85720 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

that comply with the rule. The actual number of 

hours may vary significantly depending on 

individual fund assets. The hour burden for rule 

17f–1 does not include preparing the custody 

contract because that would be part of customary 

and usual business practice. 

2Based on a review of Form N–17f–1 filings over 

the last three years the Commission staff estimates 

that an average of 6 funds rely on rule 17f–1 each 

year. 

3This estimate is based on the following 

calculation: (6 Respondents × 3.5 hours = 21 hours). 

The annual burden for rule 17f–1 does not include 

time spent preparing Form N–17f–1. The burden for 

Form N–17f–1 is included in a separate collection 

of information. 

4This estimate is based on the following 

calculation: (2 hours of outside counsel time × $489 

= $978). The staff has estimated the average cost of 

outside counsel at $489 per hour, based on 

information received from funds and their counsel. 

5This estimate is based on information received 

from fund representatives estimating the aggregate 

annual cost of an independent public accountant’s 

periodic verification of assets and preparation of the 

certificate of examination. 

6This estimate is based on the following 

calculation: ($978 + $9,050 = $10,028). 

7This estimate is based on the following 

calculation: (6 funds × $10,028 = $60,168). 

ratify the custodial contracts; and (ii) 3 

hours for the fund’s controller to assist 

the fund’s independent public auditors 

in verifying the fund’s assets. 

Approximately 6 funds rely on the rule 

annually, with a total of 6 responses.2

Thus, the total annual hour burden for 

rule 17f–1 is approximately 21 hours.3

Funds that rely on rule 17f–1 

generally use outside counsel to prepare 

the custodial contract for the board’s 

review and to transmit the contract to 

the Commission. Commission staff 

estimates the cost of outside counsel to 

perform these tasks for a fund each year 

is $978.4 Funds also must have an 

independent public accountant verify 

the fund’s assets three times each year 

and prepare the certificate of 

examination. Commission staff 

estimates the annual cost for an 

independent public accountant to 

perform this service is $9,050.5

Therefore, the total annual cost burden 

for a fund that relies on rule 17f–1 

would be approximately $10,028.6 As 

noted above, the staff estimates that 6 

funds rely on rule 17f–1 each year, for 

an estimated total annualized cost 

burden of $60,168.7

The estimate of average burden hours 

is made solely for the purposes of the 

Paperwork Reduction Act, and is not 

derived from a comprehensive or even 

a representative survey or study of the 

costs of Commission rules. Compliance 

with the collections of information 

required by rule 17f–1 is mandatory for 

funds that place their assets in the 

custody of a national securities 

exchange member. Responses will not 

be kept confidential. An agency may not 

conduct or sponsor, and a person is not 

required to respond to a collection of 

information unless it displays a 

currently valid control number. 

The Commission requests written 

comments on: (a) Whether the 

collections of information are necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information has practical 

utility; (b) the accuracy of the 

Commission’s estimate of the burdens of 

the collection of information; (c) ways to 

enhance the quality, utility, and clarity 

of the information collected; and (d) 

ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology. 

Consideration will be given to 

comments and suggestions submitted in 

writing within 60 days of this 

publication. 

Please direct your written comments 

to David Bottom, Director/Chief 

Information Officer, Securities and 

Exchange Commission, C/O Cynthia 

Roscoe, 100 F Street NE, Washington, 

DC 20549; or send an email to: PRA_

Mailbox@sec.gov. 

Dated: December 22, 2020. 

Eduardo A. Aleman, 

Deputy Secretary. 

[FR Doc. 2020–28768 Filed 12–28–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90766; File No. S7–22–20] 

Notice of Substituted Compliance 

Application Submitted by the French 

Autorite ́ des Marche ́s Financiers and 

the Autorite ́ de Controˆle Prudential et 

de Re ́solution in Connection With 

Certain Requirements Applicable to 

Non-U.S. Security-Based Swap Dealers 

and Major Security-Based Swap 

Participants Subject to Regulation in 

the French Republic; Proposed Order 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Notice of application for 

substituted compliance determination; 

proposed order. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’) 

is soliciting public comment on an 

application by the French Autorite ́ des 

Marche ́s Financiers (‘‘AMF’’) and the 

Autorite ́ de Controˆle Prudential et de 

Re ́solution (‘‘ACPR’’) requesting that, 

pursuant to rule 3a71–6 under the 

Securities Exchange Act of 1934 

(‘‘Exchange Act’’), the Commission 

determine that registered security-based 

swap dealers and registered major 

security-based swap participants (‘‘SBS 

Entities’’) that are not U.S. persons and 

that are subject to certain regulation in 

the French Republic (‘‘France’’) may 

comply with certain requirements under 

the Exchange Act via compliance with 

corresponding requirements of France 

and the European Union. The 

Commission also is soliciting comment 

on a proposed Order providing for 

conditional substituted compliance in 

connection with the application. 

DATES: Submit comments on or before 

January 25, 2021. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/proposed.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

22–20 on the subject line. 

Paper Comments 

• Send paper comments to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–22–20. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

internet website (http://www.sec.gov/ 

rules/proposed.shtml). Comments are 

also available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that the Commission does not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make publicly 

available. 

FOR FURTHER INFORMATION CONTACT: 

Carol M. McGee, Assistant Director or 

Laura Compton, Senior Special Counsel 

at 202–551–5870, Office of Derivatives 

Policy, Division of Trading and Markets, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–7010. 

SUPPLEMENTARY INFORMATION: 

The Commission is soliciting public 

comment on an application by the AMF 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85721 

1The Commission has also discussed the 

parameters of substituted compliance in connection 

with a substituted compliance request and 

accompanying Order regarding the Federal 

Republic of Germany. See Exchange Act Release 

No. 34–90378 (Nov. 9, 2020), 85 FR 72726 (Nov.13, 

2020) (‘‘German Notice and Proposed Order’’); 

Exchange Act Release No. 34–90765 (Dec. 22, 2020), 

(‘‘German Substituted Compliance Order’’). 

2See Exchange Act rule 3a71–6(d). Substituted 

compliance under rule 3a71–6 is not available in 

connection with certain antifraud prohibitions 

(Exchange Act sections 10(b) and 15F(h)(4)(A), 

Exchange Act rules 10b–5 and 15Fh–4(a), and 

Securities Act of 1933 section 17(a)), informationrelated provisions (15F(j)(2) and 15F(j)(4)(B)), 

requirements related to transactions with 

counterparties that are not eligible contract 

participants (‘‘ECPs’’) (Exchange Act section 6(l) 

and Securities Act section 5(e)), provisions related 

to segregation of customer assets (Exchange Act 

section 3E and Exchange Act rule 18a–4), required 

clearing upon counterparty election (Exchange Act 

section 3C(g)(5)), regulatory reporting and public 

dissemination (Regulation SBSR, 17 CFR 242.900 et 

seq.) and registration of offerings (Securities Act 

section 5). 

3See Exchange Act rule 3a71–6(a)(2)(i). 

4See Exchange Act rule 3a71–6(a)(2)(ii). The 

Commission and the French Authorities are in the 

process of negotiating a memorandum of 

understanding to address cooperation matters 

related to substituted compliance. In light of the 

ECB’s authority with respect to certain 

requirements, including margin and capital, for 

which the French Authorities seek substituted 

compliance, the Commission and the ECB are also 

in the process of developing a memorandum of 

understanding or other arrangement to address 

cooperation matters related to substituted 

compliance. These MOUs or other arrangements 

will need to be in place before the Commission may 

allow Covered Entities to use substituted 

compliance to satisfy obligations under the 

Exchange Act. The Commission expects to publish 

any such memorandum of understanding or 

arrangement 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. 

5See Exchange Act rule 3a71–6(a)(3). The French 

Authorities have satisfied this prerequisite in the 

Commission’s preliminary view, taking into 

account information and representations that 

French Authorities provided regarding certain 

French and EU requirements that are relevant to the 

Commission’s ability to inspect, and access the 

books and records of, security-based swap dealers 

in France. 

6See Commission rule 0–13(h). The Commission 

may take final action on a substituted compliance 

application no earlier than 25 days following 

publication of the notice in the Federal Register. 

7See Letter from Robert Ophe`le, Chairman, AMF 

and Denis Beau, Chairmen, ACPR to Vanessa A. 

Countryman, Secretary, Commission, dated 

December 10, 2020 (‘‘French Authorities’ 

Application’’). The application is available on the 

Commission’s website at https://www.sec.gov/files/ 

full-french-application.pdf. 

8See part IV, infra. 

9See part V, infra. The French Authorities request 

substituted compliance in connection with capital 

and margin requirements that are applicable to nonprudentially regulated SBS Entities pursuant to 

Exchange Act section 15F(e) and Exchange Act 

Continued 

and the ACPR (‘‘French Authorities’’) 

requesting that the Commission 

determine that SBS Entities that are not 

U.S. persons and that are subject to 

certain regulation in France may satisfy 

certain requirements under the 

Exchange Act by complying with 

comparable requirements in France 

including relevant European Union 

(‘‘EU’’) requirements. The Commission 

also is soliciting comment on a 

proposed Order, set forth in Attachment 

A, providing for conditional substituted 

compliance in connection with that 

application. 

I. Background 

Exchange Act rule 3a71–6 

conditionally provides that non-U.S. 

SBS Entities may satisfy certain 

requirements under Exchange Act 

section 15F by complying with 

comparable regulatory requirements of a 

foreign jurisdiction.1 Substituted 

compliance potentially is available in 

connection with requirements regarding 

business conduct and supervision, chief 

compliance officers, trade 

acknowledgment and verification, nonprudentially regulated capital and 

margin, recordkeeping and reporting, 

and portfolio reconciliation, portfolio 

compression and trading relationship 

documentation.2

Substituted compliance in part is 

predicated on the Commission 

determining the analogous foreign 

requirements are ‘‘comparable’’ to the 

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 foreign authority’s 

supervisory and enforcement 

frameworks.3 Substituted compliance 

further requires that the Commission 

and foreign financial regulatory 

authorities have entered into an 

effective supervisory and enforcement 

memorandum of understanding and/or 

other arrangement addressing 

cooperation and other matters related to 

substituted compliance.4 Also, foreign 

regulatory authorities may submit a 

substituted compliance application only 

if the authorities provide ‘‘adequate 

assurances’’ that no law or policy would 

impede the ability of any entity that is 

directly supervised by the authorities 

and 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.’’ 5

Commission rule 0–13 addresses 

procedures for filing substituted 

compliance applications, and provides 

that the Commission will publish notice 

when a completed application has been 

submitted, and that any person may 

submit to the Commission ‘‘any 

information that relates to the 

Commission action requested in the 

application.’’ 6

II. French Authorities’ Substituted 

Compliance Request 

The French Authorities have 

submitted a complete substituted 

compliance application to the 

Commission.7 Pursuant to rule 0–13, the 

Commission is publishing notice of the 

application together with a proposed 

Order to conditionally grant substituted 

compliance to certain French SBS 

Entities in connection with certain 

requirements under the Exchange Act. 

The Commission will consider public 

comments on the French Authorities’ 

Application and the proposed Order. 

The French Authorities seek 

substituted compliance for French 

market participants in connection with 

a number of requirements under 

Exchange Act section 15F: 

A. Relevant Market Participants 

The Commission will consider 

whether to make substituted compliance 

available to any entity that: (i) Is 

registered with the Commission as a 

security-based swap dealer or major 

security-based swap participant; (ii) is 

not a U.S. person; (iii) has been 

authorized by the AMF as an investment 

firm or by the ACPR as a credit 

institution after approval by the AMF of 

the credit institution’s program of 

operations; and (iv) is subject to relevant 

French and EU financial regulatory 

requirements and to supervision and 

enforcement by the French Authorities’ 

in connection with its security-based 

swap activity. 

B. Relevant Section 15F Requirements 

The French Authorities request that 

the Commission issue an order 

determining that—for substituted 

compliance purposes—applicable 

requirements in France are comparable 

with the following requirements under 

Exchange Act section 15F: 

Risk control requirements— 

Requirements related to internal risk 

management systems, trade 

acknowledgment and verification, 

portfolio reconciliation and dispute 

resolution, portfolio compression and 

trading relationship documentation.8

Capital and margin requirements— 

Requirements related to capital and 

margin applicable to non-prudentially 

regulated security-based swap dealer 

and major security-based swap 

participants.9


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
85722 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

rules 18a–1 through 18a–1d, and 18a–3. The 

proposed Order defines the term ‘‘prudentially 

regulated’’ to mean an SBS Entity that has a 

‘‘prudential regulator’’ as that term is defined in 

Exchange Act section 3(a)(74). See para. (g)(24) to 

the proposed Order. 

10See part VI, infra. 

11See part VII, infra. The French Authorities are 

not requesting substituted compliance in 

connection with: Eligible contract participant 

(‘‘ECP’’) verification requirements (Exchange Act 

section 15F(h)(3)(A) and Exchange Act rule 15Fh– 

3(a)(1)); ‘‘special entity’’ provisions (Exchange Act 

sections 15F(h)(4) and (5) and Exchange Act rules 

15Fh–3(a)(2) and (3), 15Fh–4(b) and 15Fh–5); and 

political contribution provisions (Exchange Act rule 

15Fh–6). 

12See part VIII, infra. 

13See EU’s Markets in Financial Instruments 

Directive (‘‘MiFID’’), Directive 2014/65/EU, which 

has been implemented in France as part of article 

L. 511 to the French Monetary and Financial 

Code—Code mone ́taire et financier (‘‘MFC’’). These 

address, inter alia, organizational, compliance and 

conduct requirements applicable to nonbank 

‘‘investment firms.’’ In relevant part, those 

requirements also apply to credit institutions that 

provide investment services or perform investment 

activities. Additional relevant requirements are: (i) 

Commission Delegated Regulation (EU) 2017/565 

(‘‘MiFID Org Reg’’), which in part supplements 

MiFID with respect to organizational requirements 

for firms; (ii) Markets in Financial Instruments 

Regulation (‘‘MiFIR’’), Regulation (EU) 648/2012, 

which generally addressing trading venues and 

transparency; (iii) Commission Delegated Directive 

(EU) 2017/593 (‘‘MiFID Delegated Directive’’), 

which in part supplements MiFID with regard to 

safeguarding client property, and in France is 

implemented in relevant part by the Re`glement 

Ge ́ne ́ral de L’Autorite ́ des Marche ́s Financiers 

(‘‘AMF General Regulation’’); and (iv) 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 France has been implemented by 

article L.561 to the MFC. 

14Relevant requirements are: (i) European Market 

Infrastructure Regulation (‘‘EMIR’’), Regulation (EU) 

648/2012, which in part imposes certain riskmitigation requirements on counterparties in 

connection with uncleared OTC transactions; (ii) 

Delegated Regulation (EU) 149/2013 (‘‘EMIR RTS’’), 

which supplements EMIR with various regulatory 

technical standards, including standards addressing 

confirmations, portfolio reconciliation, portfolio 

compression and dispute resolution; and (iii) 

Delegated Regulation (EU) 2016/2251 (‘‘EMIR 

Margin RTS’’), which further supplements EMIR 

with regulatory technical standards related to risk 

mitigation techniques. 

15The EU’s Capital Requirements Directive IV 

(‘‘CRD’’), Directive 2013/36/EU has been adopted in 

France as part of article L.533 to the MFC, and 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 French law as part of articles 

L. 511 and L.634 to the MFC. 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. Pursuant to 

amendments that will become effective in June 

2021, the requirements of CRD and the CRR will 

apply to credit institutions and to certain nonbank 

undertakings (that carry on activities involving 

dealing, portfolio management, investment advice 

and underwriting/placing) that meet specified 

thresholds (e.g., consolidated assets of Ö30 billion 

or more). See generally Investment Firms 

Regulation (‘‘IFR’’), Regulation (EU) 2019/2033, art. 

62 (amending certain definitions in the CRR). 

16The Market Abuse Regulation (‘‘MAR’’), 

Regulation (EU) 596/2014, sets forth requirements 

to enhance market integrity and investor protection. 

The Investment Recommendations Regulation 

adopted pursuant to MAR (‘‘MAR Investment 

Recommendations Regulation’’), Commission 

Delegated Regulation (EU) 2016/958, supplements 

MAR with respect to regulatory technical standards 

regarding investment recommendations. 

17 In support, the application incorporates and 

relies on a series of European Commission analyses 

that compare EU requirements with applicable 

requirements under the Exchange Act, in addition 

to analyses specific to French law and practices. 

The application particularly incorporates and 

builds upon European Commission analyses related 

to: Risk control (see French Authorities’ 

Application Annex 1 category 1), books and records 

(see the French Authorities’ Application Annex 1 

category 2), internal supervision and compliance 

(see the French Authorities’ Application Annex 1 

category 3), and counterparty protection (see the 

French Authorities’ Application Annex 1 category 

4). 

18 In this context, the Commission recognizes 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 Commission 

preliminarily has found that the French regime 

produces comparable outcomes notwithstanding 

those particular differences, the Commission 

proposes to make a positive determination on 

substituted compliance. Where the Commission 

preliminarily has found that those exclusions, 

exemptions and exceptions lead to outcomes that 

are not comparable, however, the proposal would 

not provide for substituted compliance. 

Internal supervision, chief compliance 

officer and additional section 15F(j) 

requirements—Requirements related to 

diligent supervision and chief 

compliance officers, as well as 

requirements related to conflicts of 

interest and information gathering 

under Exchange Act section 15F(j).10

Counterparty protection 

requirements—Requirements related to 

disclosure of material risks and 

characteristics and material incentives 

or conflicts of interest, disclosure of 

daily marks, fair and balanced 

communications, disclosure of clearing 

rights, ‘‘know your counterparty’’ and 

suitability of recommendations.11

Recordkeeping, reporting, 

notification, and securities count 

requirements—Requirements related to 

making and keeping current certain 

prescribed records, the preservation of 

records, reporting, notification, and 

securities counts.12

C. Comparability Considerations and 

Proposed Order 

Because France is a member of the 

European Union, market participants in 

France are subject to French regulations 

implemented pursuant to EU directives, 

and to applicable EU regulations. Those 

include requirements related to: 

Organization, compliance and 

conduct 13; risk-mitigation; 14 prudential 

matters; 15 and certain other matters 

relevant to the application.16 In the view 

of the French Authorities, French and 

EU requirements taken as a whole 

produce regulatory outcomes that are 

comparable to those of the relevant 

requirements under the Exchange Act.17

In the Commission’s preliminary 

view, requirements under the Exchange 

Act and French/EU requirements 

maintain similar approaches with 

respect to achieving regulatory goals in 

several respects, but follow differing 

approaches or incorporate disparate 

elements in certain other respects. The 

Commission has considered those 

similarities and differences when 

analyzing comparability and developing 

preliminary views, while recognizing 

that differences in approach do not 

necessarily preclude substituted 

compliance in light of the Commission’s 

holistic, outcomes-oriented framework 

for assessing comparability.18

Based on the Commission’s analysis 

of the application and review of relevant 

French and EU requirements, the 

Commission is proposing an Order, 

located at Attachment A, granting 

substituted compliance subject to 

specific conditions and limitations. 

When SBS Entities seek to rely on 

substituted compliance to satisfy 

particular requirements under the 

Exchange Act, non-compliance with the 

applicable French and EU requirements 

would lead to a violation of those 

requirements under the Exchange Act 

and potential enforcement action by the 

Commission (as opposed to automatic 

revocation of the substituted 

compliance order). 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85723 

19See para. (g)(1)(i) and (ii) to the proposed 

Order. 

20See para. (g)(1)(iii) to the proposed Order. 

21See para. (a)(1) to the proposed Order (relevant 

activities must constitute ‘‘investment services’’ or 

‘‘investment activities’’ as defined in MiFID art. 

4(1)(2) and MFC L. 321–1 in connection with 

applicable provisions). Under this condition, an 

SBS 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 entity to be subject to and comply with 

provisions of MiFID, MFC or related EU and French 

requirements. The security-based swap activities 

need not be ‘‘investment services or activities’’ 

when the relevant part of the Order does not require 

compliance with one of those provisions (e.g., 

paragraph (e)(6) addressing substituted compliance 

for daily mark disclosure requirements). 

22See para. (a)(2) to the proposed Order (relevant 

counterparties or potential counterparties must be 

‘‘clients’’ or potential ‘‘clients’’ as defined in MiFID 

art. 4(1)(9) and as used in the relevant provision of 

MFC, in connection with applicable provisions). 

23See para. (a)(3) to the proposed Order (relevant 

security-based swaps must be ‘‘financial 

instruments’’ as defined in MiFID art. 4(1)(15) and 

MFC L. 211–1 and D. 211–1A in connection with 

applicable provisions). 

24See para. (a)(4) to the proposed Order (relevant 

Covered Entities must be ‘‘institutions,’’ as defined 

in CRD art. 3(1)(3) and CRR art. 4(1)(3), and either 

a credit institution or finance company, each as 

defined in MFC L. 511–1). 

25See para. (a)(5) to the proposed Order. 

26See, e.g., para. (c)(1) to the proposed Order 

(substituted compliance for Exchange Act capital 

requirements available to Covered Entities that are 

subject to and comply with certain provisions of 

CRR, BRRD, CRD and provisions of French law that 

implement BRRD and/or CRD and/or other EU and 

French requirements adopted pursuant to those 

provisions); para. (c)(2) of the proposed Order 

(substituted compliance for Exchange Act margin 

requirements available to Covered Entities that are 

subject to and comply with certain provisions of 

CRR, CRD and provisions of French law that 

implement CRD and/or other EU and French 

requirements adopted pursuant to those 

provisions). 

27See para. (a)(6) to the proposed Order. In 

accordance with the terms of the proposed Order, 

this arrangement will need to be in place at the time 

a Covered Entity makes use of substituted 

compliance by complying with any EU or French 

requirements for which the ECB, AMF and ACPR 

share supervisory responsibility. 

28See para. (a)(7) to the proposed Order. 

III. Applicable Entities and General 

Conditions 

A. Covered Entities for Which the 

Commission Is Proposing a Positive 

Conditional Substituted Compliance 

Determination 

Under the proposed Order, 

substituted compliance would be 

available to ‘‘Covered Entities’’—a term 

that would limit the scope of the 

substituted compliance determination to 

SBS Entities that are subject to 

applicable French and EU requirements 

and oversight. Consistent with the 

parameters of substituted compliance 

under Exchange Act rule 3a71–6, the 

proposed ‘‘Covered Entity’’ definition 

would provide that the relevant entities 

must be security-based swap dealers or 

major security-based swap participants 

registered with the Commission, and 

that those entities cannot be U.S. 

persons.19

The proposed ‘‘Covered Entity’’ 

definition further would provide that 

the entities must be investment firms 

that the AMF authorize to provide 

investment services or perform 

investment activities in France or credit 

institutions that the ACPR authorize 

after approval by the AMF of the credit 

institution’s program of operations to 

provide investment services or perform 

investment activities in France.20 This is 

intended to help ensure that those 

entities are subject to relevant French 

and EU requirements and oversight. 

B. General Conditions and Prerequisites 

Substituted compliance under the 

proposed Order would be subject to a 

number of conditions and other 

prerequisites, to help ensure that the 

relevant French and EU requirements 

that form the basis for substituted 

compliance in practice will apply to the 

SBS Entity’s security-based swap 

business and activities, and to promote 

the Commission’s oversight over entities 

that avail themselves of substituted 

compliance. 

1. ‘‘Subject to and Complies With’’ 

Applicability Provisions 

Each relevant section of the proposed 

Order would be subject to the condition 

that the Covered Entity ‘‘is subject to 

and complies with’’ the applicable 

French and EU requirements that are 

needed to establish comparability. 

Accordingly, the proposed Order would 

not provide substituted compliance 

when an SBS Entity is excused from 

compliance with relevant foreign 

provisions, such as, for example, if 

relevant member French or EU 

requirements do not apply to the 

security-based swap activities of a thirdcountry branch of a French SBS Entity. 

2. Additional General Conditions 

Substituted compliance under the 

proposed Order further would be 

subject to general conditions intended 

to help ensure the applicability of 

relevant French and EU requirements, 

and to facilitate the Commission’s 

oversight of firms that avail themselves 

of substituted compliance. In particular: 

• MiFID ‘‘investment services or 

activities’’—The Covered Entity’s 

security-based swap activities must 

constitute ‘‘investment services or 

activities’’ for purposes of applicable 

provisions under MiFID, provisions 

under MFC that implement MiFID and/ 

or other EU and French requirements 

adopted pursuant to those provisions, 

and must fall within the scope of the 

firm’s authorization from the AMF or 

from the ACPR after approval by the 

AMF of the firm’s program of 

operations.21

• MiFID ‘‘clients’’—The Covered 

Entity’s counterparties (or potential 

counterparties) must be ‘‘clients’’ (or 

potential ‘‘clients’’) for purposes of 

applicable provisions under MiFID, 

provisions under MFC that implement 

MiFID and/or other EU and French 

requirements adopted pursuant to those 

provisions.22

• MiFID ‘‘financial instruments’’— 

The relevant security-based swaps must 

be ‘‘financial instruments’’ for purposes 

of applicable provisions under MiFID, 

provisions of MFC that implement 

MiFID and/or other EU and French 

requirements adopted pursuant to those 

provisions.23

• CRD ‘‘institutions’’—The Covered 

Entity must be an ‘‘institution’’ for 

purposes of applicable provisions under 

CRD, provisions of MFC that implement 

CRD, CRR and/or other EU and French 

requirements adopted pursuant to those 

provisions.24

• Memoranda of Understanding—The 

Commission and the AMF and ACPR 

must have an applicable memorandum 

of understanding or other arrangement 

addressing cooperation with respect to 

the Order at the time the Covered Entity 

makes use of substituted compliance.25

For Covered Entities that are credit 

institutions, the AMF, ACPR and ECB 

share responsibility for supervising 

compliance with some of the provisions 

of EU and French law addressed by the 

proposed Order.26 To ensure the 

Commission’s ability to receive 

information about these Covered 

Entities that may belong to the ECB, the 

proposed Order would require that, at 

the time such a Covered Entity makes 

use of substituted compliance with 

respect to those requirements, the 

Commission and the ECB, and/or AMF 

and/or the ACPR also must have a 

memorandum of understanding and/or 

other arrangement addressing 

cooperation with respect to the Order as 

it pertains to this ECB-owned 

information.27

• Notice of reliance on substituted 

compliance—An SBS Entity relying on 

the substituted compliance order must 

provide notice of its intent to rely on the 

order by notifying the Commission in 

writing.28

3. European Union Cross-Border Matters 

The cross-border application of 

MiFID, MAR and EU and Member State 


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29See MiFID art. 35(8). 

30See para. (a)(8) to the proposed Order. 

31See para. (a)(8) to the proposed Order. 

32See Exchange Act Release No. 68071 (Oct. 18, 

2012), 77 FR 70214, 70250 (Nov. 23, 2012) 

(proposing capital and margin requirements for 

security-based swap dealers and major securitybased swap participants). The French Authorities’ 

application discusses French and EU requirements 

that address SBS Entities’ obligations related to risk 

management. See French Authorities’ Application 

Annex 1 category 1 at 66–79. 

33See Exchange Act Release No. 78011 (Jun. 8, 

2016), 81 FR 39808, 39809 & 39820 (Jun. 17, 2019) 

(‘‘Trade Acknowledgment and Verification 

Adopting Release’’). The French Authorities’ 

Application discusses French and EU requirements 

that address SBS Entities’ obligations related to 

confirmations and to information to be provided to 

clients regarding executed orders. See French 

Authorities’ Application Annex 1 category 1 at 80– 

102. 

34See Exchange Act Release No. 87782 (Dec. 18, 

2019), 85 FR 6359, 6360–61 (Feb. 4, 2020) (‘‘Risk 

Mitigation Adopting Release’’). The French 

Authorities’ Application discusses French and EU 

requirements that address portfolio reconciliation 

and dispute resolution and reporting. See French 

Authorities’ Application Annex 1 category 1 at 104– 

12. 

35See Risk Mitigation Adopting Release, 85 FR at 

6361. The French Authorities’ Application 

discusses EU portfolio compression requirements. 

See French Authorities’ Application Annex 1 

category 1 at 113–16. 

36See Risk Mitigation Adopting Release, 85 FR at 

6361. The French Authorities’ Application 

discusses French and EU requirements regarding 

records of rights, obligations and terms of 

investment firm services. See French Authorities’ 

Application Annex 1 category 1 at 116–32. 

37 In connection with risk management system 

requirements, Covered Entities particularly must 

comply with: MiFID art. 16(4)–(5) and MFC L. 533– 

10.II (4) and (5) (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 

MFC L. 511–41–1–B and L. 511–41–1–C, L. 511–55 

through L. 511–57, L. 511–60 through L. 511–66, L. 

511–89 through L. 511–97; Internal Control Order 

articles 106, 111, 114–15, 121–22, 130–34, 146–86, 

211–12, 214–15; Prudential Supervision and Risk 

Assessment Order article 7 (addressing internal 

governance and the treatment of various categories 

of risk); 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. 

requirements adopted pursuant to 

MiFID or MAR raises special issues. For 

some EU requirements under MiFID 

(and other EU and French requirements 

adopted pursuant to MiFID), EU law 

allocates the responsibility for 

supervising and enforcing those 

requirements to authorities of the 

Member State in whose territory a 

Covered Entity provides certain 

services.29 To help ensure that the 

prerequisites to substituted compliance 

with respect to supervision and 

enforcement are satisfied in fact, when 

the proposed Order requires a Covered 

Entity to be subject to or comply with 

one of those MiFID requirements (or 

other EU or French requirements 

adopted pursuant to MiFID), the AMF or 

the ACPR must be the authority 

responsible for supervision and 

enforcement of those requirements in 

relation to the particular service for 

which substituted compliance is used.30

Similarly, for some of the EU 

requirements under MAR (and other EU 

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, when 

the proposed Order requires a Covered 

Entity to be subject to or comply with 

one of those MAR requirements (or 

other EU requirements adopted 

pursuant to MAR), the Covered Entity 

may use substituted compliance only if 

one of the authorities responsible for 

supervision and enforcement of those 

requirements is the AMF or the ACPR.31

IV. Substituted Compliance for Risk 

Control Requirements 

A. The French Authorities’ Request and 

Associated Analytic Considerations 

The French Authorities’ Application 

in part requests substituted compliance 

in connection with risk control 

requirements under the Exchange Act 

relating to: 

• Risk management systems— 

Internal risk management system 

requirements pursuant to Exchange Act 

section 15F(j)(2) and relevant aspects of 

Exchange Act rule 15Fh–3(h)(2)(iii)(I). 

Those provisions address the obligation 

of registered entities to follow policies 

and procedures reasonably designed to 

help manage the risks associated with 

their business activities.32

• Trade acknowledgment and 

verification—Trade acknowledgment 

and verification requirements pursuant 

to Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–2. Those 

provisions help avoid legal and 

operational risks by requiring definitive 

written records of transactions and for 

procedures to avoid disagreements 

regarding the meaning of transaction 

terms.33

• Portfolio reconciliation and dispute 

reporting—Portfolio reconciliation and 

dispute reporting requirements pursuant 

to Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–3. Those 

provisions require that counterparties 

engage in portfolio reconciliation and 

resolve discrepancies in connection 

with uncleared security-based swaps, 

and promptly notify the Commission 

and applicable prudential regulators 

regarding certain valuation disputes.34

• Portfolio compression—Portfolio 

compression requirements pursuant to 

Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–4. Those 

provisions require that SBS Entities 

have procedures addressing bilateral 

offset, bilateral compression and 

multilateral compression in connection 

with uncleared security-based swaps.35

• Trading relationship 

documentation—Trading relationship 

documentation requirements pursuant 

to Exchange Act section 15F(i) and 

Exchange Act rule 15Fi–5. Those 

provisions require that SBS Entities 

have procedures to execute written 

security-based swap trading relationship 

documentation with their counterparties 

prior to, or contemporaneously with, 

executing certain security-based 

swaps.36

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, 

credit, counterparty, operational and 

legal risks associated with their 

security-based swap businesses. The 

Commission’s comparability assessment 

accordingly focuses on whether the 

analogous foreign requirements—taken 

as a whole—produce comparable 

outcomes with regard to providing that 

registered entities follow risk mitigation 

and documentation practices that are 

appropriate to the risks associated with 

their security-based swap businesses. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

In the Commission’s preliminary view 

based on the French Authorities’ 

Application and the Commission’s 

review of applicable provisions, 

relevant French and EU requirements 

would produce regulatory outcomes that 

are comparable to those associated with 

these risk control requirements, by 

subjecting French SBS Entities to risk 

mitigation and documentation practices 

that are appropriate to the risks 

associated with their security-based 

swap businesses. Substituted 

compliance accordingly would be 

conditioned on Covered Entities being 

subject to the French and EU provisions 

that in the aggregate establish a 

framework that produces outcomes 

comparable to those associated with 

these risk control requirements under 

the Exchange Act.37


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Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85725 

286–88 and 293 (addressing counterparty credit risk 

management and risk management systems); and 

EMIR Margin RTS art. 2 (addressing general 

provisions for risk management procedures). See 

para. (b)(1) to the proposed Order. In connection 

with trade acknowledgement and verification 

requirements, firms must comply with MiFID art. 

25(6) and MFC L. 533–15 (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 proposed 

Order. In connection with portfolio reconciliation 

and dispute reporting requirements, firms must 

comply 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) to the proposed Order. 

In connection with portfolio compression 

requirements, firms must comply with EMIR RTS 

art. 14 (also addressing portfolio protection). See 

para. (b)(4) to the proposed Order. In connection 

with trading relationship documentation 

requirements, firms must comply with: MiFID art. 

25(5) and MFC L. 533–14 (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) to the proposed Order. 

The above 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.’’ 

38See para. (b)(5)(ii) to the proposed Order 

(incorporating condition that the Covered Entity 

cannot treat applicable counterparties as ‘‘eligible 

counterparties’’ for purposes of MiFID art. 30 or 

MFC article L. 533–14 in relation to the relevant 

MiFID and MFC provisions). Because trading 

relationship documentation is an entity-level 

requirement, this condition generally would 

disapply the ‘‘eligible counterparty’’ exception in 

connection with the relevant MiFID and MFC 

provisions for all of the entity’s applicable 

counterparties, including non-U.S. counterparties. 

Rule 15Fi–5 does not apply to existing securitybased swaps, or to cleared and certain securitybased swaps executed anonymously on a national 

security exchange or a security-based swap 

execution facility. See rule 15Fi–5(a)(1). 

39E.g., MiFID art. 25(5) (requiring that investment 

firms establish a record that includes documents 

‘‘that set out the rights and obligations of the 

parties, and the other terms on which the 

investment firm will provide services to the 

client’’); MFC L.533–14; MiFID Org Reg art. 58. 

40See MiFID art. 30(1); MFC L.533–20. 

41Those disclosures address information 

regarding the status of the SBS Entity or its 

counterparty as an insured depository institution or 

financial counterparty, and regarding the possibility 

that in certain circumstances the SBS Entity or its 

counterparty may be subject to the insolvency 

regime set forth under Title II of the Dodd-Frank 

Act or the Federal Deposit Insurance Act, which 

may affect rights to terminate, liquidate or net 

security-based swaps. See Risk Mitigation Adopting 

Release, 85 FR at 6374 (discussing potential 

application of alternatives to the liquidation 

schemes established under the Securities Investor 

Protection Act of 1970 or the U.S. Bankruptcy 

Code). The absence of such disclosure would not 

appear to 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. 

See also EMIR Margin RTS (in part addressing 

procedures providing for or specifying the terms of 

agreements entered into by counterparties, 

including applicable governing law for non-cleared 

derivatives, and further providing that 

counterparties which enter into a netting or 

collateral exchange agreement must perform an 

independent legal review regarding enforceability). 

42See para. (b)(3)(ii) to the proposed Order 

(requiring that the Covered Entity provide the 

Commission with reports regarding counterparty 

disputes on the same basis that it provides those 

reports to competent authorities pursuant to EMIR 

RTS art. 15(2)). 

43 In proposing the notice provision, the 

Commission recognized that valuation inaccuracies 

may lead to uncollaterialized credit exposure and 

the potential for loss in the event of default. See 

Exchange Act Release No. 84861 (Dec. 19, 2018), 84 

FR 4614, 4621 (Feb. 15, 2019). It thus is important 

that the Commission be informed regarding 

valuation disputes affecting registered entities. 

44The principal difference between the two sets 

of requirements concerns the timing of notices. 

Under Exchange Act rule 15Fi–3, 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). Under EMIR 

Continued 

While the Commission recognizes that 

there are certain differences between 

those French and EU requirements and 

the applicable risk control requirements 

under the Exchange Act, in the 

Commission’s preliminary view those 

differences on balance would not 

preclude substituted compliance for 

these requirements, particularly as 

requirement-by-requirement similarity 

is not needed for substituted 

compliance. 

2. Additional Conditions and Scope 

Issues 

Substituted compliance in connection 

with these requirements would be 

subject to certain additional conditions 

to help ensure the comparability of 

outcomes: 

a. Trading Relationship 

Documentation—MiFID ‘‘Eligible 

Counterparty’’ Exception Not 

Applicable 

Under the proposed Order, 

substituted compliance in connection 

with the trading relationship 

documentation provisions of Exchange 

Act rule 15Fi–5 would be conditioned 

on the requirement that the non-U.S. 

firm not treat its counterparties as 

‘‘eligible counterparties’’ for purposes of 

the relevant MiFID provisions needed to 

establish comparability.38

Certain of the relevant French and EU 

requirements that provide for this type 

of documentation 39 do not apply to 

investment firms’ transactions with 

‘‘eligible counterparties.’’ 40 Frameworks 

that completely exclude compliance in 

connection with a particular category of 

security-based swap counterparty would 

not promote the associated risk control 

purposes sufficiently to produce a 

comparable regulatory outcome. 

The Commission is mindful that 

compliance with this condition may 

require French SBS Entities that wish to 

rely on substituted compliance to 

supplement their existing practices and 

incur additional time and cost burdens 

to follow relevant French and EU 

documentation requirements in 

connection with their security-based 

swap business involving ‘‘eligible 

counterparties.’’ On balance, however, 

this prerequisite to substituted 

compliance is necessary to promote 

comparability in light of the risk control 

purposes of the trading relationship 

documentation requirement, and that 

requirement’s lack of a comparable 

carveout based on counterparty 

categories. 

b. Trading Relationship 

Documentation—Disclosure Regarding 

Legal and Bankruptcy Status 

Under the proposed Order, 

substituted compliance in connection 

with trading relationship 

documentation would not extend to 

disclosures regarding legal and 

bankruptcy status that are required by 

paragraph (b)(5) to rule 15Fi–5 when the 

counterparty is a U.S. person.41

Documentation requirements under 

applicable French and EU law do not 

address the disclosure of information 

related to insolvency procedures under 

U.S. law. 

c. Dispute Reporting—Provision of 

Dispute Reports Consistent With EU 

Law 

Under the proposed Order, 

substituted compliance further would 

be conditioned on Covered Entities 

having to provide the Commission with 

reports regarding disputes between 

counterparties, on the same basis as the 

Covered Entities provide those reports 

to competent authorities pursuant to EU 

law.42 This condition promotes 

comparability with the Exchange Act 

rule requiring reporting to the 

Commission regarding significant 

valuation disputes,43 while leveraging 

EU reporting provisions to avoid the 

need for Covered Entities to create 

additional de novo reporting 

frameworks.44


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RTS art. 15(2), firms must report at least monthly, 

to competent authorities, disputes between 

counterparties in excess of £15 million and 

outstanding for at least 15 business days. The 

Commission is mindful that the EU provision does 

not provide for notice as quickly as rule 15Fi–3(c), 

but in the Commission’s preliminary view, on 

balance this difference would not be inconsistent 

with the conclusion that the two sets of risk control 

requirements—taken as a whole—produce 

comparable regulatory outcomes. 

45See Exchange Act Release No. 86175 (June 21, 

2019), 84 FR 42872, 43947 (August 22, 2019) 

(‘‘Capital and Margin Adopting Release’’). The 

French Authorities’ Application discusses French 

and EU requirements that address firms’ capital 

requirements. See the French Authorities’ 

Application Annex 1 category 1 capital portion at 

1–24. See also French Authorities’ Application 

Annex 1 category 1 at 75–79 (generally discussing 

internal risk management requirements). 

46See Capital and Margin Adopting Release, 84 

FR at 43881. The Exchange Act rule 18a–1 capital 

requirement (applicable to non-prudentially 

regulated security-based swap dealers that are not 

also registered broker-dealers, other than OTC 

derivatives dealers) is grounded in the net liquid 

asset test applicable to registered-broker dealers. 

The net liquid asset test seeks to promote liquidity 

by requiring that a firm maintain sufficient liquid 

assets to meet all liabilities, including obligations 

to customers, counterparties, and other creditors, 

and, in the event a firm fails financially, to have 

adequate additional resources to wind-down its 

business in an orderly manner without the need for 

a formal proceeding. See Capital and Margin 

Adopting Release, 84 FR at 43879. 

47See Exchange Act rule 18a–1(f). 

48See Capital and Margin Adopting Release, 84 

FR at 43947; see also id. at 43949 (‘‘Obtaining 

collateral is one of the ways OTC derivatives 

dealers manage their credit risk exposure to OTC 

derivatives counterparties. Prior to the financial 

crisis, in certain circumstances, counterparties were 

able to enter into OTC derivatives transactions 

without having to deliver collateral. When ‘‘trigger 

events’’ occurred during the financial crisis, those 

counterparties faced significant liquidity strains 

when they were required to deliver collateral’’). The 

French Authorities’ Application discusses French 

and EU requirements that address firms’ margin 

requirements. See the French Authorities’ 

Application Annex 1 category 1 at 7–74. 

49 In connection with capital requirements, 

Covered Entities must comply with: The capital 

requirements of the CRR, including recitals 40, 43 

and 87, and articles 26, 28, 50–52, 61–63, 92, 111, 

113(1), 114–122, 143, 153(8), 177(2), 283, 290, 300– 

311, 312(2), 362–377, 382–383, 412(1), 413(1), 

416(1), 427(1), 413, 429, 430, and 499; MiFid Org. 

Reg., article 23(1); BRRD, articles 27(1), 31(2), 

31(1)(a) and (5), 32(5), 45(6) and 81(1); CRD, articles 

73, 79, 86, 97, 98(1)(e), 98(6), 99, 100(1), 102(1), 

104, 104(1), 105, 129, 129(1), 130, 130(1), 130(5), 

131, 133, 133(1), 133(4), 141, 142, 142(2), and 

142(4); MFC articles L. 511–13, L. 511–15, 511–41– 

1 A, 511–41–1 A(XIV), L. 511–41–1 B, L. 511–41– 

1 C, L. 511–41–3, L. 511–41–3.II, L. 511–41–3.III, 

L. 511–41–3.IV, L. 511–41–4, L. 511–41–5, L. 511– 

42, L. 532–6, L. 533–2–1, L. 533–2–2, L. 533–2–3, 

L. 612–24, R. 612–30, L. 612–32, R. 612–32, L. 612– 

33.I, L. 612–33.II, L. 612–40, L. 613–44, L. 613–49. 

L. 613–49.II, L. 613–50.I, L. 631–2–1; Decree of 3 

November 2014 on internal control, articles 10, 94– 

197, and 211–230; Ministerial Order on the 

Supervisory Review and Evaluation Process, 

articles 6–10; Decree of 3 November 2014 relating 

to capital buffers, articles 2, 16, 23, 37, 38, 56–64; 

and EMIR Margin RTS, recital 31, articles 2, 3(b), 

7, and 19(1)(d)–(e), (3) and (8). In connection with 

margin requirements, Covered Entities must comply 

with: EMIR article 11; EMIR Margin RTS; CRR 

articles 103, 105(3); 105(10); 111(2), 224, 285, 286, 

286(7), 290, 295, 296(2)(b), 297(1), 297(3), and 

298(1); MiFID Org Reg. article 23(1); CRD articles 

74 and 79(b); MFC articles L. 511–41–1–B, L. 533– 

2–2, L. 533–29, I al. 1, and L. 511–55 al. 1; and 

Decree of 3 November 2014 on internal control, 

article 114. 

50See Capital and Margin Adopting Release, 84 

FR at 43908–43909. See also BCBS/IOSCO, Margin 

Requirements for Non-centrally Cleared Derivatives 

(April 2020), available at https://www.bis.org/bcbs/ 

publ/d499.pdf (‘‘BCBS/IOSCO Paper’’). The EU and 

French margin requirements also are based on the 

recommendation in the BCBS/IOSCO Paper. 

V. Substituted Compliance for Capital 

and Margin Requirements 

A. The French Authorities’ Request and 

Associated Analytic Considerations 

The French Authorities’ Application 

in part requests substituted compliance 

in connection with requirements under 

the Exchange Act relating to: 

• Capital—Capital requirements 

pursuant to Exchange Act section 15F(e) 

and Exchange Act rule 18a–1 et seq. (for 

non-prudentially regulated securitybased swap dealers). The capital 

provisions for non-prudentially 

regulated security-based swap dealers 

help to ensure the registered entity 

maintains at all times sufficient liquid 

assets to promptly satisfy its liabilities, 

and to provide a cushion of liquid assets 

in excess of liabilities to covered 

potential market, credit, and other 

risks.45 This net liquid assets test 

standard protects customers and 

counterparties and mitigates the 

consequences of a firm’s failure by 

promoting the ability of the firm to 

absorb financial shocks and, if 

necessary, to self-liquidate in an orderly 

manner.46 As part of the capital 

requirements, non-prudentially 

regulated security-based swap dealers 

also must comply with the internal risk 

management control requirements of 

Exchange Act Rule 15c3–4 with respect 

to certain activities.47

• Margin—Margin requirements 

pursuant to Exchange Act section 15F(e) 

and Exchange Act rule 18a–3 for nonprudentially regulated security-based 

swap dealers and major security-based 

swap participants. The margin 

provisions are designed to protect the 

registered entity from the consequences 

of a counterparty’s default.48

Taken as a whole, these capital and 

margin requirements help to promote 

market stability by mandating that 

registered entities follow practices that 

are appropriate to manage the market, 

credit, liquidity, solvency, counterparty, 

and operational risks associated with 

their security-based swap businesses. 

The Commission’s comparability 

assessment accordingly focuses on 

whether the analogous foreign 

requirements—taken as a whole— 

produce comparable outcomes with 

regard to providing that registered 

entities follow capital and margin 

requirements that are appropriate to the 

risks associated with their securitybased swap businesses. 

B. Preliminary Views and Proposed 

Order 

In the Commission’s preliminary 

view, based on the French Authorities’ 

Application and the Commission’s 

review of applicable provisions, 

relevant French and EU requirements 

would produce regulatory outcomes that 

are comparable to those associated with 

the above capital and margin 

requirements, by subjecting French SBS 

Entities to financial responsibility 

practices that are appropriate to the 

risks associated with their securitybased swap businesses. Substituted 

compliance accordingly would be 

conditioned on SBS Entities being 

subject to the French and EU provisions 

that, in the aggregate, establish a 

framework that produces outcomes 

comparable to those associated with the 

capital and margin requirements under 

the Exchange Act.49 For example, in 

adopting its final margin requirements 

for non-cleared security-based swaps, 

the Commission stated that it modified 

the proposal to more closely align the 

final rule with the margin rules of the 

Commodity Futures Trading 

Commission and the U.S. prudential 

regulators and, in doing so, with the 

recommendations made by the Basel 

Committee on Banking Supervision 

(‘‘BCBS’’) and the Board of the 

International Organizations of Securities 

Commissions (‘‘IOSCO’’) with respect to 

margin requirements for non-centrally 

cleared derivatives.50

While the Commission recognizes that 

there are certain differences between 

those French and EU requirements and 

the applicable risk control requirements 

under the Exchange Act, in the 

Commission’s preliminary view, those 

differences on balance would not 

preclude substituted compliance for 

these requirements, particularly as 

requirement-by-requirement similarity 

is not needed for substituted 

compliance. 

VI. Substituted Compliance for Internal 

Supervision, Chief Compliance Officers 

and Additional Exchange Act Section 

15F(j) Requirements 

A. The French Authorities’ Request and 

Associated Analytic Considerations 

The French Authorities also request 

substituted compliance in connection 

with requirements under the Exchange 

Act relating to: 


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51The French Authorities’ Application addresses 

French and EU provisions that address firms’ 

supervisory frameworks, persons with supervisory 

authority, supervisory policies and procedures, 

general compliance and internal recordkeeping, 

investigation of personnel, conflicts of interest, 

personal trading and remuneration. See French 

Authorities’ Application Annex 1 category 3 at 3– 

27, 29–74. 

52The French Authorities’ Application discusses 

French and EU requirements that address 

compliance officers and their responsibilities, 

compliance officer appointment, removal and 

compensation, related conflict of interest 

provisions, and compliance-related reports. See 

French Authorities’ Application Annex 1 category 

3 at 75–108. 

53Section 15F(j)(4)(A) particularly requires firms 

to have systems and procedures to obtain necessary 

information to perform functions required under 

section 15F. The French Authorities’ application in 

turn discusses French and EU provisions generally 

addressing information gathering and disclosure. 

See French Authorities’ Application Annex 1 

category 3 at 27–28. Section 15F(j)(6) prohibits 

firms from adopting any process or taking any 

action that results in any unreasonable restraint of 

trade, or to impose any material anticompetitive 

burden on trading or clearing. The French 

Authorities’ application addresses EU antitrust 

requirements. See French Authorities’ Application 

Annex 1 category 3 at 32. 

54This portion of the proposed Order accordingly 

would extend generally to the internal supervision 

provisions of Exchange Act rule 15Fh–3(h), the 

information gathering provisions of Exchange Act 

section 15F(j)(4)(A), and the conflict of interest 

provisions of Exchange Act section 15F(j)(5). See 

para. (d)(1) to the proposed Order. This portion of 

the proposed Order does not extend to applicable 

portions of rule 15Fh–3(h) as that rule mandates 

supervisory policies and procedures in connection 

with: The risk management system provisions of 

Exchange Act section 15F(j)(2) (which are 

addressed by proposed paragraph (b)(1) to the Order 

in connection with internal risk management); the 

information-related provisions of Exchange Act 

sections 15F(j)(3) and (j)(4)(B) (for which 

substituted compliance is not available); and the 

antitrust provisions of Exchange Act section 

15F(j)(6) (for which the Commission is not 

proposing to provide substituted compliance). See 

para. (d)(1)(iii) to the proposed Order. 

55 In connection with these internal supervision, 

chief compliance officer and conflict of interest and 

information gathering provisions, SBS Entities 

particularly must comply with: MiFID art. 16 and 

23 and MFC articles L. 533–2, L. 533–10.II and III, 

L. 533–24 and L. 533–24–1 (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 MFC 

articles L. 511–41–1–B and L. 511–41–1–C, L. 511– 

51, L. 511–52 I, L. 511.53, L. 511–55 through L. 

511–69, L. 511–71 through 86, L. 511–89 through 

L. 511–97, L. 511–102, R. 511–16–2 and R. 511–16– 

3; Internal Control Order articles 106, 111, 114, 115, 

121–22, 130–34, 146–86, 211–12, 214–15; and 

Prudential Supervision and Risk Assessment Order 

article 7 (addressing internal governance, recovery 

and resolution plans, risk management policies, and 

management body and remuneration policies). See 

para. (d)(3) to the proposed Order. 

56See para. (d)(4) to the proposed Order. 

57As noted, substituted compliance does not 

extend to antifraud prohibitions or to certain other 

requirements under the Exchange Act (e.g., 

requirements related to transactions with 

counterparties that are not eligible contract 

participants (‘‘ECP’’), segregation requirements). See 

note 2, supra. Also, substituted compliance also 

does not extend to requirements under the 

Exchange Act that are outside of the scope of the 

French Authorities’ request (e.g., ECP verification 

and special entity requirements), see note 11, supra, 

or to requirements under the Exchange Act for 

which the Commission has not found 

comparability. 

• Internal supervision—Diligent 

supervision is required pursuant to 

Exchange Act section 15F(h)(1)(B) and 

Exchange Act rule 15Fh–3(h), and 

additional conflict of interest provisions 

under Exchange Act section 15F(j)(5). 

These provisions generally require that 

SBS Entities establish, maintain and 

enforce supervisory policies and 

procedures that reasonably are designed 

to prevent violations of applicable law, 

and implement certain systems and 

procedures related to conflicts of 

interest.51

• Chief compliance officers—Chief 

compliance officer requirements are set 

out in Exchange Act section 15F(k) and 

Exchange Act rule 15Fk–1. These 

provisions in general require that SBS 

Entities 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 an annual compliance report to 

the Commission.52

• Additional Exchange Act section 

15F(j) requirements—Additional 

requirements related to informationgathering pursuant to Exchange Act 

section 15F(j)(4)(A), and certain 

antitrust prohibitions specified by 

Exchange Act section 15F(j)(6).53

Taken as a whole, these internal 

supervision, chief compliance officer 

and additional Exchange Act section 

15F(j) requirements help to promote 

SBS Entities’ use of structures, 

processes and responsible personnel 

reasonably designed to promote 

compliance with applicable law, to 

identify and cure instances of noncompliance, and to manage conflicts of 

interest. The comparability assessment 

accordingly may focus on whether the 

analogous foreign requirements—taken 

as a whole—produce comparable 

outcomes with regard to providing that 

registered entities have structures and 

processes reasonably designed to 

promote compliance with applicable 

law, identify and cure instances of noncompliance, and to manage conflicts of 

interest, in part through the designation 

of an individual with responsibility and 

authority over compliance matters. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

Based on the French Authorities’ 

Application and the Commission’s 

review of applicable provisions, in the 

Commission’s preliminary view the 

relevant French and EU requirements 

would produce regulatory outcomes that 

are comparable to those associated with 

the above-described internal 

supervision, chief compliance officer, 

conflict of interest and informationrelated requirements by providing that 

French 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.54 As elsewhere, this part of 

the proposed Order conditions 

substituted compliance on SBS Entities 

being subject to and complying with 

specified French and EU requirements 

that are necessary to establish 

comparability.55

In taking this proposed approach, the 

Commission recognizes that certain 

differences are present between those 

French and EU requirements and the 

applicable requirements under the 

Exchange Act. In the Commission’s 

preliminary view, on balance, however, 

those differences would not preclude 

substituted compliance within the 

relevant outcomes-oriented context. 

2. Additional Conditions and Scope 

Issues 

Substituted compliance in connection 

with these requirements would be 

subject to certain additional conditions 

to help ensure the comparability of 

outcomes. 

a. Application of French and EU 

Supervisory and Compliance 

Requirements to Residual U.S. 

Requirements and Order Conditions 

Under the proposed Order, 

substituted compliance for the relevant 

internal supervision requirements 

would be conditioned on relevant 

French SBS Entities complying with 

applicable French 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.56

This condition addresses the fact that, 

even with substituted compliance, SBS 

Entities still would be subject directly to 

a number of requirements under the 

Exchange Act and to the conditions to 

the final Order.57 In some cases, 


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58Substituted compliance does not extend to 

certain Exchange Act antifraud prohibitions and 

other requirements under the Exchange Act (e.g., 

requirements related to transactions with non-ECPs, 

and segregation requirements). Substituted 

compliance also does not extend to requirements 

under the Exchange Act that are outside of the 

scope of the French Authorities’ request (e.g., ECP 

verification and special entity requirements), or to 

requirements under the Exchange Act for which the 

Commission has not found comparability. 

59For example, the French Authorities are not 

requesting substituted compliance in connection 

with ECP verification requirements, ‘‘special entity’’ 

provisions and political contribution provisions. 

See note 11, supra. 

60See para. (d)(2)(ii) to the proposed Order. 

MiFID Org Reg art. 22(2)(c) particularly requires 

that a firm’s compliance function ‘‘report to the 

management body, on at least an annual basis, on 

the implementation and effectiveness of the overall 

control environment for investment services and 

activities, on the risks that have been identified and 

on the complaints-handling reporting as well as 

remedies undertaken or to be undertaken[.]’’ Under 

the proposed condition, those reports, as submitted 

to the Commission and the firm’s management 

body, also would address SBS Entities’ compliance 

with the other conditions to the Order (in addition 

to addressing those firms’ compliance with 

applicable French and EU provisions). 

61 In practice, SBS Entities may satisfy this 

condition by identifying relevant Order conditions, 

and reporting on the implementation and 

effectiveness of their controls with regard to 

compliance with those Order conditions. 

62See also German Substituted Compliance Order 

part IV.B, 85 FR at ll. The Commission is not 

taking any position regarding the applicability of 

the section 15F(j)(6) antitrust prohibitions in the 

cross-border context. Non-U.S. SBS Entities should 

assess the applicability of those prohibitions to 

their security-based swap businesses. 

63See Release No. 77617 (Apr. 14, 2016), 81 FR 

29960, 29983–86 (May 13, 2016) (‘‘Business 

Conduct Adopting Release’’). The French 

Authorities’ Application discusses French and EU 

requirements that address disclosure of product 

information and firm information. See French 

Authorities’ Application Annex 1 category 4 at 24– 

41. 

64See Business Conduct Adopting Release, 81 FR 

at 29986–91. The French Authorities’ Application 

discusses French and EU requirements that address 

valuation, portfolio reconciliation and trade 

reporting. See French Authorities’ Application 

Annex 1 category 4 at 42–53. 

65See Business Conduct Adopting Release, 81 FR 

at 30000–02. The French Authorities’ Application 

discusses French and EU requirements that address 

communications standards. See French Authorities’ 

Application Annex 1 category 4 at 2–24. 

66Exchange Act section 3C(g)(5) [15 U.S.C. 78c– 

3(g)(5)] provides certain rights for counterparties to 

select the clearing agency at which a security-based 

swap is cleared. For all security-based swaps that 

an SBS Entity enters into with certain 

counterparties, the counterparty has the sole right 

to select the clearing agency at which the securitybased swap is cleared. For security-based swaps 

that are not subject to mandatory clearing (pursuant 

to Exchange Act sections 3C(a) and (b)) and that an 

SBS Entity enters into with certain counterparties, 

the counterparty also may elect to require clearing 

of the security-based swap. Substituted compliance 

is not available in connection with this provision. 

The French Authorities’ Application discusses 

French and EU provisions that address clearing 

rights. See French Authorities’ Application Annex 

1 category 4 at 76–83. 

67See Business Conduct Adopting Release, 81 FR 

at 29993–94. The French Authorities’ Application 

discusses French and EU suitability requirements 

regarding information that firms must obtain 

particular requirements under the 

Exchange Act are outside the ambit of 

substituted compliance.58 In other 

cases, certain requirements under the 

Exchange Act may not have comparable 

French or EU requirements, or may be 

outside the scope of the French 

Authorities’ request.59 While the French 

and EU regulatory frameworks in 

general reasonably appear to promote 

SBS Entities’ compliance with 

applicable French and EU laws, those 

requirements do not appear to promote 

SBS Entities’ compliance with 

requirements under the Exchange Act 

that are not subject to substituted 

compliance, or promote SBS Entities’ 

compliance with the applicable 

conditions to substituted compliance. 

This condition would allow SBS 

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. 

b. Compliance Reports 

Under the proposed Order, 

substituted compliance in connection 

with the compliance report 

requirements under Exchange Act 

section 15F(k)(3) and Exchange Act rule 

15Fk–1(c) also would be subject to the 

condition that the compliance reports 

required pursuant to MiFID Org Reg 

article 22(2)(c) must: (a) Be provided to 

the Commission annually and in the 

English language, (b) include a 

certification under penalty of law that 

the report is accurate and complete, and 

(c) address the SBS Entity’s compliance 

with other applicable conditions to this 

Order.60

Although certain French and EU 

requirements address firms’ use of 

internal compliance reports, those 

provisions do not require those entities 

to submit compliance reports to the 

Commission. Under this condition, SBS 

Entities could leverage the compliance 

reports that they otherwise are required 

to produce, by extending those reports 

to address compliance with the 

conditions to the Order.61

c. Antitrust Considerations 

Under the proposed Order, 

substituted compliance would not 

extend to Exchange Act section 15F(j)(6) 

(and related internal supervision 

requirements of Exchange Act rule 

15Fh–3(h)(2)(iii)(I)). Allowing an 

alternative means of compliance would 

not appear to lead to outcomes 

comparable to that statutory 

prohibition.62

VII. Substituted Compliance for 

Counterparty Protection Requirements 

A. The French Authorities’ Request and 

Associated Analytic Considerations 

The French Authorities further 

request substituted compliance in 

connection with provisions under the 

Exchange Act relating to: 

• Disclosure of material risks and 

characteristics and material incentives 

or conflicts of interest—Exchange Act 

rule 15Fh–3(b) requires that SBS 

Entities disclose to certain 

counterparties to a security-based swap 

certain information about the material 

risks and characteristics of the securitybased swap, as well as material 

incentives or conflicts of interest that 

the SBS Entity may have in connection 

with the security-based swap. These 

provisions address the need for securitybased swap market participants to have 

information that is sufficient to make 

informed decisions regarding potential 

transactions involving particular 

counterparties and particular financial 

instruments.63

• Daily mark disclosure—Exchange 

Act rule 15Fh–3(c) requires that SBS 

Entities provide daily mark information 

to certain counterparties. These 

provisions address the need for market 

participants to have effective access to 

daily mark information necessary to 

manage their security-based swap 

positions.64

• Fair and balanced 

communications—Exchange Act rule 

15Fh–3(g) requires that SBS Entities 

communicate with counterparties in a 

fair and balanced manner based on 

principles of fair dealing and good faith. 

These provisions promote complete and 

honest communications as part of SBS 

Entities’ security-based swap 

businesses.65

• Clearing rights disclosure— 

Exchange Act rule 15Fh–3(d) requires 

that SBS Entities provide certain 

counterparties with information 

regarding clearing rights under the 

Exchange Act.66

• ‘‘Know your counterparty’’— 

Exchange Act rule 15Fh–3(e) requires 

that SBS Entities establish, maintain 

and enforce written policies and 

procedures to obtain and retain certain 

information regarding a counterparty 

that is necessary for conducting 

business with that counterparty. This 

provision accounts for the need that 

SBS Entities obtain essential 

counterparty information necessary to 

promote effective compliance and risk 

management.67


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regarding counterparties. See French Authorities’ 

Application Annex 1 category 4 at 54–62. 

68See Business Conduct Adopting Release, 81 FR 

at 29994–30000. A security-based swap dealer may 

satisfy its counterparty-specific suitability 

obligation with respect to an ‘‘institutional 

counterparty,’’ as defined in Exchange Act rule 

15Fh–3(f)(4), if the security-based swap dealer 

reasonably determines that the counterparty or its 

agent is capable of independently evaluating 

relevant investment risks, the counterparty or its 

agent represents in writing that it is exercising 

independent judgment in evaluating the 

recommendation, and the security-based swap 

dealer discloses that it is acting as counterparty and 

is not undertaking to assess the suitability of the 

recommendation for the counterparty. See 

Exchange Act rules 15Fh–3(f)(2) and (3). 

69See Business Conduct Adopting Release, 81 FR 

at 29997. The French Authorities’ Application 

discusses French and EU suitability requirements 

that are more targeted for transactions with 

‘‘professional clients.’’ See French Authorities’ 

Application Annex 1 category 4 at 63–75. 

70See Business Conduct Adopting Release, 81 FR 

at 30065. These transaction-level requirements 

generally apply only to a non-U.S. SBS Entity’s 

activities involving U.S. counterparties (unless the 

transaction is arranged, negotiated or executed in 

the United States). In particular, for non-U.S. SBS 

Entities, the counterparty protection requirements 

under Exchange Act section 15F(h) apply only to 

the SBS Entity’s transactions with U.S. 

counterparties (apart from certain transactions 

conducted through a foreign branch of the U.S. 

counterparty), or to transactions arranged, 

negotiated or executed in the United States. See 

Exchange Act rule 3a71–3(c) [17 CFR 240.3a71– 

3(c)] (exception from business conduct 

requirements for a security-based swap dealer’s 

‘‘foreign business’’); see also Exchange Act rules 

3a71–3(a)(3), (8) and (9) [17 CFR 240.3a71–3(a)(3), 

(8) and (9)] (definitions of ‘‘transaction conducted 

through a foreign branch,’’ ‘‘U.S. business’’ and 

‘‘foreign business’’). 

71See generally para. (e) to the proposed Order. 

72 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); MFC 

L. 533–12.II and D. 533–15; 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. (e)(1) to the proposed Order. 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); MFC L .533–10.II(3); and MiFID Org Reg 

art. 33–35; (ii) MiFID art. 24(9); MFC L. 533–12–4; 

MiFID Delegated Directive art. 11(5); and AMF 

General Regulation art. 314–17; or (iii) MAR art. 

20(1), in each case in relation to the security-based 

swap for which substituted compliance is applied. 

See para. (e)(2) to the proposed Order. In 

connection with ‘‘know your counterparty’’ 

requirements, Covered Entities must be subject to 

and comply with: MiFID art. 16(2); MFC L. 533– 

10.II(2); MiFID Org Reg art. 21–22, 25–26 and 

applicable parts of Annex I; CRD art. 74(1) and 

85(1); MFC L. 511–55 and L. 511–41–1–B; MLD art. 

11 and 13; MFC L. 561–5, L. 561–5–1, L. 561–6, L. 

561–10, L. 561–4–1, R. 561–5, R. 561–5–1, R. 561– 

5–2, R. 561–5–4, R. 561–7, R. 561–10–3, R. 561–11– 

1 and R. 561–12; MLD art. 8(3) and 8(4)(a) as 

applied to internal policies, controls and 

procedures regarding recordkeeping of customer 

due diligence activities; and MFC L. 561–4–1 as 

applied to vigilance measures regarding 

recordkeeping of customer due diligence activities, 

in each case in relation to the security-based swap 

for which substituted compliance is applied. See 

para. (e)(3) to the proposed Order. In connection 

with suitability requirements, Covered Entities 

must be subject to and comply with: MiFID art. 

24(2)–(3) and 25(1)–(2); MFC L. 533–24, L. 533–24– 

1, L. 533–12.I, L. 533–12–6 and L. 533–13.I; 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 for which substituted 

compliance is applied. See para. (e)(4)(i) to the 

proposed Order. 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 MFC L. 533–11 and 

L. 533–12.I or MiFID art. 30(1) and MFC L. 533– 

20; and (ii) MiFID art. 24(4)–(5); MFC L. 533–12.II– 

III and D. 533–15; MiFID Org Reg art. 46–48; MAR 

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. (e)(5) 

to the Proposed Order. In connection with daily 

mark disclosure requirements, Covered Entities 

must be required to reconcile, and in fact reconcile, 

the portfolio containing the security-based swap for 

which substituted compliance is applied, on each 

business day pursuant to EMIR articles 11(1)(b) and 

11(2) and EMIR RTS article 13. See para. (e)(6) to 

the Proposed Order. 

73The Commission received a comment on the 

German Notice and Proposed Order suggesting that 

a similar condition should apply only to securitybased 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 

Continued 

• Suitability—Exchange Act rule 

15Fh–3(f) requires a security-based 

swap dealer that recommends to certain 

counterparties a security-based swap or 

trading strategy involving a securitybased swap, to undertake reasonable 

diligence to understand the potential 

risks and rewards associated with the 

recommendation and to have a 

reasonable basis to believe that the 

recommendation is suitable for the 

counterparty.68 This provision accounts 

for the need to guard against securitybased swap dealers making unsuitable 

recommendations.69

Taken as a whole, the counterparty 

protection requirements under section 

15F of the Exchange Act 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.’’ 70

The comparability assessment 

accordingly may focus on whether the 

analogous foreign requirements—taken 

as a whole—produce similar outcomes 

with regard to promoting professional 

standards of conduct, increasing 

transparency and requiring SBS Entities 

to treat parties fairly. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

Based on the French Authorities’ 

Application and the Commission’s 

review of applicable provisions, in the 

Commission’s preliminary view, the 

relevant French and EU requirements 

produce regulatory outcomes that are 

comparable to counterparty protection 

requirements under Exchange Act 

section 15F(h) related to 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, by subjecting French 

SBS Entities to obligations that promote 

standards of professional conduct, 

transparency and the fair treatment of 

parties. 

The proposed Order accordingly 

would provide conditional substituted 

compliance in connection with those 

requirements.71 The proposed Order 

preliminarily does not provide 

substituted compliance in connection 

with requirements related to clearing 

rights disclosure, however, for reasons 

addressed below. 

In taking this proposed approach, the 

Commission recognizes that there are 

certain differences between relevant 

French and EU requirements, on the one 

hand, and the relevant communications, 

disclosure, ‘‘know your counterparty’’ 

and suitability requirements under the 

Exchange Act, on the other hand. On 

balance, however, in the Commission’s 

preliminary view, those differences, 

when coupled with the conditions in 

the proposed Order, are not so material 

as to be inconsistent with substituted 

compliance within the requisite 

outcomes-oriented context. As 

elsewhere, the counterparty protection 

provisions of the proposed Order in part 

condition substituted compliance on 

SBS Entities being subject to, and 

complying with, specified French and 

EU requirements that are necessary to 

establish comparability.72 Substituted 

compliance in connection with these 

counterparty protection requirements 

also would be subject to specific 

conditions and limitations necessary to 

promote consistency in regulatory 

outcomes. 

2. Additional Conditions and Scope 

Issues 

a. Daily Mark Disclosure 

The proposed Order would provide 

substituted compliance in connection 

with daily mark disclosure requirements 

pursuant to Exchange Act rule 15Fh– 

3(c) to the extent that the Covered Entity 

participates in daily portfolio 

reconciliation exercises that include the 

relevant security-based swap pursuant 

to French and EU requirements.73 The 


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Covered Entity complies with EU mark-to-market 

(or mark-to-model) and reporting requirements. See 

Letter from Kyle Brandon, Managing Director, Head 

of Derivative Policy, SIFMA (Dec. 8, 2020) (‘‘SIFMA 

Letter’’) at 6. The Commission did not adopt that 

bifurcated approach in response to BaFin’s 

application. See German Substituted Compliance 

Order. Similarly, the Commission is proposing one 

approach to substituted compliance for daily mark 

requirements in response to the French Authorities’ 

Application. This approach would provide 

substituted compliance for daily mark requirements 

based on comparability of outcomes with respect to 

transactions with U.S. counterparties to the same 

extent as it would provide substituted compliance 

with respect to all other transactions. 

74The Commission received a comment on the 

German Notice and Proposed Order that the same 

EU reporting requirements cited by the French 

Authorities are comparable to Exchange Act daily 

mark requirements. See SIFMA Letter at 5. The 

commenter stated that these access and timing 

challenges should not be as relevant for EU and 

other non-U.S. counterparties if they are already 

subject to EU reporting obligations and that in its 

experience data is available promptly from trade 

repositories. See id. 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 timely marks from these trade reports. See 

also German Substituted Compliance Order. 

75See EMIR RTS article 13(3)(a)(i); EMIR article 

10. 

76See note 66, supra. 

77See para. (e)(4)(ii) to the proposed Order. 

78Annex 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 nonprofessional 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. 

79The Commission recognizes that Exchange Act 

rules permit security-based swap dealers, when 

making a recommendation to an ‘‘institutional 

counterparty,’’ to satisfy some elements of the 

suitability requirement if the security-based swap 

dealer reasonably determines that the counterparty 

or its agent is capable of independently evaluating 

relevant investment risks, the counterparty or its 

agent represents in writing that it is exercising 

independent judgment in evaluating 

recommendations, and the security-based swap 

dealer discloses to the counterparty that it is acting 

as counterparty and is not undertaking to assess the 

suitability of the recommendation for the 

counterparty. See Exchange Act rule 15Fh–3(f)(2). 

However, the institutional counterparties to whom 

this alternative applies are only a subset of the 

‘‘professional clients’’ to whom more narrowly 

tailored suitability requirements apply under 

MiFID. The Commission notes that the institutional 

counterparty alternative under the Exchange Act 

would remain available, in accordance with its 

terms, for recommendations that are not eligible for, 

or for which a Covered Entity does not rely on, 

substituted compliance. 

80The French Authorities’ Application discusses 

French and EU requirements that address firms’ 

record creation obligations related to matters such 

as transactions, counterparties and their property, 

personnel and business conduct. See the French 

Authorities’ Application Annex 1 category 2 at 2– 

42. 

French Authorities’ Application takes 

the view that EU requirements directing 

certain types of derivatives 

counterparties to mark-to-market (or 

mark-to-model) uncleared transactions 

each day are comparable to Exchange 

Act requirements. In the Commission’s 

preliminary view, however, these EU 

mark-to-market (or mark-to-model) 

requirements are not comparable to 

Exchange Act requirements because the 

EU requirements do not require 

disclosure to counterparties. In the 

alternative, the French Authorities’ 

Application notes that certain 

derivatives counterparties must report 

to an EU trade repository updated daily 

valuations for each OTC derivative 

contract and that all counterparties have 

the right to access these valuations at 

the relevant EU trade repository. In the 

Commission’s preliminary view, 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. In addition, the 

information may be less current, given 

the time necessary for reporting and for 

the trade repository to make the 

information available.74 For these 

reasons, in the Commission’s 

preliminary view, these EU reporting 

requirements also are not comparable to 

Exchange Act requirements. Finally, the 

French Authorities’ Application 

describes the EU’s portfolio 

reconciliation requirements for 

uncleared OTC derivative contracts, 

which include a requirement to 

exchange valuations of those contracts 

directly between counterparties. The 

required frequency of portfolio 

reconciliations varies depending on the 

types of counterparties and the size of 

the portfolio of OTC derivatives 

between them, with daily reconciliation 

required only for the largest portfolios. 

For security-based swaps to which the 

EU’s daily portfolio reconciliation 

requirements apply (i.e., security-based 

swaps of a financial counterparty or 

non-financial counterparty subject to 

the clearing obligation in EMIR, if the 

counterparties have 500 or more OTC 

derivatives contracts outstanding with 

each other 75), the Commission 

preliminarily views these requirements 

as comparable to Exchange Act 

requirements. For all other securitybased swaps in portfolios that are not 

required to be reconciled on each 

business day, the Commission 

preliminarily views the EU’s portfolio 

reconciliation requirements as not 

comparable to Exchange Act 

requirements. 

b. No Substituted Compliance in 

Connection With Clearing Rights 

Disclosure 

The proposed Order would not 

provide substituted compliance in 

connection with clearing rights 

disclosure requirements pursuant to 

Exchange Act rule 15Fh–3(d). For those 

requirements, the French Authorities’ 

Application cites certain provisions 

related to clearing rights in the EU that 

are unrelated to the clearing rights 

provided by Exchange Act section 

3C(g)(5).76 The section 3C(g)(5) clearing 

rights are not eligible for substituted 

compliance, and the EU provisions do 

not require disclosure of these section 

3C(g)(5) clearing rights. In the 

Commission’s preliminary view, 

substituted compliance based on EU 

clearing provisions would not lead to 

comparable disclosure of a 

counterparty’s clearing rights under the 

Exchange Act. 

c. Suitability 

Under the proposed Order, 

substituted compliance in connection 

with the suitability provisions of 

Exchange Act rule 15Fh–3(f) in part 

would be conditioned on the 

requirement that the counterparty be a 

per se ‘‘professional client’’ as defined 

in MiFID and not be a ‘‘special entity’’ 

as defined in Exchange Act section 

15F(h)(2)(C) and Exchange Act rule 

15Fh–2(d).77 Accordingly, the proposed 

Order would not provide substituted 

compliance for Exchange Act suitability 

requirements for a recommendation 

made to a counterparty that is a ‘‘retail 

client’’ or an elective ‘‘professional 

client,’’ as such terms are defined in 

MiFID,78 or for a ‘‘special entity’’ as 

defined in the Exchange Act. In the 

Commission’s preliminary view, absent 

such a condition the MiFID suitability 

requirement would not be expected to 

produce a counterparty protection 

outcome that is comparable with the 

outcome produced by the suitability 

requirements under the Exchange Act.79

VIII. Substituted Compliance for 

Recordkeeping, Reporting, Notification, 

and Securities Count Requirements 

A. French Authorities’ Request and 

Associated Analytic Considerations 

The French Authorities’ Application 

in part requests substituted compliance 

for requirements applicable to SBS 

Entities under the Exchange Act relating 

to: 

• Recordmaking—Exchange Act rule 

18a–5 requires prescribed records to be 

made and kept current.80


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81The French Authorities’ Application discusses 

French and EU requirements that address firms’ 

record preservation obligations related to records 

that firms are required to create, as well as 

additional records such as records of 

communications. See the French Authorities’ 

Application Annex 1 category 2 at 43–81. 82The French Authorities’ Application discusses 

French and EU requirements that address firms’ 

obligations to make certain reports. See the French 

Authorities’ Application Annex 1 category 2 at 82– 

95, 98–104. 83The French Authorities’ Application discusses 

French and EU requirements that address firms’ 

obligations to make certain notifications. See the 

French Authorities’ Application Annex 1 category 

2 at 95–98. 84The French Authorities’ Application discusses 

French and EU requirements that address firms’ 

obligations to perform securities counts. See the 

French Authorities’ Application Annex 1 category 

2 at 32–38. 85Rule 3a71–6 sets forth additional analytic 

considerations in connection with substituted 

compliance for the Commission’s recordkeeping, 

reporting, notification, and securities count 

requirements. In particular, Exchange Act rule 

3a71–6(d)(6) provides that the Commission intends 

to consider (in addition to any conditions imposed) 

‘‘whether the foreign financial regulatory system’s 

required records and reports, the timeframes for 

recording or reporting information, the accounting 

standards governing the records and reports, and 

the required format of the records and reports’’ are 

comparable to applicable provisions under the 

Exchange Act, and whether the foreign provisions 

‘‘would permit the Commission to examine and 

inspect regulated firms’ compliance with the 

applicable securities laws.’’ 

86Recordkeeping, reporting, and notification 

rules that are linked to other Exchange Act rules 

include provisions that address: (1) Unverified 

security-based swap transactions (Exchange Act 

rules 18a–5(a)(15) and (b)(11), and 18a–6(b)(1)(i) 

and (b)(2)(i)); (2) compliance with business conduct 

requirements (Exchange Act rules 18a–5(a)(16) and 

(17) and (b)(12) and (13), 18a–6(b)(1)(i), (b)(1)(xii), 

(b)(2)(i), and 18a–6(b)(2)(vii)); (3) preservation of 

records relating to certain risk mitigation 

requirements (Exchange Act rules 18a–6(d)(4) and 

(5); (4) segregation requirements (Exchange Act 

rules 18a–5(a)(13) and (14) and (b)(9) and (10), 18a– 

6(b)(1)(viii)(L) and (b)(2)(v), 18a–7(c)(3) and (4), and 

18a–8(g)); (5) capital requirements (Exchange Act 

rules 18a–5(a)(9) and (b)(1)(v), 18a–7(a)(3), and 18a– 

8(b); and (6) margin requirements (Exchange Act 

rules 18a–5(a)(12) and (b)(1)(viii)). 

87See para. (f)(1)(ii) to the proposed Order. 88See para. (f)(1)(iii) to the proposed Order. 

• Record Preservation—Exchange Act 

rule 18a–6 requires preservation of 

records.81

• Reporting—Exchange Act rule 18a– 

7 requires certain reports.82

• Notification—Exchange Act rule 

18a–8 requires notification of the 

Commission when certain financial or 

operational problems occur.83

• Securities Count—Exchange Act 

rule 18a–9 requires non-prudentially 

regulated SBS Entities to perform a 

quarterly securities count.84

Taken as a whole, the recordkeeping, 

reporting, notification, and securities 

count requirements that apply to SBS 

Entities are designed to promote the 

prudent operation of the firm’s securitybased 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. 

The comparability assessment 

accordingly may focus on whether the 

analogous foreign requirements—taken 

as a whole—produce comparable 

outcomes with regard to recordkeeping, 

reporting, notification, securities counts, 

and related practices that support the 

Commission’s oversight of these 

registrants. A foreign jurisdiction need 

not have analogues to every requirement 

under Commission rules.85

For certain of the recordkeeping, 

reporting, and notification 

requirements, the comparability 

assessment 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. In particular, a 

number of recordkeeping requirements 

serve a primary purpose of promoting 

and/or documenting SBS Entities’ 

compliance with associated Exchange 

Act requirements.86 When substituted 

compliance is permitted for the 

associated Exchange Act requirements, 

substituted compliance also may be 

appropriate for the linked 

recordkeeping, reporting, and 

notification requirements. Conversely, 

when substituted compliance is not 

available or requested for Exchange Act 

requirements, substituted compliance 

may not be appropriate for linked 

recordkeeping, reporting, or notification 

requirements. 

B. Preliminary Views and Proposed 

Order 

1. General Considerations 

Based on the French Authorities’ 

Application and the Commission’s 

review of applicable provisions, in the 

Commission’s preliminary view, the 

relevant French and EU requirements, 

subject to the conditions and limitations 

of the proposed Order, would produce 

regulatory outcomes that are comparable 

to the outcomes associated with the 

recordkeeping, reporting, notification, 

and securities count requirements under 

the Exchange Act applicable to SBS 

Entities pursuant to Exchange Act rules 

18a–5, 18a–6, 18a–7, 18a–8, and 18a–9. 

In reaching this preliminary 

conclusion, the Commission recognizes 

that there are certain differences 

between those French and EU 

requirements and the applicable 

recordkeeping, reporting, notification, 

and securities count requirements under 

the Exchange Act. In the Commission’s 

preliminary view, on balance, those 

differences generally would not be 

inconsistent with substituted 

compliance for these requirements. As 

noted, ‘‘requirement-by-requirement 

similarity’’ is not needed for substituted 

compliance. 

As discussed below, in select areas, 

substituted compliance in connection 

with these requirements is 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. 

2. Additional Conditions 

i. Additional Conditions Applicable to 

Exchange Act Rule 18a–5 

Under the proposed Order, 

substituted compliance in connection 

with the recordmaking requirements of 

Exchange Act rule 18a–5 is subject to 

the condition that the SBS Entity: (1) 

Preserves all of the data elements 

necessary to create the records required 

by Exchange Act rules 18a–5(a)(1), (2), 

(3), (4), and (7) (if not prudentially 

regulated) or Exchange Act rules 18a– 

5(b)(1), (2), (3), and (7) (if prudentially 

regulated); and (2) upon request 

furnishes promptly to representatives of 

the Commission the records required by 

those rules.87 This condition is modeled 

on the alternative compliance 

mechanism in paragraph (c) of Exchange 

Act rule 18a–5. In effect, a firm will not 

be required to create a record formatted 

pursuant to the Commission’s rules each 

day, but instead only when requested to 

do so by Commission staff. The 

objective is to require—on a very 

limited basis—the production of a 

record that consolidates the information 

required by Exchange Act rules 18a– 

5(a)(1), (2), (3), (4), and (7) (if not 

prudentially regulated) or Exchange Act 

rules 18a–5(b)(1), (2), (3), and (7) (if 

prudentially regulated) in a single 

record and, as applicable, in a blotter or 

ledger format. This will assist the 

Commission staff in reviewing the 

information on the record. 

Under the proposed Order, 

substituted compliance in connection 

with the recordmaking requirements of 

Exchange Act rule 18a–5 is subject to 

the condition that the SBS Entity make 

and keep current the records required 

by Exchange Act rules 18a–5(a)(13) and 

(14) (if not prudentially regulated) or 

Exchange Act rules 18a–5(b)(9) and (10) 

(if prudentially regulated) if the firm is 

not exempt from the requirements of 

Exchange Act rule 18a–4.88 These 

recordmaking rules require the SBS 

Entity to make a record of compliance 

with the possession or control 


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89See 17 CFR 240.18a–4(e). 

90See 17 CFR 240.18a–4(f). 

91See para. (f)(1)(iv) to the proposed Order. 

92See para. (f)(1)(v) to the proposed Order. 

93See Exchange Act rule 3a71–6(d)(1) (specifying 

that substituted compliance is not available in 

connection with the antifraud provisions of 

Exchange Act rule 15Fh–4(a)). 

94The French Authorities have not requested 

substituted compliance in connection with the ECP 

verification requirements of Exchange Act rule 

15Fh–3(a)(1)) or the ‘‘special entity’’ provisions of 

Exchange Act rules 15Fh–3(a)(2) and (3), 15Fh–4(b) 

and 15Fh–5. 

95See para. (f)(2)(ii) to the proposed Order. 

96See para. (f)(2)(iii) to the proposed Order. 

97See para. (f)(2)(iv) to the proposed Order. 

requirements of Exchange Act rule 18a– 

4 and a record of the reserve 

computation required by Exchange Act 

rule 18a–4, respectively. Substituted 

compliance is not available with respect 

to Exchange Act rule 18a–4. Instead, 

provisions of the rule address crossborder transactions and provide 

exemptions from its requirements 

depending on the nature of the 

transaction.89 For example, a securitybased swap dealer that is a foreign bank 

is subject to the possession or control 

and reserve account requirements of 

Exchange Act rule 18a–4 with respect to 

a security-based swap customer that is 

a U.S. person or, in the case of a nonU.S. person, if the security-based swap 

dealer holds funds or other property 

arising out of a transaction had by such 

non-U.S. person with a branch or 

agency in the United States of the 

foreign security-based swap dealer. 

Further, Exchange Act rule 18a–4 

contains a complete exemption from its 

requirements if the security-based swap 

dealer limits its business activities and 

meets certain conditions.90 SBS Entities 

that are not subject to the requirements 

of Exchange Act rule 18a–4 will not 

need to make the records required by 

Exchange Act rules 18a–5(a)(13) and 

(14) (if not prudentially regulated) or 

Exchange Act rules 18a–5(b)(9) and (10) 

(if prudentially regulated) under this 

condition in the proposed Order. 

However, if a firm is subject to 

Exchange Act rule 18a–4, it will need to 

make these records under this condition 

of the Order. 

Under the proposed Order, 

substituted compliance in connection 

with the recordmaking requirements of 

Exchange Act rule 18a–5 is subject to 

the condition that the prudentially 

regulated SBS Entity makes and keeps 

current the records required by 

Exchange Act rule 18a–5(a)(16) (if not 

prudentially regulated) or Exchange Act 

rule 18a–5(b)(12) (if prudentially 

regulated).91 This rule requires the firm 

to document compliance with Exchange 

Act rule 15Fh–6, which imposes 

restrictions related to political 

contributions to municipal entities. The 

French Authorities have not requested 

substituted compliance with respect to 

Exchange Act rule 15Fh–6. 

Finally, under the proposed Order, 

substituted compliance in connection 

with the recordmaking requirements of 

Exchange Act rule 18a–5 is subject to 

the condition that the SBS Entity makes 

and keeps current records documenting 

compliance with requirements 

referenced in Exchange Act rule 18a– 

5(a)(17) (if not prudentially regulated) or 

Exchange Act rule 18a–5(b)(13) (if 

prudentially regulated) for which 

substituted compliance is not 

available.92 Exchange Act rules 18a– 

5(a)(17) and (b)(13) require the firm to 

document compliance with Exchange 

Act rules 15Fh–1 through 15Fh–5 and 

Exchange Act rule 15Fk–1—which, as 

discussed more fully in sections VI and 

VII of this notice, establish certain 

obligations with respect to diligent 

supervision, compliance, and 

counterparty protection. Under the 

proposed Order, when substituted 

compliance is available with respect to 

such an obligation, substituted 

compliance also would be available 

with respect to the corresponding 

recordmaking requirement of Exchange 

Act rule 18a–5(a)(17) or (b)(13). In 

circumstances where substituted 

compliance is not permitted,93 has not 

been requested,94 or is otherwise not 

available under the proposed Order, 

direct compliance with the relevant 

Exchange Act obligation would be 

required, and so, too, would direct 

compliance with the corresponding 

recordmaking requirement of Exchange 

Act rule 18a–5(a)(17) (if not 

prudentially regulated) or Exchange Act 

rule 18a–5(b)(13) (if prudentially 

regulated). 

ii. Additional Conditions Applicable to 

Exchange Act Rule 18a–6 

Under the proposed Order, 

substituted compliance in connection 

with the record preservation 

requirements of Exchange Act rule 18a– 

6 is subject to the condition that the SBS 

Entity preserves the records required by 

Exchange Act rule 18a–6(b)(1)(viii)(L) (if 

not prudentially regulated) or Exchange 

Act rule 18a–6(b)(2)(v) (if prudentially 

regulated) if the firm is not exempt from 

the requirements of Exchange Act rule 

18a–4.95 Exchange Act rules 18a– 

6(b)(1)(viii)(L) and (b)(2)(v) require the 

preservation of detail relating to 

information for the possession or 

control requirements of Exchange Act 

rule 18a–4. As discussed above, 

substituted compliance is not available 

for Exchange Act rule 18a–4. 

Consequently, under this condition, an 

SBS Entity will need to preserve the 

records required by Exchange Act rule 

18a–6(b)(1)(viii)(L) (if not prudentially 

regulated) or Exchange Act rule 18a– 

6(b)(2)(v) (if prudentially regulated), but 

only if the firm is not exempt from 

Exchange Act rule 18a–4. 

Under the proposed Order, 

substituted compliance in connection 

with the record preservation 

requirements of Exchange Act rule 18a– 

6 is subject to the condition that the SBS 

Entity preserves records with respect to 

requirements referenced in Exchange 

Act rule 18a–6(b)(1)(xii) (if not 

prudentially regulated) or Exchange Act 

rule 18a–6(b)(2)(vii) (if prudentially 

regulated) for which substituted 

compliance is not available.96 Under 

Exchange Act rules 18a–6(b)(1)(xii) and 

(b)(2)(vii), the firm must preserve copies 

of documents, communications, 

disclosures, and notices required 

pursuant to Exchange Act rules 15Fh–1 

through 15Fh–6 and Exchange Act rule 

15Fk–1—which establish certain 

obligations with respect to diligent 

supervision, compliance, and 

counterparty protection. Under the 

proposed Order, when substituted 

compliance is available with respect to 

such an obligation, substituted 

compliance also would be available 

with respect to the corresponding record 

preservation requirement of Exchange 

Act rule 18a–6 (b)(1)(xii) or (b)(2)(vii). In 

circumstances where substituted 

compliance is not permitted, has not 

been requested, or is otherwise not 

available under the proposed Order, 

direct compliance with the relevant 

Exchange Act obligation would be 

required, and so, too, would direct 

compliance with the corresponding 

record preservation requirement of 

Exchange Act rule 18a–6(b)(1)(xii) (if 

not prudentially regulated) or Exchange 

Act rule 18a–6(b)(2)(vii) (if prudentially 

regulated). 

Under the proposed Order, 

substituted compliance in connection 

with the record preservation 

requirements of Exchange Act rule 18a– 

6 is subject to the condition that the 

security-based swap dealer or major 

security-based swap participant, with 

respect to a security-based swap 

transaction, preserves the information 

required by Exchange Act rule 18a– 

6(b)(1)(xi) (if not prudentially regulated) 

or Exchange Act rule 18a–6(b)(2)(vi) (if 

prudentially regulated).97 This 

condition is designed to ensure that the 

firm preserves information if the 

transaction is required to be reported to 

a registered security-based swap data 


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98See 17 CFR 242.900–909. 

99See para. (f)(2)(iv) to the proposed Order. 

100See para. (f)(3)(ii) to the proposed Order. 

Under this approach, SBS Entities would be 

permitted to present the information reported in the 

FOCUS Report in accordance with GAAP that the 

SBS Entity uses to prepare publicly available or 

available to be issued 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 

publicly available or available to be issued general 

purpose financial statements in France. 

101See Order Designating Financial Industry 

Regulatory Authority, Inc., to Receive Form X–17A– 

5 (FOCUS Report) from Certain Security-Based 

Swap Dealers and Major Security-Based Swap 

Participants, Exchange Release No. 34–88866 (May 

14, 2020). 

102See para. (f)(3)(ii) to the proposed Order. 

103The Commission anticipates that it would be 

appropriate to tailor the line items required to be 

reported pursuant to this condition and is 

requesting comment on which, if any, line items in 

FOCUS Report Part II (if not prudentially regulated) 

and Part IIC (if prudentially regulated) the SBS 

Entity does not otherwise report or record pursuant 

to applicable laws or regulations. Further, the 

Commission is requesting comment on whether it 

would be appropriate as a condition to substituted 

compliance for SBS Entities to file a FOCUS Report 

Part II (if not prudentially regulated) or Part IIC (if 

prudentially regulated) with a limited number of 

the required line items filled out for two years. 

During this time, the Commission could further 

evaluate the scope of information SBS Entities 

should file. 

104See para. (f)(3)(iii)(A) to the proposed Order. 

105See para. (f)(3)(iii)(B) to the proposed Order. 

106See para. (f)(3)(iii)(C) to the proposed Order. 

repository pursuant to Regulation 

SBSR,98 because the French Authorities 

have not requested substituted 

compliance with respect to Regulation 

SBSR. 

Under the proposed Order, 

substituted compliance in connection 

with the record preservation 

requirements of Exchange Act rule 18a– 

6 is subject to the condition that the SBS 

Entity preserves the records required by 

Exchange Act rule 18a–6(b)(1)(xiii) (if 

not prudentially regulated) or Exchange 

Act rule 18a–6(b)(2)(viii) (if prudentially 

regulated).99 These rules require the 

preservation of documents used to make 

a reasonable determination with respect 

to special entities, including 

information relating to the financial 

status, the tax status, and the investment 

or financing objectives of the special 

entity as required under Exchange Act 

sections 15F(h)(4)(C) and (5)(A). The 

French Authorities are not seeking 

substituted compliance with respect to 

these Exchange Act requirements. 

iii. Additional Conditions Applicable to 

Exchange Act Rule 18a–7 

Under the proposed Order, 

substituted compliance with respect to 

the requirement in Exchange Act rule 

18a–7 to file periodic unaudited 

financial and operational information 

on the FOCUS Report Part II and Part 

IIC is subject to the condition that the 

SBS Entity file with the Commission 

periodic unaudited financial and 

operational information in the manner 

and format specified by the Commission 

by order or rule and present the 

financial information in accordance 

with generally accepted accounting 

principles (‘‘GAAP’’) that the firm uses 

to prepare general purpose publicly 

available or available to be issued 

financial statements in France.100 Rule 

18a–7 requires SBS Entities, on a 

monthly basis (if not prudentially 

regulated) or on a quarterly basis (if 

prudentially regulated), to file an 

unaudited financial and operational 

report known as FOCUS Report Part II 

(if not prudentially regulated) or Part IIC 

(if prudentially regulated). The 

Commission will use the FOCUS Report 

to both monitor the financial and 

operational condition of individual SBS 

Entities and to perform comparisons 

across SBS Entities. The FOCUS Report 

Parts II and IIC are standardized forms 

that elicit specific information through 

numbered line items. This facilitates 

cross-firm analysis and comprehensive 

monitoring of all SBS Entities registered 

with the Commission. Further, the 

Commission has designated the 

Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) to receive the 

FOCUS reports from SBS Entities.101

Broker-dealers registered with the 

Commission currently file their FOCUS 

reports with FINRA through the 

eFOCUS system it administers. FINRA’s 

eFOCUS system will enable brokerdealers, security-based swap dealers, 

and major security-based swap 

participants to file FOCUS reports on 

the same platform using the same 

preexisting templates, software, and 

procedures. 

The Commission preliminarily 

believes that it would be appropriate to 

condition substituted compliance with 

respect to Exchange Act rule 18a–7 on 

the SBS Entity filing unaudited 

financial and operational information in 

a manner and format that facilitates 

cross-firm analysis and comprehensive 

monitoring of all SBS Entities registered 

with the Commission.102 For example, 

the Commission could by order or rule 

require SBS Entities to file the financial 

and operational information with 

FINRA using the FOCUS Report Part II 

(if not prudentially regulated) or Part IIC 

(if prudentially regulated) but permit 

the information input into the form to 

be the same information the SBS Entity 

reports to the French Authorities or 

other European supervisors.103

Under the proposed Order, 

substituted compliance in connection 

with the requirement for nonprudentially regulated SBS Entities to 

file audited annual reports under 

Exchange Act rule 18a–7 is subject to 

four conditions. The first condition is 

that the SBS Entity simultaneously 

transmits to the principal office of the 

Commission or to an email address 

provided on the Commission’s website 

a copy of the financial statements the 

Covered Entity is required to file 

annually with French and/or European 

authorities, including a report of an 

independent public accountant covering 

the financial statements.104 Because 

French or EU laws would not otherwise 

require the financial statements and 

report of the independent public 

accountant covering the financial 

statements to be filed with the 

Commission, the purpose of this 

condition is to ensure the Commission 

receives the financial statements and 

report to more effectively supervise and 

monitor SBS Entities. 

The second condition is that the SBS 

Entity includes with the transmission of 

the annual financial statements and 

report the contact information of an 

individual who can provide further 

information about the financial 

statements and reports.105 This would 

assist the Commission staff in promptly 

contacting an individual at the SBS 

Entity who can respond to questions 

that information on the financial 

statements or report may raise about the 

SBS Entity’s financial or operational 

condition. 

The third condition is that the SBS 

Entity includes with the transmission 

the report of an independent public 

accountant required by Exchange Act 

rule 18a–7(c)(1)(i)(C) covering the 

annual financial statements if French or 

EU laws do not require the Covered 

Entity to engage an independent public 

accountant to prepare a report covering 

the annual financial statements.106 The 

third condition further provides that the 

report of the independent public 

accountant may be prepared in 

accordance with generally accepted 

auditing standards (‘‘GAAS’’) in France 

or the EU that are used to perform audit 

and attestation services. According to 

the French Authorities’ Application, 

French or EU laws only require certain 

investment firms (depending on their 

size) to have their financial statements 

audited, so this condition ensures that 

all SBS Entities subject to the 

requirement in rule 18a–7 to file audited 


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107See para. (f)(3)(iii)(D) to the proposed Order. 

108The limited compliance report would not need 

to address Exchange Act rules 18a–1, 18a–9, or 17a– 

13. 

109See para. (f)(4)(ii) to the proposed Order. 

110See para. (f)(4)(iii) and (iv) to the proposed 

Order. 

111See Exchange Act section 15F(f); Exchange Act 

rule 18a–6(g). 

112See para. (f)(6) to the proposed Order. 

113See generally Business Conduct Adopting 

Release, 81 FR at 30079. 

annual reports are required to have their 

financial statements audited. 

The fourth condition is that the SBS 

Entity files the reports required by 

Exchange Act rule 18a–7(c)(1)(i)(B) and 

(C) addressing the statements identified 

in Exchange Act rule 18a–7(c)(3) or 

(c)(4), as applicable, that relate to 

Exchange Act rule 18a–4.107 These 

reports are designed to provide the 

Commission with information about an 

SBS Entity’s compliance with Rule 18a– 

4. As discussed above, substituted 

compliance is not available for 

Exchange Act rule 18a–4 and, therefore, 

this condition is designed to provide the 

Commission with similar compliance 

information. Under this condition, SBS 

Entities will need to file a limited 

compliance report that includes the 

statements relating to Rule 18a–4 108 or 

exemption report if the SBS Entity 

claims an exemption from Rule 18a–4. 

The SBS Entity also will need to file the 

report of an independent public 

accountant covering the limited 

compliance report or exemption report. 

The fourth condition further provides 

that the report of the independent 

public accountant may be prepared in 

accordance with GAAS in France or the 

EU that are used to perform audit and 

attestation services. 

iv. Additional Conditions Applicable to 

Exchange Act Rule 18a–8 

Under the proposed Order, 

substituted compliance in connection 

with the notification requirements of 

Exchange Act rule 18a–8 is subject to 

the condition that the SBS Entity: (1) 

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 French 

notification laws; and (2) 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.109 The 

purpose of this condition is to alert the 

Commission to financial or operational 

problems that could adversely affect the 

firm—the objective of Exchange Act rule 

18a–8. 

In addition, under the proposed 

Order, substituted compliance in 

connection with the notification 

requirements of Exchange Act rule 18a– 

8 is subject to the conditions that if the 

firm is not exempt from Exchange Act 

rule 18a–4, the SBS Entity complies 

with the notification requirements of 

Exchange Act rules 18a–8(e) and 18a– 

8(g) that relate to Exchange Act rule 

18a–4.110 Exchange Act rule 18a–8(e) 

requires notification if the firm 

discovers or is notified by an 

independent public accountant the 

existence of any material weakness that 

relates to Exchange Act rule 18a–4. 

Exchange Act rule 18a–8(g) requires 

notification if the firm fails to make in 

its special reserve account for the 

exclusive benefit of security-based swap 

customers a deposit, as required by 

Exchange Act rule 18a–4(c). As 

discussed above, substituted 

compliance is not available for 

Exchange Act rule 18a–4. 

3. Examination and Production of 

Records 

Every SBS Entity registered with the 

Commission, whether complying 

directly with Exchange Act 

requirements or relying on substituted 

compliance as a means of complying 

with the Exchange Act, is required to 

satisfy the inspection and production 

requirements imposed on such entities 

under the Exchange Act.111 Covered 

entities may make, keep, and preserve 

records, subject to the conditions 

described above, in a manner prescribed 

by applicable European and French 

requirements. The Commission notes 

that as an element of its substituted 

compliance application, the French 

Authorities have provided the 

Commission with adequate assurances 

that no law or policy would impede the 

ability of any entity that is directly 

supervised by the authority and 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.’’ 

Consistent with those assurances and 

the requirements that apply to all 

registered SBS Entities under the 

Exchange Act, SBS Entities will need to 

keep books and records open to 

inspection by any representative of the 

Commission and to furnish promptly to 

a representative of the Commission 

legible, true, complete, and current 

copies of those records of the firm that 

these entities are required to preserve 

under Exchange Act rule 18a–6 (which 

would include records for which a 

positive substituted compliance 

determination is being made with 

respect to Exchange Act rule 18a–6 

under this order), or any other records 

of the firm 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.112

IX. Additional Considerations 

Regarding Supervisory and 

Enforcement Effectiveness in France 

A. General Considerations 

As noted above, Exchange Act rule 

3a71–6 provides that the Commission’s 

assessment of the comparability of the 

requirements of the foreign financial 

regulatory system must account for ‘‘the 

effectiveness of the supervisory program 

administered, and the enforcement 

authority exercised’’ by the foreign 

financial regulatory authority. This 

prerequisite accounts for the 

understanding that substituted 

compliance determinations should 

reflect the reality of the foreign 

regulatory framework, in that rules that 

appear high-quality on paper 

nonetheless should not form the basis 

for substituted compliance if—in 

practice—market participants are 

permitted to fall short of their regulatory 

obligations. This prerequisite, however, 

also recognizes that differences among 

the supervisory and enforcement 

regimes should not be assumed to 

reflect flaws in one regime or 

another.113

In connection with these 

considerations, the French Authorities’ 

Application includes information 

regarding the French supervisory and 

enforcement framework applicable to 

derivatives markets and market 

participants. This includes information 

regarding the supervisory and 

enforcement authority afforded to the 

AMF and the ACPR to promote 

compliance with applicable 

requirements, applicable supervisory 

and enforcement tools and capabilities, 

consequences of non-compliance, and 

the application of the AMF’s and 

ACPR’s supervisory and enforcement 

practices in the cross-border context. 

After review of this information, the 

Commission preliminarily believes that 

the framework is reasonably designed to 

promote compliance with the laws 

where substituted compliance has been 

requested. 

B. Supervisory Framework in France 

Supervision of credit institutions 

located in France is conducted by the 

AMF, the ACPR, and the ECB. 

Supervision of investment firms located 

in France is conducted by the AMF and 


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Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85735 

114Starting in 2021, the ECB will also supervise 

significant investment firms under the framework 

described in this section. 115The staff was told that all firms applying to 

be a security-based swap dealer with the SEC 

provide investment services. 

the ACPR (together, credit institutions 

and investment firms are referred to as 

‘‘firms’’).114 The day-to-day supervision 

of the firms’ security-based swap 

activities is conducted by the AMF; the 

ACPR’s supervisory powers pertain to 

licensing matters and prudential 

requirements. The ACPR is the primary 

supervisor for margin and AML 

requirements. The AMF and the ACPR 

cooperate closely and have frequent 

communications regarding the 

supervision of firms to accomplish their 

respective missions. The ECB, through 

joint supervisory teams (‘‘JSTs’’), 

supervises firms for compliance with 

the CRD and CRR, including all capital 

requirements. The AMF, the ACPR, and 

the ECB have the ability to request 

records needed for supervision from 

firms through the supervisory process. 

In addition, the AMF, the ACPR, and 

the ECB set annual priorities and 

conduct thematic reviews, which are 

used to enhance supervision in specific 

regulatory areas. The results of these 

thematic reviews are made public to 

provide transparency to the industry. 

The AMF uses a risk-based approach 

to supervision whereby investment 

firms are categorized within four Tiers. 

Tier 1 firms receive the most 

supervisory attention and the staff has 

been told that all firms that use 

substituted compliance will be treated 

as Tier 1 firms. The AMF’s supervisory 

team maintains a constant dialogue with 

Tier 1 firms, including weekly calls 

with compliance officers and regular inperson meetings with senior operational 

management. The AMF assigns two 

portfolio managers to each firm that 

provides investment services.115 One 

portfolio manager covers market activity 

and one portfolio manager covers the 

retail, private banking, depository 

activities, and marketing activities of the 

firm. 

The AMF’s supervision of a Tier 1 

firm focuses in part on review and 

analysis of numerous types of data that 

is submitted by firms to the AMF or the 

ACPR. The portfolio manager in charge 

of monitoring market activity works 

closely with the data driven supervision 

(‘‘DDS’’) team, a group that analyzes the 

regulatory reporting data submitted by 

each firm to understand changes at the 

firm. The portfolio managers also review 

the annual compliance report submitted 

by the firms each year. The report 

covers numerous topics at the firm 

including compliance with the 

recordkeeping requirements, the best 

execution requirements, the anti-market 

abuse regulations, and how conflicts of 

interest are handled and controlled. In 

addition, the ACPR requires firms to file 

an internal control report each year, and 

the parts of the report that are 

applicable to the AMF’s remit are 

shared with the AMF. The portfolio 

manager reviews these reports and 

compares the reports from one year to 

the next. Where inconsistencies are 

noted, the portfolio manager will 

compare them against other internal 

AMF information about the firm, as well 

as complaints that have been submitted 

and significant incidents that are 

reported to the AMF. 

If the AMF identifies an issue at a Tier 

1 firm, the AMF will follow up with the 

firm in a variety of ways. The AMF may 

schedule a follow-up meeting or request 

additional information. The AMF may 

also send the firm a letter from the 

General Secretary of the AMF or one of 

the AMF directors describing the 

violation of law. In addition, the AMF 

may ask the firm to carry out an internal 

or external audit on the topic, or request 

that the firm undertake specific 

corrective measures and report back 

with details on corrective action taken. 

The AMF could also start an onsite 

inspection of the firm. Inspections are 

carried out through an inspection 

division separate and apart from the 

supervisory team. 

The ACPR also uses a risk-based 

approach to supervision, assessing the 

size, business model, complexity, and 

risk profile of the supervised entity. 

Supervisors are assigned based on this 

risk profile ranging in number from two 

supervisors for the least complex 

investment firms to up to twenty 

supervisors for the most significant 

banks. At least two supervisors for each 

Tier 1 firm focus on AML issues. All 

supervisors interact with the firm on a 

daily basis through phone calls and 

meetings, and review the annual report 

on internal controls, which includes 

information on capital and liquidity as 

well as the AML control framework of 

the firm. The ACPR also uses onsite 

inspectors to investigate areas of 

concern, conduct a general review of the 

firm, or validate a specific risk 

methodology. The ACPR allocates about 

a quarter of its onsite inspectors to AML 

inspections every year. 

Where the ACPR detects issues at a 

firm, it will take corrective measures 

that its staff believe are proportional to 

the conduct. For example, the first step 

may be asking the firm, in writing, to 

take corrective measures, which is 

accompanied by enhanced monitoring 

and communication with the ACPR on 

the matter. The ACPR may also conduct 

on onsite inspections. When these 

corrective measures fail, the ACPR may 

open an enforcement proceeding. 

Supervision of the CRD and CRR, 

which includes a firm’s capital 

requirements, is conducted through the 

ECB’s single supervisory mechanism 

and executed by JSTs comprising of ECB 

staff, ACPR staff, and staff from other 

countries in the EU where the 

significant institution has a subsidiary 

or branch. The ACPR assigns multiple 

supervisors to the JST for a significant 

institution headquartered in France. The 

head of the JST is from the ECB and 

generally is not from the country where 

the significant institution is located. As 

part of its day-to-day supervision, the 

JST analyzes the supervisory reporting, 

financial statements, and internal 

documentation of supervised entities. 

The JSTs hold regular and ad hoc 

meetings with the supervised entities at 

various levels of staff seniority. They 

conduct ongoing risk analyses of 

approved risk models, and analyze and 

assess the recovery plans of supervised 

entities. The various supervisory 

activities typically result in supervisory 

measures addressed to the supervised 

institution. Supervisory activities and 

decisions result in a number of routine 

steps such as the monitoring of 

compliance by the JST and, if necessary, 

enforcement measures and sanctions. In 

addition to ongoing supervision, the JST 

may conduct in-depth reviews on 

certain topics by organizing a dedicated 

onsite mission (e.g., an inspection or an 

internal model investigation). The 

onsite inspections are carried out by an 

independent inspection team, which 

works in close cooperation with the 

respective JST. 

For each firm, the JST conducts a 

Supervisory Review and Evaluation 

Process (‘‘SREP’’), which measures the 

risks for each bank. The SREP shows 

where a firm stands in terms of capital 

requirements and the way it handles 

risks. To develop the SREP, supervisors 

review the sustainability of each firm’s 

business model, governance and risk 

management at the firm, capital risks, 

and liquidity and funding risks. Once 

the SREP is developed, the firm will 

receive a letter setting forth specific 

measures that must be implemented the 

following year based on the firm’s 

individual profile. For example, the 

SREP may ask the firm to hold 

additional capital or set forth qualitative 

requirements related to the firm’s 

governance structure or management. 

C. Enforcement Authority in France 

The MFC and SSM Regulations are 

applicable to the distribution of 


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116See note 1, supra. 

117See generally German Notice and Proposed 

Order, 85 FR at 72730–32. 

enforcement authority relating to 

security-based swaps in France. With 

respect to regulated entities, the AMF is 

primarily responsible for enforcement of 

recordkeeping and reporting 

requirements. ACPR is primarily 

responsible for the enforcement of 

prudential recordkeeping and reporting 

requirements regarding investment 

firms; and the ECB is primarily 

responsible for the enforcement of 

prudential recordkeeping and reporting 

requirements regarding credit 

institutions. 

i. The AMF 

The AMF’s investigations may arise 

from information gathered during 

market supervision, monitoring of listed 

companies, alerts raised by the AMF’s 

Market Surveillance Directorate or other 

AMF divisions, and information sent to 

the AMF by foreign authorities. AMF’s 

investigative powers include, but are 

not limited to, obtaining hard copy and 

electronic documents, interviewing 

external experts, accessing business 

premises, and summoning persons 

likely to provide useful information for 

interviews. 

The Enforcement Committee is the 

body empowered to determine sanctions 

in an enforcement matter. Sanctions 

available to the Enforcement Committee 

include freezing assets, banning a 

person from certain professional 

activity, imposing a monetary penalty, 

withdrawing the authorization of an 

asset management company or the 

status of a market operator, and 

requiring corrective statements to be 

published. The AMF also has the power 

to enter into settlements with 

respondents and as part of a settlement 

may require the respondent to cease all 

ongoing violations. Settlements may 

also include the payment of 

compensation to harmed investors. 

French law imposes a five year statute 

of limitations for AMF matters. 

ii. The ECB and the ACPR 

As noted above, the ACPR conducts 

supervisory inspections relating to 

prudential recordkeeping and reporting 

requirements for investment firms. 

When breaches of the requirements 

occur, the Supervisory Board of the 

ACPR is empowered to decide on the 

appropriate measures whether 

administrative, enforcement or 

disciplinary. These measures may 

include injunctions, ‘‘mesures de police 

administrative’’ (including warnings, 

formal notices, conservative measures 

and the appointment of a provisional 

administrator), and coercive fines. 

Additionally, the Supervisory Board 

may decide to introduce disciplinary 

proceedings for anti-money laundering 

and counter terrorist financing. The 

decision-making body in charge of the 

decision to sanction is a separate body, 

the Sanctions Committee, to which the 

Supervisory Board refers the case. 

With respect to credit institutions, the 

ACPR conducts supervisory activity 

through JSTs, under the SSM 

Regulation. Where it identifies a failure 

to comply with obligations under 

applicable regulations, a JST may decide 

effective, proportionate and dissuasive 

sanctions. Misconduct detected by the 

JSTs is addressed primarily by the ECB. 

Under the SSM Regulations, the ECB is 

empowered to address issues of 

noncompliance with applicable 

European Union law by directly 

imposing enforcement measures on 

supervised entities or requiring the 

ACPR to use its national enforcement 

powers. It also may choose to impose 

administrative penalties or request that 

the ACPR open sanctioning 

proceedings. In particular, the ECB may 

impose administrative pecuniary 

penalties, and may impose fines and 

periodic penalty payments per day of 

infringement. Where appropriate, the 

ECB may exercise its enforcement 

authority in parallel with supervisory 

measures. 

X. Request for Comment 

Commenters are invited to address all 

aspects of the application, the 

Commission’s preliminary views and 

the proposed Order. 

A. General Aspects of the Comparability 

Assessments and Proposed Order 

The Commission requests comment 

regarding the preliminary views and 

proposed Order in connection with each 

of the general ‘‘regulatory outcome’’ 

categories addressed above. 

Commenters particularly are invited to 

address, among other issues, whether 

the relevant French and EU provisions 

generally are sufficient to produce 

regulatory outcomes that are comparable 

to the outcomes associated with 

requirements under the Exchange Act, 

and whether the conditions and 

limitations of the proposed Order would 

adequately address potential gaps in the 

relevant regulatory outcomes. 

Commenters also are invited to 

address any differences between French 

regulatory requirements and frameworks 

and the German requirements and 

frameworks that formed the basis for the 

Commission’s grant of substituted 

compliance in connection with 

Germany.116 Given the Commission’s 

substituted compliance determination 

with respect to Germany, should the 

Commission allow German branches of 

French Covered Entities to use 

substituted compliance in 

circumstances where responsibility for 

ensuring compliance with any provision 

of MiFID, MAR or any other EU 

requirement adopted pursuant to MiFID 

or MAR listed in paragraphs (b) through 

(f) of this Order is allocated to the 

Bundesanstalt fu ̈r 

Finanzdienstleistungsaufsicht 

(‘‘BaFin’’), the German financial 

authority? If so, should such reliance be 

conditioned on the MOU between the 

SEC and BaFin addressing substituted 

compliance under those circumstances? 

Similarly, should the Commission allow 

French branches of German Covered 

Entities to use substituted compliance 

in circumstances where responsibility 

for ensuring compliance with any 

provision of MiFID, MAR or any other 

EU requirement adopted pursuant to 

MiFID or MAR listed in paragraphs (b) 

through (e) of the German Substituted 

Compliance Order is allocated to the 

AMF and/or the ACPR? If so, should 

such reliance be conditioned on the 

MOU between the SEC and the French 

Authorities addressing substituted 

compliance under those circumstances? 

B. Risk Control Requirements 

The Commission further requests 

comment regarding the proposed grant 

of substituted compliance in connection 

with requirements under the Exchange 

Act related to risk management systems, 

trade acknowledgement and 

verification, portfolio reconciliation and 

dispute reporting, portfolio 

reconciliation and trading relationship 

documentation. Commenters 

particularly are invited to address the 

basis for substituted compliance in 

connection with those risk control 

requirements, and the proposed 

conditions and limitations connected to 

substituted compliance for those 

requirements. 

Commenters further are invited to 

address any differences between French 

regulatory requirements and frameworks 

and the German requirements and 

frameworks that formed the basis for the 

Commission’s conditional grant of 

substituted compliance in connection 

with Germany for those risk control 

requirements.117

C. Capital and Margin Requirements 

The Commission further requests 

comment regarding the comparability 

analysis of French and EU capital 

requirements with Exchange Act capital 


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Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85737 

118See generally German Notice and Proposed 

Order, 85 FR at 72732–34. 

requirements for non-prudentially 

regulated security-based swap dealers. 

Are there any conditions that should be 

applied to substituted compliance for 

these capital requirements to promote 

comparable regulatory outcomes? For 

example, given the objectives of Rule 

18a–1, should the Commission consider 

including a condition that requires a 

non-prudentially regulated securitybased swap dealer to maintain a 

minimum amount of liquid assets, such 

a minimum ratio of liquid assets to 

illiquid assets? If so, should the ratio of 

liquid assets to illiquid assets be 80% to 

20%, 70% to 30%, 60% to 40% or some 

other ratio? In terms of defining liquid 

and illiquid assets, should the 

Commission consider assets that are 

allowable as capital under Exchange Act 

rule 18a–1 as liquid and assets that are 

not allowable as capital under that rule 

as illiquid? 

In addition, should the Commission 

consider including a condition that 

would require non-prudentially 

regulated security-based swap dealers to 

be subject to a specific liquidity 

requirement, such as a requirement to 

maintain a pool of highly liquid assets 

to cover cash outflows during a 30-day 

period of stress? 

The Commission further requests 

comment on whether it should consider 

including a condition that nonprudentially regulated security-based 

swap dealers must maintain equity 

capital equal or Tier 1 capital at least 

equal to the minimum fixed-dollar 

capital requirements under Exchange 

Act rule 18a–1? For example, should 

there be a condition that that firm 

maintain equity capital or Tier 1 capital 

of at least $20 million? 

The Commission further requests 

comment on what specific types of nonprudentially regulated security-based 

swap dealers in France would be relying 

on a substituted compliance 

determination with respect to capital 

requirements under Exchange Act rule 

18a–1. For example, what are the 

primary business lines engaged in by 

these entities and what types of assets 

and liabilities do they typically carry on 

their balance sheets? Are the balance 

sheets of these entities primarily 

composed of liquid or illiquid assets? 

The Commission notes that the 

comparability analysis for capital for 

France focuses on Covered Entities that 

are subject to the prudential capital 

regime under CRR and CRD. The 

Commission requests comment on how 

the Commission should consider the 

effects of subsequent amendments to the 

capital requirements of the CRR and 

CRD on Covered Entities in the context 

of the proposed order, particularly with 

respect to amendments to the CRD (e.g., 

CRD V), which would require changes 

to implementing French laws. 

The Commission further requests 

comment on whether any investment 

firms that may be relying on the 

Commission’s proposed substituted 

compliance determination would be 

covered under the new capital regime 

under the EU’s IFR. If so, should these 

capital requirements be included in any 

Commission final order regarding the 

determination of substituted compliance 

with respect to the capital requirements 

of the Commission and the EU and 

France? If so, explain how they are 

comparable to the capital requirements 

for non-prudentially regulated securitybased swap dealers under the Exchange 

Act. 

The Commission further requests 

comment on whether there would be 

any non-prudentially regulated major 

security-based swap participants that 

would be seeking substituted 

compliance with respect to Exchange 

Act rule 18a–2. 

The Commission further requests 

comment regarding the Commission’s 

preliminary view that French and EU 

margin requirements are comparable to 

the Exchange Act margin requirements 

for non-prudentially regulated securitybased swap dealers and major securitybased swap participants. Are there any 

conditions that should be applied to 

substituted compliance for the margin 

requirements to promote comparable 

regulatory outcomes? 

D. Internal Supervision, Chief 

Compliance Officer and Additional 

Exchange Act Section 15F(j) 

Requirements 

The Commission requests comment 

regarding the proposed grant of 

substituted compliance in connection 

with requirements under the Exchange 

Act related to internal supervision and 

chief compliance officers, as well as 

additional Exchange Act section 15F(j) 

requirements. Commenters particularly 

are invited to address the basis for 

substituted compliance in connection 

with those risk control requirements, 

and the proposed conditions and 

limitations connected to substituted 

compliance for those requirements. 

Commenters further are invited to 

address any differences between French 

regulatory requirements and frameworks 

and the German requirements and 

frameworks that formed the basis for the 

Commission’s conditional grant of 

substituted compliance in connection 

with Germany for those internal 

supervision and chief compliance 

officers requirements, as well as 

additional Exchange Act section 15F(j) 

requirements.118

E. Counterparty Protection 

Requirements 

The Commission requests comment 

regarding the proposed grant of 

substituted compliance in connection 

with counterparty protection 

requirements under the Exchange Act. 

Commenters particularly are invited to 

address the basis for substituted 

compliance in connection with the 

counterparty protection requirements, 

and the proposed conditions and 

limitations connected to substituted 

compliance for those requirements. 

Commenters further are invited to 

address any differences between French 

regulatory requirements and frameworks 

and the German requirements and 

frameworks that formed the basis for the 

Commission’s conditional grant of 

substituted compliance in connection 

with Germany for certain of those 

counterparty protection requirements. 

Would the responses to any of the 

questions about counterparty protection 

requirements that the Commission 

asked in connection with the German 

substituted compliance request differ if 

those questions applied to French 

regulatory requirements and 

frameworks? 

F. Recordkeeping, Reporting, 

Notification, and Securities Count 

The Commission requests comment 

regarding the proposed grant of 

substituted compliance in connection 

with requirements under the Exchange 

Act related to recordkeeping, reporting, 

notification, and securities counts, as 

well as additional Exchange Act section 

15F(f) requirements. Commenters 

particularly are invited to address the 

basis for substituted compliance in 

connection with those requirements, 

and the proposed conditions and 

limitations connected to substituted 

compliance for those requirements. Do 

French and EU law taken as a whole 

produce regulatory outcomes that are 

comparable to those of Exchange Act 

section 15(f) and Exchange Act rules 

18a–5, 18a–6, 18a–7, 18a–8, and 18a–9 

thereunder? 

Commenters further are invited to 

address any differences between French 

regulatory requirements and frameworks 

and the German requirements and 

frameworks that formed the basis for the 

Commission’s conditional grant of 

substituted compliance in connection 

with Germany for recordkeeping, 

reporting, notification, and securities 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
85738 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

count requirements, as well as 

additional Exchange Act section 15F(f) 

requirements 

Commenters particularly are invited 

to address the proposed condition with 

respect to Exchange Act rule 18a–5 that 

the SBS Entity: (a) Preserve all of the 

data elements necessary to create the 

records required by Exchange Act rules 

18a–5(a)(1), (2), (3), (4), and (7) (if not 

prudentially regulated) or Exchange Act 

rules 18a–5(b)(1), (2), (3), and (7) (if 

prudentially regulated); and (b) upon 

request furnish promptly to 

representatives of the Commission the 

records required by those rules. Do the 

relevant French and EU laws require 

SBS Entities to retain the data elements 

necessary to create the records required 

by these rules? If not, please identify 

which data elements are not preserved 

pursuant to the relevant French and EU 

laws. Further, how burdensome would 

it be for an SBS Entity to format the data 

elements into the records required by 

these rules (e.g., a blotter, ledger, or 

securities record, as applicable) if the 

firm was requested to do so? In what 

formats do SBS Entities in France 

produce this information to the French 

Authorities or other European 

authorities? How do those formats differ 

from the formats required by Exchange 

Act rules 18a–5(a)(1), (2), (3), (4), and (7) 

(if not prudentially regulated) or 

Exchange Act rules 18a–5(b)(1), (2), (3), 

and (7) (if prudentially regulated)? 

Commenters also are invited to 

address the proposal that a positive 

substituted compliance determination 

with respect to Exchange Act rule 18a– 

7 would be conditioned on the SBS 

Entity filing financial and operational 

information with the Commission in the 

manner and format specified by the 

Commission by order or rule. With 

respect to FOCUS Report Part II, not all 

of the line items on the report may be 

as pertinent to a non-prudentially 

regulated SBS Entity if a positive 

substituted compliance determination is 

made with respect to capital or margin. 

With respect to FOCUS Report Part IIC, 

because the Commission does not have 

responsibility to administer capital and 

margin requirements for prudentially 

regulated SBS Entities, the FOCUS 

Report Part IIC elicits much less 

information than the FOCUS Report Part 

II or the financial reports SBS Entities 

file with the French Authorities and/or 

other European authorities. Should the 

Commission require SBS Entities to file 

the financial and operational 

information using the FOCUS Report 

Part II (if not prudentially regulated) or 

Part IIC (if prudentially regulated)? Are 

there line items on the FOCUS Report 

Part II or Part IIC that elicit information 

that is not included in the reports SBS 

Entities file with the French Authorities 

and/or other European authorities? If so, 

do SBS Entities record that information 

in their required books and records? 

Please identify any information that is 

elicited in the FOCUS Report Part II (if 

not prudentially regulated) or Part IIC (if 

prudentially regulated) that is not: (1) 

Included in the financial reports filed by 

SBS Entities with the French 

Authorities and/or other European 

authorities; or (2) recorded in the books 

and records required of SBS Entities. 

With respect to FOCUS Report Part IIC, 

would the answer to these questions 

change if references to FFIEC Form 031 

were not included in the FOCUS Report 

Part IIC? If so, how? As a preliminary 

matter, as a condition of substituted 

compliance should SBS Entities file a 

limited amount of financial and 

operational information on the FOCUS 

Report Part II (if not prudentially 

regulated) or Part IIC (if prudentially 

regulated) for a period of two years to 

further evaluate the burden of requiring 

all applicable line items to be filled out? 

If so, which line items should be 

required? To the extent that SBS Entities 

otherwise report or record information 

that is responsive to the FOCUS Report 

Part II or Part IIC, how could the 

information on these reports be 

integrated into a database of filings the 

Commission or its designee will 

maintain for filers of the FOCUS Report 

Parts II and IIC (e.g., the eFOCUS 

system) to achieve the objective of being 

able to perform cross-form analysis of 

information entered into the uniquely 

numbered line items on the forms? 

Commenters also are invited to 

address the proposal that a positive 

substituted compliance determination 

with respect to the requirement to file 

annual audited reports pursuant to 

Exchange Act rule 18a–7 would be 

subject to four conditions. For example, 

comment is sought on the element of the 

third and fourth conditions that would 

permit the reports of the independent 

public accountant to be prepared in 

accordance with GAAS in France or the 

EU. How do those standards compare to 

U.S. GAAS? In addition, should the 

Commission include a condition in the 

final order that the independent public 

accountant must meet the Commission’s 

independence standards for public 

accountants? Further, the third 

condition would require SBS Entities 

that are not required under French or 

EU laws to file a report of an 

independent public accountant covering 

their financial statements to file such an 

accountant’s report. This condition is 

based on the fact that French or EU laws 

only require certain investment firms 

(depending on their size) to have their 

financial statements audited. Do the 

firms in France that are not subject to 

the requirement to file audited financial 

reports engage in security-based swap 

activities? If so, are they likely to 

register with the Commission as a nonprudentially regulated security-based 

swap dealer or major security-based 

swap participant? 

Further, if the Commission makes a 

positive substituted compliance 

determination with respect to a 

substantive requirement, should the 

Commission make a positive substituted 

compliance determination with respect 

to the linked record making and record 

preservation requirement? In particular, 

in this circumstance, should a positive 

substituted compliance determination 

be made with respect to the 

recordkeeping, reporting, and 

notification rules that are linked to other 

Exchange Act rules which include 

provisions that address: (1) Unverified 

security-based swap transactions 

(Exchange Act rules 18a–5(a)(15) and 

(b)(11), and 18a–6(b)(1)(i) and (b)(2)(i)); 

(2) compliance with business conduct 

requirements (Exchange Act rules 18a– 

5(a)(16) and (17), and (b)(12) and (13), 

18a–6(b)(1)(i), (b)(1)(xii), (b)(2)(i), and 

18a–6(b)(2)(vii)); (3) preservation of 

records relating to certain risk 

mitigation requirements (Exchange Act 

rules 18a–6(d)(4) and (5); (4) segregation 

requirements (Exchange Act rules 18a– 

5(a)(13) and (14), and (b)(9) and (10), 

18a–6(b)(1)(viii)(L) and (b)(2)(v), 18a– 

7(c)(3) and (4), and 18a–8(g)); (5) capital 

requirements (Exchange Act rules 18a– 

5(a)(9) and (b)(1)(v), 18a–7(a)(3), and 

18a–8(b); and (6) margin requirements 

(Exchange Act rules 18a–5(a)(12) and 

(b)(1)(viii))? If so, explain why. 

Finally, commenters are invited to 

address whether the French substituted 

compliance order should be conditioned 

on the SBS Entity furnishing to a 

representative of the Commission upon 

request an English translation of any 

record, report, or notification of the SBS 

Entity that is required to be made, 

preserved, filed, or subject to 

examination pursuant to Exchange Act 

section 15F or the French substituted 

compliance order. Should this condition 

be included in any substituted 

compliance order addressing a 

jurisdiction where SBS Entities’ records, 

reports, or notifications are not required 

to use the English language? Should the 

German substituted compliance order be 

amended to include such a condition? 

Are there any French SBS Entities 

that are not expected to be exempt from 

Exchange Act rule 18a–4? If so, should 

the final Order include a condition 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85739 

requiring SBS Entities to file with the 

Commission the supporting schedules 

required by Exchange Act rule 18a– 

7(c)(2)(ii) that relate to Exchange Act 

rule 18a–4 (i.e., Computation for 

Determination of Security-Based Swap 

Customer Reserve Requirements and 

Information Relating to the Possession 

or Control Requirements for SecurityBased Swap Customers) if the SBS 

Entity is not exempt from Exchange Act 

rule 18a–4? 

G. Supervisory and Enforcement Issues 

The Commission further requests 

comment regarding how to weigh 

considerations regarding supervisory 

and enforcement effectiveness in France 

as part of the comparability 

assessments. Commenters particularly 

are invited to address relevant issues 

regarding the effectiveness of French 

supervision and enforcement over firms 

that may register with the Commission 

as SBS Entities, including but not 

limited to issues regarding: 

• French supervisory and 

enforcement authority, supervisory 

inspection practices and the use of 

alternative supervisory tools, and 

enforcement tools and practices; 

• French supervisory and 

enforcement effectiveness with respect 

to derivatives such as security-based 

swaps; and 

• French supervision and 

enforcement in the cross-border context 

(e.g., any differences between the 

oversight of firms’ businesses within 

France and the oversight of activities 

and branches outside of France, 

including within the United States). 

By the Commission. 

Dated: December 22, 2020. 

Vanessa A. Countryman, 

Secretary. 

Attachment A 

It is hereby determined and ordered, 

pursuant to rule 3a71–6 under the 

Exchange Act, that a Covered Entity (as 

defined in paragraph (g)(1) of this 

Order) may satisfy the requirements 

under the Exchange Act that are 

addressed in paragraphs (b) through (f) 

of this Order so long as the Covered 

Entity is subject to and complies with 

relevant requirements of the French 

Republic and the European Union and 

with the conditions to this Order, as 

amended or superseded from time to 

time. 

(a) General conditions. 

This Order is subject to the following 

general conditions, in addition to the 

conditions specified in paragraphs (b) 

through (f): 

(1) Activities as ‘‘investment services 

or activities.’’ For each condition in 

paragraphs (b) through (f) of this Order 

that requires the application of, and the 

Covered Entity’s compliance with, 

provisions of MiFID, provisions of MFC 

that implement MiFID and/or other EU 

and French 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 

MFC L.321–1, and fall within the scope 

of the Covered Entity’s authorization 

from the AMF or from the ACPR after 

approval by the AMF of the Covered 

Firm’s program of operations to provide 

investment services and/or perform 

investment activities in the French 

Republic. 

(2) Counterparties as ‘‘clients.’’ For 

each condition in paragraphs (b) 

through (f) of this Order that requires 

the application of, and the Covered 

Entity’s compliance with, provisions of 

MiFID, provisions of MFC that 

implement MiFID and/or other EU and 

French 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 as used in the 

relevant provision of MFC. 

(3) Security-based swaps as ‘‘financial 

instruments.’’ For each condition in 

paragraphs (b) through (f) of this Order 

that requires the application of, and the 

Covered Entity’s compliance with, 

provisions of MiFID, provisions of MFC 

that implement MiFID and/or other EU 

and French 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 MFC 

L.211–1 and D.211–1A. 

(4) Covered Entity as ‘‘institution.’’ 

For each condition in paragraph (b) 

through (f) of this Order that requires 

the application of, and the Covered 

Entity’s compliance with, the provisions 

of CRD, provisions of MFC that 

implement CRD, CRR and/or other EU 

and French requirements adopted 

pursuant to those provisions, the 

Covered Entity is an ‘‘institution,’’ as 

defined in CRD article 3(1)(3) and CRR 

article 4(1)(3), and is either a credit 

institution or finance company, each as 

defined in MFC L.511–1. 

(5) Memorandum of Understanding 

with the French Authorities. The 

Commission and the AMF and the 

ACPR 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) Memorandum of Understanding 

Regarding ECB-Owned Information. The 

Commission and the ECB and/or the 

AMF and/or the ACPR have a 

supervisory and enforcement 

memorandum of understanding and/or 

other arrangement addressing 

cooperation with respect to this Order 

as it pertains to information owned by 

the ECB 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. 

(7) 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. 

(8) European Union Cross-Border 

Matters. 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 French requirement adopted 

pursuant to MiFID listed in paragraphs 

(b) through (f) 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, 

the AMF or the ACPR must be the 

authority responsible for supervision 

and enforcement of that provision or 

requirement in relation to the particular 

service. If responsibility for ensuring 

compliance with any provision of MAR 

or any other EU requirement adopted 

pursuant to MAR listed in paragraphs 

(b) through (f) of this Order is allocated 

to one or more authorities of a Member 

State of the European Union, one of 

such authorities must be the AMF or the 

ACPR. 

(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); MFC L. 533–10.II (4) and (5); 

MiFID Org Reg articles 21–24; CRD 

articles 74, 76 and 79–87; MFC L. 511– 

41–1–B and L. 511–41–1–C, L. 511–55 

through L. 511–57, L. 511–60 through L. 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
85740 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

511–66, L. 511–89 through L. 511–97; 

Internal Control Order articles 106, 111, 

114–15, 121–22, 130–34, 146–86, 211– 

12, 214–15; Prudential Supervision and 

Risk Assessment Order article 7; 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), MFC article L. 533– 

15, 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), MFC article L. 533– 

15, 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 MFC article L. 

533–14, in relation to the MiFID and 

MFC provisions specified in paragraph 

(b)(5)(i). 

(c) Substituted compliance in 

connection with capital and margin. 

(1) Capital. The requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d, provided that the Covered Entity is 

subject to and complies with the capital 

requirements of the CRR, including 

recitals 40, 43 and 87, and articles 26, 

28, 50–52, 61–63, 92, 111, 113(1), 114– 

122, 143, 153(8), 177(2), 283, 290, 300– 

311, 312(2), 362–377, 382–383, 412(1), 

413(1), 416(1), 427(1), 413, 429, 430, 

and 499; MiFid Org. Reg., article 23(1); 

BRRD, articles 27(1), 31(2), 31(1)(a) and 

(5), 32(5), 45(6) and 81(1); CRD, articles 

73, 79, 86, 97, 98(1)(e), 98(6), 99, 100(1), 

102(1), 104, 104(1), 105, 129, 129(1), 

130, 130(1), 130(5), 131, 133, 133(1), 

133(4), 141, 142, 142(2), and 142(4); 

MFC articles L. 511–13, L. 511–15, 511– 

41–1 A, 511–41–1 A(XIV), L. 511–41–1 

B, L. 511–41–1 C, L. 511–41–3, L. 511– 

41–3.II, L. 511–41–3.III, L. 511–41–3.IV, 

L. 511–41–4, L. 511–41–5, L. 511–42, L. 

532–6, L. 533–2–1, L. 533–2–2, L. 533– 

2–3, L. 612–24, R. 612–30, L. 612–32, R. 

612–32, L. 612–33.I, L. 612–33.II, L. 

612–40, L. 613–44, L. 613–49. L. 613– 

49.II, L. 613–50.I, L. 631–2–1; Decree of 

3 November 2014 on internal control, 

articles 10, 94–197, and 211–230; 

Ministerial Order on the Supervisory 

Review and Evaluation Process, articles 

6–10; Decree of 3 November 2014 

relating to capital buffers, articles 2, 16, 

23, 37, 38, 56–64; and EMIR Margin 

RTS, recital 31, articles 2, 3(b), 7, and 

19(1)(d)–(e), (3) and (8). 

(2) Margin. The requirements of 

Exchange Act section 15F(e) and 

Exchange Act rule 18a–3, provided that 

the Covered Entity is subject to and 

complies with the requirements of: 

EMIR article 11; EMIR Margin RTS; CRR 

articles 103, 105(3); 105(10); 111(2), 224, 

285, 286, 286(7), 290, 295, 296(2)(b), 

297(1), 297(3), and 298(1); MiFID Org 

Reg. article 23(1); CRD articles 74 and 

79(b); MFC articles L.511–41–1–B, 

L.533–2–2, L.533–29, I al. 1, and L. 511– 

55 al. 1; and Decree of 3 November 2014 

on internal control, article 114. 

(d) 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 (d)(3); 

(ii) The Covered Entity complies with 

paragraph (d)(4) to this Order; and 

(iii) This paragraph (d) 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: 

(i) The Covered Entity is subject to 

and complies with the requirements 

identified in paragraph (d)(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 

(d)(1) and (d)(2) are conditioned on the 

Covered Entity being subject to and 

complying with the following 

requirements: MiFID articles 16 and 23; 

MFC articles L. 533–2, L.533–10.II and 

III, L. 533–24 and L. 533–24–1; 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 MFC L. 511–41–1–B and L. 511–41– 

1–C, L. 511–51, L. 511–52.I, L. 511.53, 

L. 511–55 through L. 511–69, L. 511–71 

through 86, L. 511–89 through L. 511– 

97, L. 511–102, R. 511–16–2 and R. 511– 

16–3; Internal Control Order articles 

106, 111, 114, 115, 121–22, 130–34, 

146–86, 211–12, 214–15; Prudential 

Supervision and Risk Assessment Order 

article 7. 

(4) Additional condition to paragraph 

(d)(1). Paragraph (d)(1) further is 

conditioned on the requirement that 

Covered Entities comply with the 

provisions specified in paragraph (d)(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. 

(e) 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); 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85741 

MFC L. 533–12.II and D. 533–15; 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); MFC L. 

533–10.II(3); and MiFID Org Reg articles 

33–35; 

(ii) MiFID article 24(9); MFC L. 533– 

12–4; MiFID Delegated Directive article 

11(5); and AMF General Regulation 

article 314–17; 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); 

MFC L 533–10.II(2); MiFID Org Reg 

articles 21–22, 25–26 and applicable 

parts of Annex I; CRD articles 74(1) and 

85(1); MFC L. 511–55 and L. 511–41–1– 

B; MLD articles 11 and 13; MFC L. 561– 

5, L. 561–5–1, L. 561–6, L. 561–10, L. 

561–4–1, R. 561–5, R. 561–5–1, R. 561– 

5–2, R. 561–5–4, R. 561–7, R. 561–10– 

3, R. 561–11–1 and R. 561–12; MLD 

articles 8(3) and 8(4)(a) as applied to 

internal policies, controls and 

procedures regarding recordkeeping of 

customer due diligence activities; and 

MFC L. 561–4–1 as applied to vigilance 

measures regarding recordkeeping of 

customer due diligence activities, in 

each case in relation to that securitybased 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); 

MFC L. 533–24, L. 533–24–1, L. 533– 

12(I), L. 533–12–6 and L. 533–13(I); 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 MFC D. 533–11 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 

MFC L. 533–11 and L. 533–12.I or 

MiFID article 30(1) and MFC L. 533–20; 

and 

(ii) MiFID articles 24(4)–(5); MFC L. 

533–12(II)–(III) and D. 533–15; 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. 

(f) Substituted compliance in 

connection with recordkeeping, 

reporting, notification, and securities 

count 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 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 105; 

EMIR articles 9(2), 11(1), and 39(4)–(5); 

EMIR RTS 148/2013; MiFID articles 

9(1), 16(3), 16(6)–16(9), 25(1), 25(2), 

25(5), and 25(6); MiFID Delegated 

Directive articles 2 and 8; MiFID Org 

Reg. articles 16(7), 21(1)(a), 35, 59, 72, 

73, 74, 75, 76, Annex I, and 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 

73, 88, 91(1), and 91(8); MFC articles L. 

511–41–1–B, L. 511–51 through L. 511– 

103, L. 533–2–2, L. 533–10 II and III, L. 

533–13, L. 533–14, L. 533–15, L. 533– 

25, L. 561–4–1, L. 561–5, L. 561–5–1, L. 

561–6, R. 561–5, R. 561–5–1, R. 561–5– 

2, R. 561–5–3, R. 561–7, R. 561–10 II, R. 

561–10–3, R. 561–11–1, R. 561–12, R. 

561–15, R. 561–16, R. 561–18, R. 561– 

19; Internal Control Order; Decree of 6 

September 2017 articles 3 and 10; 

Ministerial Order on the Supervisory 

Review and Evaluation Process; and 

AMF General Regulation article 312–6; 

(ii)(A) The Covered Entity preserves 

all of the data elements necessary to 

create the records required by Exchange 

Act rules 18a–5(a)(1), (2), (3), (4), and (7) 

(if not prudentially regulated) or 

Exchange Act rules 18a–5(b)(1), (2), (3), 

and (7) (if prudentially regulated); 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(a)(13) and 

(14) (if not prudentially regulated) or 

Exchange Act rules 18a–5(b)(9) and (10) 

(if prudentially regulated) 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(a)(16) (if not 

prudentially regulated) or Exchange Act 

rule 18a–5(b)(12) (if prudentially 

regulated); and 

(v) Except with respect to 

requirements of Exchange Act rules 

15Fh–3 and 15Fk–1 to which this Order 

extends pursuant paragraphs (d)(2) and 

(e), the Covered Entity makes and keeps 

current the records required by 

Exchange Act rule 18a–5(a)(17) (if not 

prudentially regulated) or Exchange Act 

rule 18a–5(b)(13) (if prudentially 

regulated). 

(2) Preserve records. The record 

preservation requirements of Exchange 

Act rule 18a–6 applicable to securitybased swap dealers and major securitybased swap participants; provided that: 

(i) The Covered Entity is subject to 

and complies with the following 

requirements: CRD articles 73, 75–88, 

91(1), and 91(8); CRR articles 99, 

104(1)(j), 176, 286, 293(1)(d), 294, 394, 

415–428, and 430; CRR Reporting ITS 

article 14 and Annexes I–V, VIII–XIII; 

EMIR articles 9(1), 9(2), and 11; MiFID 

articles 9(1), 16(2), 16(3), 16(5), 16(6) 

24(9), 25(5), 25(6), and 69(2); MiFID Org 

Reg. articles 21(1)(a), 21(2), 22(3)(c), 23, 

24, 25(2), 26, 29(2)(c), 31(1), 35, 58, 59, 

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; 

EMIR RTS; EBA/ESMA Guidelines on 

Management Suitability guidelines 74, 

75, and 172, and Annex III; EBA/GL/ 

2016/10 on ICAAP/ILAAP; EBA 

Guidelines on Outsourcing section 13.3; 

MiFID Delegated Directive article 11; 

MFC articles L. 321–8–4, L. 511–41–1– 

B, L. 511–51 through L. 511–88, L. 533– 

2, L. 533–10, L. 533–14, L. 533–15, L. 

561–4–1, L. 561–5, L. 561–5–1, L. 561– 

6, L. 621–8–4, L. 621–9, L. 621–10, R. 

561–5, R. 561–5–1, R. 561–5–2, R. 561– 

5–3, R. 561–7, R. 561–10 II, R. 561–10– 

3, R. 561–11–1, R. 561–12, R. 561–15, R. 

561–16, R. 561–18, R. 561–19; AMF 

General Regulation articles 314–16 and 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
85742 Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 

314–17; Internal Control Order article 

258; Ministerial Order on the 

Supervisory Review and Evaluation 

Process; and ACPR Instruction no. 

2017–I–24, as amended or superseded 

from time to time; 

(ii) The Covered Entity preserves the 

records required by Exchange Act rule 

18a–6(b)(1)(viii)(L) (if not prudentially 

regulated) or Exchange Act rule 18a– 

6(b)(2)(v) (if prudentially regulated) 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 (d)(2) 

and (e), the Covered Entity preserves the 

records required by Exchange Act rule 

18a–6(b)(1)(xii) (if not prudentially 

regulated) or Exchange Act rule 18a– 

6(b)(2)(vii) (if prudentially regulated); 

and 

(iv) The Covered Entity preserves the 

records required by Exchange Act rule 

18a–6(b)(1)(xi) and (b)(1)(xiii) (if not 

prudentially regulated) or Exchange Act 

rule 18a–6(b)(2)(vi) and (b)(2)(viii) (if 

prudentially regulated). 

(3) File Reports. The reporting 

requirements of Exchange Act rule 18a– 

7 applicable to 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 26(2), 99, 

104(1)(j), 132(5), 154, 191, 321, 325bi, 

350, 353, 368, 394, 415–428, 430, and 

431–455; CRR Reporting ITS chapter 2 

and Annexes I–V and VII–XIII; CRD 

article 89; MiFID article 16(8)–(10); 

MiFID Delegated Directive articles 2, 8, 

72(2), Annex I; Commission Delegated 

Regulation (EU) 2017/1443, as amended 

or superseded from time to time; MFC 

articles L. 511–45 and L. 533–10; 

Accounting Directive article 34; Decree 

of 6 September 2017 articles 3 and 10; 

French Commerce Code articles L. 232– 

1, R. 232–1 through R. 232–8, and L. 

823–1 through L. 823–8–1; and AMF 

General Regulation articles 312–6 and 

312–7; 

(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 France; 

(iii) With respect to financial 

statements the Covered Entity is 

required to file annually with French 

and/or European authorities, including 

a report of an independent public 

accountant covering the financial 

statements, the Covered Entity (if not 

prudentially regulated): 

(A) Simultaneously transmits to the 

principal office of the Commission or to 

an email address provided on the 

Commission’s website a copy of such 

annual financial statements and the 

report of the independent public 

accountant covering the annual 

financial statements; 

(B) Includes with the transmission the 

contact information of an individual 

who can provide further information 

about the annual financial statements 

and report; 

(C) Includes with the transmission the 

report of an independent public 

accountant required by Exchange Act 

rule 18a–7(c)(1)(i)(C) covering the 

annual financial statements if French or 

EU laws do not require the Covered 

Entity to engage an independent public 

accountant to prepare a report covering 

the annual financial statements; 

provided, however, that such report of 

the independent public accountant may 

be prepared in accordance with 

generally accepted auditing standards in 

France or the EU that the independent 

public accountant uses to perform audit 

and attestation services; and 

(D) Includes with the transmission the 

reports required by Exchange Act rule 

18a–7(c)(1)(i)(B) and (C) addressing the 

statements identified in Exchange Act 

rule 18a–7(c)(3) or (c)(4), as applicable, 

that relate to Exchange Act rule 18a–4; 

provided, however, that the report of the 

independent public accountant required 

by Exchange Act Rule 18a–7(c)(1)(i)(C) 

may be prepared in accordance with 

generally accepted auditing standards in 

France or the EU that the independent 

public accountant uses to perform audit 

and attestation services. 

(4) Provide Notification. The 

notification requirements of Exchange 

Act rule 18a–8 applicable to securitybased swap dealers and major securitybased swap participants; provided that: 

(i) The Covered Entity is subject to 

and complies with the following 

requirements: CRD IV article 71; MiFID 

article 73; MFC articles L. 511–33 II, L. 

634–1, and L. 634–2; 

(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 French 

and EU laws referenced in paragraph 

(f)(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(e) that relate to Exchange 

Act rule 18a–4 if the Covered Entity is 

not exempt from Exchange Act rule 

18a–4; and 

(iv) 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) Perform Securities Count. The 

securities count requirements of 

Exchange Act rule 18a–9 applicable to 

non-prudentially regulated securitybased swap dealers and major securitybased swap participants; provided that: 

(i) The Covered Entity is subject to 

and complies with the following 

requirements: MiFID Delegated 

Directive articles 2 and 8; MiFID Org 

Reg. articles 74 and 75; EMIR article 

11(1)(b); Decree of 6 September 2017 

articles 3 and 10; AMF General 

Regulation articles 312–6 and 312–7. 

(6) Examination and Production of 

Records. Notwithstanding the forgoing 

provisions of paragraph (f) of this Order, 

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. 

(g) 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 authorized 

by the AMF to provide investment 

services or perform investment activities 

in the French Republic or a credit 

institution authorized by the ACPR after 

approval by the AMF of the credit 

institution’s program of operations to 

provide investment services or perform 

investment activities in the French 

Republic. 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 / Notices 85743 

1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3On November 19, 2020, FICC filed this advance 

notice as a proposed rule change (SR–FICC–2020– 

015) with the Commission pursuant to Section 

19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 

19b–4 thereunder, 17 CFR 240.19b–4. A copy of the 

proposed rule change is available at http://

www.dtcc.com/legal/sec-rule-filings.aspx. 

4Capitalized terms not defined herein are defined 

in the Rules, available at http://www.dtcc.com/ 

legal/rules-and-procedures. 

5The initial timeframe would be after 3:01 p.m. 

If the FRB announces an extension of the Fedwire 

Securities Service, FICC would match the duration 

of the extension. All times herein are ET. 

(2) ‘‘MiFID’’ means the ‘‘Markets in 

Financial Instruments Directive,’’ 

Directive 2014/65/EU, as amended or 

superseded from time to time. 

(3) ‘‘MFC’’ means France’s ‘‘Code 

mone ́taire et financier,’’ as amended or 

superseded from time to time. 

(4) ‘‘Internal Control Order’’ means 

the French AMF’s Arreˆte ́ of 3 November 

2014 on Internal Control of Companies 

in the Banking, Payment Services and 

Investment Services Sector Subject to 

the Supervision of the Authorite ́ de 

Controˆle Prudentiel et de Re ́solution, as 

amended or superseded from time to 

time. 

(5) ‘‘Prudential Supervision and Risk 

Assessment Order’’ means the French 

ministerial order on prudential 

supervision and risk assessment, as 

amended or superseded from time to 

time. 

(6) ‘‘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) ‘‘MiFIR’’ means Regulation (EU) 

600/2014, as amended or superseded 

from time to time. 

(8) ‘‘EMIR’’ means the ‘‘European 

Market Infrastructure Regulation,’’ 

Regulation (EU) 648/2012, as amended 

or superseded from time to time. 

(9) ‘‘EMIR RTS’’ means Commission 

Delegated Regulation (EU) 149/2013, as 

amended or superseded from time to 

time. 

(10) ‘‘EMIR Margin RTS’’ means 

Commission Delegated Regulation (EU) 

2016/2251, as amended or superseded 

from time to time. 

(11) ‘‘CRR Reporting ITS’’ means 

Commission Implementing Regulation 

(EU) 680/2014, as amended or 

superseded from time to time. 

(12) ‘‘CRD’’ means Directive 2013/36/ 

EU, as amended or superseded from 

time to time. 

(13) ‘‘CRR’’ means Regulation (EU) 

575/2013, as amended or superseded 

from time to time. 

(14) ‘‘MAR’’ means the ‘‘Market 

Abuse Regulation,’’ Regulation (EU) 

596/2014, as amended or superseded 

from time to time. 

(15) ‘‘MAR Investment 

Recommendations Regulation’’ means 

Commission Delegated Regulation (EU) 

2016/958, as amended or superseded 

from time to time. 

(16) ‘‘AMF’’ means the French 

Autorite ́ des Marche ́s Financiers. 

(17) ‘‘ACPR’’ means the French 

Authorite ́ de Controˆle Prudentiel et de 

Re ́solution. 

(18) ‘‘ECB’’ means the European 

Central Bank. 

(19) ‘‘Accounting Directive’’ means 

Directive 2013/34/EU of the European 

Parliament and of the Council of 26 June 

2013, as amended or superseded from 

time to time. 

(20) ‘‘Decree of 6 September 2017’’ 

means France’s Decree number 2017– 

1324 of 6 September 2017, as amended 

or superseded from time to time. 

(21) ‘‘AMF General Regulation’’ 

means France’s ‘‘Re`glement Ge ́ne ́ral de 

L’Autorite ́ des Marche ́s Financiers,’’ as 

amended or superseded from time to 

time. 

(22) ‘‘Ministerial Order on the 

Supervisory Review and Evaluation 

Process’’ means France’s Arreˆte ́ of 3 

November 2014 on the Process for 

Prudential Supervision and Risk 

Assessment of Banking Service 

Providers and Investment Firms Other 

than Portfolio Management Companies, 

as amended or superseded from time to 

time. 

(23) ‘‘French Commerce Code’’ means 

the French Commercial Code, as 

amended or superseded from time to 

time. 

(24) ‘‘Prudentially regulated’’ means a 

Covered Entity that has a ‘‘prudential 

regulator’’ as that term is defined in 

Exchange Act section 3(a)(74). 

(25) ‘‘Decree of 3 November 2014 on 

internal control’’ means Arreˆte ́ of 3 

November 2014 on internal control of 

companies in the banking, payment 

services and investment services sector 

subject to the supervision of the ACPR. 

(26) ‘‘Decree of 3 November 2014 

relating to capital buffers’’ means Arreˆte ́

of 3 November 2014 relating to the 

capital buffers of banking service 

providers and investment firms other 

than portfolio management companies. 

(27) ‘‘BRRD’’ means Bank Recovery 

and Resolution Directive 2014/59/EU of 

the European Parliament and of the 

Council of 15 May 2014, as amended or 

superseded from time to time. 

[FR Doc. 2020–28697 Filed 12–28–20; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–90736; File No. SR–FICC– 

2020–803] 

Self-Regulatory Organizations; Fixed 

Income Clearing Corporation; Notice of 

Filing of Advance Notice To Include 

Same-Day Settling Trades in the Risk 

Management, Novation, Guarantee, 

and Settlement Services of the 

Government Securities Division’s 

Delivery-Versus-Payment Service, and 

Make Other Changes 

December 21, 2020. 

Pursuant to Section 806(e)(1) of Title 

VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

entitled the Payment, Clearing, and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’) 1 and Rule 

19b–4(n)(1)(i) under the Securities 

Exchange Act of 1934 (‘‘Act’’),2 notice is 

hereby given that on November 19, 

2020, Fixed Income Clearing 

Corporation (‘‘FICC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the advance notice as 

described in Items I, II and III below, 

which Items have been prepared by the 

clearing agency.3 The Commission is 

publishing this notice to solicit 

comments on the advance notice from 

interested persons. 

I. Clearing Agency’s Statement of the 

Terms of Substance of the Advance 

Notice 

This advance notice consists of 

amendments to the FICC Government 

Securities Division (‘‘GSD’’) Rulebook 

(the ‘‘Rules’’) 4 in order to (i) include 

Same-Day Settling Trades (as defined 

below) in the risk management, 

Novation, guarantee, and settlement 

services of GSD’s delivery-versuspayment service (‘‘DVP Service’’), (ii) 

provide that FICC would attempt to 

settle, on a reasonable efforts basis, any 

Same-Day Settling Trades that are 

compared in the timeframe specified by 

FICC in notices made available to 

Members from time to time 5 to the 


KHAMMOND on DSKJM1Z7X2PROD with NOTICES