59\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72735.
---------------------------------------------------------------------------

    The proposal 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). 
BaFin's application argued that certain EU provisions related to a 
counterparty's clearing rights in the European Union are comparable to 
requirements to disclose the counterparty's Exchange Act-based clearing 
rights. Because these EU provisions do not require disclosure of these 
clearing rights, the Commission preliminarily viewed the EU clearing 
provisions as not comparable to Exchange Act clearing rights disclosure 
requirements.

B. Commenter Views and Final Provisions

    After considering commenter views, the Commission is providing for 
substituted compliance in connection with fair and balanced 
communications, disclosure of material risks and characteristics, 
disclosure of material incentives or conflicts of interest, ``know your 
counterparty,'' suitability and daily mark disclosure requirements, in 
each case consistent with the proposal except for one clarifying change 
regarding substituted compliance for suitability requirements.\60\ This 
action is grounded in the Commission's conclusion that, taken as a 
whole, applicable requirements under German and EU law subject German 
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.
---------------------------------------------------------------------------

    \60\ See para. (d) to the Order.
---------------------------------------------------------------------------

    Consistent with the proposal, substituted compliance is conditioned 
on certain conditions to help ensure the comparability of outcomes. 
Substituted compliance for fair and balanced communications,\61\ 
disclosure of material risks and characteristics,\62\ disclosure of 
material incentives or conflicts of interest,\63\ ``know your 
counterparty'' \64\ and suitability \65\ requirements is conditioned on 
Covered Entities being subject to, and complying with, relevant German 
and EU requirements. A commenter requested that the Commission remove 
from the list of German and EU suitability requirements MiFID article 
24(3), WpHG section 63(6) and MiFID Org Reg article 21(1)(b) and (d), 
stating that these provisions are unrelated to suitability 
requirements.\66\ The Commission notes that a portion of MiFID's 
suitability requirements directs Member States to require investment 
firms and credit institutions to ensure that persons giving investment 
advice or information about financial instruments, investment services 
or ancillary services to clients on behalf of the firm possess the 
necessary knowledge and competence to fulfill certain obligations, 
including the obligation in MiFID article 24(3).\67\ In comparing EU 
and German suitability requirements to Exchange Act suitability 
requirements, BaFin's application likewise states that firms must 
ensure persons giving this type of advice ``possess the necessary 
knowledge and competence to comply with the requirement that all 
information provided to clients is fair, clear and not misleading [as 
required by

[[Page 85694]]

MiFID article 24(3)].'' \68\ WpHG section 63(6) is the German law 
transposition of MiFID article 24(3).\69\ MiFID Org Reg article 
21(1)(b) requires investment firms and credit institutions to ensure 
that employees are aware of the procedures to be followed for the 
proper discharge of their responsibilities, which include the knowledge 
and competence requirements described above.\70\ MiFID Org Reg article 
21(1)(d) requires investment firms and credit institutions to employ 
personnel with the skills, knowledge and expertise necessary for the 
discharge of their responsibilities, which also include the knowledge 
and competence requirements described above.\71\ Because these 
requirements contribute to the Commission's conclusion that EU and 
German requirements are comparable to Exchange Act suitability 
requirements, the Commission is adopting the condition as proposed, and 
requiring a Covered Entity to be subject to and comply with those EU 
and German requirements if the Covered Entity wishes to make use of 
substituted compliance for Exchange Act suitability requirements. The 
commenter also requested that the Commission clarify Covered Entities 
relying on substituted compliance must be subject to and comply with 
these requirements in relation to the recommendation of a security-
based swap or trading strategy involving a security-based swap that is 
provided by or on behalf of the Covered Entity.\72\ The Commission 
agrees that specifying the types of recommendations subject to this 
condition will provide useful clarity to market participants 
considering whether to make use of substituted compliance for Exchange 
Act suitability requirements, and is including this clarification in 
the Order.\73\ Substituted compliance for suitability requirements 
additionally is conditioned on the counterparty being a per se 
``professional client'' as defined in MiFID and not a ``special 
entity'' as defined in Exchange Act section 15F(h)(2)(C) and Exchange 
Act rule 15Fh-2(d).\74\
---------------------------------------------------------------------------

    \61\ In connection with fair and balanced communications 
requirements, Covered Entities must be subject to and comply with: 
(i) Either MiFID art. 24(1), (3) and WpHG sections 63(1), (6) or 
MiFID art. 30(1) and WpHG section 68(1); and (ii) MiFID art. 24(4)-
(5); WpHG sections 63(7) and 64(1); MiFID Org Reg art. 46-48; Market 
Abuse Regulation art. 12(1)(c) and 15; and MAR Investment 
Recommendations Regulation art. 5, in each case in relation to the 
communication for which substituted compliance is applied. See para. 
(d)(5) to the Order.
    \62\ In connection with requirements related to disclosure of 
information regarding material risks and characteristics, Covered 
Entities must be subject to and comply with: MiFID art. 24(4); WpHG 
sections 63(7) and 64(1); and MiFID Org Reg art. 48-50, in each case 
in relation to the security-based swap for which substituted 
compliance is applied. See para. (d)(1) to the Order.
    \63\ In connection with requirements related to disclosure of 
information regarding material incentives or conflicts of interest, 
Covered Entities must be subject to and comply with either: (i) 
MiFID art. 23(2)-(3); WpHG section 63(2); and MiFID Org Reg art. 33-
35; (ii) MiFID art. 24(9); WpHG section 70; and MiFID Delegated 
Directive art. 11(5); or (iii) Market Abuse Regulation art. 20(1), 
in each case in relation to the security-based swap for which 
substituted compliance is applied. See para. (d)(2) to the Order.
    \64\ In connection with ``know your counterparty'' requirements, 
Covered Entities must be subject to and comply with: MiFID art. 
16(2); WpHG section 80(1); MiFID Org Reg art. 21-22, 25-26 and 
applicable parts of Annex I; CRD art. 74(1) and 85(1); KWG section 
25a; MLD art. 11 and 13; GwG sections 10-11; MLD art. 8(3) and 
8(4)(a) as applied to internal policies, controls and procedures 
regarding recordkeeping of customer due diligence activities; GwG 
section 6(1)-(2) as applied to principles, procedures and controls 
regarding recordkeeping of customer due diligence activities, in 
each case in relation to the security-based swap for which 
substituted compliance is applied. See para. (d)(3) to the Order.
    \65\ In connection with suitability requirements, Covered 
Entities must be subject to and comply with: MiFID art. 24(2)-(3) 
and 25(1)-(2); WpHG sections 63(5)-(6), 80(9)-(13) and 87(1)-(2); 
and MiFID Org Reg art. 21(1)(b) and (d), 54 and 55, in each case in 
relation to the recommendation of a security-based swap or trading 
strategy involving a security-based swap that is provided by or on 
behalf of the Covered Entity and for which substituted compliance is 
applied. See para. (d)(4)(i) to the Order.
    \66\ See SIFMA Letter at 14; see also Deutsche Bank Letter at 2; 
EBF Letter at 1.
    \67\ See MiFID art. 24(3) (all information addressed to clients 
or potential clients must be fair, clear and not misleading); MiFID 
art. 25(1) (partial suitability requirement applicable to investment 
firms); MiFID art. 1(3)(b) (when providing one or more investment 
services and/or performing investment activities, credit 
institutions are subject to MiFID arts. 24(3) and 25(1)).
    \68\ See BaFin Application Annex A category 4 at 75-76.
    \69\ See BaFin Application Annex A category 4 at 75.
    \70\ See MiFID Org Reg art. 21(1)(b) (requirement for investment 
firm employees to be aware of procedures for the proper discharge of 
their responsibilities; requirement implements MiFID art. 16(2)-
(10)); MiFID Org Reg art. 1(2) (in portions of MiFID Org Reg that 
implement MiFID requirements to which credit institutions are 
subject, references to investment firms encompass credit 
institutions); MiFID art. 1(3)(a) (credit institutions are subject 
to MiFID art. 16).
    \71\ See MiFID Org Reg art. 21(1)(d) (requirement for investment 
firms to employ personnel with the knowledge, skills and expertise 
necessary for the discharge of their responsibilities; requirement 
implements MiFID art. 16(2)-(10)); MiFID Org Reg art. 1(2) (in 
portions of MiFID Org Reg that implement MiFID requirements to which 
credit institutions are subject, references to investment firms 
encompass credit institutions); MiFID art. 1(3)(a) (credit 
institutions are subject to MiFID art. 16).
    \72\ See SIFMA Letter at 14; see also Deutsche Bank Letter at 2; 
EBF Letter at 1. The proposed Order would have required a Covered 
Entity relying on substituted compliance to be subject to and comply 
with EU and German suitability requirements in relation to a 
recommendation that is provided by or on behalf of the Covered 
Entity. See German Substituted Compliance Notice and Proposed Order, 
85 FR at 72745.
    \73\ See para. (d)(4)(i) to the Order.
    \74\ See para. (d)(4)(ii) to the Order.
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    Substituted compliance for daily mark requirements also is 
conditioned on the Covered Entity being required to reconcile, and in 
fact reconciling, the portfolio containing the relevant security-based 
swap on each business day pursuant to relevant EU requirements.\75\ A 
commenter suggested that this condition should apply only to security-
based swaps with U.S. counterparties; for all other transactions 
subject to Exchange Act daily mark requirements, the commenter proposed 
that the Commission grant substituted compliance if the Covered Entity 
complies with EU mark-to-market (or mark-to-model) and reporting 
requirements.\76\ The commenter provided three reasons in support of 
this bifurcated approach and, for the reasons explained below, the 
Commission declines to adopt it.
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    \75\ Covered Entities must be required to reconcile, and in fact 
reconcile, the portfolio containing the security-based swap for 
which substituted compliance is applied, on each business day 
pursuant to EMIR articles 11(1)(b) and 11(2) and EMIR RTS article 
13. See para. (d)(6) to the Order.
    \76\ See SIFMA Letter at 6; see also Deutsche Bank Letter at 2; 
EBF Letter at 1.
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    First, the commenter stated that non-U.S. security-based swap 
dealers would face significant challenges and costs to identify which 
security-based swaps with non-U.S. counterparties were arranged, 
negotiated or executed by personnel of the security-based swap dealer 
or its agent located in a U.S. branch or office (``ANE Transactions''), 
and thus subject to Exchange Act daily mark requirements.\77\ According 
to the commenter, many non-U.S. security-based swap dealers may choose 
to block U.S. personnel from taking part in security-based swaps with 
non-U.S. counterparties that are not subject to the EU's daily 
portfolio reconciliation requirements, thereby avoiding creation of an 
ANE Transaction that is not eligible for substituted compliance and the 
attendant challenges and costs of identifying those transactions.\78\ 
The commenter asserted that daily mark requirements should not apply to 
a non-U.S. security-based swap dealer's ANE Transactions because the 
Commission did not require compliance with daily mark requirements in 
connection with the exception provided in Exchange Act rule 3a71-
3(d)(1) to counting certain ANE Transactions towards security-based 
swap dealer registration thresholds.\79\ The commenter noted that daily 
mark requirements do not apply to certain ANE Transactions excepted 
from those thresholds because there is no ``ongoing relationship 
between . . . the entity whose personnel interact with the counterparty 
. . . and the counterparty.'' \80\ The commenter stated that a similar 
rationale applies to the application of daily mark requirements to a 
non-U.S. security-based swap dealer's ANE Transactions.\81\
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    \77\ See SIFMA Letter at 3-5.
    \78\ See SIFMA Letter at 4.
    \79\ See SIFMA Letter at 4; see also Exchange Act Release No. 
87780 (Dec. 18, 2019), 85 FR 6270 (Feb. 4, 2020) (``Cross-Border 
Adopting Release'').
    \80\ See SIFMA Letter at 4 (citing Cross-Border Adopting 
Release, 85 FR at 6288).
    \81\ See SIFMA Letter at 4.
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    The Commission previously has addressed why ANE Transactions are 
subject to Exchange Act daily mark requirements, as well as the costs 
and challenges of identifying such transactions.\82\ As noted above, 
substituted compliance does not constitute exemptive relief, but 
instead provides an alternative method by which non-U.S. SBS Entities 
may comply with applicable Exchange Act requirements. The Commission is 
providing for substituted compliance for daily mark requirements based 
on comparability of outcomes with respect to ANE Transactions to the 
same extent as it is providing substituted compliance with respect to 
all other

[[Page 85695]]

transactions. Moreover, the commenters' comparison to the exception 
from counting certain ANE Transactions towards security-based swap 
dealer registration thresholds is inapt. As the commenter notes, in 
connection with that exception, a registered entity whose U.S.-located 
personnel participates in an ANE Transaction that is eligible for the 
exception is not a counterparty to the resulting security-based 
swap.\83\ BaFin's application, in contrast, relates to a registered SBS 
Entity's obligation to provide daily mark disclosure to its 
counterparty. The security-based swap dealer whose U.S. personnel 
arranged, negotiated or executed the security-based swap will be a 
counterparty to the security-based swap and will have an on-going 
relationship with its counterparty.
---------------------------------------------------------------------------

    \82\ See Business Conduct Adopting Release, 81 FR at 30065-69 
(adoption of cross-border rules governing application of 
transaction-level requirements such as daily mark requirements to 
ANE Transactions); Business Conduct Adopting Release, 81 FR at 30065 
(applying transaction-level requirements to ANE Transactions will 
``help maintain market integrity by subjecting the large number of 
transactions that involve relevant dealing activity in the United 
States to these requirements, even if both counterparties are non-
U.S. persons''). In response to the commenter's previous statements 
that business conduct standards such as daily mark requirements 
should not apply to any transactions between two non-U.S. persons, 
the Commission concluded, ``given the significant role registered 
[security-based swap dealers] play in the market, applying the 
business conduct requirements to their U.S. business should help 
protect the integrity of the U.S. market.'' See Business Conduct 
Adopting Release, 81 FR at 30066 (considering comment letter from 
Timothy W. Cameron, Esq., Managing Director, and Laura Martin, 
Managing Director and Associate General Counsel, Asset Management 
Group, Securities Industry and Financial Markets Association, dated 
July 13, 2015, at 2, 5).
    \83\ See Exchange Act rule 3a71-3(d)(1).
---------------------------------------------------------------------------

    Second, the commenter stated that EU mark-to-market (and mark-to-
model) requirements are comparable to Exchange Act daily mark 
requirements.\84\ In the proposal, the Commission preliminarily 
concluded that mark-to-market (and mark-to-model) requirements are not 
comparable to daily mark requirements because they do not require the 
Covered Entity to disclose the contract valuation to the 
counterparty.\85\ In reply, the commenter stated that EU variation 
margin requirements mandate that some counterparties exchange variation 
margin calculated in accordance with these mark-to-market (or mark-to-
model) requirements, with adjustments to these valuations ``generally 
not permissible.'' \86\ However, the variation margin requirements 
cited by the commenter require only that counterparties determine the 
amount of variation margin to be collected in respect of the aggregate 
valuations of all contracts in a netting set; counterparties are not 
required to disclose the valuations of individual contracts.\87\ 
Moreover, these EU requirements permit the amount of variation margin 
to be adjusted by the net value of each contract in the netting set at 
the point of entry into the contract, as well as by values of variation 
margin previously collected or posted.\88\ In determining whether EU 
variation margin requirements are comparable to Exchange Act daily mark 
requirements, the Commission is mindful that this comparability is 
essential to maintaining a level playing field among German SBS 
Entities, which are potentially eligible to use substituted compliance 
pursuant to the Order, other SBS Entities that are not U.S. persons, 
which may apply to use substituted compliance in respect of other 
applicable foreign requirements, and SBS Entities that are U.S. 
persons, which are not eligible to use substituted compliance. In the 
Commission's view, the EU variation margin requirements cited by the 
commenter, which do not require disclosure of the unadjusted valuation 
of each contract in the netting set, do not produce outcomes that are 
comparable to Exchange Act requirements to disclose the individualized 
daily mark of a security-based swap. Accordingly, the Commission does 
not view the EU variation margin requirements cited by the commenter as 
comparable to Exchange Act daily mark requirements.
---------------------------------------------------------------------------

    \84\ See SIFMA Letter at 5.
    \85\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72735.
    \86\ See SIFMA Letter at 5 (citing EMIR Margin RTS art. 10).
    \87\ See EMIR Margin RTS art. 10.
    \88\ See EMIR Margin RTS art. 10.
---------------------------------------------------------------------------

    Third, the commenter stated that the EU reporting requirements 
cited by BaFin are comparable to Exchange Act daily mark 
requirements.\89\ In the proposal, the Commission preliminarily 
concluded that in practice U.S. counterparties may encounter challenges 
when attempting to access daily marks for different security-based 
swaps reported to multiple EU trade repositories with which they may 
not otherwise have business relationships.\90\ In reply, the commenter 
stated that these challenges should not be as relevant for EU and other 
non-U.S. counterparties if they are already subject to EU reporting 
obligations.\91\ The commenter's position, however, highlights that 
U.S. counterparties, as well as non-U.S. counterparties without 
existing business relationships with multiple EU trade repositories, 
still may encounter challenges in receiving daily marks from these 
daily trade reports. Moreover, the Commission is mindful that allowing 
Covered Entities to treat U.S. person counterparties differently for 
purposes of Exchange Act daily mark requirements could lead to 
disparities in security-based swap market access between U.S. and non-
U.S. counterparties. In the proposal, the Commission also expressed 
concern that daily mark information reported to trade repositories may 
be less current, given the time necessary for reporting and for the 
trade repository to make the information available.\92\ The commenter 
reported that in its experience data is available promptly from trade 
repositories.\93\ This report of the commenter's experience lessens the 
Commission's concern with respect to timing, but does not overcome the 
Commission's concerns regarding barriers to U.S. counterparties' access 
to EU trade repository data and the potential for disparities in the 
availability of substituted compliance for daily mark requirements to 
reduce U.S. counterparties' access to security-based swap markets. 
Accordingly, the Commission continues to view the EU trade reporting 
requirements cited by BaFin as not comparable to Exchange Act daily 
mark requirements.
---------------------------------------------------------------------------

    \89\ See SIFMA Letter at 5.
    \90\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72735; see also BaFin Application Annex A category 4 
at 54-56.
    \91\ See SIFMA Letter at 5.
    \92\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72735.
    \93\ See SIFMA Letter at 5.
---------------------------------------------------------------------------

    The Commission recognizes that there are differences between the 
approaches taken by fair and balanced communications, disclosure of 
material risks and characteristics, disclosure of material incentives 
or conflicts of interest, ``know your counterparty,'' suitability and 
daily mark disclosure requirements under the Exchange Act, on the one 
hand, and relevant German and EU requirements, on the other hand. The 
Commission continues to view those differences, when coupled with the 
conditions described above, as not so material as to be inconsistent 
with substituted compliance within the requisite outcomes-oriented 
context. With respect to clearing rights disclosure requirements, 
however, consistent with the proposal the Commission is not providing 
substituted compliance. Because EU clearing provisions do not require 
disclosure of a counterparty's clearing rights under Exchange Act 
section 3C(g)(5), the Commission views those provisions as not 
comparable to Exchange Act clearing rights disclosure requirements.

VII. Substituted Compliance for Recordkeeping, Reporting and 
Notification Requirements

A. Proposed Approach

    BaFin's application in part requests substituted compliance for 
requirements applicable to SBS Entities under the Exchange Act relating 
to:
    <bullet> Recordmaking--Requirements that prescribed records be made 
and kept current.
    <bullet> Record Preservation--Requirements that address 
preservation of records.
    <bullet> Reporting--Requirements that address certain reports.
    <bullet> Notification--Requirements that address notification of 
the Commission

[[Page 85696]]

when certain financial or operational problems occur.\94\
---------------------------------------------------------------------------

    \94\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72732 (citing Exchange Act rules 18a-5, 18a-6, 18a-
7, and 18a-8). The Commission noted that it does not administer or 
oversee capital and margin requirements for prudentially regulated 
SBS Entities, and took the preliminary position that it would be 
appropriate to consider substituted compliance for recordkeeping, 
reporting and notification requirements applicable to nonbank SBS 
Entities in connection with a potential substituted compliance 
request for capital and margin requirements.
---------------------------------------------------------------------------

    Taken as a whole, the recordkeeping, reporting, and notification 
requirements that apply to prudentially regulated 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.
    In proposing to provide conditional substituted compliance in 
connection with this part of BaFin's application, the Commission 
preliminarily concluded that the relevant German and EU requirements, 
subject to certain proposed conditions and limitations, would produce 
regulatory outcomes that are comparable to the outcomes associated with 
the recordkeeping, reporting, and notification requirements under the 
Exchange Act applicable to prudentially regulated SBS Entities pursuant 
to Exchange Act rules 18a-5, 18a-6, 18a-7, and 18a-8.\95\
---------------------------------------------------------------------------

    \95\ The Commission also recognized that the comparability 
assessment for certain of the recordkeeping and notification 
requirements also appropriately may consider the extent to which 
those requirements are linked to separate requirements in the 
Exchange Act that may be subject to a substituted compliance 
application. See id. at 72736 (noting that a number of recordkeeping 
requirements serve a primary purpose of promoting and/or documenting 
SBS Entities' compliance with associated Exchange Act requirements; 
further stating that when substituted compliance is permitted for 
the associated Exchange Act requirements, substituted compliance 
also may be appropriate for the linked recordkeeping and 
notification requirements).
---------------------------------------------------------------------------

    Substituted compliance under the proposal was to be conditioned in 
part on SBS Entities being subject to specific conditions necessary to 
promote consistency in regulatory outcomes, or to reflect the scope of 
substituted compliance that would be available in connection with 
associated Exchange Act rules.\96\ In addition, substituted compliance 
in connection with select areas under the proposal would be subject to 
specific conditions to promote consistency in regulatory outcomes, or 
to reflect the scope of substituted compliance for associated rules:
---------------------------------------------------------------------------

    \96\ These included compliance with certain requirements 
associated with CRD, CRR, EMIR, MiFID, MiFID Org Reg, MiFIR, KWG, 
WpHG, GwG and certain EU guidelines.
---------------------------------------------------------------------------

    <bullet> Recordmaking--Under the proposal, the SBS Entity would 
need to: (a) Preserve the data elements to create certain records 
required by the Commission's rule and furnish the record in the format 
required by that rule; (b) make certain records related to the SBS 
Entity segregation rule if the firm is not exempt from that rule; and 
(c) make certain records related to business conduct requirements for 
which substituted compliance was proposed to not be available.\97\
---------------------------------------------------------------------------

    \97\ See id. at 72737.
---------------------------------------------------------------------------

    <bullet> Record preservation--Under the proposal, the SBS Entity 
would need to: (a) Preserve records related to the SBS Entity 
segregation rule if the firm is not exempt from that rule; and (b) 
preserve certain records related to Regulation SBSR and business 
conduct requirements for which substituted compliance was proposed to 
not be available.\98\
---------------------------------------------------------------------------

    \98\ See id. at 72737-38.
---------------------------------------------------------------------------

    <bullet> Reporting--Under the proposal, the SBS Entity would need 
to report financial and operational information in the manner and 
format specified by Commission order or rule.\99\
---------------------------------------------------------------------------

    \99\ See id. at 72738.
---------------------------------------------------------------------------

    <bullet> Notification--Under the proposal, the SBS Entity would 
need to: (a) Simultaneously transmit to the Commission a copy of any 
notice required to be sent by comparable German and EU laws and include 
contact information of a person who can provide further details about 
the notice; and (b) comply with the requirement in the Commission's 
rule to provide notice of failure to make a required deposit into the 
reserve account required by the SBS Entity segregation rule.\100\
---------------------------------------------------------------------------

    \100\ See id. at 72738-39.
---------------------------------------------------------------------------

    In connection with the proposal, the Commission also addressed the 
application of inspection and production requirements imposed on SBS 
Entities under the Exchange Act, and noted that BaFin had provided the 
Commission with adequate assurances that no law or policy would impede 
the ability of any entity that is directly supervised by BaFin that may 
register with the Commission ``to provide prompt access to the 
Commission to such entity's books and records or to submit to onsite 
inspection or examination by the Commission.'' \101\
---------------------------------------------------------------------------

    \101\ See id. at 72739.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    Commenters supported the Commission's preliminary view that 
substituted compliance be made available with respect to the 
recordkeeping, reporting, and notification requirements of Exchange Act 
rules 18a-5, 18a-6, 18a-7, and 18a-8 applicable to prudentially 
regulated SBS Entities.\102\ Commenters did not address the proposed 
conditions relating to Exchange rules 18a-5, 18a-6, and 18a-8. After 
considering commenter views, the Commission is providing for 
substituted compliance in connection with the recordkeeping, reporting, 
and notification requirements of Exchange Act rules 18a-5, 18a-6, 18a-
7, and 18a-8 applicable to prudentially regulated SBS Entities 
consistent with the proposal except for two modifications to the 
condition in paragraph (e)(3)(ii) of the Order relating to rule 18a-
7.\103\ First, the Commission is modifying the condition to require 
that the financial information be presented in accordance with 
generally accepted accounting principles (``GAAP'') that the SBS Entity 
uses to prepare general purpose publicly available or available to be 
issued financial statements in Germany.\104\ Second, the Order 
clarifies that the prudentially regulated SBS Entity files ``periodic 
unaudited'' financial and operational information because Exchange Act 
rule 18a-7 does not require that the FOCUS Report Part IIC be audited 
by an independent public accountant.
---------------------------------------------------------------------------

    \102\ See SIFMA Letter. See also Deutsche Bank Letter; EBF 
Letter (supporting SIFMA's comments).
    \103\ See paragraph (e)(3)(ii) to the Order.
    \104\ In the German Substituted Compliance Notice and Proposed 
Order, the Commission stated that SBS Entities could be permitted to 
present the information reported in FOCUS Report Part IIC in 
accordance with GAAP that the SBS Entity uses to prepare publicly 
available general purpose financial statements in its home 
jurisdiction instead of U.S. GAAP if other GAAP, such as 
International Financial Reporting Standards (IFRS) as issued by the 
International Accounting Standards Board (IASB), is used by the SBS 
Entity in preparing general purpose financial statements.
---------------------------------------------------------------------------

    In response to the Commission's proposal regarding recordkeeping, 
reporting, and notification requirements, a commenter stated that the 
Commission should permit substituted compliance for both prudentially 
regulated and non-prudentially regulated SBS Entities.\105\ However, 
the recordkeeping, reporting, and notification requirements for non-
prudentially regulated SBS Entities are broader than the requirements 
for prudentially regulated SBS Entities. These broader requirements 
address the fact that the Commission has capital and margin authority 
and oversight responsibility with respect to non-

[[Page 85697]]

prudentially regulated SBS Entities (but not with respect to 
prudentially regulated SBS Entities). The Commission continues to 
believe it is appropriate to defer consideration of requirements that 
apply to non-prudentially regulated SBS Entities until such time as it 
receives an application seeking substituted compliance for capital and 
margin requirements. This will allow the Commission to make a more 
complete decision that considers the substantive capital and margin 
requirements that are linked with the recordkeeping, reporting, 
notification, and securities count rules that apply to non-prudentially 
regulated SBS Entities.
---------------------------------------------------------------------------

    \105\ See SIFMA Letter at 6.
---------------------------------------------------------------------------

    The Commission received comments regarding the Commission's 
proposed condition that substituted compliance with respect to Exchange 
Act rule 18a-7's FOCUS Report Part IIC filing requirement be 
conditioned on SBS Entities filing unaudited financial and operational 
information in the manner and format specified by Commission order or 
rule. The commenters made suggestions about the scope and requirements 
of such a Commission order or rule. First, commenters requested that 
SBS Entities be allowed to file other Commission or Federal Reserve 
Board (``FRB'') filings instead of or in combination with extracts from 
filings made with home country supervisors.\106\ Second, a commenter 
asked that the financial and operational information in the filings be 
permitted to be consolidated at the same consolidation level that is 
used in the relevant Commission, FRB, or home jurisdiction 
reports.\107\ Third, a commenter proposed that the Commission permit an 
SBS Entity to complete the capital line items in the filings, if the 
FOCUS Report Part IIC is used as the filing form, in a manner 
consistent with its home country capital standards and related 
reporting.\108\ Fourth, commenters sought additional time to furnish 
the filings to the Commission to align with local filing 
deadlines.\109\ Finally, commenters supported a potential approach 
identified by the Commission under which SBS Entities would be 
permitted to satisfy their Exchange Act rule 18a-7 obligations for a 
two-year period by filing the FOCUS Report Part IIC with only a limited 
number of the required line items completed.\110\
---------------------------------------------------------------------------

    \106\ See SIFMA Letter at 8; Deutsche Bank Letter at 2.
    \107\ See SIFMA Letter at 8.
    \108\ See SIFMA Letter at 8.
    \109\ See SIFMA Letter at 8; Deutsche Bank Letter at 2.
    \110\ See SIFMA Letter at 8-9; Deutsche Bank Letter at 2.
---------------------------------------------------------------------------

    The Commission will consider these comments as it works towards 
completing a Commission order or rule pursuant to the provision in this 
Order that substituted compliance with respect to Exchange Act rule 
18a-7's FOCUS Report Part IIC filing requirement is conditioned on SBS 
Entities filing unaudited financial and operational information in the 
manner and format specified by Commission order or rule.\111\ In this 
regard, the Commission welcomes further comment and engagement from 
interested parties on: (1) A potential interim two-year order or rule 
that requires a limited number of the line items on the FOCUS Report 
Part IIC to be completed; and (2) the nature and scope of a more 
permanent order or rule for the filing of financial and operational 
information.
---------------------------------------------------------------------------

    \111\ The Commission intends to issue an order sufficiently in 
advance of the compliance date for Exchange rule 18a-7 to provide 
SBS Entities time to configure their systems to comply with the 
filing requirement. When the order is issued, the Commission will 
consider whether it would be appropriate to provide additional time 
before the first filing is required if SBS Entities indicate that 
they will have trouble configuring their systems to comply with the 
filing requirement.
---------------------------------------------------------------------------

VIII. Supervisory and Enforcement Considerations

A. Preliminary Analysis

    Exchange Act rule 3a71-6(a)(2)(i) provides that the Commission's 
assessments regarding the comparability of foreign requirements in part 
should take into account ``the effectiveness of the supervisory program 
administered, and the enforcement authority exercised'' by the foreign 
financial regulatory authority. This provision is intended to help 
ensure that substituted compliance is not predicated on rules that 
appear high-quality on paper if market participants in practice are 
allowed to fall short of their obligations, while also recognizing that 
differences among supervisory and enforcement regimes should not be 
assumed to reflect flaws in one regime or another.\112\ BaFin's 
application accordingly included information regarding the supervisory 
and enforcement framework applicable to derivatives markets and market 
participants in Germany.
---------------------------------------------------------------------------

    \112\ See German Substituted Compliance Notice and Proposed 
Order, 85 FR at 72739.
---------------------------------------------------------------------------

    In proposing to grant substituted compliance in connection with 
Germany, the Commission preliminarily concluded that the relevant 
supervisory and enforcement considerations were consistent with 
substituted compliance. That preliminary conclusion took into account 
information regarding BaFin's and the ECB's roles and practices in 
supervising credit institutions located in Germany, as well as their 
enforcement-related authority and practices.\113\
---------------------------------------------------------------------------

    \113\ See id. at 72739-40.
---------------------------------------------------------------------------

B. Conclusions

    Commenters did not address the Commission's preliminary conclusions 
regarding supervisory and enforcement considerations, and the 
Commission continues to conclude that the relevant supervisory and 
enforcement considerations in Germany are consistent with substituted 
compliance. In particular, based on the available information regarding 
BaFin's and the ECB's authority and practices to oversee market 
participants' compliance with applicable requirements and to take 
action in the event of violations, the Commission remains of the view 
that, consistent with rule 3a71-6, comparability determinations reflect 
German and EU requirements as they apply in practice.
    To be clear, the supervisory and enforcement considerations 
addressed by rule 3a71-6 do not mandate that the Commission make 
judgments regarding the comparative merits of U.S. and foreign 
supervisory and enforcement frameworks, or to require specific findings 
regarding the supervisory and enforcement effectiveness of a foreign 
regime. The rule 3a71-6 considerations regarding supervisory and 
enforcement effectiveness instead address whether comparability 
analyses related to substituted compliance reflect requirements that 
market participants must follow, and for which market participants are 
subject to enforcement consequences in the event of violations. Those 
considerations are satisfied here.

IX. Conclusion

    It is hereby determined and ordered, pursuant to rule 3a71-6 under 
the Exchange Act, that a Covered Entity (as defined in paragraph (f)(1) 
of this Order) may satisfy the requirements under the Exchange Act that 
are addressed in paragraphs (b) through (e) of this Order so long as 
the Covered Entity is subject to and complies with relevant 
requirements of the Federal Republic of Germany and the European Union 
and with the conditions to this Order, as may be amended or superseded 
from time to time.

(a) General Conditions

    This Order is subject to the following general conditions, in 
addition to the

[[Page 85698]]

conditions specified in paragraphs (b) through (e):
    (1) Activities as ``investment services or activities.'' For each 
condition in paragraphs (b) through (e) of this Order that requires the 
application of, and the Covered Entity's compliance with, provisions of 
MiFID, WpHG, and/or other EU and German requirements adopted pursuant 
to those provisions, the Covered Entity's relevant security-based swap 
activities constitute ``investment services'' or ``investment 
activities,'' as defined in MiFID article 4(1)(2) and in WpHG section 
2(8), and fall within the scope of the Covered Entity's authorization 
from BaFin to provide investment services and/or perform investment 
activities in the Federal Republic of Germany.
    (2) Counterparties as ``clients.'' For each condition in paragraphs 
(b) through (e) of this Order that requires the application of, and the 
Covered Entity's compliance with, provisions of MiFID, WpHG and/or 
other EU and German requirements adopted pursuant to those provisions, 
the relevant counterparty (or potential counterparty) to the Covered 
Entity is a ``client'' (or potential ``client''), as defined in MiFID 
article 4(1)(9) and in WpHG section 67(1).
    (3) Security-based swaps as ``financial instruments.'' For each 
condition in paragraphs (b) through (e) of this Order that requires the 
application of, and the Covered Entity's compliance with, provisions of 
MiFID, WpHG and/or other EU and German requirements adopted pursuant to 
those provisions, the relevant security-based swap is a ``financial 
instrument,'' as defined in MiFID article 4(1)(15) and in WpHG section 
2(4).
    (4) Covered Entity as ``institution.'' For each condition in 
paragraph (b) through (e) of this Order that requires the application 
of, and the Covered Entity's compliance with, the provisions of CRD, 
KWG, CRR and/or other EU and German requirements adopted pursuant to 
those provisions, the Covered Entity is an ``institution,'' as defined 
in CRD article 3(1)(3), in CRR article 4(1)(3) and in KWG section 
1(1b).
    (5) Memorandum of Understanding with BaFin. The Commission and 
BaFin have a supervisory and enforcement memorandum of understanding 
and/or other arrangement addressing cooperation with respect to this 
Order at the time the Covered Entity complies with the relevant 
requirements under the Exchange Act via compliance with one or more 
provisions of this Order.
    (6) Notice to Commission. A Covered Entity relying on this Order 
must provide notice of its intent to rely on this Order by notifying 
the Commission in writing. Such notice must be sent to an email address 
provided on the Commission's website. The notice must include the 
contact information of an individual who can provide further 
information about the matter that is the subject of the notice.
    (7) European Union Cross-Border Matters.
    (i) If, in relation to a particular service provided by a Covered 
Entity, responsibility for ensuring compliance with any provision of 
MiFID or any other EU or German requirement adopted pursuant to MiFID 
listed in paragraphs (b) through (e) of this Order is allocated to an 
authority of the Member State of the European Union in whose territory 
a Covered Entity provides the service, BaFin must be the authority 
responsible for supervision and enforcement of that provision or 
requirement in relation to the particular service.
    (ii) If responsibility for ensuring compliance with any provision 
of MAR or any other EU requirement adopted pursuant to MAR listed in 
paragraphs (b) through (e) of this Order is allocated to one or more 
authorities of a Member State of the European Union, one of such 
authorities must be BaFin.

(b) Substituted Compliance in Connection With Risk Control Requirements

    This Order extends to the following provisions related to risk 
control:
    (1) Internal risk management. The requirements of Exchange Act 
section 15F(j)(2) and related aspects of Exchange Act rule 15Fh-
3(h)(2)(iii)(I), provided that the Covered Entity is subject to and 
complies with the requirements of: MiFID articles 16(4) and 16(5); WpHG 
section 80; MiFID Org Reg articles 21-24; CRD articles 74, 76 and 79-
87; KWG sections 25a, 25b, 25c (other than 25c(2)), 25d (other than 
25d(3) and 25d(11)), 25(e) and 25(f); CRR articles 286-88 and 293; and 
EMIR Margin RTS article 2.
    (2) Trade acknowledgement and verification. The requirements of 
Exchange Act rule 15Fi-2, provided that the Covered Entity is subject 
to and complies with the requirements of MiFID article 25(6), WpHG 
section 63(12), MiFID Org Reg articles 59-61, EMIR article 11(1)(a) and 
EMIR RTS article 12.
    (3) Portfolio reconciliation and dispute reporting. The 
requirements of Exchange Act rule 15Fi-3, provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements of EMIR article 11(1)(b) and EMIR RTS article 13 and 15;
    (ii) The Covered Entity provides the Commission with reports 
regarding disputes between counterparties on the same basis as it 
provides those reports to competent authorities pursuant to EMIR RTS 
article 15(2).
    (4) Portfolio compression. The requirements of Exchange Act rule 
15Fi-4, provided that the Covered Entity is subject to and complies 
with the requirements of EMIR RTS article 14.
    (5) Trading relationship documentation. The requirements of 
Exchange Act rule 15Fi-5, other than paragraph (b)(5) to that rule when 
the counterparty is a U.S. person, provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements of MiFID article 25(5), WpHG section 83(2), MiFID Org Reg 
articles 24, 58, 73 and applicable parts of Annex I, and EMIR Margin 
RTS article 2; and
    (ii) The Covered Entity does not treat the applicable counterparty 
as an ``eligible counterparty'' for purposes of MiFID article 30 and 
WpHG section 68, in relation to the MiFID and WpHG provisions specified 
in paragraph (b)(5)(i).

(c) Substituted Compliance in Connection With Internal Supervision and 
Compliance Requirements and Certain Exchange Act Section 15F(J) 
Requirements

    This Order extends to the following provisions related to internal 
supervision and compliance and Exchange Act section 15F(j) 
requirements:
    (1) Internal supervision. The requirements of Exchange Act rule 
15Fh-3(h) and Exchange Act sections 15F(j)(4)(A) and (j)(5), provided 
that:
    (i) The Covered Entity is subject to and complies with the 
requirements identified in paragraph (c)(3);
    (ii) The Covered Entity complies with paragraph (c)(4) to this 
Order; and
    (iii) This paragraph (c) does not extend to the requirements of 
paragraph (h)(2)(iii)(I) to rule 15Fh-3 to the extent those 
requirements pertain to compliance with Exchange Act sections 
15F(j)(2), (j)(3), (j)(4)(B) and (j)(6), or to the general and 
supporting provisions of paragraph (h) to rule 15Fh-3 in connection 
with those Exchange Act sections.
    (2) Chief compliance officers. The requirements of Exchange Act 
section 15F(k) and Exchange Act rule 15Fk-1, provided that:

[[Page 85699]]

    (i) The Covered Entity complies with the requirements identified in 
paragraph (c)(3) to this Order;
    (ii) All reports required pursuant to MiFID Org Reg article 
22(2)(c) must also:
    (A) Be provided to the Commission at least annually, and in the 
English language;
    (B) Include a certification that, under penalty of law, the report 
is accurate and complete; and
    (C) Address the firm's compliance with other applicable conditions 
to this Order in connection with requirements for which the Covered 
Entity is relying on this Order.
    (3) Applicable supervisory and compliance requirements. Paragraphs 
(c)(1) and (c)(2) are conditioned on the Covered Entity being subject 
to and complying with the following requirements: MiFID articles 16 and 
23; WpHG sections 63, 80, 83 and 84; MiFID Org Reg articles 21-37, 72-
76 and Annex IV; CRD articles 74, 76, 79-87, 88(1), 91(1)-(2), 91(7)-
(9) and 92-95; and KWG sections 25a, 25b, 25c (other than 25c(2)), 25d 
(other than 25d(3) and 25d(11)), 25e and 25f.
    (4) Additional condition to paragraph (c)(1). Paragraph (c)(1) 
further is conditioned on the requirement that Covered Entities comply 
with the provisions specified in paragraph (c)(3) as if those 
provisions also require compliance with:
    (i) Applicable requirements under the Exchange Act; and
    (ii) The other applicable conditions to this Order in connection 
with requirements for which the Covered Entity is relying on this 
Order.

(d) Substituted Compliance in Connection With Counterparty Protection 
Requirements

    This Order extends to the following provisions related to 
counterparty protection:
    (1) Disclosure of information regarding material risks and 
characteristics. The requirements of Exchange Act rule 15Fh-3(b) 
relating to disclosure of material risks and characteristics of a 
security-based swap, provided that the Covered Entity is subject to and 
complies with the requirements of MiFID article 24(4), WpHG sections 
63(7) and 64(1) and MiFID Org Reg articles 48-50, in each case in 
relation to that security-based swap.
    (2) Disclosure of information regarding material incentives or 
conflicts of interest. The requirements of Exchange Act rule 15Fh-3(b) 
relating to disclosure of material incentives or conflicts of interest 
that a Covered Entity may have in connection with a security-based 
swap, provided that the Covered Entity, in relation to that security-
based swap, is subject to and complies with the requirements of either:
    (i) MiFID article 23(2)-(3); WpHG section 63(2); and MiFID Org Reg 
articles 33-35;
    (ii) MiFID article 24(9); WpHG section 70; and MiFID Delegated 
Directive article 11(5); or
    (iii) MAR article 20(1).
    (3) ``Know your counterparty.'' The requirements of Exchange Act 
rule 15Fh-3(e), provided that the Covered Entity is subject to and 
complies with the requirements of MiFID article 16(2); WpHG section 
80(1); MiFID Org Reg articles 21-22, 25-26 and applicable parts of 
Annex I; CRD articles 74(1) and 85(1); KWG section 25a; MLD articles 11 
and 13; GwG sections 10-11; MLD articles 8(3) and 8(4)(a) as applied to 
internal policies, controls and procedures regarding recordkeeping of 
customer due diligence activities; and GwG section 6(1)-(2) as applied 
to principles, procedures and controls regarding recordkeeping of 
customer due diligence activities, in each case in relation to that 
security-based swap.
    (4) Suitability. The requirements of Exchange Act rule 15Fh-3(f), 
provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements of MiFID articles 24(2)-(3) and 25(1)-(2); WpHG sections 
63(5)-(6), 80(9)-(13) and 87(1)-(2); and MiFID Org Reg articles 
21(1)(b) and (d), 54 and 55, in each case in relation to the 
recommendation of a security-based swap or trading strategy involving a 
security-based swap that is provided by or on behalf of the Covered 
Entity; and
    (ii) The counterparty to which the Covered Entity makes the 
recommendation is a ``professional client'' mentioned in MiFID Annex II 
section I and WpHG section 67(2) and is not a ``special entity'' as 
defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule 
15Fh-2(d).
    (5) Fair and balanced communications. The requirements of Exchange 
Act rule 15Fh-3(g), provided that the Covered Entity, in relation to 
the relevant communication, is subject to and complies with the 
requirements of:
    (i) Either MiFID articles 24(1), (3) and WpHG sections 63(1), (6) 
or MiFID article 30(1) and WpHG section 68(1); and
    (ii) MiFID articles 24(4)-(5); WpHG sections 63(7) and 64(1); MiFID 
Org Reg articles 46-48; MAR articles 12(1)(c) and 15; and MAR 
Investment Recommendations Regulation article 5.
    (6) Daily mark disclosure. The requirements of Exchange Act rule 
15Fh-3(c), provided that the Covered Entity is required to reconcile, 
and does reconcile, the portfolio containing the relevant security-
based swap on each business day pursuant to EMIR articles 11(1)(b) and 
11(2) and EMIR RTS article 13.

(e) Substituted Compliance in Connection With Recordkeeping, Reporting, 
and Notification Requirements

    This Order extends to the following provisions related to 
Commission requirements to:
    (1) Make and keep current certain records. The requirements to make 
and keep current records of Exchange Act rule 18a-5 applicable to 
prudentially regulated security-based swap dealers and major security-
based swap participants; provided that:
    (i) The Covered Entity is subject to and complies with the 
following requirements: CRR articles 103 and 103(b)(ii); EMIR articles 
9(2), 11(1)(a), and 39(4); EMIR RTS 148/2013; MiFID articles 9(1), 
16(3), 16(6)-16(9), 25(1), 25(5), and 25(6); MiFID Delegated Directive 
article 2; MiFID Org Reg. articles 16(7), 21(1)(a), 35, 59, 72, 73, 74, 
75, 76, and applicable parts of Annex I; MiFID Org Reg. Annex IV; MiFIR 
article 25; MLD4 articles 11 and 13; EBA/ESMA Guidelines on Management 
Suitability guidelines 74, 75, and 172, and Annex III; CRD articles 88, 
91(1), and 91(8); KWG sections 25c(1) and 25d(1)-(3); WpHG section 63, 
section 64, section 81 paragraph 1, section 83 paragraphs 1 through 8, 
and section 84; and GwG section 10, paragraph 1, points 1 through 3;
    (ii)(A) The Covered Entity preserves all of the data elements 
necessary to create the records required by Exchange Act rules 18a-
5(b)(1), (2), (3), and (7); and
    (B) The Covered Entity upon request furnishes promptly to 
representatives of the Commission the records required by those rules;
    (iii) The Covered Entity makes and keeps current the records 
required by Exchange Act rules 18a-5(b)(9) and (10) if the Covered 
Entity is not exempt from the requirements of Exchange Act rule 18a-4;
    (iv) The Covered Entity makes and keeps current the records 
required by Exchange Act rule 18a-5(b)(12); and
    (v) Except with respect to requirements of Exchange Act rules 15Fh-
3 and 15Fk-1 to which this Order extends pursuant paragraphs (c)(2) and

[[Page 85700]]

(d), the Covered Entity makes and keeps current the records required by 
Exchange Act rule 18a-5(b)(13).
    (2) Preserve records. The record preservation requirements of 
Exchange Act rule 18a-6 applicable to prudentially regulated security-
based swap dealers and major security-based swap participants; provided 
that:
    (i) The Covered Entity is subject to and complies with the 
following requirements: CRD articles 88, 91(1), and 91(8); CRR articles 
99, 104(1)(j), 294, 394, 415-428, and 430; CRR Reporting ITS Article 14 
and Annexes I-V, VIII-XIII; EMIR articles 9(1) and 9(2); MiFID articles 
9(1), 16(3), and 69(2); MiFID Org Reg. articles 21(1)(a), 21(2), 35, 
58, 72(1), 72(3), 73, and 76; MiFIR articles 16(2), 16(5), 16(6), 
16(7), 25(1), 25(5), 31(1) and 72; MLD4 articles 11 and 13; EBA/ESMA 
Guidelines on Management Suitability guidelines 74, 75, and 172, and 
Annex III; EBA Guidelines on Outsourcing section 13.3; KWG 25c(1) and 
25d(1)-(3); WpHG sections 6, 7, 63, 64, and 80 and section 83 
paragraphs 1, 2, 3, and 8; and GwG sections 10 and 11;
    (ii) The Covered Entity preserves the records required by Exchange 
Act rule 18a-6(b)(2)(v) if the Covered Entity is not exempt from the 
requirements of Exchange Act rule 18a-4;
    (iii) Except with respect to requirements of Exchange Act rules 
15Fh-3 and 15Fk-1 to which this Order extends pursuant to paragraphs 
(c)(2) and (d), the Covered Entity preserves the records required by 
Exchange Act rule 18a-6(b)(2)(vii); and
    (iv) The Covered Entity preserves the records required by Exchange 
Act rule 18a-6(b)(2)(vi) and (b)(2)(viii).
    (3) File Financial and Operational Information. The reporting 
requirements of Exchange Act rule 18a-7 applicable to prudentially 
regulated security-based swap dealers and major security-based swap 
participants; provided that:
    (i) The Covered Entity is subject to and complies with the 
following requirements: CRR articles 99, 104(1)(j), 394, 415-428, and 
430; CRR Reporting ITS chapter 2 and Annexes I-V and VII-XIII; and 
Commission Delegated Regulation (EU) 2017/1443, as amended or 
superseded from time to time; and
    (ii) The Covered Entity files periodic unaudited financial and 
operational information with the Commission or its designee in the 
manner and format required by Commission rule or order and presents the 
financial information in the filing in accordance with generally 
accepted accounting principles that the Covered Entity uses to prepare 
general purpose publicly available or available to be issued financial 
statements in Germany.
    (4) Provide Notification. The notification requirements of Exchange 
Act rule 18a-8 applicable to prudentially regulated security-based swap 
dealers and major security-based swap participants; provided that:
    (i) The Covered Entity is subject to and complies with the 
following requirements: CRD article 71; MiFID article 73; KWG section 
24 paragraph 1; and FinDAG section 4d; and
    (ii) The Covered Entity:
    (A) Simultaneously transmits to the principal office of the 
Commission or to an email address provided on the Commission's website 
a copy of any notice required to be sent by the German and EU laws 
referenced in paragraph (e)(3)(i) of this order; and
    (B) Includes with the transmission the contact information of an 
individual who can provide further information about the matter that is 
the subject of the notice;
    (iii) The Covered Entity complies with notification requirements of 
Exchange Act rule 18a-8(g) if the Covered Entity is not exempt from 
Exchange Act rule 18a-4.
    (5) Examination and Production of Records. Notwithstanding the 
forgoing provisions of paragraph (e) of this Order, prudentially 
regulated security-based swap dealers and major security-based swap 
participants remains subject to the requirement of Exchange Act section 
15F(f) to keep books and records open to inspection by any 
representative of the Commission and the requirement of Exchange Act 
rule 18a-6(g) to furnish promptly to a representative of the Commission 
legible, true, complete, and current copies of those records of the 
Covered Entity that are required to be preserved under Exchange Act 
rule 18a-6, or any other records of the Covered Entity that are subject 
to examination or required to be made or maintained pursuant to 
Exchange Act section 15F that are requested by a representative of the 
Commission.

(f) Definitions

    (1) ``Covered Entity'' means an entity that:
    (i) Is a security-based swap dealer or major security-based swap 
participant registered with the Commission;
    (ii) Is not a ``U.S. person,'' as that term is defined in rule 
3a71-3(a)(4) under the Exchange Act; and
    (iii) Is an investment firm or credit institution authorized by 
BaFin to provide investment services or perform investment activities 
in the Federal Republic of Germany.
    (2) ``MiFID'' means the ``Markets in Financial Instruments 
Directive,'' Directive 2014/65/EU, as amended or superseded from time 
to time.
    (3) ``WpHG'' means Germany's ``Wertpapierhandelsgesetz'', as 
amended or superseded from time to time.
    (4) ``MiFID Org Reg'' means Commission Delegated Regulation (EU) 
2017/565, as amended or superseded from time to time.
    (5) ``MiFID Delegated Directive'' means Commission Delegated 
Directive (EU) 2017/593, as amended or superseded from time to time.
    (6) ``MLD'' means Directive (EU) 2015/849, as amended or superseded 
from time to time.
    (7) ``GwG'' means Germany's ``Geldw[auml]schegesetz,'' as amended 
or superseded from time to time.
    (8) ``MiFIR'' means Regulation (EU) 600/2014, as amended or 
superseded from time to time.
    (9) ``EMIR'' means the ``European Market Infrastructure 
Regulation,'' Regulation (EU) 648/2012, as amended or superseded from 
time to time.
    (10) ``EMIR RTS'' means Commission Delegated Regulation (EU) 149/
2013, as amended or superseded from time to time.
    (11) ``EMIR Margin RTS'' means Commission Delegated Regulation (EU) 
2016/2251, as amended or superseded from time to time.
    (12) ``CRR Reporting ITS'' means Commission Implementing Regulation 
(EU) 680/2014, as amended or superseded from time to time.
    (13) ``CRD'' means Directive 2013/36/EU, as amended or superseded 
from time to time.
    (14) ``KWG'' means Germany's ``Kreditwesengesetz,'' as amended or 
superseded from time to time.
    (15) ``CRR'' means Regulation (EU) 575/2013, as amended or 
superseded from time to time.
    (16) ``MAR'' means the ``Market Abuse Regulation,'' Regulation (EU) 
596/2014, as amended or superseded from time to time.
    (17) ``MAR Investment Recommendations Regulation'' means Commission 
Delegated Regulation (EU) 2016/958, as amended or superseded from time 
to time.
    (18) ``FinDAG'' means Germany's 
``Finanzdienstleistungsaufsichtsgesetz,'' as amended or superseded from 
time to time.
    (19) ``BaFin'' means the Bundesanstalt f[uuml]r 
Finanzdienstleistungsaufsicht.

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-28703 Filed 12-28-20; 8:45 am]
BILLING CODE 8011-01-P