41612 Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices 

1See Letter from Robert Ophe`le, Chairman, AMF, 

and Denis Beau, Chairman, ACPR, to Vanessa 

Countryman, Secretary, Commission, dated Dec. 9, 

2020 (‘‘French Authorities’ Application’’). The 

application is available on the Commission’s 

website at: https://www.sec.gov/files/full-frenchapplication.pdf. 

2 ‘‘Risk control’’ includes requirements related to 

internal risk management, trade acknowledgment 

and verification, portfolio reconciliation and 

dispute resolution, portfolio compression and 

trading relationship documentation; ‘‘capital and 

margin’’ includes requirements related to capital 

applicable to non-prudentially regulated securitybased swap dealers and to margin applicable to 

non-prudentially regulated SBS Entities; ‘‘internal 

supervision and compliance’’ includes 

requirements related to diligent supervision, 

conflicts of interest, information gathering under 

Exchange Act section 15F(j), 15 U.S.C. 78o–10(j), 

and chief compliance officers; ‘‘counterparty 

protection’’ includes requirements related to 

disclosure of material risks and characteristics and 

material incentives or conflicts of interest, ‘‘know 

your counterparty,’’ suitability of recommendations, 

fair and balanced communications, disclosure of 

daily marks and disclosure of clearing rights; and 

‘‘record keeping, reporting, notification, and 

securities counts’’ includes requirements related to 

making and keeping current certain prescribed 

records, preservation of records, reporting, 

notification and securities counts. 

3See Exchange Act Release No. 90766 (Dec. 22, 

2020), 85 FR 85720, 85721 (Dec. 29, 2020) (‘‘French 

Substituted Compliance Notice and Proposed 

Order’’). 

4See Exchange Act Release No. 91477 (Apr. 5, 

2021), 86 FR 18341 (Apr. 8, 2021) (‘‘Reopening 

Release’’). The reopened comment period ended on 

May 3, 2021. 

5See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85721; Exchange Act 

Release No. 90765 (Dec. 22, 2020), 85 FR 85686, 

85687 (Dec. 29, 2020) (‘‘German Substituted 

Compliance Order’’). 

6See Exchange Act Release No. 77617 (Apr. 14, 

2016), 81 FR 29960, 30079 (May 13, 2016) 

(‘‘Business Conduct Adopting Release’’). 

7 17 CFR 240.3a71–6(d). 

8French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85721 n.2 (addressing 

unavailability of substituted compliance in 

connection with antifraud provisions, as well as 

provisions related to transactions with 

counterparties that are not eligible contract 

participants (‘‘ECPs’’), segregation of customer 

assets, required clearing upon counterparty 

election, regulatory reporting and public 

dissemination, and registration of offerings). 

9See generally Business Conduct Adopting 

Release, 81 FR at 30073 (noting that the crossborder nature of the security-based swap market 

poses special regulatory challenges, in that relevant 

U.S. requirements ‘‘have the potential to lead to 

requirements that are duplicative of or in conflict 

with applicable foreign business conduct 

requirements, even when the two sets of 

requirements implement similar goals and lead to 

similar results’’). 

10See ‘‘Key Dates for Registration of SecurityBased Swap Dealers and Major Security-Based 

Swap Participants,’’ available at https://

www.sec.gov/page/key-dates-registration-securitySECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–92484; File No. S7–22–20] 

Order Granting Conditional 

Substituted Compliance in Connection 

With Certain Requirements Applicable 

to Non-U.S. Security-Based Swap 

Dealers and Major Security-Based 

Swap Participants Subject to 

Regulation in the French Republic 

July 23, 2021. 

I. Overview 

The French Autorite ́ des Marche ́s 

Financiers (‘‘AMF’’) and the Autorite ́ de 

Controˆle Prudentiel et de Re ́solution 

(‘‘ACPR’’), the French financial 

authorities, have submitted a 

‘‘substituted compliance’’ application 

requesting that the Securities and 

Exchange Commission (‘‘Commission’’) 

determine, pursuant to the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’) 

rule 3a71–6, that security-based swap 

dealers and major security-based swap 

participants (‘‘SBS Entities’’) subject to 

regulation in the French Republic 

(‘‘France’’) conditionally may satisfy 

requirements under the Exchange Act 

by complying with comparable French 

and European Union (‘‘EU’’) 

requirements.1 The AMF and the ACPR 

(‘‘French Authorities’’) sought 

substituted compliance in connection 

with certain Exchange Act requirements 

related to risk control, capital and 

margin, internal supervision and 

compliance, counterparty protection, 

and record keeping, reporting, 

notification, and securities counts.2 The 

application incorporated comparability 

analyses between the relevant 

requirements in Exchange Act section 

15F and the rules and regulations 

thereunder and applicable French and 

EU law, as well as information regarding 

French supervisory and enforcement 

frameworks. 

On December 22, 2020, the 

Commission issued a notice of the 

French Authorities’ Application, 

accompanied by a proposed order to 

grant substituted compliance with 

conditions in connection with the 

French Authorities’ Application (the 

‘‘proposed Order’’).3 The proposed 

Order incorporated a number of 

conditions to tailor the scope of 

substituted compliance consistent with 

the prerequisite that relevant French 

and EU requirements produce 

regulatory outcomes that are comparable 

to relevant requirements under the 

Exchange Act. The Commission 

reopened the comment period for the 

proposed Order on April 5, 2021.4

As discussed below, the Commission 

is adopting a final Order that has been 

modified from the proposal in certain 

respects to address commenter concerns 

and to make clarifying changes. 

II. Substituted Compliance Framework, 

Prerequisites and Commenter Issues of 

General Applicability 

A. Substituted Compliance Framework 

and Purpose 

As the Commission has discussed 

previously,5 Exchange Act rule 3a71–6 

provides a framework whereby non-U.S. 

SBS Entities may satisfy certain 

requirements under Exchange Act 

section 15F by complying with 

comparable regulatory requirements of a 

foreign jurisdiction.6 Because 

substituted compliance does not 

constitute exemptive relief, but instead 

provides an alternative method by 

which non-U.S. SBS Entities may 

comply with applicable Exchange Act 

requirements, the non-U.S. SBS Entities 

would remain subject to the relevant 

requirements under section 15F. The 

Commission accordingly will retain the 

authority to inspect, examine and 

supervise those SBS Entities’ 

compliance and take enforcement action 

as appropriate. Under the substituted 

compliance framework, failure to 

comply with the applicable foreign 

requirements and other conditions to a 

substituted compliance order would 

lead to a violation of the applicable 

requirements under the Exchange Act 

and potential enforcement action by the 

Commission (as opposed to automatic 

revocation of the substituted 

compliance order). 

Under rule 3a71–6, substituted 

compliance potentially is available in 

connection with certain section 15F 

requirements,7 but is not available in 

connection with antifraud prohibitions 

and certain other requirements under 

the Federal securities laws.8 SBS 

Entities in France accordingly must 

comply directly with those 

requirements notwithstanding the 

availability of substituted compliance 

for other requirements. 

The substituted compliance 

framework reflects the cross-border 

nature of the security-based swap 

market, and is intended to promote 

efficiency and competition by helping to 

address potential duplication and 

inconsistency between relevant U.S. and 

foreign requirements.9 In practice, 

substituted compliance may be expected 

to help SBS Entities leverage their 

existing systems and practices to 

comply with relevant Exchange Act 

requirements in conjunction with their 

compliance with relevant foreign 

requirements. Market participants will 

begin to count security-based swap 

transactions toward the thresholds for 

registration with the Commission as an 

SBS Entity on August 6, 2021, and will 

be required to begin registering with the 

Commission on November 1, 2021.10


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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices 41613 

based-swap-dealers-and-major-security-basedswap-participants. 11The entity-level requirements relate to capital 

and margin, books and records (other than those 

linked to the counterparty protection rules), 

internal risk management systems, trade 

acknowledgement and verification, portfolio 

reconciliation, compression, trading relationship 

documentation, and internal supervision and chief 

compliance officer requirements. See Exchange Act 

Release No. 86175 (June 21, 2019) 84 FR 43872, 

43879 (Aug 22, 2019) (‘‘Capital and Margin 

Adopting Release’’); Exchange Act Release No. 

87005 (June 19, 2019) 84 FR 68550, 68596 (Dec. 16, 

2019) (‘‘Books and Records Adopting Release’’); 

Exchange Act Release No. 78011 (June 8, 2016) 81 

FR 39808, 39827 (June 17, 2016) (‘‘TAV Adopting 

Release’’); Exchange Act Adopting Release No. 

87782 (Dec. 18, 2019) 85 FR 6359, 6378 (Feb. 4, 

2020) (‘‘Risk Mitigation Adopting Release’’); 

Business Conduct Adopting Release, 81 FR at 

30064. Transaction-level requirements encompass 

business conduct requirements for the protection of 

counterparties, and additional provisions for the 

protection of special entities. See also Business 

Conduct Adopting Release, 81 FR at 30065. 

12 In the context of the EMIR counterparties 

condition in paragraph (a)(5), a Covered Entity must 

choose: (1) To apply substituted compliance 

pursuant to the Order—including compliance with 

paragraph (a)(5) as applicable—for a particular set 

of entity-level requirements with respect to all of its 

business that would be subject to the relevant 

EMIR-based requirement if the counterparty were 

the relevant type of counterparty; or (2) to comply 

directly with the Exchange Act with respect to such 

business. 

13Transaction-level requirements are the 

counterparty protection requirements and the books 

and records requirements related to those 

counterparty protection requirements. 

14Exchange Act rule 3a71–6(a)(2)(i). 

15See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85722; see also Business 

Conduct Adopting Release, 81 FR at 30078–79 

(further recognizing that ‘‘different regulatory 

systems may be able to achieve some or all of those 

regulatory outcomes by using more or fewer specific 

requirements than the Commission, and that in 

assessing comparability the Commission may need 

to take into account the manner in which other 

regulatory systems are informed by business and 

market practices in those jurisdictions’’). The 

Commission’s assessment of a foreign authority’s 

supervisory and enforcement effectiveness—as part 

of the broader comparability analysis—would be 

expected to consider not only overall oversight 

activities, but also oversight specifically directed at 

conduct and activity relevant to the substituted 

compliance determination. ‘‘For example, it would 

be difficult for the Commission to make a 

comparability determination in support of 

substituted compliance if oversight is directed 

solely at the local activities of foreign securitybased swap dealers, as opposed to the cross-border 

activities of such dealers.’’ Business Conduct 

Adopting Release, 81 FR at 30079 (footnote 

omitted). In the French Substituted Compliance 

Notice and Proposed Order, the Commission 

preliminarily concluded that this comparability 

prerequisite was met in connection with a number 

of requirements under the Exchange Act, in some 

cases with the addition of conditions to help ensure 

the comparability of regulatory outcomes. 

16Exchange Act rule 3a71–6(a)(2)(ii). 

17The Commission, the AMF and the ACPR have 

entered into a memorandum of understanding to 

address substituted compliance cooperation, a copy 

of which is on the Commission’s 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 (‘‘AMF and ACPR 

MOU’’). The AMF, ACPR and the ECB share 

responsibility for supervising compliance with 

certain provisions of EU and French law. 

18The memorandum of understanding will set 

forth the conditions under which supervisory and 

enforcement information for certain subject matters, 

including but not limited to margin and capital, that 

is owned by the ECB, can be requested, shared, 

used and protected from unauthorized disclosure 

by the SEC and ECB. The memorandum of 

understanding will also serve as a framework for 

consultation, cooperation and the exchange of 

information between the SEC and the ECB in the 

supervision, enforcement and oversight of the 

covered firms. 

19See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85721 n.4. The 

Commission expects to publish any such 

memoranda of understanding or arrangements on 

its website at www.sec.gov under the ‘‘Substituted 

Compliance’’ tab, which is located on the ‘‘SecurityBased Swap Markets’’ page in the Division of 

Trading and Markets section of the site. 

20See Exchange Act rule 3a71–6(c)(3). 

Substituted compliance should assist 

relevant non-U.S. security-based swap 

market participants in preparing for 

registration. 

B. Scope of Substituted Compliance

For entity-level Exchange Act

requirements,11 a Covered Entity must 

choose either to apply substituted 

compliance pursuant to the Order with 

respect to all security-based swap 

business subject to the relevant French 

and EU requirements or to comply 

directly with the Exchange Act with 

respect to all such business; a Covered 

Entity may not choose to apply 

substituted compliance for some of the 

business subject to the relevant French 

or EU requirements and comply directly 

with the Exchange Act for another part 

of the business that is subject to the 

relevant French and EU requirements. 

Additionally, for entity-level Exchange 

Act requirements, if the Covered Entity 

also has security-based swap business 

that is not subject to the relevant French 

requirements, the Covered Entity must 

either comply directly with the 

Exchange Act for that business or 

comply with the terms of another 

applicable substituted compliance 

order.12 For transaction-level Exchange 

Act requirements,13 a Covered Entity 

may decide to apply substituted 

compliance for some of its securitybased swap business and to comply 

directly with the Exchange Act (or 

comply with another applicable 

substituted compliance order) for other 

parts of its security-based swap 

business. 

C. Specific Prerequisites

1. Comparability of Regulatory

Outcomes

Rule 3a71–6, adopted by the 

Commission in 2016, describes the 

requirements for the Commission to 

make a substituted compliance 

determination. Under the rule, the 

Commission must determine that the 

analogous foreign requirements are 

comparable to otherwise applicable 

requirements under the Exchange Act 

(i.e., the relevant requirements in the 

Exchange Act and the rules and 

regulations thereunder), after 

accounting for factors such as ‘‘the 

scope and objectives of the relevant 

foreign regulatory requirements’’ and 

‘‘the effectiveness of the supervisory 

compliance program administered, and 

the enforcement authority exercised’’ by 

the foreign authority.14 The 

comparability assessments are to be 

based on a ‘‘holistic approach’’ that 

‘‘will focus on the comparability of 

regulatory outcomes rather than 

predicating substituted compliance on 

requirement-by-requirement 

similarity.’’ 15

2. Memoranda of Understanding

Exchange Act rule 3a71–6(a)(2)(ii)

further predicates the availability of 

substituted compliance on the 

Commission and the foreign financial 

regulatory authority or authorities 

entering into a supervisory and 

enforcement memorandum of 

understanding and/or other arrangement 

with the relevant foreign financial 

regulatory authorities ‘‘addressing 

supervisory and enforcement 

cooperation and other matters arising 

under the substituted compliance 

determination.’’ 16 Accordingly, the 

Commission and the AMF and the 

ACPR recently entered into a relevant 

memorandum of understanding.17

Moreover, the Commission and the 

European Central Bank (‘‘ECB’’) are in 

the process of developing a 

memorandum of understanding or other 

arrangement to address cooperation 

matters related to substituted 

compliance.18 Those memoranda of 

understanding or other arrangements 

must be in place before Covered Entities 

may use substituted compliance to 

satisfy obligations under the Exchange 

Act.19

3. ‘‘Adequate assurances’’

A foreign financial regulatory

authority may submit a substituted 

compliance application only if the 

authority provides ‘‘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.’’ 20


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41614 Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices 

21See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85721 n.5. 22See generally Reopening Release, 86 FR 18341. 

See also Letter from Kyle Brandon, Managing 

Director, Head of Derivative Policy, SIFMA (Jan. 25, 

2021) (‘‘SIFMA Letter I’’); Letter from Wim Mijs, 

Chief Executive Officer, European Banking 

Federation (Jan. 25, 2021) (‘‘EBF Letter I’’) 

(generally supporting the SIFMA Letter I); and 

Letter from Etienne Barel, Deputy Chief Executive 

Officer, French Banking Federation (Jan. 25, 2021) 

(‘‘FBF Letter I’’). Comments may be found on the 

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

comments/s7-22-20/s72220.htm. 

23Reopening Release, 86 FR at 18343 (expressing 

the view that the interplay of those MiFID 

conditions and the proposed EU cross-border 

condition ‘‘in practice would undermine the 

availability of substituted compliance for Covered 

Entities that have branches in EU Member States for 

which the Commission has not entered into an 

applicable substituted compliance memorandum of 

understanding’’). 

24 Id. at 18343–47. 

25 Id. at 18347–48. 

26See Reopening Release, 86 FR 18341. The 

reopened comment period ended on May 3, 2021. 

27 Id. at 18341–43. 

28 Id. at 18343–47. 

29 Id. at 18347–48. 

30 Id. at 18348. 

31 Id. 

32See Letter from Kyle Brandon, Managing 

Director, Head of Derivative Policy, SIFMA (May 3, 

2021) (‘‘SIFMA Letter II’’); Letter from Wim Mijs, 

Chief Executive Officer, European Banking 

Federation (May 3, 2021) (‘‘EBF Letter II’’); Letter 

from Etienne Barel, Deputy Chief Executive Officer, 

French Banking Federation (May 3, 2021) (‘‘FBF 

Letter II’’); Letter from Americans for Financial 

Reform Education Fund (May 3, 2021) (‘‘AFREF 

Letter’’); Letter from Dennis M. Kelleher, President 

and CEO, Stephen Hall, Legal Director and 

Securities Specialist, and Jason Grimes, Senior 

Counsel, Better Markets, Inc. (May 3, 2021) (‘‘Better 

Markets Letter’’) at 3–4. Comments may be found 

on the Commission’s website at: https://

www.sec.gov/comments/s7-22-20/s72220.htm. 

33SIFMA Letter I at 9; see also FBF Letter I at 2. 

34See SIFMA Letter I at 9 n.22. 

35SIFMA Letter I at 9. 

36See Business Conduct Adopting Release, 81 FR 

at 30079. 

37See Better Markets Letter at 3–4. 

38See id. at 4. 

39See Exchange Act Release No. 72472 (June 25, 

2014), 79 FR 47278, 47286 (Aug. 12, 2014) (‘‘CrossBorder Entity Definitions Adopting Release’’) (citing 

Pub. L. 111–203, Preamble (stating that the DoddFrank Act was enacted ‘‘[t]o promote the financial 

stability of the United States by improving 

accountability and transparency in the financial 

system, to end ‘too big to fail’, to protect the 

American taxpayer by ending bailouts, to protect 

consumers from abusive financial services 

practices, and for other purposes’’); Public Law 

111–203, sections 701–774 (providing for, among 

other things, a comprehensive new regulatory 

framework for security-based swaps, including by: 

(i) Providing for the registration and comprehensive 

regulation of security-based swap dealers and major 

security-based swap participants; (ii) imposing 

clearing and trade execution requirements on 

security-based swaps, subject to certain exceptions; 

and (iii) creating real-time reporting and public 

dissemination regimes for security-based swaps)). 

In the French Substituted Compliance 

Notice and Proposed Order, the 

Commission stated that the French 

Authorities had satisfied this 

prerequisite in the Commission’s 

preliminary view, taking into account 

information and representations that the 

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, firms using substituted 

compliance pursuant to the Order.21

The Commission received no comments 

on this preliminary view and has not 

changed its view. 

D. Commenter Views of General 

Applicability 

As the Commission previously 

discussed, commenters raised a variety 

of concerns and other views regarding 

specific aspects of the proposed Order 

(apart from certain global concerns 

addressed below in part II.D.1 through 

4.22 Those included: Concerns that the 

interplay between certain proposed 

MiFID-related conditions to substituted 

compliance for risk control 

requirements and a proposed EU crossborder condition would undermine the 

availability of substituted compliance; 23

views regarding the possibility of 

substituted compliance related to 

capital; 24 and views regarding 

substituted compliance in connection 

with books and records requirements.25

The Commission reopened the 

comment period in April 2021.26 The 

Commission also requested comment on 

a number of specific issues, including: 

The potential removal of MiFID 

provisions from the trade 

acknowledgment and verification and 

trading relationship documentation 

conditions in conjunction with 

additional general conditions to address 

the resulting increased reliance upon 

EMIR; 27 the inclusion of additional 

capital standards; 28 the availability of 

greater flexibility in distinguishing 

between recordkeeping and reporting 

requirements; 29 limiting the definition 

of ‘‘covered entity’’; 30 and 

supplementing the internal supervision 

and compliance conditions.31 In 

response, commenters expressed a range 

of views and identified a number of 

specific issues with the proposed 

conditions and prerequisites for each 

subject matter of the proposed Order for 

which substituted compliance is 

available.32

1. Effects of Non-Compliance 

One commenter addressed a 

Commission statement that noncompliance with applicable French and 

EU requirements would lead to a 

violation of relevant requirements under 

the Exchange Act. The commenter 

particularly requested that the 

Commission represent that SBS Entities 

‘‘would not violate the Commission’s 

requirements where the relevant foreign 

regulatory authority has found no 

violation of the comparable French or 

EU requirement and the SBS Entity’s 

conduct would have complied with the 

Commission’s requirements (even if the 

SBS Entity relied on French and EU 

rules that imposed stricter or additional 

requirements).’’ 33 The commenter also 

expressed a concern that the 

Commission might find a violation of 

the foreign laws even where the 

Commission’s own requirements would 

be fulfilled.34 The commenter further 

requested that the Commission state that 

it ‘‘will not independently examine for 

or otherwise assess whether an SBS 

Entity is complying with EU or French 

requirements.’’ 35

Although the Commission expects to 

take the views of foreign regulatory 

authorities into account when it 

considers whether registered entities 

have complied with the conditions to 

substituted compliance, the 

Commission cannot make the requested 

representations. It is for the 

Commission—not foreign regulators—to 

determine whether a non-U.S. SBS 

Entity has complied with the conditions 

to substituted compliance and with the 

Federal securities laws. Moreover, as 

noted, even with substituted 

compliance the Commission retains its 

full authority to inspect, examine and 

supervise registered entities’ 

compliance with the Federal securities 

laws, and to take enforcement action as 

appropriate.36

2. Prerequisites to Substituted 

Compliance 

One commenter stated that the 

Commission should make a positive 

substituted compliance determination 

only when the Commission determines 

that granting substituted compliance 

promotes the protection of the U.S. 

financial system.37 The commenter also 

stated that grants of substituted 

compliance must be predicated on a 

‘‘well-supported, evidence-based 

determination’’ that the relevant foreign 

requirements will produce 

‘‘substantially similar’’ regulatory 

outcomes.38 Congress gave the 

Commission authority in Title VII to 

implement a security-based swap 

framework to address the potential 

effects of security-based swap activity 

on U.S. market participants, the 

financial stability of the United States, 

the transparency of the U.S. financial 

system and the protection of 

counterparties.39 When adopting rules 

regarding the application of Title VII’s 


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40See Cross-Border Entity Definitions Adopting 

Release, 79 FR at 47292 (purposes of Title VII 

include consideration of risk to the U.S. financial 

system and promotion of transparency in the U.S. 

financial system); Exchange Act section 30(c), 15 

U.S.C. 78dd(c) (Commission rulemaking authority 

to prevent evasion of Title VII); Exchange Act 

section 3(f), 15 U.S.C. 78c(f) (requirement to 

consider whether certain Commission rulemaking 

actions would promote efficiency, competition and 

capital formation); Exchange Act section 23(a)(2), 

15 U.S.C. 78w(a)(2) (requirement to consider the 

impact of Exchange Act rules and regulations on 

competition and prohibition on adopting rules or 

regulations that would impose a burden on 

competition not necessary or appropriate in 

furtherance of the purposes of the Exchange Act); 

Dodd-Frank Act section 712(a)(2), 15 U.S.C. 8302 

(requirement to consult and coordinate with U.S. 

financial regulatory authorities on Title VII 

rulemaking); Dodd-Frank Act section 752(a), 15 

U.S.C. 8325 (requirement to consult and coordinate, 

as appropriate, with foreign regulatory authorities 

on the establishment of consistent international 

standards with respect to the regulation of securitybased swaps and security-based swap entities); see 

also Exchange Act Release No. 77104 (Feb. 10, 

2016), 81 FR 8598, 8599 (Feb. 19, 2016) (‘‘ANE 

Adopting Release’’) (‘‘A key part of [the Title VII] 

framework is the regulation of security-based swap 

dealers, which may transact extensively with 

counterparties established or located in other 

jurisdictions and, in doing so, may conduct sales 

and trading activity in one jurisdiction and book the 

resulting transactions in another. These market 

realities and the potential impact that these 

activities may have on U.S. persons and potentially 

the U.S. financial system have informed our 

consideration of these rules.’’); Exchange Act 

Release No. 87780 (Dec. 18, 2019), 85 FR 6270, 6272 

and n.26 (Feb. 4, 2020) (‘‘Cross-Border Adopting 

Release’’) (‘‘[T]he Title VII SBS Entity requirements 

. . . serve a number of regulatory purposes apart 

from mitigating counterparty and operational risks, 

‘including enhancing counterparty protections and 

market integrity, increasing transparency, and 

mitigating risk to participants in the financial 

markets and the U.S. financial system more 

broadly.’ ’’ ‘‘The Commission’s actions to mitigate 

the negative consequences potentially associated 

with the various uses of [the ‘arranged, negotiated 

or executed’ test] accordingly are designed to do so 

while preserving the important Title VII interests 

that the Commission advanced when it 

incorporated the test into the various cross-border 

rules.’’) (internal citations omitted). 

41See Exchange Act Release No. 75611 (Aug. 5, 

2015), 80 FR 48964, 48972–73 (Aug. 14, 2015) 

(‘‘Registration Adopting Release’’). 

42See id. 

43See Cross-Border Entity Definitions Adopting 

Release, 79 FR at 47286 n.65 (‘‘Future rulemakings 

that depend on [the definitions of ‘security-based 

swap dealer’ and ‘major security-based swap 

participant’] are intended to address the 

transparency, risk, and customer protection goals of 

Title VII.’’). 

44See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85722; see also Business 

Conduct Adopting Release, 81 FR at 30076, 30078– 

79. 

45See Business Conduct Adopting Release, 81 FR 

at 30067. 

46See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85722 n.17; see also 

Business Conduct Adopting Release, 81 FR at 

30076, 30078–79. 

47See Better Markets Letter at 4. 

48See Exchange Act rule 3a71–6(a)(1). 

49See Better Markets Letter at 2. 

definitions of ‘‘security-based swap 

dealer’’ and ‘‘major security-based swap 

participant’’ in the cross-border context, 

the Commission was guided by the 

purposes of Title VII and the applicable 

requirements of the Exchange Act, 

which include consideration of not only 

risk to the U.S. financial system but also 

other factors such as counterparty 

protection, transparency, prevention of 

evasion, economic impacts and 

consultation and coordination with 

other U.S. financial regulatory 

authorities and foreign financial 

regulatory authorities.40 In its 

registration rules for these SBS Entities, 

the Commission determined that a 

foreign market participant whose U.S.- 

nexus security-based swap activity 

qualifies it as an SBS Entity would be 

required to register as such, without 

substituted compliance available for 

registration requirements.41 The 

Commission concluded that obliging 

these foreign persons to register serves 

an important regulatory function that 

would be significantly impaired by 

permitting substituted compliance for 

registration requirements.42 This 

registration requirement thus puts into 

practice the Commission’s consideration 

of the purposes of Title VII and the 

applicable requirements of the Exchange 

Act in its adoption of the definitions of 

‘‘security-based swap dealer’’ and 

‘‘major security-based swap participant’’ 

in the cross-border context, and ensures 

that such firms will be subject to the 

jurisdiction of the Commission. 

Moreover, the rules applicable to these 

registered foreign SBS Entities reflect 

the Commission’s best judgment for 

how to achieve the purposes of Title VII 

and satisfy the requirements of the 

Exchange Act, including the 

Commission’s consideration of risk to 

the U.S. financial system.43

The Commission’s rules for registered 

foreign SBS Entities thus reflect the 

Commission’s consistent consideration 

of all of the purposes of Title VII and 

relevant parts of the Exchange Act, first 

in the context of its adoption of the 

definitions of ‘‘security-based swap 

dealer’’ and ‘‘major security-based swap 

participant,’’ then in its decision to 

require foreign SBS Entities to register 

and finally in its adoption of crossborder rules for SBS Entities pursuant to 

Title VII. When making a substituted 

compliance determination, the 

Commission’s task, as outlined in rule 

3a71–6, is to evaluate whether the 

relevant foreign requirements are 

comparable to these Title VII-based 

requirements and relevant provisions of 

the Exchange Act. The comparability 

assessments are to be based on a 

‘‘holistic, outcomes-oriented 

framework,’’ 44 which in the 

Commission’s view—consistent with 

the commenter’s view—includes 

‘‘inquiry regarding whether foreign 

requirements adequately reflect the 

interests and protections associated 

with the particular Title VII 

requirement.’’ 45 Also consistent with 

the commenter’s view, the 

Commission’s comparability 

assessments reflect a close reading of 

the relevant French and EU 

requirements. In addition, 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.46

Accordingly, where French and EU 

requirements produce comparable 

outcomes—with or without conditions 

as discussed in part III.B below— 

notwithstanding those particular 

differences, and taking into account the 

scope and objectives and the 

effectiveness of supervision and 

enforcement of those requirements, the 

Commission has determined that the 

relevant French and EU requirements 

are comparable and has made a positive 

substituted compliance determination. 

Conversely, where those exclusions, 

exemptions and exceptions lead to 

outcomes that are not comparable— 

taking into account potential 

conditions—the Commission has not 

made a positive substituted compliance 

determination. 

The Commission also is including 

certain conditions in the Order. The 

commenter stated that the inclusion of 

conditions should be viewed as an 

indication that the requirements of 

substituted compliance have not been 

met and as creating ‘‘ad hoc, custommade rules to supplement inadequate 

rules of other jurisdictions.’’ 47 Pursuant 

to rule 3a71–6, the Commission may 

make a conditional or unconditional 

substituted compliance determination.48

As described in greater detail in part 

III.B below, many of the conditions in 

the Order are designed to make 

substituted compliance available to 

Covered Entities only when the relevant 

French and EU requirements in fact 

apply to the relevant security-based 

swap activity in a way that promotes 

comparable regulatory outcomes. The 

commenter correctly notes that the 

Order also employs conditions to 

promote comparability.49 For example, 

substituted compliance in connection 

with Exchange Act rule 15Fi–3(c) 

dispute reporting provisions is 

conditioned in part on the Covered 

Entity providing the Commission with 


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50See para. (b)(3)(ii) of the Order. 

51Better Markets Letter at 5. 

52 Id. 

53See Business Conduct Adopting Release, 81 FR 

at 30078–79 (stating that order conditions and 

memoranda of understanding are possible tools for 

providing that the Commission be notified of 

material changes). 

54The memorandum of understanding between 

the Commission and the French Authorities in part 

provides that the French Authorities will provide 

‘‘ongoing information sharing’’ regarding Firm 

Information (incorporating supervisory and related 

information as to the Covered Entities using 

substituted compliance) and regarding Regulatory 

Change Information (incorporating information 

about any material publicly available draft, 

proposed, or final change in law, regulation, or 

order of the jurisdiction of the French Authorities 

that may have a material impact on the firms at 

issue with respect to their relevant activities). See 

note 17, supra (information on publication of 

memoranda of understanding with the French 

Authorities and ECB). 

55Any such amendment or withdrawal may be at 

the Commission’s own initiative after appropriate 

notice and opportunity for comment. See Exchange 

Act rule 3a71–6(a)(3). 

56See part II.C.2, supra; paras. (a)(7) and (a)(8) of 

the Order. 

57See note 18, supra. 

58See SIFMA Letter I at 10; FBF Letter I at 3. 

59 Id. 

60See Exchange Act Release No. 87780 (Dec. 18, 

2019), 85 FR 6270 at 6345–46 (Feb. 4, 2020). 

61See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85723. 

the dispute reports required under 

French law.50 Consistent with rule 

3a71–6, conditioning substituted 

compliance on the Commission 

receiving those reports helps to promote 

timely notice of disputes to support a 

comparable regulatory outcome. 

3. Ensuring Ongoing Appropriateness of 

Substituted Compliance 

One commenter stated that the 

Commission ‘‘must ensure, on an 

ongoing basis, that each grant of 

substituted compliance remains 

appropriate over time.’’ 51 The 

commenter added that substituted 

compliance orders and memoranda of 

understanding should incorporate the 

obligation that the Commission be 

apprised regarding the effectiveness of 

the jurisdiction’s supervision and 

enforcement programs, and to 

immediately apprise the Commission of 

material changes to the regulatory 

regime.52 The Commission concurs that 

the ongoing availability of substituted 

compliance should account for relevant 

changes in the foreign jurisdiction’s 

regulatory requirements and in the 

effectiveness of that jurisdiction’s 

supervisory and enforcement program.53

Accordingly, the Commission and the 

French Authorities recently entered into 

a substituted compliance memorandum 

of understanding that addresses ongoing 

information regarding potential changes 

to substantive legal requirements and 

supervisory and enforcement 

effectiveness.54 Additionally, the 

Commission and the ECB are in the 

process of developing a memorandum of 

understanding to address cooperation 

matters related to substituted 

compliance. The Commission believes 

that these arrangements will provide 

timely information to ensure that the 

Commission is aware of material 

developments that may affect the 

comparability of the relevant French 

and EU requirements, including the 

scope and objectives of those 

requirements and the effectiveness of 

the French Authorities’ supervision and 

enforcement programs. In response to 

any such developments, the 

Commission may amend the Order as 

needed to ensure that it continues to 

require a Covered Entity to comply with 

comparable French and EU 

requirements, or may withdraw the 

Order if the relevant French or EU 

requirements are no longer 

comparable.55 Moreover, substituted 

compliance under the Order is 

conditioned on the Commission having 

these memoranda of understanding, or 

another arrangement with the French 

Authorities and ECB addressing 

cooperation with respect to the Order, at 

the time the Covered Entity makes use 

of substituted compliance.56 If the 

arrangements in the memoranda of 

understanding prove in practice not to 

provide information about relevant 

developments, the Commission could 

terminate the memoranda of 

understanding in accordance with its 

terms and/or amend or withdraw the 

Order.57 If the Commission, the French 

Authorities or the ECB terminates either 

memorandum of understanding, 

Covered Entities would not be able to 

rely on substituted compliance under 

the Order to satisfy Exchange Act 

compliance obligations that arise after 

the termination takes effect. For these 

reasons, in the Commission’s view, the 

Order’s memoranda of understanding 

conditions, coupled with the ongoing 

information sharing provisions in the 

memoranda of understanding with the 

French Authorities and with the ECB, 

establish the commenter’s suggested 

mechanism to apprise the Commission 

of changes that may affect the ongoing 

appropriateness of substituted 

compliance. 

4. Request for Transition Period 

Commenters stated that the 

Commission’s proposed approach to 

certain entity-level requirements could 

result in the Commission’s requirements 

still applying to a non-U.S. Entity’s 

security-based swap transaction with 

non-U.S. counterparties and a resulting 

need for SBS Entities to obtain written 

agreement from their non-U.S. 

counterparties.58 As a result, 

commenters requested a one-year 

transition period from the November 1, 

2021, date by which security-based 

swap dealers must register with the 

Commission to come into compliance 

with any documentation 

requirements.59

The Commission is not providing an 

additional transition period at this time 

for documentation requirements related 

to Exchange Act requirements that will 

apply to Covered Entities’ existing nonU.S. counterparties. The registration 

compliance date for U.S. and non-U.S. 

SBS Entities is October 6, 2021, and that 

is also the compliance date for the 

entity-level requirements at issue. These 

dates have been known to potential SBS 

Entities since February 4, 2020.60 In 

areas where the Commission makes a 

positive substituted compliance 

determination under the Order, Covered 

Entities will have additional flexibility 

with respect to how to comply with the 

relevant Exchange Act requirements, but 

they, like all registered SBS Entities, 

must comply with the Exchange Act as 

of the registration compliance date. The 

Commission staff will be available to 

discuss implementation issues with 

Covered Entities during the 

implementation period. 

III. General Availability of Substituted 

Compliance Under the Order 

A. Covered Entities 

1. Proposed Approach 

Under the proposed Order, the 

definition of ‘‘Covered Entity’’ specified 

which entities could make use of 

substituted compliance. Consistent with 

the availability of substituted 

compliance under Exchange Act rule 

3a71–6, the proposed definition in part 

would limit the availability of 

substituted compliance to registered 

SBS Entities that are not U.S. persons. 

In addition, to help ensure that firms 

that rely on substituted compliance are 

subject to relevant French and EU 

requirements and oversight, the 

proposed definition would require that 

Covered Entities be investment firms 

authorized to provide investment 

services by the AMF or credit 

institutions authorized by the ACPR 

after approval by the AMF of its 

program of operations to provide 

investment services or perform 

investment activities in France.61


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62See SIFMA Letter II at Appendix A. 

63See Memorandum, dated June 10, 2021, from 

Patrice Aguesse of the French AMF. 

64See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85735. 

65See para. (g)(1)(iii) of the Order (providing that 

a Covered Entity in part means ‘‘an investment firm 

authorized by the ACPR 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 its 

program of operations to provide investment 

services or perform investment activities in the 

French Republic, and supervised by the AMF under 

its Tier 1 framework’’). 

66See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85723. The Commission 

stated, as an example, that this proposed condition 

would not be satisfied when the comparable French 

or EU requirements would not apply to the securitybased swap activities of a third-country branch of 

a French SBS Entity. 

67Under this condition, a Covered Entity’s 

security-based swap activities must constitute 

‘‘investment services or activities’’ only to the 

extent that the relevant part of the Order requires 

the Covered Entity to be subject to and comply with 

a provision of MiFID, provisions under MFC that 

implement MiFID and related EU and French 

requirements. If the relevant part of the Order does 

not require the Covered Entity to be subject to and 

comply with one of those provisions, then the 

Covered Entity’s security-based swap activities do 

not have to constitute ‘‘investment services or 

activities’’ to be able to use substituted compliance 

under that part of the Order. 

68See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85723. The EU’s Markets 

in Financial Instruments Directive (‘‘MiFID’’), 

Directive 2014/65/EU, has been implemented in 

France as part of article L. 511 to the French 

Monetary and Financial Code—Code mone ́taire et 

financier (‘‘MFC’’). MiFID and MFC address, inter 

alia, organizational, compliance and conduct 

requirements applicable to nonbank ‘‘investment 

firms.’’ In significant part, those requirements also 

apply to credit institutions that provide investment 

services or perform investment activities. 

Commission Delegated Regulation (EU) 2017/565 

(‘‘MiFID Org Reg’’) in part supplements MiFID with 

respect to organizational requirements for firms. 

The Markets in Financial Instruments Regulation 

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

addresses trading venues and transparency. 

Commission Delegated Directive (EU) 2017/593 

(‘‘MiFID Delegated Directive’’) in part supplements 

MiFID with regard to safeguarding client property, 

and in France is implemented in relevant part by 

the Re`glement Ge ́ne ́ral de L’Autorite ́ des Marche ́s 

Financiers (‘‘AMF General Regulation’’). 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 is implemented by article 

L. 561 to the MFC. 

69See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85723. 

70 Id. 

71 Id. The 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 sets 

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 standards 

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). 

72See French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85723. The Commission, 

AMF and ACPR have entered into a memorandum 

of understanding to address substituted compliance 

cooperation. 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. See notes 17–19, supra. Consistent 

with the Order, Covered Entities must ensure that 

this memorandum of understanding remains in 

place at the time the Covered Entity relies on 

substituted compliance. 

73French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85723. 

2. Commenter Views and Final 

Provisions 

One commenter requested changes to 

the proposed ‘‘Covered Entity’’ 

definition, to reflect that under the 

French framework the requisite 

authorizations to provide credit and 

investment services are provided by the 

ACPR, in conjunction with the AMF’s 

approval of the provision of investment 

services.62 In addition, as described in 

the French Substituted Compliance 

Notice and Proposed Order, and 

confirmed by the AMF,63 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.64 The Commission has revised 

the Order in response to the comment 

and to reflect the AMF’s approach.65

B. Additional General Conditions 

1. Proposed Approach 

The proposed Order incorporated a 

number of additional general 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 Covered Entity’s securitybased swap business and activities, and 

to promote the Commission’s oversight 

over entities that avail themselves of 

substituted compliance: 

• ‘‘Subject to and Complies with’’ 

applicability condition—For each 

relevant section of the proposed Order, 

a positive substituted compliance 

determination would be predicated on 

the entity being subject to and 

complying with the applicable French 

and EU requirements needed to 

establish comparability.66

• MiFID ‘‘investment services or 

activities’’—The Covered Entity’s 

security-based swap activities would 

have to constitute ‘‘investment services 

or activities’’ for purposes of applicable 

provisions 67 under MiFID, MFC and 

related EU and French requirements, 

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.68

• Counterparties as MiFID ‘‘clients’’— 

The Covered Entity’s counterparties (or 

potential counterparties) would have to 

be ‘‘clients’’ (or potential ‘‘clients’’) for 

purposes of MiFID, provisions under 

MFC that implement MiFID and/or 

other EU and French requirements 

adopted pursuant to those provisions.69

• MiFID ‘‘financial instruments’’— 

The relevant security-based swaps 

would have to be ‘‘financial 

instruments’’ for purposes of applicable 

provisions under MiFID, MFC and 

related EU and French requirements.70

• CRD ‘‘institutions’’—The Covered 

Entity would have to be an ‘‘institution’’ 

for purposes of applicable provisions 

under CRD, MFC, CRR and related EU 

and French requirements.71

• Memoranda of understanding— 

Consistent with the requirements of rule 

3a71–6 and the Commission’s need for 

access to information regarding 

registered entities, substituted 

compliance under the proposed Order 

would be conditioned on the 

Commission having applicable 

memoranda of understanding or other 

arrangements in place with the French 

Authorities and with the ECB, 

addressing cooperation with respect to 

the Order at the time the Covered Entity 

makes use of substituted compliance.72

• Notice of reliance on substituted 

compliance—To assist the 

Commission’s oversight of firms that 

avail themselves of substituted 

compliance, a Covered Entity relying on 

the substituted compliance order would 

have to provide notice of its intent to 

rely on the Order by notifying the 

Commission in writing.73

When the Commission reopened the 

comment period and addressed the 

possible removal of certain MiFIDrelated conditions, the Commission also 

discussed the possibility of adding two 

new EMIR-related conditions related to 

‘‘counterparty’’ status under EMIR and 

related to products subject to the 

European Market Infrastructure 

Regulation (‘‘EMIR’’), to satisfy the 

prerequisites to substituted 


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74Reopening Release, 86 FR at 18342. 

75 Id. 

76See generally parts IV.B.2 and IV.B.5 infra. 

77See Reopening Release, 86 FR at 18342 n.9. 

78 Id. at 18342. 

79See SIFMA Letter II at 7, 16, and Appendix A; 

FBF Letter II at 3 (addressing counterparties as 

MiFID ‘‘clients’’); Better Markets Letter at 5 

(addressing the memorandum of understanding). 

80See SIFMA Letter II at 4; FBF Letter II at 2; 

Better Markets Letter at 5–7. 

81The Commission is adopting, largely as 

proposed, other general conditions that were not 

the subject of comments and that are not otherwise 

addressed below. See paras. (a)(1), (a)(3), and (a)(4) 

of the Order. The Commission is making technical 

changes to clarify the captions of certain of the 

general conditions (e.g., in the final Order the 

caption to the proposed condition related to 

‘‘Activities as ‘investment services or activities’’’ 

now refers to ‘‘Activities as MiFID ‘investment 

services or activities’’’). Certain of the general 

conditions also have been renumbered from the 

proposal. 

82SIFMA Letter II at Appendix A. 

83SIFMA Letter II at 7. 

84Some provisions of the MiFID-based 

requirements cited in the condition, such as certain 

organizational requirements, do not pertain to 

counterparties or clients. In those cases, there is no 

‘‘relevant counterparty (or potential counterparty)’’ 

for purposes of the condition, and the condition 

would have no effect. 

85MiFID article 26 permits firms to rely upon 

information about a client received from another 

French and EU-regulated firm. Under that 

provision, the other firm is legally responsible for 

the completeness and accuracy of any information 

about the client that the other firm receives from the 

first firm. The Commission believes that it is 

appropriate to permit a Covered Entity to rely on 

information about its client communicated by 

another French and EU-regulated firm on behalf of 

the client. Accordingly, the application of this 

provision would not cause the Covered Entity to be 

compliance.74 The Commission 

explained that those additional two 

conditions may ‘‘promote certainty that 

EMIR will apply and help preclude gaps 

between the regulatory outcomes 

associated with the Exchange Act and 

those associated with the relevant EMIR 

provisions.’’ 75 This is particularly 

significant due to the Order’s removal of 

proposed MiFID-related conditions with 

respect to substituted compliance for 

trade acknowledgement and verification 

requirements and for trading 

relationship documentation 

requirements, and the accompanying 

heightened reliance on certain EMIRrelated conditions.76 The two additional 

EMIR-related conditions are: 

• Covered Entity’s counterparties as 

EMIR ‘‘counterparties’’—For each 

condition in the proposed Order that 

requires the application of, and 

compliance with, provisions of EMIR, 

Commission Delegated Regulation (EU) 

149/2013 (‘‘EMIR RTS’’) and/or 

Delegated Regulation (EU) 2016/2251 

(‘‘EMIR Margin RTS’’), if the 

counterparty to the Covered Entity is 

not a ‘‘financial counterparty’’ or ‘‘nonfinancial counterparty’’ as defined in 

EMIR articles 2(8) or 2(9), respectively, 

the Covered Entity must comply with 

the applicable condition as if the 

counterparty were a financial 

counterparty or non-financial 

counterparty. In other words, the 

Covered Entity would be subject to the 

relevant requirements under EMIR even 

if the counterparty is not authorized 

pursuant to EU law as anticipated by the 

EMIR article 2(8) ‘‘financial 

counterparty’’ definition, or if the 

counterparty is not an ‘‘undertaking’’ 

(such as by virtue of being a natural 

person), or is not established in the EU 

(by virtue of being a U.S. person or 

otherwise being established in some 

non-EU jurisdiction), as anticipated by 

the EMIR article 2(9) ‘‘non-financial 

counterparty’’ definition.77

• Security-based swap status under 

EMIR—For each condition in the 

proposed Order that requires the 

application of, and compliance with, 

provisions of EMIR, EMIR RTS and/or 

EMIR Margin RTS, either: (1) The 

relevant security-based swap must be an 

‘‘OTC derivative’’ or ‘‘OTC derivative 

contract,’’ as defined in EMIR article 

2(7), that has not been cleared by a 

central counterparty (‘‘CCP’’) and 

otherwise is subject to the provisions of 

EMIR; or (2) the relevant security-based 

swap must have been cleared by a 

central counterparty that has been 

authorized or recognized to clear 

derivatives contracts in the EU.78

2. Commenter Views and Final 

Provisions 

Commenters addressed the proposed 

general conditions related to MiFID 

‘‘clients,’’ the memoranda of 

understanding, and the notice to the 

Commission.79 Commenters also 

addressed the two additional EMIRrelated conditions the Commission 

discussed when it reopened the 

comment period.80 For the reasons 

discussed below, the Order largely 

incorporates the general conditions as 

proposed, subject to certain changes and 

the addition of the two EMIR-related 

conditions.81 In the Commission’s view, 

the conditions are structured 

appropriately to predicate a positive 

substituted compliance determination 

on the applicability of relevant French 

and EU requirements needed to 

establish comparability, as well as on 

the continued effectiveness of the 

requisite MOU, and the provision of 

notice to the Commission regarding the 

Covered Entity’s intent to rely on 

substituted compliance. 

a. Counterparties as MiFID ‘‘clients’’ 

One commenter requested that the 

Commission modify the general 

condition regarding MiFID client status, 

which as proposed required that the 

counterparty be a ‘‘client’’ (or potential 

‘‘client’’) as defined in MiFID, such that 

the condition also would encompass 

counterparties that are ‘‘acting through 

an agent which the Covered Entity treats 

as its ‘client’ (or potential ‘client’).’’ 82

The commenter stated that this change 

would address circumstances in which 

an agent acted on its counterparty’s 

behalf, ‘‘such as an investment manager 

acting for a fund,’’ reasoning that in 

practice entities ‘‘will look to the agent’’ 

rather than the agent’s principal when 

satisfying applicable requirements.83

As noted above, the proposed Order 

would require a Covered Entity to be 

‘‘subject to and comply with’’ relevant 

MiFID-based requirements. The 

Commission proposed that requirement 

of the proposed Order to ensure that 

comparable MiFID-based requirements 

in practice would apply to a Covered 

Entity using substituted compliance. 

The condition in paragraph (a)(2) to the 

proposed Order would ensure that the 

Covered Entity’s counterparty—i.e., the 

entity to whom it owes its various 

duties under the Exchange Act—is the 

‘‘client’’ to whom the Covered Entity 

owes its performance of the duties to 

which it is subject under the 

comparable MiFID-based 

requirements.84 The Commission 

believes that, in the case of an agent 

acting on behalf of a principal, if the 

principal is the counterparty for 

purposes of the relevant Exchange Act 

requirement, then this condition should 

require the principal, as the 

counterparty, to be the ‘‘client’’ for 

purposes of the relevant MiFID-based 

requirements. If the Covered Entity 

instead treats the agent as the ‘‘client,’’ 

then the Covered Entity would not be 

‘‘subject to’’ French and EU 

requirements that are comparable to 

Exchange Act requirements related to 

counterparties. Accordingly, the 

Commission is not amending the Order 

to modify the condition in paragraph 

(a)(2) to permit a Covered Entity to treat 

an agent, rather than the agent’s 

principal, as its client with regard to the 

relevant MiFID-based requirements. In 

taking this position, the Commission 

does not prohibit Covered Entities from 

working with agents or others acting on 

behalf of a counterparty. Rather, the 

Covered Entity must ensure that, in 

working with the agent, it fulfills any 

duties owed to a ‘‘client’’ (or potential 

‘‘client’’) in relation to the 

counterparty.85


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not ‘‘subject to’’ the relevant French and EU 

requirements listed in the Order, and thus would 

not impact the Covered Entity’s ability to use 

substituted compliance in relation to those 

communications. On the other hand, MiFID article 

26 also provides that the other firm is legally 

responsible for the suitability of advice and 

recommendations provided to the client. The other 

firm, however, may not be a Covered Entity 

applying substituted compliance pursuant to the 

Order. Accordingly, the Commission believes that 

a Covered Entity relying on the suitability 

assessment of another firm pursuant to MiFID 

article 26 is not ‘‘subject to’’ the relevant French 

suitability requirements listed in the Order, and 

thus may not apply substituted compliance for 

those recommendations. 

86See SIFMA Letter I at 16; see also FBF Letter 

I at 3. 

87See paras. (a)(7) and (a)(8) of the Order. 

88SIFMA Letter II at Appendix A. 

89Exchange Act Release No. 91476 (Apr. 5, 2021), 

86 FR 18378 (Apr. 8, 2021) (‘‘UK Proposed Order’’). 

90See para. (a)(9) of the proposed Order. 

91See para. (a)(9) of the Order. If the Covered 

Entity intends to rely on all the substituted 

compliance determinations in a given paragraph of 

the Order, it can cite that paragraph in the notice. 

For example, if the Covered Entity intends to rely 

on the capital and margin determinations in 

paragraph (c) of the Order, it can indicate in the 

notice that it is relying on the determinations in 

paragraph (c). However, if the Covered Entity 

intends to rely on the margin determination but not 

the capital determination, it will need to indicate 

in the notice that it is relying on paragraph (c)(2) 

of the Order (the margin determination). In this 

case, paragraph (c)(1) of the Order (the capital 

determination) will be excluded from the notice 

and the Covered Entity will need to comply with 

the Exchange Act capital requirements. Further, as 

discussed below, the recordkeeping and reporting 

determinations in the Order have been structured 

to provide Covered Entities with a high level of 

flexibility in selecting specific requirements within 

those rules for which they want to rely on 

substituted compliance. For example, paragraph 

(f)(1)(i) of the Order sets forth the Commission’s 

substituted compliance determinations with respect 

to the requirements of Exchange Act rule 18a–5, 17 

CFR 240.18a–5. These determinations are set forth 

in paragraphs (f)(1)(i)(A) through (O) of the Order. 

If a Covered Entity intends to rely on some but not 

all of the determinations, it will need to identify in 

the notice the specific determinations in this 

paragraph it intends to rely on (e.g., paragraphs 

(f)(1)(i)(A), (B), (C), (D), (G), (H), (I), and (O)). For 

any determinations excluded from the notice, the 

Covered Entity will need to comply with the 

Exchange Act rule 18a–5 requirement. Finally, a 

Covered Entity is able to apply substituted 

compliance at the transaction level (rather than the 

entity level) for certain counterparty protection 

requirements and the recordkeeping requirements 

that are linked to them. In this case, the notice will 

need to indicate the class of transactions (e.g., 

transactions with French counterparties) for which 

the Covered Entity is applying substituted 

compliance with respect to the Exchange Act 

counterparty protection requirements and linked 

recordkeeping requirements. Similarly, as discussed 

above, a Covered Entity is able to apply substituted 

compliance for entity-level Exchange Act 

requirements to all of its security-based swap 

business that is eligible for substituted compliance 

under the Order, and may either comply directly 

with the Exchange Act or apply substituted 

compliance under another applicable order for its 

security-based swap business that is not eligible for 

substituted compliance under the Order. In this 

case, the notice will need to indicate the scope of 

security-based swap business (e.g., security-based 

swap business carried on from an establishment in 

France) for which the Covered Entity is applying 

substituted compliance with respect to the relevant 

Exchange Act entity-level requirements. 

92A Covered Entity would modify its reliance on 

the positive substituted compliance determinations 

in the Order, and thereby trigger the requirement to 

update its notice, if it adds or subtracts 

determinations for which it is applying substituted 

compliance or completely discontinues its reliance 

on the Order. 

93See French Substituted Compliance Notice and 

Proposed Order, 85 FR 85734. 

94See FBF Letter II at 2 (stating that ‘‘[t]he FBF 

is generally welcoming of the new general EMIR 

conditions that are introduced as a corollary to the 

above changes. As applied in the context of trading 

relationship documentation, trade acknowledgment 

and verification, they largely convey the manner in 

which EMIR has been interpreted.’’); see also 

SIFMA Letter II at 4. 

95Better Markets Letter at 6. 

b. Memoranda of Understanding 

Commenters stated that a separate 

memorandum of understanding with the 

ECB need not be in place before SBS 

Entities can rely on the Order, based on 

the rationale that a memorandum of 

understanding containing certain 

assurances from the AMF and ACPR 

would be sufficient to ensure the 

Commission can promptly obtain 

relevant ECB-controlled information.86

The Commission disagrees that such 

assurances would be sufficient. As the 

Order in part addresses substituted 

compliance for matters within the 

purview of the ECB, including but not 

limited to capital and margin 

requirements, the Commission believes 

that a memorandum of understanding 

with the ECB must be in place at the 

time an SBS Entity relies on the Order. 

As a result, the Order incorporates, as 

proposed, separate conditions related to 

the French Authorities and to the ECB 

memoranda of understanding.87

c. Notice of Reliance on Substituted 

Compliance 

One commenter 88 requested that the 

Commission modify the proposed notice 

condition to correspond with the 

analogous condition that the 

Commission proposed in connection 

with the proposed substituted 

compliance order for the United 

Kingdom (UK).89 The Commission 

agrees that the notice requirements for 

the substituted compliance orders 

should be consistent. As a result, the 

condition has been modified from the 

French proposed Order to add flexibility 

by stating that the notice must be sent 

to the Commission in the manner 

specified on the Commission’s website 

(while the proposed Order instead 

referred to an email address).90

Moreover, the condition further has 

been modified from the proposal by 

stating that the notice must identify 

each specific substituted compliance 

determination for which the Covered 

Entity intends to apply substituted 

compliance.91 Further, a Covered Entity 

must promptly update the notice if it 

intends to modify its reliance on the 

positive substituted compliance 

determinations in the Order.92 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,93 and 

specificity as to the scope of the entity’s 

reliance on substituted compliance is 

necessary to facilitate the Commission’s 

oversight under the Order. 

d. Additional EMIR-Related Conditions 

The final rules have been modified 

from the proposal to add two general 

conditions that address Covered 

Entities’ reliance on the EMIR-related 

provisions. The additions should help 

ensure that the relevant EMIR-related 

provisions will apply in fact, and help 

avoid any gaps between the regulatory 

outcomes associated with Exchange Act 

requirements and regulatory outcomes 

associated with those EMIR-related 

provisions. Consistent with the 

discussion regarding scope of 

substituted compliance in part II.B, in 

the context of the EMIR counterparties 

condition in paragraph (a)(5), a Covered 

Entity must choose (1) to apply 

substituted compliance pursuant to the 

Order—including compliance with 

paragraph (a)(5) as applicable—for a 

particular set of entity-level 

requirements with respect to all of its 

business that would be subject to the 

relevant EMIR-based requirement if the 

counterparty were the relevant type of 

counterparty, or (2) to comply directly 

with the Exchange Act with respect to 

such business. 

Some commenters expressed general 

support for adding the two additional 

EMIR-related general conditions to the 

Order.94 One commenter disagreed with 

including any additional EMIR-related 

conditions, expressing the view that if 

‘‘some industry participants may not be 

able to take advantage of substituted 

compliance under the SEC’s proposed 

framework is not, in and of itself, a 

reason to change the framework.’’ 95

The first new general condition 

addresses the fact that the ‘‘financial 

counterparty’’ and ‘‘non-financial 

counterparty’’ definitions that trigger 

the application of the relevant EMIR 

provisions are predicated on the entity 

being an undertaking established in the 


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96See EMIR articles 2(8) and 2(9). 97EMIR article 2(8) defines ‘‘financial 

counterparty’’ to encompass investment firms, 

credit institutions, insurers and certain other types 

of businesses that have been authorized in 

accordance with EU directives. The distinction 

between ‘‘financial’’ and ‘‘non-financial’’ 

counterparties under EMIR is manifested, inter alia, 

in connection with confirmation timing standards 

(see EMIR RTS article 12). 

98See para. (a)(5) of the Order. 

99SIFMA Letter II at 4. 

100See para. (a)(5) of the Order. 

101See para. (a)(6) of the Order. Absent this type 

of condition, instruments that have been cleared at 

an EU-authorized or recognized central 

counterparty neither would be excluded from the 

application of those Exchange Act rules nor would 

be subject to the EMIR requirements that otherwise 

would underpin substituted compliance. That 

would make direct compliance with the Exchange 

Act rules problematic, but compliance with the 

conditions of a positive substituted compliance 

order unworkable. 

102SIFMA Letter II at 4–5. 

103 Id. at 4. 

104 In light of these considerations, the condition 

does not extend to clearing permitted pursuant to 

the equivalence framework of EMIR article 13. 

105See SIFMA Letter I at 8. 

106 Id. 

107See UK Substituted Compliance Notice and 

Proposed Order, 86 FR 18394–403, 18415–420. 

EU.96 The conditions are not based 

upon the concern that some industry 

participants may not be able to take 

advantage of substituted compliance, 

but rather the conditions are intended to 

help ensure that the relevant EMIR 

requirements will apply in practice 

regardless of the counterparty’s location 

or status as ‘‘an undertaking’’. As such, 

the condition provides that the Covered 

Entity must comply with the applicable 

condition of this Order as if the 

counterparty were the type of 

counterparty that would trigger the 

application of the relevant EMIR-based 

requirements. If the Covered Entity 

reasonably determines that its 

counterparty would be a financial 

counterparty if not for the 

counterparty’s location and/or lack of 

authorization in the EU, the condition 

further requires the Covered Entity to 

treat the counterparty as if the 

counterparty were a financial 

counterparty, rather than as another 

type of counterparty to which the 

relevant EMIR-based requirements 

apply.97 By requiring a Covered Entity 

to treat its counterparty as the type of 

counterparty that would trigger the 

application of the relevant EMIR-based 

requirements, the EMIR-based 

requirements require the Covered Entity 

to act in a way that is comparable to 

Exchange Act requirements. The 

Commission is modifying the Order to 

include this condition to ensure that a 

Covered Entity can apply substituted 

compliance only when it treats its 

counterparty as a type that will trigger 

the Covered Entity’s performance of 

obligations pursuant to those EMIRbased requirements.98 Because each 

EMIR-based requirement applies to 

different types of counterparties, the 

Commission is amending the condition 

to make clear that a Covered Entity must 

treat its counterparty as if the 

counterparty were the type of 

counterparty specified in the relevant 

EMIR-based requirement and that a 

Covered Entity may not rely on EMIR 

article 13 to comply with another 

jurisdiction’s requirement. 

Another commenter requested that 

the Commission clarify that this 

condition would not require a Covered 

Entity to treat as financial 

counterparties or non-financial 

counterparties certain public sector 

counterparties, such as multilateral 

development banks, that are exempt 

from EMIR or counterparties that are not 

‘‘undertakings’’ for purposes of EMIR’s 

definitions of ‘‘financial counterparty’’ 

and ‘‘non-financial counterparty.’’ 99

The Commission declines to do so, 

given that the relevant requirements 

under the Exchange Act lack analogous 

carve-outs based on counterparty status. 

The Commission is, however, clarifying 

that the condition applies only if the 

relevant EMIR-based provision applies 

to the Covered Entity’s activities with 

specified types of counterparties.100

The second new general condition 

accounts for the fact that: (a) The 

relevant trade acknowledgement and 

verification and trading relationship 

documentation rules under the 

Exchange Act do not apply to securitybased swaps cleared by a clearing 

agency registered with the Commission 

or a clearing agency that is exempt from 

registration with the Commission, and 

(b) the analogous EMIR provisions only 

apply to over-the-counter derivatives 

that are not cleared on a CCP (as defined 

in EMIR article 2(1)). To help ensure 

that substituted compliance is not 

precluded in connection with 

instruments that have been cleared in 

the EU, this second condition provides 

that for the applicable EMIR-related 

conditions, the relevant security-based 

swap must be an ‘‘OTC derivative’’ or 

‘‘OTC derivative contract’’ (as defined 

under EMIR) that has not been cleared 

and otherwise is subject to the 

provisions of the relevant requirements 

under EMIR, or else that the relevant 

security-based swap must have been 

cleared by a central counterparty that 

has been authorized or recognized by a 

relevant authority to clear derivatives 

contracts in the EU.101

One commenter requested that the 

second new general condition be 

revised to include transactions cleared 

by any central counterparty—not merely 

central counterparties authorized or 

recognized by the EU.102 The 

commenter stated that in certain 

circumstances French and EU law 

permit counterparties to agree to submit 

certain transactions to third-country 

central counterparties, and that it would 

be impractical to require Covered 

Entities to satisfy Exchange Act 

requirements that are ‘‘principally 

targeted to non-cleared [security-based 

swaps] in relation to these 

transactions.’’ 103 The Commission has 

modified the condition to clarify that it 

extends to instruments cleared by 

central counterparties that have been 

authorized or recognized by a ‘‘relevant 

authority’’ in the EU, but the 

Commission declines to extend it to 

instruments cleared on ‘‘any’’ central 

counterparty, as such a standard would 

provide no safeguard against the risks 

potentially associated with central 

counterparties that are not subject to 

adequate safeguards. In application, the 

central counterparties described by the 

provision would extend to those that 

have been authorized by a competent 

authority pursuant to EMIR article 14, 

and those that have been recognized by 

the European Securities and Markets 

Authority (‘‘ESMA’’) pursuant to EMIR 

article 25.104

Finally, the Commission is amending 

the condition to clarify that the 

condition applies only if the relevant 

EMIR-based provision applies to OTC 

derivatives that have not been cleared 

by a central counterparty, as some 

provisions of EMIR cited in the Order, 

such as EMIR articles 39(4) and (5), are 

not limited in their application to noncentrally cleared OTC derivatives. 

Consistent with the condition in 

paragraph (a)(6) of the Order, the 

Commission is also adding to the 

condition references to EMIR RTS and 

EMIR Margin RTS. 

e. Notification Requirements Related to 

Changes in Capital 

A commenter requested that the 

Commission make more granular 

substituted compliance determinations 

with respect to the Exchange Act 

recordkeeping requirements.105 The 

commenter stated that for ‘‘operational 

reasons’’ a Covered Entity may ‘‘prefer 

to comply directly with certain 

Exchange Act requirements (i.e., not to 

rely on substituted compliance with 

those requirements).’’ 106 The 

Commission took this approach in the 

UK Proposed Order with respect to the 

Exchange Act recordkeeping, reporting, 

and notification requirements.107 As 


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108 Id. 

109See Reopening Release, 86 FR at 18347–48. 

110See 17 CFR 240.18a–8(c). 

111See 17 CFR 240.18a–8(h). 

112Better Markets Letter at 2–3. 

113These French provisions include: (1) MFC 

Articles L. 511–33II, L. 634–1, and L. 634–2, which 

provide, among other things, that the staff of firms 

may report potential or actual breaches related to 

certain specified provisions, and provide for the 

establishment of procedures and secure 

communication channels through which French 

regulatory and prudential authorities can be 

informed of failures to comply with applicable 

regulations; and (2) Internal Control Order articles 

249 and 249–1, which require notification to the 

ACPR, without delay, of significant incidents with 

respect to certain thresholds related to the firm’s 

risk analysis and measurement systems, and with 

respect to operational incidents. 

114Better Markets Letter at 2. 115See Exchange Act Release No. 71958 (Sept. 19, 

2019), 84 FR 68550, 68589–90 (Dec. 16, 2019) 

(‘‘Recordkeeping and Reporting Adopting Release’’) 

(citing Exchange Act Release No. 71958 (Aug. 17, 

2014) 79 FR 25193, 25249 (May 2, 2014)). 

part of this approach, the Commission 

also conditioned substituted compliance 

with certain of the discrete 

recordkeeping, reporting, and 

notification requirements on the 

Covered Entity applying substituted 

compliance with respect to the 

substantive Exchange Act requirement 

to which they were linked.108 This 

linked condition was designed to ensure 

that a Covered Entity consistently 

applies substituted compliance with 

respect to the substantive Exchange Act 

requirement and the Exchange Act 

recordkeeping, reporting, or notification 

requirement that complements the 

substantive requirement. The 

Commission sought comment in the 

Reopening Release on whether it should 

take a similar granular approach to the 

Exchange Act recordkeeping, reporting, 

and notification requirements.109

On further consideration and in light 

of the more granular approach requested 

by the commenter, the Commission 

believes it necessary to do the reverse 

with respect to certain substantive 

financial responsibility requirements: 

Condition substituted compliance with 

respect to the substantive requirement 

on the Covered Entity applying 

substituted compliance with respect to 

the linked recordkeeping, reporting, or 

notification requirement. The Exchange 

Act financial responsibility 

requirements addressed in this Order 

(capital, margin, recordkeeping, 

reporting, notification, and securities 

count requirements) are highly 

integrated. Therefore, implementing the 

reverse conditional link is designed to 

ensure that the granular approach 

requested by the commenter results in 

comparable regulatory outcomes in 

terms of obligations to make and 

preserve records, and to submit reports 

and notifications to the Commission 

concerning the Covered Entity’s 

compliance with the financial 

responsibility rules. It also is designed 

to provide clarity as to the obligations 

of a Covered Entity under this Order 

when using the granular approach to the 

Exchange Act recordkeeping, reporting, 

and notification requirements linked to 

the financial responsibility rules. 

For example, because of the granular 

approach, a Covered Entity could elect 

to apply substituted compliance with 

respect to a substantive Exchange Act 

requirement such as the capital 

requirements of Exchange Act rule 18a– 

1 but elect not to apply substituted 

compliance with respect to a linked 

requirement under Exchange Act rule 

18a–8 to provide the Commission notice 

of a capital deficiency under Exchange 

Act rule 18a–1. In this scenario, the 

Covered Entity would not be subject to 

the condition for applying substituted 

compliance with respect to Exchange 

Act rule 18a–8; namely, that the firm 

provide the Commission copies of 

notifications relating to French and EU 

capital requirements required under 

French and EU law. Consequently, as 

discussed below in this section and 

other sections of this release, the 

Commission is conditioning substituted 

compliance with respect to certain 

substantive Exchange Act requirements 

on the Covered Entity applying 

substituted compliance with respect to 

linked recordkeeping reporting, or 

notification requirements. 

Exchange Act Rule 18a–8(c) 

Exchange Act rule 18a–8(c) generally 

requires every security-based swap 

dealer with a prudential regulator that 

files a notice of adjustment of its 

reported capital category with the 

Federal Reserve Board, the Office of the 

Comptroller of the Currency, or the 

Federal Deposit Insurance Corporation 

to give notice of this fact that same day 

by transmitting a copy of the notice of 

adjustment of reported capital category 

in accordance with Exchange Act rule 

18a–8(h).110 Exchange Act rule 18a–8(h) 

sets forth the manner in which every 

notice or report required to be given or 

transmitted pursuant to Exchange Act 

rule 18a–8 must be made.111 While 

Exchange Act rule 18a–8(c) is not linked 

to a substantive Exchange Act 

requirement, it is linked to substantive 

capital requirements applicable to 

prudentially regulated SBS Entities in 

the U.S. (i.e., capital requirements of the 

Federal Reserve Board, the Office of the 

Comptroller of the Currency, or the 

Federal Deposit Insurance Corporation). 

Therefore, to implement the granular 

approach requested by the commenter, 

the Commission is adding a general 

condition that Covered Entities with a 

prudential regulator relying on the final 

Order for substituted compliance must 

apply substituted compliance with 

respect to the requirements of Exchange 

Act rule 18a–8(c) and the requirements 

of Exchange Act rule 18a–8(h) as 

applied to Exchange Act rule (c).112

In their application, the French 

Authorities cited several French 

provisions as providing similar 

outcomes to the notifications 

requirements of Exchange Act rule 18a– 

8. Additionally, based on comments 

received, the Commission has identified 

additional provisions that are 

relevant.113 This general condition is 

necessary in order to clarify that a 

prudentially regulated Covered Entity 

must provide the Commission with 

copies of any notifications regarding 

changes in the Covered Entity’s capital 

situation required by French and EU 

law. In particular, a prudentially 

regulated Covered Entity could elect not 

to apply substituted compliance with 

respect to Exchange Act rule 18a–8(c). 

However, because the Covered Entity is 

not required to provide any notifications 

to the Federal Reserve Board, the Office 

of the Comptroller of the Currency, or 

the Federal Deposit Insurance 

Corporation, ‘‘compliance’’ with the 

provisions of Exchange Act rule 18a– 

8(c) raises a question as to the Covered 

Entity’s obligations under this Order to 

provide the Commission with 

notification of changes in capital. 

Moreover, a commenter stated that 

foreign financial services firms were 

among the entities that used emergency 

lending facilities in the U.S. along with 

other U.S. measures to address the 2008 

financial crisis.114 The Commission 

adopted Exchange Act rule 18a–8(c) to 

require SBS Entities with a prudential 

regulator to give notice to the 

Commission when filing an adjustment 

of reported capital category because 

such notices may indicate that the entity 

is in or is approaching financial 

difficulty.115 The Commission has a 

regulatory interest in being notified of 

changes in the capital of a prudentially 

regulated Covered Entity, as it could 

signal the firm is in or approaching 

financial difficulty and presents a risk to 

U.S. security-based swap markets and 

participants. For the foregoing reasons, 

the Commission is conditioning 

applying substituted compliance 

pursuant to the Order on the general 

condition that a prudentially regulated 

Covered Entity apply substituted 

compliance with respect to Exchange 

Act rule 18a–8(c) and the requirements 


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116See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85724, 85739. 

117See SIFMA Letter I at 2–8. 

118See SIFMA Letter I at 3. 

119See Business Conduct Adopting Release, 81 

FR at 30080; see also id. at 30067. 

120See id. at 30087. 

121See para. (a)(8) of the Order. 

122See also discussion in part III.B.2.d. 

123MiFID article 35(8) particularly provides that 

these allocation principles apply in connection 

with MiFIR articles 14 to 26. The Commission 

requested comment on the addition of MiFIR and 

received no comment. 

124See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85724. 

125 Id. at 85724. 

of Exchange Act rule 18a–8(h) as 

applied to Exchange Act rule 18a–8(c). 

C. European Union Cross-Border 

Matters 

1. Proposed Approach 

The proposed Order also included 

general conditions to address the crossborder application of MiFID and MAR, 

along with EU and French requirements 

adopted pursuant to those directives. 

For some requirements under MiFID 

(and other EU and Member State 

requirements adopted pursuant to 

MiFID), EU law allocates the 

responsibility for supervising and 

enforcing those requirements to 

authorities of the Member State where 

an entity provides certain services. 

Similarly, for some requirements under 

MAR (and other EU and Member State 

requirements adopted pursuant to 

MAR), EU law allocates the 

responsibility for supervising and 

enforcing those requirements to 

authorities of potentially multiple 

Member States. To help ensure that the 

prerequisites to substituted compliance 

with respect to supervision and 

enforcement are satisfied in fact, the 

proposed Order provided substituted 

compliance only if one of the authorities 

responsible for supervision and 

enforcement of those requirements is 

the AMF or the ACPR.116

2. Commenter Views and Final 

Provisions 

Commenters raised concerns with the 

proposed approach to European Union 

cross-border matters. The commenters 

did not object to the Commission’s 

underlying premise, with one 

commenter noting that they 

‘‘[understood] that the Commission has 

included these conditions in the order 

to ensure that the prerequisites with 

respect to supervision and enforcement 

are satisfied.’’ 117 Commenters instead 

asserted that the proposed condition 

would significantly curtail the ability to 

rely on the Order, with one commenter 

stating that requiring the AMF or ACPR 

to be allocated responsibility for the 

supervision and enforcement of 

applicable MiFID and MAR provisions, 

‘‘will in practice lead to an untenable 

patchwork of substituted 

compliance.’’ 118 To address these 

issues, commenters urged the 

Commission to consider whether it 

could dispense with certain of the 

requirements cited in the proposed 

Order and still make a holistic, 

outcomes based comparability 

determination. 

The Commission continues to believe 

that requiring that the AMF or ACPR 

have responsibility for applicable MiFID 

and MAR provisions will help ensure 

that the supervision and enforcement 

prerequisites to substituted compliance 

are satisfied.119 Additionally, the 

proposed approach helps ensure that 

applicable MiFID and MAR provisions 

are interpreted and applied in a 

consistent manner by entities that are 

party to the MOUs and/or other 

arrangements which are a prerequisite 

to substituted compliance.120 In light of 

these considerations the Commission is 

issuing the general conditions related to 

EU cross-border matters largely as 

proposed.121 In the Commission’s view, 

these conditions are structured 

appropriately to permit the use of 

substituted compliance only when the 

AMF or the ACPR is the entity 

responsible for supervising a Covered 

Entity’s compliance with a relevant 

provision of MiFID, MAR or related EU 

or French requirements. 

The Commission agrees, however, 

that in light of the EU cross-border 

implications, further consideration of 

the specific conditions cited with 

respect to internal risk management, 

trade acknowledgement and 

verification, trading relationship 

documentation, internal supervision 

and compliance and recordkeeping, 

reporting, notification, and securities 

counts is warranted to ensure that the 

scope of substituted compliance is 

appropriate. The Commission addresses 

those specific requirements below.122

This part of the Order has been 

modified from the proposed Order to 

incorporate references to conditions 

requiring compliance with MiFIR, given 

that certain relevant MiFIR conditions 

to substituted compliance are subject to 

the same principles regarding the 

allocation of authority.123

IV. Substituted Compliance for Risk 

Control Requirements 

A. Proposed Approach 

The French Authorities’ Application 

in part requested substituted 

compliance in connection with risk 

control requirements relating to: 

• Internal risk management—Internal 

risk management system requirements 

that address the obligation of registered 

entities to follow policies and 

procedures reasonably designed to help 

manage the risks associated with their 

business activities. 

• Trade acknowledgment and 

verification—Trade acknowledgment 

and verification requirements intended 

to help avoid legal and operational risks 

by requiring definitive written records 

of transactions and procedures to avoid 

disagreements regarding the meaning of 

transaction terms. 

• Portfolio reconciliation and dispute 

reporting—Portfolio reconciliation and 

dispute reporting provisions that require 

that counterparties engage in portfolio 

reconciliation and resolve discrepancies 

in connection with uncleared securitybased swaps, and to provide prompt 

notification to the Commission and 

applicable prudential regulators 

regarding certain valuation disputes. 

• Portfolio compression—Portfolio 

compression provisions that require that 

SBS Entities have procedures 

addressing bilateral offset, bilateral 

compression and multilateral 

compression in connection with 

uncleared security-based swaps. 

• Trading relationship 

documentation—Trading relationship 

documentation provisions that require 

SBS Entities to have procedures to 

execute written security-based swap 

trading relationship documentation 

with their counterparties prior to, or 

contemporaneously with, executing 

certain security-based swaps.124

Taken as a whole, these risk control 

requirements help to promote market 

stability by mandating that registered 

entities follow practices that are 

appropriate to manage the market, 

counterparty, operational, and legal 

risks associated with their securitybased swap businesses. 

In considering conditional substituted 

compliance for the risk control portion 

of the French Authorities’ Application, 

the Commission preliminarily 

concluded that the relevant French and 

EU requirements generally would help 

to produce regulatory outcomes that are 

comparable to those under the Exchange 

Act by subjecting Covered Entities to 

risk mitigation and documentation 

practices that are appropriate to the 

risks associated with their securitybased swap businesses.125 Substituted 

compliance under the proposed Order 

was to be conditioned in part on 

Covered Entities being subject to and 


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126 Id. at 85724 n.37. 

127 Id. at 85725. Certain relevant French and EU 

requirements that provide for this type of 

documentation do not apply to investment firms’ 

transactions with ‘‘eligible counterparties.’’ 

128 Id. The trading relationship documentation 

provisions of rule 15F(b)(5) require certain 

disclosures regarding the status of the SBS Entity 

or its counterparty as an insured depository 

institution or financial counterparty, and regarding 

the possible application of the insolvency regime 

set forth under Title II of the Dodd-Frank Act or the 

Federal Deposit Insurance Act. Documentation 

requirements under applicable French and EU law 

would not be expected to address the disclosure of 

information related to insolvency procedures under 

U.S. law. 

129 Id. Under the Exchange Act requirement, SBS 

Entities must promptly report, to the Commission, 

valuation disputes in excess of $20 million that 

have been outstanding for three or five business 

days (depending on counterparty types). EU 

requirements provide that firms must report at least 

monthly, to competent authorities, disputes 

between counterparties in excess of Ö15 million and 

outstanding for at least 15 business days. 

130See SIFMA Letter I at 4–6; FBF Letter I at 2. 

131See FBF Letter I at 2. See also SIFMA Letter 

I at 3 (noting that the application of certain 

proposed MiFID and EMIR rules would ‘‘lead to an 

untenable patchwork of substituted compliance.’’) 

132See Reopening Release, 86 FR at 18343. 

133See SIFMA Letter II at 6 (stating that ‘‘[w]e 

generally support these proposed modifications to 

the French Order’’); see also FBF Letter II at 2. But 

see Better Markets Letter at 6 (‘‘It is understandable 

that industry groups would urge the SEC to make 

it easier for more members of the industry to avail 

themselves of the privilege of substituted 

compliance . . . . However, easing regulatory 

burdens for the industry is not the SEC’s job.’’). 

134See Better Markets Letter at 1–2. 

135See paras. (b)(1) through (5) of the Order. 

136See para. (b)(5) of the Order. The Exchange 

Act rule 15Fi–5, 17 CFR 240.15Fi–5, disclosures 

address information regarding: (1) The status of the 

SBS Entity or its counterparty as an insured 

depository institution or financial counterparty, and 

(2) the possibility that in certain circumstances the 

SBS Entity or its counterparty may be subject to the 

insolvency regime set forth in Title II of the DoddFrank Wall Street Reform and Consumer Protection 

Act or the Federal Deposit Insurance Act, which 

may affect rights to terminate, liquidate or net 

security-based swaps. See Exchange Act Release 

No. 87782 (Dec. 18, 2019), 85 FR 6359, 6374 (Feb. 

4, 2020) (‘‘Risk Mitigation Adopting Release’’). 

Documentation requirements under applicable 

French and EU law do not address the disclosure 

of information related to insolvency procedures 

under U.S. law. However, the absence of such 

disclosures would not appear to preclude a 

comparable regulatory outcome when the 

counterparty is not a U.S. person, as the insolvencyrelated consequences that are the subject of the 

disclosure would not apply to non-U.S. 

counterparties in most cases. Moreover, EMIR 

Margin RTS article 2 requires counterparties to 

establish, apply and document risk management 

procedures providing for or specifying the terms of 

agreements entered into by the counterparties, 

including applicable governing law for noncentrally cleared derivatives. When counterparties 

enter into a netting or collateral exchange 

agreement, they also must perform an independent 

legal review of the enforceability of those 

agreements. 

complying with the specified French 

and EU provisions that in the aggregate 

help to produce regulatory outcomes 

that are comparable to those associated 

with the risk control requirements 

under the Exchange Act.126

Substituted compliance under the 

proposed Order also was to be subject 

to certain additional conditions to help 

ensure the comparability of outcomes: 

(a) Substituted compliance in 

connection with the trading relationship 

documentation provisions would be 

conditioned on the requirement that the 

Covered Entity not treat its 

counterparties as ‘‘eligible 

counterparties’’ for purposes of relevant 

MiFID provisions; 127 (b) substituted 

compliance related to trading 

relationship documentation under the 

proposed Order would not extend to 

certain disclosures regarding legal and 

bankruptcy status; 128 and (c) 

substituted compliance in connection 

with portfolio reconciliation and 

dispute reporting requirements would 

be conditioned on the Covered Entity 

having to provide the Commission with 

reports regarding disputes between 

counterparties on the same basis as they 

provide those reports to competent 

authorities pursuant to EU law.129

B. Commenter Views and Final 

Provisions 

Commenters initially expressed the 

view that the Commission should 

modify certain of the proposed 

conditions related to substituted 

compliance in connection with internal 

risk management, trade 

acknowledgement and verification, and 

trading relationship documentation 

requirements.130 Specifically, 

commenters expressed concerns with 

proposed MiFID requirements for trade 

acknowledgement and verification and 

trading relationship documentation that 

‘‘cover the same ground’’ as proposed 

EMIR requirements and ‘‘would result 

in undue burdens for French [securitybased swap dealers].’’ 131 Partially in 

light of those concerns, the Commission 

reopened the comment period and 

solicited additional comment on 

whether EMIR requirements standing 

alone could produce comparable results 

such that certain MiFID provisions may 

be removed as prerequisites to 

substituted compliance for trade 

acknowledgement and verification and 

trading relationship documentation 

requirements.132 Certain commenters 

generally supported changes 

contemplated by the Commission in the 

Reopening Release.133 Another 

commenter stated that French and EU 

requirements are not sufficiently 

comparable to Exchange Act 

requirements.134

After considering commenters’ 

recommendations regarding the risk 

control requirements, the Commission is 

making positive substituted compliance 

determinations in connection with 

internal risk management, trade 

acknowledgment and verification, 

portfolio reconciliation and dispute 

reporting, portfolio compression and 

trading relationship documentation 

requirements. As discussed below, the 

final Order has been changed from the 

proposed Order in certain respects in 

response to comments following the 

proposed Order and Reopening Release. 

The Commission continues to conclude 

that, taken as a whole, applicable 

requirements under French and EU law 

subject Covered Entities to risk 

mitigation and documentation practices 

that are appropriate to the risks 

associated with their security-based 

swap businesses, and thus help to 

produce regulatory outcomes that are 

comparable to the outcomes associated 

with the relevant risk control 

requirements under the Exchange Act. 

Although the Commission recognizes 

that there are differences between the 

approaches taken by the relevant risk 

control requirements under the 

Exchange Act and relevant French and 

EU requirements, the Commission 

continues to believe that those 

differences on balance should not 

preclude substituted compliance for 

these requirements, as the relevant 

French and EU requirements taken as a 

whole help to produce comparable 

regulatory outcomes. 

To help ensure the comparability of 

outcomes, substituted compliance for 

risk control requirements is subject to 

certain conditions. Substituted 

compliance for internal risk 

management, trade acknowledgment 

and verification, portfolio reconciliation 

and dispute reporting, portfolio 

compression and trading relationship 

documentation requirements is 

conditioned on the Covered Entity being 

subject to, and complying with, relevant 

French and EU requirements.135 In 

addition, consistent with the proposed 

Order, substituted compliance for 

trading relationship documentation 

does not extend to disclosures regarding 

legal and bankruptcy status that are 

required by Exchange Act rule 15Fi– 

5(b)(5) when the counterparty is a U.S. 

person.136 Finally, consistent with the 

proposed Order, substituted compliance 

for portfolio reconciliation and dispute 

reporting requirements is conditioned 

on the Covered Entity providing the 

Commission with reports regarding 

disputes between counterparties on the 

same basis as the Covered Entity 

provides those reports to its competent 

authority pursuant to French and EU 


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137See paras. (b)(3)(ii) of the Order. This 

condition promotes comparability with the 

Exchange Act rule requiring reports to the 

Commission regarding significant valuation 

disputes, while leveraging French and EU reporting 

provisions to avoid the need for Covered Entities to 

create additional reporting frameworks. When it 

proposed the condition to report valuation disputes, 

the Commission recognized that valuation 

inaccuracies may lead to uncollateralized 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 SBS Entities. 

The principal difference between the Exchange Act 

and French and EU valuation dispute reporting 

requirements concerns the timing of notices. 

Exchange Act rule 15Fi–3, 17 CFR 240.15Fi–3, 

requires SBS Entities to report promptly to the 

Commission valuation disputes in excess of $20 

million that have been outstanding for three or five 

business days (depending on the counterparty 

type). EMIR RTS article 15(2) requires financial 

counterparties to report to the relevant competent 

authority at least monthly any disputes between 

counterparties in excess of Ö15 million and 

outstanding for at least 15 business days. The 

Commission is mindful that the French and EU 

provision does not provide for notice as quickly as 

rule 15Fi–3, but in the Commission’s view on 

balance this difference would not be inconsistent 

with the conclusion that the two sets of 

requirements, taken as a whole, promote 

comparable regulatory outcomes. 

138SIFMA Letter I at 4–5. 

139 Id. at 5. 

140 Id. 

141SIFMA Letter II at Appendix A; FBF Letter II 

at 2. 

142Better Markets Letter at 2. 

143SIFMA Letter II at Appendix A. 

law.137 A Covered Entity that is unable 

to comply with an applicable 

condition—and thus is not eligible to 

use substituted compliance for the 

particular set of Exchange Act risk 

control requirements related to that 

condition—nevertheless may use 

substituted compliance for another set 

of Exchange Act requirements addressed 

in the Order if it complies with the 

conditions to the relevant parts of the 

Order. 

Under the Order, substituted 

compliance for risk control 

requirements (relating to internal risk 

management, trade acknowledgment 

and verification, portfolio reconciliation 

and dispute reporting, portfolio 

compression and trading relationship 

documentation) is not subject to a 

condition that the Covered Entity apply 

substituted compliance for related 

recordkeeping requirements in 

Exchange Act rules 18a–5 and 18a–6. A 

Covered Entity that applies substituted 

compliance for one or more risk control 

requirements, but does not apply 

substituted compliance for the related 

recordkeeping requirements in 

Exchange Act rules 18a–5 and 18a–6, 

will remain subject to the relevant 

provisions of Exchange Act rules 18a–5 

and 18a–6. Those rules require the 

Covered Entity to make and preserve 

records of its compliance with Exchange 

Act risk control requirements and of its 

security-based swap activities required 

or governed by those requirements. A 

Covered Entity that applies substituted 

compliance for a risk control 

requirement, but complies directly with 

related recordkeeping requirements in 

rules 18a–5 and 18a–6, therefore must 

make and preserve records of its 

compliance with the relevant conditions 

of the Order and of its security-based 

swap activities required or governed by 

those conditions and/or referenced in 

the relevant parts of rules 18a–5 and 

18a–6. 

1. Internal Risk Management 

Exchange Act section 15F(j)(2) 

requires a registered SBS Entity to 

establish robust and professional risk 

management systems adequate for 

managing its day-to-day business. In 

addition, Exchange Act rule 15Fh– 

3(h)(2)(iii)(I) requires an SBS Entity to 

establish and maintain a system to 

supervise, and to diligently supervise, 

its business and the activities of its 

associated persons. This system of 

internal supervision must include, in 

relevant part, the establishment, 

maintenance and enforcement of written 

policies and procedures reasonably 

designed, taking into consideration the 

nature of the SBS Entity’s business, to 

comply with its duty under Exchange 

Act section 15F(j)(2) to establish an 

internal risk management system. 

Under the proposed Order, 

substituted compliance in connection 

with internal risk management 

requirements would have been 

conditioned on Covered Entities being 

subject to and complying with certain 

MiFID, CRD and EMIR requirements 

related to internal risk management. 

One commenter expressed the view that 

the scope of this proposed condition 

would require SBS Entities to be subject 

to and comply with ‘‘an expansive range 

of detailed and prescriptive 

requirements’’ that are not necessary to 

produce comparable regulatory 

outcomes.138 The commenter further 

criticized conditions requiring 

compliance with certain internal risk 

management requirements prescribed by 

the CRD, stating that those prescriptive 

requirements go beyond the ‘‘highlevel’’ internal risk management 

requirements set forth by Exchange Act 

section 15F(j)(2).139 The commenter also 

expressed the view that the conditions 

should not extend to the compliance 

system requirements of MiFID Org Reg 

article 22, on the grounds that 

compliance system requirements do not 

relate to risk management.140

Commenters reiterated these same 

concerns following the reopening of the 

comment period, requesting the removal 

of specific MiFID, MFC, MiFID Org Reg, 

CRD, CRR, Prudential Supervision and 

Risk Assessment Order, and EMIR 

Margin RTS requirements for internal 

risk management.141 By contrast, 

another commenter requested that the 

Commission ‘‘not weaken [the risk 

control] conditions any further.’’ 142

The proposed Order included CRD 

articles 79 through 87, MiFID articles 

16(4) and (5), CRR articles 286 through 

288 and 293, EMIR Margin RTS article 

2, MiFID Org Reg articles 21, 22 and 24, 

and the implementing provisions of 

French law. A commenter stated that 

the Commission should delete those 

provisions because they do not 

correspond to and go beyond Exchange 

Act internal risk management 

requirements.143 However: 

• CRD article 79 and the 

implementing provisions of French law 

address a Covered Entity’s management 

of credit and counterparty risk. CRD 

article 80 and the implementing 

provisions of French law address a 

Covered Entity’s management of 

residual risk. CRD article 81 and the 

implementing provisions of French law 

address a Covered Entity’s management 

of concentration risk. CRD article 82 and 

the implementing provisions of French 

law address a Covered Entity’s 

management of securitization risk. CRD 

article 83 and the implementing 

provisions of French law address a 

Covered Entity’s management of market 

risk. CRD article 84 and the 

implementing provisions of French law 

address a Covered Entity’s management 

of interest rate risk. CRD article 85 and 

the implementing provisions of French 

law address a Covered Entity’s 

management of operational risk. CRD 

article 86 and the implementing 

provisions of French law address a 

Covered Entity’s management of 

liquidity risk and funding risk. CRD 

article 87 and the implementing 

provisions of French law address a 

Covered Entity’s management of risk 

from excessive leverage. 

• MiFID article 16(4) and the 

implementing provisions of French law 

require a Covered Entity to take 

reasonable steps to ensure continuity 

and regularity in the performance of 

investment services and activities, 

including by employing appropriate and 

proportionate systems, resources and 

procedures. MiFID article 16(5) and the 

implementing provisions of French law 

require a Covered Entity to ensure that 

it manages the operational risk of 


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144The Commission further believes that those 

conditions to substituted compliance do not expand 

the scope of Exchange Act requirements because 

substituted compliance is an option available to 

non-U.S. person SBS Entities—not a mandate. 

145See Better Markets Letter at 1–2. 

146SIFMA Letter II at Appendix A. 

147That cross-reference inadvertently was 

omitted from the proposed Order, but was 

incorporated within the proposed conditions 

related to internal supervision and compliance (see 

para. (d)(3) of the Order), and was cited by the 

French Authorities’ Application as supporting 

comparability in connection with internal risk 

management system requirements (see French 

Authorities’ Application at 68). 

148MFC articles L. 533–10.II (1) through (3) and 

(6) through (9), L. 533–10.III, L. 533–24 and L. 533– 

24–1. 

149MFC articles L. 511–51, L. 511–52.I, L. 511– 

53, L. 511–58, L. 511–59, L. 511–67 through L. 511– 

69, L. 511–71 through L. 511–85, L. 511–102, R. 

511–18–2 and R. 511–16–3. 

150One commenter recognized that the 

application addressed CRD requirements in 

connection with internal risk management 

Continued 

relying on third parties for the 

performance of operational functions 

that are critical to the continuous and 

satisfactory provision of service to 

clients and performance of investment 

services and activities. 

• CRR article 286 requires a Covered 

Entity to establish and maintain a 

counterparty credit risk management 

framework, including policies, 

processes and systems to ensure the 

identification, measurement, approval 

and internal reporting of counterparty 

credit risk and procedures for ensuring 

that those policies, processes and 

systems are complied with. CRR article 

287 addresses the internal governance of 

risk control and collateral management 

functions for Covered Entities that use 

internal models to calculate capital 

requirements. CRR article 288 requires 

the Covered Entity to conduct regular, 

independent reviews of its counterparty 

credit risk management systems and any 

risk control and collateral management 

functions required by CRR article 287. 

CRR article 293 addresses internal 

governance of the Covered Entity’s 

internal risk management systems and 

validation of risk models that the 

Covered Entity uses. 

• EMIR Margin RTS article 2 requires 

counterparties to non-centrally cleared 

OTC derivative contracts to establish, 

apply and document risk management 

procedures for the exchange of 

collateral. 

• MiFID Org Reg article 21 addresses 

a Covered Entity’s systems, internal 

controls and arrangements for 

management of a variety of risk areas, 

including internal decision-making, 

allocation and proper discharge of 

responsibilities, compliance with 

decisions and internal procedures, 

employment of personnel able to 

discharge their responsibilities, internal 

reporting and communication of 

information, adequate and orderly 

recordkeeping, safeguarding 

information, business continuity, 

accounting policies and procedures, as 

well as regular evaluation of the 

adequacy and effectiveness of those 

systems, internal controls and 

arrangements. MiFID Org Reg article 22 

addresses a Covered Entity’s policies 

and procedures for detecting and 

minimizing risk of failure to comply 

with its obligations under EU provisions 

that implement MiFID, as well as the 

Covered Entity’s independent 

compliance function that monitors and 

assesses the adequacy and effectiveness 

of those policies and procedures. MiFID 

Org Reg article 24 addresses a Covered 

Entity’s internal audit function that 

evaluates the adequacy and 

effectiveness of the Covered Entity’s 

systems, internal controls and 

arrangements. 

Each of these requirements helps to 

produce regulatory outcomes 

comparable to Exchange Act 

requirements to establish robust and 

professional internal risk management 

systems adequate for managing the 

Covered Entity’s day-to-day business. 

The comparability analysis requires 

consideration of Exchange Act 

requirements as a whole against 

analogous French and EU requirements 

as a whole, recognizing that U.S. and 

non-U.S. regimes may follow materially 

different approaches in terms of 

specificity and technical content. This 

‘‘as a whole’’ approach—which the 

Commission is following in lieu of 

requiring requirement-by-requirement 

similarity—further means that the 

conditions to substituted compliance 

should encompass all French and EU 

requirements that establish 

comparability with the applicable 

regulatory outcome, and helps to avoid 

ambiguity in the application of 

substituted compliance. It would be 

inconsistent with the holistic approach 

to excise relevant requirements and 

leave only the residual French and EU 

provisions that most closely resemble 

the analogous Exchange Act 

requirements.144 Accordingly, the 

Commission is retaining the references 

to these provisions. Retaining 

conditions of the Order necessary to 

help produce regulatory outcomes 

comparable to Exchange Act internal 

risk management requirements also 

should address another commenter’s 

concern that any substituted compliance 

determination not weaken the risk 

control conditions in the proposed 

Order.145

The Commission is making three 

changes from the proposed Order for 

this portion of the Order. First, the 

Commission concurs with a commenter 

recommendation that the prerequisites 

to substituted compliance for internal 

risk management should not extend to 

the Covered Entity being subject to and 

complying with French Prudential 

Supervision and Risk Assessment Order 

article 7, which does not impose 

obligations on regulated entities.146

Second, the Commission is 

incorporating, as part of the relevant 

conditions a Covered Entity using 

substituted compliance for internal risk 

management must be subject to and 

comply with, MFC L. 533–2, which is 

the French implementation of the 

internal risk management requirements 

set forth in the second paragraph of 

MiFID article 16(5).147 Finally, the 

Commission is incorporating, as part of 

the relevant conditions, MiFID articles 

16 and 23 and the related implementing 

provisions; 148 MiFID Org Reg articles 25 

through 37, 72 through 76 and Annex 

IV; and CRD articles 88(1), 91(1) and (2), 

and (7) through (9), 92, 94, and 95 and 

the related implementing provisions.149

These provisions address additional 

aspects of a Covered Entity’s 

management of the risks posed by 

internal governance and organization, 

business operations, conflicts of interest 

with and between clients and senior 

staff remuneration policies. 

In deciding to make a positive 

substituted compliance determination 

for French and EU internal risk 

management requirements, the 

Commission considers that the Order’s 

condition requiring a Covered Entity to 

be subject to and comply with all of the 

French and EU internal risk 

management requirements listed in 

paragraph (b)(1) of the Order help to 

produce regulatory outcomes 

comparable to Exchange Act internal 

risk management requirements. The 

Commission recognizes that some of the 

French and EU requirements related to 

risk management follow a more granular 

approach than the high-level approach 

of Exchange Act internal risk 

management requirements, but these 

French and EU requirements, taken as a 

whole, are crafted to promote a Covered 

Entity’s risk management. Within the 

requisite outcomes-oriented approach 

for analyzing comparability, the 

Commission concludes that a Covered 

Entity’s failure to comply with any of 

those French and EU internal risk 

management requirements would be 

inconsistent with a Covered Entity’s 

obligation under Exchange Act internal 

risk management requirements.150 In 


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requirements, but expressed the view that those 

discussions address comparability in connection 

with Exchange Act rule 18a–1(f), relating to risk 

management systems in connection with capital 

requirements. See SIFMA Letter I at 5 n.9. 

Regardless of applicants’ rationale for citing those 

CRD requirements as supporting comparability, the 

Commission believes that the appropriate 

comparability analysis generally should seek to 

compare regulatory regimes taken as a whole, and 

that a Covered Entity’s failure to comply with the 

applicable CRD risk management system 

requirements would not lead to a regulatory 

outcome consistent with that established by 

Exchange Act internal risk management 

requirements. 

151SIFMA Letter II at Appendix A. 

152See SIFMA Letter I at 5–6; FBF Letter I at 2; 

EBF Letter I (providing general support for SIFMA 

Letter I). 

153See SIFMA Letter I at 2–4. 

154See Reopening Release, 86 FR at 18343. 

155See SIFMA Letter II at 6–7 (stating that the 

EMIR requirements ‘‘are sufficient, standing alone, 

to reach comparable outcomes’’ to the Exchange Act 

trade acknowledgement and verification (and 

trading relationship documentation) requirements, 

and that ‘‘further requiring compliance with MiFID 

documentation requirements would substantially 

reduce the overall availability of substituted 

compliance in these areas because those MiFID 

requirements are not necessarily applicable on an 

entity-wide basis like the EMIR requirements are’’); 

see also FBF Letter II at 2. 

156Better Markets Letter at 2. 

157 Id. 

158See para. (b)(2) of the Order. 

159See EMIR article 11(1)(a). 

160See EMIR RTS articles 12(1) and (2). 

161See EMIR article 2(8) (definition of ‘‘financial 

counterparty’’); EMIR article 2(9) (definition of 

‘‘non-financial counterparty’’). 

162See EMIR RTS article 1(c). 

163The Order defines a Covered Entity to include 

an investment firm or credit institution authorized 

by the ACPR. Investment firms and credit 

institutions are included in the definition of 

‘‘financial counterparty,’’ so a Covered Entity is also 

a financial counterparty and thus is ‘‘subject to’’ 

EMIR article 11 and related provisions of EMIR RTS 

and EMIR Margin RTS for purposes of the Order. 

164See EMIR article 2(8) (definition of ‘‘financial 

counterparty’’ limited to entities defined or 

authorized in a manner that in most instances is 

reserved for EU-established entities); EMIR article 

2(9) (definition of ‘‘non-financial counterparty’’ 

limited to EU-established entities); EMIR articles 

11(1)(a) and 11(12) (confirmation requirement 

applies to financial counterparties, non-financial 

counterparties and third-country entities that would 

be subject to the confirmation requirement if 

established in the EU and either the relevant 

contract has a direct, substantial and foreseeable 

effect in the EU or the obligation is necessary or 

appropriate to prevent the evasion of any provision 

of EMIR). 

165As defined in paragraph (g)(1) of the Order, a 

Covered Entity must be an investment firm or credit 

institution authorized by the ACPR to provide 

investment services or perform investment 

activities in the French Republic. These investment 

firms and credit institutions are limited to Frenchestablished entities and do not include thirdcountry firms. See MiFID article 4(57) (definition of 

‘‘third-country firm’’ is a firm that would be a credit 

institution providing investment services or 

performing investment activities or an investment 

firm if its registered office or head office were 

located in the EU); MFC article L. 532–47 (same). 

Each of these investment firms and credit 

institutions also is among the entities that qualify 

as a ‘‘financial counterparty.’’ See EMIR article 2(8) 

(definition of ‘‘financial counterparty’’ includes 

credit institutions and investment firms). 

166See EMIR RTS article 1(c). In other words, the 

Covered Entity would be subject to the relevant 

requirements under EMIR even if the counterparty 

is not authorized pursuant to EU law as anticipated 

by the EMIR article 2(8) ‘‘financial counterparty’’ 

definition or if the counterparty is not an 

‘‘undertaking’’ (such as by virtue of being a natural 

contrast to the assertion that such 

provisions ‘‘go beyond the general 

requirements of Exchange Act section 

15(j)(2),’’ 151 the Commission concludes 

that compliance with the full set of 

French and EU internal risk 

management requirements listed in 

paragraph (b)(1) of the Order would 

promote comparable regulatory 

outcomes. 

2. Trade Acknowledgement and 

Verification 

Under the proposed Order, 

substituted compliance in connection 

with the Exchange Act rule 15Fi–2 trade 

acknowledgment and verification 

requirement would have been 

conditioned on firms having to comply 

with relevant confirmation requirements 

under MiFID and EMIR. Commenters 

expressed the view that the conditions 

should not incorporate MiFID 

confirmation provisions, based in part 

on the view that EMIR requirements 

standing alone would be sufficient to 

produce regulatory outcomes 

comparable to those under Exchange 

Act trade acknowledgement and 

verification requirements.152 One 

commenter further stated that 

conditioning substituted compliance on 

SBS Entities having to comply with 

MiFID confirmation requirements in 

practice would undermine the 

availability of substituted compliance 

for SBS Entities that have branches in 

EU member states for which the 

Commission has not entered into an 

applicable substituted compliance 

memorandum of understanding.153

When the Commission reopened the 

comment period, it solicited additional 

comment on whether EMIR 

requirements were sufficient to produce 

comparable results, such that MiFID 

provisions may be removed as 

conditions to substituted compliance for 

trade acknowledgement and 

verification.154 Some commenters 

generally supported the associated 

changes contemplated by the 

Commission in the Reopening 

Release.155 On the other hand, one 

commenter stated its opinion that 

‘‘some industry participants may not be 

able to take advantage of substituted 

compliance under the SEC’s proposed 

framework is not, in and of itself, a 

reason to change the framework’’.156

The same commenter stated that ‘‘the 

French regulatory framework governing 

[trade acknowledgement] . . . does not 

satisfy the test for substituted 

compliance’’ and that ‘‘the Commission 

should certainly not weaken [the trade 

acknowledgment] conditions any 

further.’’ 157

The Commission agrees that, in and of 

itself, the fact that some may not be able 

to rely on the Order is not a sufficient 

reason to modify the Order. On the 

other hand, the Commission believes 

that the duplicative nature of the MiFIDrelated conditions and the EMIR-related 

conditions in light of the 

implementation issues warrants the 

removal of the MiFID-related 

conditions, and the Order has been 

modified accordingly.158 In taking this 

step, the Commission has considered 

French and EU timely confirmation 

requirements. EMIR article 11 requires 

‘‘financial counterparties’’ and ‘‘nonfinancial counterparties’’ to ensure 

appropriate procedures and 

arrangements are in place to achieve 

timely confirmation of the terms of an 

OTC derivative contract.159 Similarly, 

EMIR RTS article 12 requires noncentrally cleared OTC derivative 

contracts between ‘‘financial 

counterparties’’ and ‘‘non-financial 

counterparties’’ to be confirmed.160

These counterparty categories do not 

include entities organized outside the 

EU, such as U.S. persons.161

Confirmation means the documentation 

of the agreement of the counterparties to 

all the terms of the OTC derivative 

contract.162 The French and EU 

requirements as a whole thus require a 

Covered Entity 163 to provide a 

confirmation that serves as a trade 

acknowledgment, without regard to 

where its counterparty is organized, and 

also require the Covered Entity’s 

counterparty, when it is a financial 

counterparty or non-financial 

counterparty, to provide a confirmation 

that serves as the trade verification, and 

the Commission considers these 

requirements to promote regulatory 

outcomes comparable to Exchange Act 

trade acknowledgment and verification 

requirements for those counterparties. 

The French and EU requirements in 

most instances do not require a Covered 

Entity’s counterparty that is organized 

outside the EU to provide a French 

confirmation that serves as a trade 

verification,164 though they do require 

the Covered Entity to confirm the 

transaction.165 Confirmation is defined 

as documenting the agreement of the 

Covered Entity and its counterparties to 

all the terms of the OTC derivative 

contract.166 To ensure that a Covered 


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person) or is not established in the EU (by virtue 

of being a U.S. person or otherwise being 

established in some non-EU jurisdiction), as 

anticipated by the EMIR article 2(9) ‘‘non-financial 

counterparty’’ definition. This approach appears to 

be consistent with EU guidance. See European 

Securities and Markets Authority, ‘‘Questions and 

Answers: Implementation of the Regulation (EU) No 

648/2012 on OTC derivatives, central 

counterparties and trade repositories (EMIR)’’ 

(https://www.esma.europa.eu/sites/default/files/ 

library/esma70-1861941480-52_qa_on_emir_

implementation.pdf) answer 5(a) (stating that 

compliance with the EMIR confirmation 

requirement necessitates that the counterparties 

must reach a legally binding agreement to all terms 

of the OTC derivative contract, and that the EMIR 

RTS ‘‘implies’’ that both parties must comply and 

agree in advance to a specific process to do so); 

answer 12(b) (stating that where an EU counterparty 

transacts with a third-country entity, the EU 

counterparty generally must ensure that the EMIR 

requirements for portfolio reconciliation, dispute 

resolution, timely confirmation and portfolio 

compression are met for the relevant portfolio and/ 

or transactions even though the third country entity 

would not itself be subject to EMIR). 

167See paras. (a)(5) and (a)(6) of the Order; see 

also part III.B, supra. Commenters supported those 

additions. See FBF Letter II at 2 (stating that ‘‘[t]he 

FBF is generally welcoming of the new general 

EMIR conditions that are introduced as a corollary 

to the above changes. As applied in the context of 

trading relationship documentation, trade 

acknowledgment and verification, they largely 

convey the manner in which EMIR has been 

interpreted.’’). See also SIFMA Letter II at 6 (stating 

that ‘‘we agree with the Commission that the cited 

provisions of EMIR are comparable to the Exchange 

Act trade acknowledgment and verification and 

trading relationship documentation 

requirements.’’). 

168See SIFMA Letter II at Appendix A (stating 

that the requirements of the rule, which relate to the 

obligation of financial counterparties to report, on 

a monthly basis, the number of unconfirmed OTC 

derivative transactions that have been outstanding 

for more than five business days, ‘‘do not 

correspond to and go beyond the general 

requirements of’’ rule 15Fi–2). 

169The two new EMIR-related general conditions 

addressed above should further help ensure that the 

EMIR confirmation provisions comprehensively 

apply to relevant non-cleared transactions of SBS 

Entities. 

170Better Markets Letter at 6. 

171See Better Markets Letter at 6 (alluding to the 

need for a ‘‘robust, evidence-based analysis’’). As 

discussed above (see part II.D.2, supra), the 

Commission believes that the present approach 

toward comparability analyses—which are based on 

a close reading of relevant foreign requirements and 

careful consideration of regulatory outcomes— 

appropriately reflects the holistic comparability 

approach and the rejection of requirement-byrequirement similarity. 

172See Better Markets Letter at 6 (stating that the 

Commission must provide analysis that the change 

would protect the American financial system). See 

also discussion in part II.D.2 supra). 

173French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85740. 

174See SIFMA Letter II at 6. 

175See Better Markets Letter at 2. 

Entity using substituted compliance for 

trade acknowledgment and verification 

requirements will be required to 

document the agreement of the 

counterparties to all the terms of the 

relevant transaction, the Commission is 

issuing the Order with two new general 

conditions that will require the Covered 

Entity to treat its counterparty as a 

financial counterparty or non-financial 

counterparty when complying with 

French and EU trade acknowledgment 

and verification requirements and to 

ensure that the relevant security-based 

swap is either non-centrally cleared and 

subject to EMIR or cleared by a central 

counterparty that has been authorized or 

recognized to clear derivatives contracts 

by a relevant authority in the EU.167

Another commenter recommended 

removal of conditions requiring 

compliance with EMIR RTS article 12(4) 

because it does not relate to and goes 

beyond Exchange Act trade 

acknowledgment and verification 

requirements.168 As part of the French 

and EU framework for trade 

acknowledgment and verification, EMIR 

RTS article 12(4) requires a Covered 

Entity to have the necessary procedures 

to report on a monthly basis to the 

competent authority the number of 

unconfirmed, non-centrally cleared OTC 

derivative transactions that have been 

outstanding for more than five business 

days. Though Exchange Act rule 15Fi– 

2 does not have a similar requirement to 

report unconfirmed trades, the 

Commission considers that EMIR RTS 

article 12(4)’s requirement to report 

unconfirmed trades to the competent 

authority is an inseparable part of the 

French and EU framework for trade 

acknowledgment and verification, as 

those reports support the framework’s 

mandate to confirm transactions. 

Requiring a Covered Entity to be subject 

to and comply with EMIR RTS article 

12(4) thus is consistent with a holistic 

approach for comparing regulatory 

outcomes that reflects the whole of a 

jurisdiction’s relevant requirements. 

Accordingly, the Order retains as a 

condition to substituted compliance for 

trade acknowledgment and verification 

requirements the requirement that the 

Covered Entity be subject to and comply 

with the entirety of EMIR RTS article 

12. 

In summary, the Commission believes 

that French and EU requirements 

promote the goal of avoiding legal and 

operational risks by requiring definitive 

written records of transactions and 

procedures to avoid disagreements 

regarding the meaning of transaction 

terms, in a manner that is comparable to 

the purpose of Exchange Act rule 15Fi– 

2.169 The Commission recognizes that 

the MiFID confirmation requirements, 

particularly MiFID Org Reg article 59, 

are more specific regarding relevant 

categories of information to be disclosed 

(in the context of a one-way requirement 

for firms to provide reports to their 

clients), but does not believe that those 

additional one-way confirmation 

provisions are necessary to achieve the 

policy goal of avoiding legal and 

operational risks. While the 

Commission recognizes the differences 

between French and EU requirements 

and Exchange Act trade 

acknowledgment and verification 

requirements, in the Commission’s view 

those differences on balance would not 

preclude substituted compliance, 

particularly as requirement-byrequirement similarity is not needed for 

substituted compliance. The 

Commission is not persuaded by a 

commenter view that ‘‘denying 

substituted compliance under the 

applicable circumstances seems 

perfectly reasonable,’’ given the 

Commission’s conclusion that the 

relevant EMIR-related conditions 

provide regulatory outcomes that are 

comparable to those associated with the 

Exchange Act requirement, and the 

regulatory efficiency benefits associated 

with substituted compliance.170 That 

commenter’s request for a ‘‘robust, 

evidence-based analysis’’ has been met 

here in the context of the requisite 

holistic analysis,171 and the 

commenter’s suggestion that there is a 

need for analysis regarding protection of 

the American financial system has been 

addressed above.172

3. Portfolio Reconciliation and Dispute 

Reporting 

In the French Substituted Compliance 

Notice and Proposed Order, the 

Commission proposed to make a 

positive substituted compliance 

determination conditioned on the 

Covered Entity being subject to and 

complying with specific French 

portfolio reconciliation and dispute 

reporting requirements.173 One 

commenter expressed general support 

for the proposed approach toward 

substituted compliance for the risk 

control provisions.174 Another 

commenter stated that, if the 

Commission makes a positive 

substituted compliance determination, 

it must at a minimum ensure that it does 

‘‘not weaken [the] conditions any 

further.’’ 175 The Commission continues 

to believe that French portfolio 

reconciliation and dispute reporting 

requirements promote regulatory 

outcomes comparable to Exchange Act 

requirements, by subjecting Covered 

Entities to risk mitigation practices that 

are appropriate to the risks associated 

with their security-based swap 

businesses, and is making a positive 

substituted compliance determination 


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176See para. (b)(3) of the Order. 

177See para. (b)(3)(ii) of the Order. The 

Commission recognizes the differences between the 

two sets of requirements—under which Exchange 

Act rule 15Fi–3 requires SBS Entities to report 

valuation disputes in excess of $20 million that 

have been outstanding for three or five business 

days (depending on counterparty types), while 

EMIR RTS art. 15(2) requires firms to report 

disputes between counterparties in excess of Ö15 

million and outstanding for at least 15 business 

days. In the Commission’s view, the two 

requirements produce comparable regulatory 

outcomes notwithstanding those differences. 

178French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85740. 

179See SIFMA Letter II at 6. 

180See Better Markets Letter at 2. 

181See para. (b)(4) of the Order. 

182See para. (b)(5) of the proposed Order. 

183French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85725. 

184See SIFMA Letter I at 6. 

185See SIFMA Letter I at 3–4. 

186See part III.B, supra. 

187See SIFMA Letter II at 6; see also FBF Letter 

II at 2. 

188See part III.B.2.d, supra. 

189See Better Markets Letter at 6–7. 

190See para. (b)(5) of the Order. Consistent with 

the proposed Order, substituted compliance in 

connection with trading relationship 

documentation requirements does not extend to 

Exchange Act rule 15Fi–5(b)(5) provisions related to 

disclosures regarding legal and bankruptcy status 

when the counterparty is a U.S. person. 

191One commenter suggested including EMIR 

article 11(1)(a) and EMIR RTS article 12(1) through 

(3). The Commission agrees that these provisions 

are necessary to a finding of comparability. See 

SIFMA Letter II at Appendix A. As discussed in 

part IV.B.2 the Commission believes that EMIR RTS 

article 12(4) is relevant to its holistic, outcomesoriented approach. 

for portfolio reconciliation and dispute 

reporting requirements consistent with 

the proposed Order.176 Substituted 

compliance in connection with the 

dispute reporting requirements is 

conditioned in part on the Covered 

Entities providing the Commission with 

reports regarding disputes between 

counterparties on the same basis as the 

entities provide those reports to 

competent authorities pursuant to EU 

law, to allow the Commission to obtain 

notice regarding key information in a 

manner that makes use of existing 

obligations under EU law.177

4. Portfolio Compression 

In the French Substituted Compliance 

Notice and Proposed Order, the 

Commission proposed to make a 

positive substituted compliance 

determination conditioned on the 

Covered Entity being subject to and 

complying with specific French 

portfolio compression requirements.178

One commenter expressed general 

support for the proposed approach 

toward substituted compliance for the 

risk control provisions.179 Another 

commenter stated that, if the 

Commission makes a positive 

substituted compliance determination, 

it must at a minimum ensure that it does 

‘‘not weaken [the] conditions any 

further.’’ 180 The Commission continues 

to believe that French portfolio 

compression requirements promote 

regulatory outcomes comparable to 

Exchange Act requirements, by 

subjecting Covered Entities to risk 

mitigation practices that are appropriate 

to the risks associated with their 

security-based swap businesses, and is 

making a positive substituted 

compliance determination for portfolio 

compression requirements consistent 

with the proposed Order.181

5. Trading Relationship Documentation 

Under the proposed Order, 

substituted compliance in connection 

with the Exchange Act rule 15Fi–5 

trading relationship documentation 

requirement would have been 

conditioned on Covered Entities being 

subject to and complying with MiFID 

and EMIR provisions that address 

records regarding counterparty 

relationships and entities.182

Substituted compliance under the 

proposed Order would not extend to 

rule 15Fi–5(b)(5) insolvency-related 

disclosures when the counterparty is a 

U.S. person.183

Consistent with the comments 

addressed above with respect to trade 

acknowledgement and verification, 

some commenters requested that 

substituted compliance for trading 

relationship documentation not 

incorporate conditions requiring 

compliance with MiFID documentation 

requirements.184 Those commenters 

expressed the view that compliance 

with MiFID requirements would not be 

feasible for Covered Entities that have 

branches in third countries, and that the 

EMIR risk management provisions 

connected to the exchange of collateral 

are sufficient to produce regulatory 

outcomes comparable to those under the 

Exchange Act trading relationship 

documentation rule.185

As noted above, the Commission 

reopened the comment period and 

solicited additional comment on 

whether EMIR requirements standing 

alone could produce comparable results 

such that certain MiFID provisions may 

be removed as prerequisites to 

substituted compliance.186 Some 

commenters generally supported the 

associated changes contemplated by the 

Commission in the Reopening 

Release 187 (including the addition of 

two new EMIR-related general 

conditions addressed above),188 while 

one commenter opposed removal of the 

MiFID conditions.189

The Commission concludes that the 

implementation issues raised by 

commenters warrant removal of the 

MiFID-related condition, and that 

compliance with EMIR-based risk 

management requirements are sufficient 

to produce risk-mitigating outcomes that 

are comparable to those associated with 

the Exchange Act rule. The Order 

accordingly has been modified from the 

proposed Order to remove conditions 

requiring compliance with MiFID 

trading relationship documentation 

requirements, including corollary 

conditions related to the application of 

the MiFID to ‘‘eligible 

counterparties.’’ 190 In reaching this 

conclusion, the Commission highlights 

the special importance of EMIR Margin 

RTS article 2, which addresses risk 

management procedures related to the 

exchange of collateral, including 

procedures related to the terms of all 

necessary agreements to be entered into 

by counterparties (e.g., payment 

obligations, netting conditions, events of 

default, calculation methods, transfers 

of rights and obligations upon 

termination, and governing law). Those 

obligations are denoted as being 

connected to collateral exchange 

obligations, and the Commission 

believes that they are necessary to help 

produce a regulatory outcome that 

mitigates risk in a manner that is 

comparable to the outcome associated 

with the Exchange Act trading 

relationship documentation rule. To 

bridge any gap left by EMIR Margin RTS 

article 2, the Commission is also 

requiring compliance with EMIR article 

11(1)(a) and EMIR RTS article 12, which 

require the Covered Entity to confirm 

the transaction, with confirmation 

defined as documentation of the 

agreement of the counterparties to all 

the terms of the OTC derivative 

contract.191

To ensure that a Covered Entity using 

substituted compliance for trading 

relationship documentation 

requirements will be required to 

document the agreement of the 

counterparties to all the terms of the 

relevant transaction, the Commission is 

issuing the Order with two new general 

conditions that will require the Covered 

Entity to treat its counterparty as a 

financial counterparty or non-financial 

counterparty when complying French 

and EU trading relationship 

documentation requirements and to 

ensure that the relevant security-based 

swap is either non-centrally cleared and 

subject to EMIR or cleared by a central 

counterparty that has been authorized or 

recognized to clear derivatives contracts 


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192See paras. (a)(5) and (a)(6) of the Order; see 

also part III.B, supra. Commenters supported those 

additions. See FBF Letter II at 2 (stating that ‘‘[t]he 

FBF is generally welcoming of the new general 

EMIR conditions that are introduced as a corollary 

to the above changes. As applied in the context of 

trading relationship documentation, trade 

acknowledgment and verification, they largely 

convey the manner in which EMIR has been 

interpreted.’’). See also SIFMA Letter II at 6 (stating 

that ‘‘we agree with the Commission that the cited 

provisions of EMIR are comparable to the Exchange 

Act trade acknowledgment and verification and 

trading relationship documentation 

requirements.’’). 

193See Better Markets Letter at 1–2. 

194 17 CFR 240.18a–1 through 18a–1d. Exchange 

Act rule 18a–1 applies to security-based swap 

dealers that: (1) Do not have a prudential regulator; 

and (2) are either (a) not dually registered with the 

Commission as a broker-dealer; or (b) are dually 

registered with the Commission as a special 

purpose broker-dealer known as an OTC derivatives 

dealer. Security-based swap dealers that are dually 

registered with the Commission as a full-service 

broker-dealer are subject to the capital requirements 

of Exchange Act rule 15c3–1 (17 CFR 240.15c3–1) 

for which substituted compliance is not available. 

See Exchange Act rule 3a71–6(d)(4)(i) (making 

substituted compliance available only with respect 

to the capital requirements of Exchange Act section 

15F(e) and Exchange Act rule 18a–1). 

195See Capital and Margin Adopting Release, 84 

FR at 43879. The capital standard of Exchange Act 

rule 18a–1 is based on the net liquid assets test of 

Exchange Act rule 15c3–1 applicable to brokerdealers. Id. The net liquid assets 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 

French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85726. See French 

Authorities’ Application Annex 1 category 1 capital 

portion at 1–24. 

196See 17 CFR 240.15c3–4 and 18a–1(f). 

197 17 CFR 240.18a–3. 

198See Capital and Margin Adopting Release, 84 

FR at 43947, 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’’). 

199See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85726. 

200 Id. at 85726 n.49. 

201 Id. at 85736–37. 

202See Reopening Release, 86 FR at 18343–47. 

203See, e.g., Basel Committee on Banking 

Supervision (‘‘BCBS’’), The Basel Framework, 

available at: https://www.bis.org/basel_framework/. 

by a relevant authority in the EU.192 The 

Commission agrees with a commenter 

that the other proposed conditions to 

substituted compliance for trading 

relationship documentation should be 

retained.193

V. Substituted Compliance for Capital 

and Margin Requirements 

A. Proposed Approach 

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 and its 

appendices (collectively ‘‘Exchange Act 

rule 18a–1’’) applicable to certain SBS 

Entities.194 Exchange Act rule 18a–1 

helps to ensure the SBS 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 cover potential 

market, credit, and other risks. The 

rule’s net liquid assets test standard 

protects customers and counterparties 

and mitigates the consequences of an 

SBS Entity’s failure by promoting the 

ability of the firm to absorb financial 

shocks and, if necessary, to selfliquidate in an orderly manner.195 As 

part of the capital requirements, 

security-based swap dealers without a 

prudential regulator also must comply 

with the internal risk management 

control requirements of Exchange Act 

rule 15c3–4 with respect to certain 

activities.196

• Margin—Margin requirements 

pursuant to Exchange Act section 15F(e) 

and Exchange Act rule 18a–3 for nonprudentially regulated SBS Entities.197

The margin requirements are designed 

to protect SBS Entities from the 

consequences of a counterparty’s 

default.198

Taken as a whole, these capital and 

margin requirements help to promote 

market stability by mandating that SBS 

Entities follow practices to manage the 

market, credit, liquidity, solvency, 

counterparty, and operational risks 

associated with their security-based 

swap businesses. 

In proposing to provide conditional 

substituted compliance in connection 

with this part of the French Authorities’ 

Application, the Commission’s 

preliminary view was that relevant 

French and EU requirements would 

produce regulatory outcomes that are 

comparable to those associated with the 

above capital and margin requirements, 

by subjecting Covered Entities to 

financial responsibility requirements 

that are appropriate to the risks 

associated with their security-based 

swap businesses.199 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 the 

capital and margin requirements under 

the Exchange Act.200

However, the Commission also sought 

comment on whether substituted 

compliance with respect to Exchange 

Act capital requirements should be 

subject to additional conditions.201 In 

particular, the Commission sought 

comment on the following potential 

conditions: 

• A condition that would require a 

Covered Entity to maintain a minimum 

amount of liquid assets, such as a 

minimum ratio of liquid assets to 

illiquid assets (e.g., a ratio of liquid 

assets to illiquid assets of 80% to 20%, 

70% to 30%, 60% to 40%). With respect 

to such a ratio, the Commission also 

requested comment on whether liquid 

and illiquid assets should be defined 

using the concept of assets that are 

allowable or not allowable as capital 

under Exchange Act rule 18a–1. 

• A condition that would require a 

Covered Entity 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. 

• A condition that a Covered Entity 

must maintain equity capital or Tier 1 

capital at least equal to the minimum 

fixed-dollar capital requirements under 

Exchange Act rule 18a–1 (e.g., equity 

capital or Tier 1 capital of at least $20 

million). 

Additionally, in the Reopening 

Release, the Commission again sought 

comment on whether substituted 

compliance with respect to Exchange 

Act capital requirements should be 

subject to additional conditions.202 The 

Commission explained that the capital 

standard of Exchange Act rule 18a–1 is 

a net liquid assets test. Under this 

standard, an SBS Entity will have more 

than a dollar of highly liquid assets for 

each dollar of unsubordinated 

liabilities. Covered Entities, however, 

are subject to capital requirements 

applicable to prudentially regulated 

entities based on the international 

capital standard for banks (the ‘‘Basel 

capital standard’’).203 The Basel capital 

standard counts as capital assets that 

Exchange Act rule 18a–1 would exclude 

(e.g., loans and most other types of 

uncollateralized receivables, furniture 

and fixtures, real estate, and initial 

margin posted to counterparties). 

Consequently, because of the ability to 

include illiquid assets and margin 

posted away as capital, Covered Entities 

subject to the Basel capital standard 

may have less balance sheet liquidity 

than SBS Entities subject to Exchange 

Act rule 18a–1. For this reason, the 

Commission sought comment on the 

following potential conditions to 


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204See para. (c)(1)(i) of the order. See also French 

Substituted Compliance Notice and Proposed 

Order, 85 FR at 85726. 

205See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85726, n.49. 

206See para. (c)(1)(ii) of the Order. 

207See UK Substituted Compliance Notice and 

Proposed Order, 86 FR at 18395–403, 18416–17, 

19419. The Commission sought comment in the 

Reopening Release on whether this approach 

should be taken in the final Order. See Reopening 

Release, 86 FR at 18348. 

208See id. at 18387–89 (discussing the additional 

conditions). 

209As used in this part V.B.1 of the release, the 

term ‘‘Covered Entity’’ refers to a security-based 

swap dealer located in the UK that does not have 

a prudential regulator. 

210Better Markets Letter at 7–8. 

211Better Markets Letter at 8 (emphasis in the 

original). 

212Better Markets Letter at 7–8. 

213Better Markets Letter at 7–8. 

214Better Markets Letter at 7–8. 

215AFREF Letter at 1. 

applying substituted compliance to 

Exchange Act rule 18a–1: 

• A condition that would require a 

Covered Entity to maintain an amount 

of assets that are allowable under 

Exchange Act rule 18a–1, after applying 

applicable haircuts under the Basel 

capital standard, that equals or exceeds 

the Covered Entity’s current liabilities 

coming due in the next 365 days. 

• A condition that would require a 

Covered Entity to make a quarterly 

record listing: (1) The assets maintained 

pursuant to the above condition, their 

value, and the amount of their 

applicable haircuts; and (2) the 

aggregate amount of the liabilities 

coming due in the next 365 days. 

• A condition that would require a 

Covered Entity to maintains at least 

$100 million of equity capital composed 

of highly liquid assets, as defined in the 

Basel capital standard. 

• A condition that would require a 

Covered Entity to include its most 

recent statement of financial condition 

(i.e., balance sheet) filed with its local 

supervisor whether audited or 

unaudited with its written notice to the 

Commission of its intent to rely on 

substituted compliance. 

B. Commenter Views and Final 

Provisions 

1. Capital 

Consistent with the proposed Order, 

the first capital condition requires the 

covered entity to be subject to and 

comply with certain identified French 

and EU capital requirements.204 As 

discussed at the end of this section, the 

Commission made some modifications 

to the French and EU laws and 

regulations cited in this condition.205

For the reasons discussed below, there 

are two additional conditions to 

applying substituted compliance with 

respect to Exchange Act rule 18a–1. 

For the reasons discussed above in 

part III.B.2.e of this release, the first 

additional capital condition is that the 

Covered Entity applies substituted 

compliance with respect to Exchange 

Act rules 18a–5(a)(9) (a record making 

requirement), 18a–6(b)(1)(x) (a record 

preservation requirement), and 18a– 

8(a)(1)(i), (a)(1)(ii), (b)(1), (b)(2), and 

(b)(4) (notification requirements).206

These recordkeeping and notification 

requirements are directly linked to the 

capital requirements of Exchange Act 

rule 18a–1. The UK Proposed Order 

conditioned substituted compliance 

with respect to these recordkeeping and 

notification requirements on the 

Covered Entity applying substituted 

compliance with respect to Exchange 

Act rule 18a–1.207 This additional 

capital condition is designed to provide 

clarity as to the Covered Entity’s 

obligations under these recordkeeping 

and notification requirements when 

applying substituted compliance with 

respect to Exchange Act rule 18a–1 

pursuant this Order. 

The second additional capital 

condition builds on and modifies the 

proposed capital condition that was the 

subject of the Commission’s questions 

in the Reopening Release and that was 

designed to address potential different 

regulatory outcomes between Exchange 

Act rule 18a–1 and the French and EU 

capital requirements. In particular, the 

Commission asked questions about a 

four pronged condition with respect to 

applying substituted compliance to the 

capital requirements of Exchange Act 

rule 18a–1.208 The first prong would 

require a Covered Entity to maintain an 

amount of assets that are allowable 

under Exchange Act rule 18a–1, after 

applying applicable haircuts under the 

Basel capital standard, that equals or 

exceeds the Covered Entity’s current 

liabilities coming due in the next 365 

days.209 The second prong was linked to 

the first prong as it would require that 

a Covered Entity make a quarterly 

record listing: (1) The assets maintained 

pursuant to the first condition, their 

value, and the amount of their 

applicable haircuts; and (2) the 

aggregate amount of the liabilities 

coming due in the next 365 days. The 

third prong would require the Covered 

Entity to maintain at least $100 million 

of equity capital composed of highly 

liquid assets as defined in the Basel 

capital standard. The fourth prong 

would require the Covered Entity to 

include its most recently filed statement 

of financial condition whether audited 

or unaudited with its initial notice to 

the Commission of its intent to rely on 

substituted compliance. 

One commenter recommended that 

the Commission consider denying 

substituted compliance for capital 

requirements on the basis that France’s 

capital requirements do not produce 

comparable regulatory outcomes.210

This commenter stated that ‘‘granting 

substituted compliance with multiple 

conditions intended to mimic the 

Commission’s capital requirements 

would seem to undermine the entire 

point of substituted compliance in the 

first place; namely, protecting the 

stability of the U.S. financial system by 

allowing substituted compliance only 

when foreign regimes are 

comparable.’’ 211

In describing the differences in the 

capital frameworks between the net 

liquid assets test and the Basel capital 

standard, this commenter highlighted 

the treatment of initial margin posted to 

a counterparty.212 Specifically, the 

commenter stated that in France initial 

margin posted to a counterparty counts 

as capital for that entity, while in the 

U.S. initial margin only counts as 

capital if the security-based swap dealer 

has a special loan agreement with an 

affiliate. The commenter stated that the 

U.S. requirement is intended to mitigate 

counterparty credit risk with respect to 

the return of the initial margin. The 

commenter argued that the result is that, 

not only are the French requirements 

different from the Commission’s in both 

form and substance, but the regulatory 

outcome is not comparable. 

This commenter also stated that if a 

positive substituted compliance 

determination is made regarding capital, 

the Commission should not weaken the 

potential additional capital condition 

discussed in the Reopening Release in 

response to industry commenters, 

because these market participants are 

primarily concerned with reducing their 

own operational costs, without any 

regard to the systemic risk that would 

doing so would pose.213 This 

commenter also stated that any 

determination to find Frances’s capital 

requirements comparable to and as 

comprehensive as the Commission’s 

capital framework without conditions at 

least as strong as proposed would not 

only contravene the Commission’s own 

conception of substituted compliance 

‘‘but expose the U.S. financial system to 

very risks Dodd-Frank instructed the 

SEC to contain.’’ 214

Another commenter supported the 

potential capital condition.215 This 

commenter stated that the Commission 

should require Covered Entities to 


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216See id. (‘‘We support the Commission’s 

proposal to require foreign security-based swap 

dealers and participants (‘‘Covered Entities’’) to 

abide by capital and initial margin requirements 

that reflect Exchange Act rule 18a–1 standards 

appropriate for broker-dealers, as opposed to Basel 

capital requirements for banks that permit illiquid 

assets to count toward capital minimums.’’). 

217 Id. 

218 Id. at 2. 

219SIFMA Letter I at 10. See also FBF Letter I at 

4; EBF Letter I at 1 (generally supporting SIFMA 

Letter I). 

220SIFMA Letter I at 11–13. See also FBF Letter 

I at 4. 

221SIFMA Letter II at 7–17. See also EBF Letter 

II at 1 (‘‘The EBF further shares SIFMA’s serious 

concerns that the potential conditions to substituted 

compliance with capital requirements described in 

the Release would create brand new, far-ranging 

capital and liquidity requirements that could not be 

established prior to the compliance date.’’) and FBF 

II Letter at 3–4 (‘‘Last but certainly not least, the 

FBF shares SIFMA’s serious concerns that the 

potential conditions to substituted compliance with 

capital requirements described in the Release 

would result in brand new, far-ranging capital and 

liquidity requirements that could not be established 

in time for registration, and would essentially force 

an exit of the relevant entity category from the U.S. 

SBS market prior to the de minimis counting date.’’) 

222SIFMA Letter II at 7–17. 

223SIFMA Letter II at 8. 

224SIFMA Letter II at 12–14. 

225SIFMA Letter II at 13. 

226SIFMA Letter II at 14. 

227SIFMA Letter II at 14. 

228SIFMA Letter II at 14. 

229SIFMA Letter II at 15. 

230SIFMA Letter II at 15. 

231SIFMA Letter II at 15–16. 

232SIFMA Letter II at 16–17. 

233See AFREF Letter at 1–2; Better Markets Letter 

at 7–8. 

234See Reopening Release, 86 FR at 18343–45 

(explaining the differences between Exchange Act 

rule 18a–1 and the Basel capital standard). 

235See, e.g., Exchange Act Release No. 8024 (Jan. 

18, 1967), 32 FR 856 (Jan. 25, 1967) (‘‘Rule 15c3– 

1 (17 CFR 240.15c3–1) was adopted to provide 

safeguards for public investors by setting standards 

of financial responsibility to be met by brokers and 

Continued 

comply with the net liquid assets test 

under Exchange Act rule 18a–1, rather 

than the Basel capital standards.216 The 

commenter stated that the net liquid 

assets test ‘‘appropriately limits 

uncollateralized lending, fixed assets, 

and other illiquid assets such as real 

estate which have been proven 

repeatedly to be unreliable forms of 

capital but are currently counted’’ as 

allowable capital under the Basel capital 

standard.217 This commenter also 

agreed with the Commission that ‘‘the 

initial margin that is posted is not 

available for other purposes and 

therefore, under the Basel standard, 

could swiftly result in less balance sheet 

liquidity than the standards under the 

Exchange Act’s Rule 18a–1.’’ 218

A commenter supported the 

Commission’s proposed Order to grant 

substituted compliance in connection 

with the Exchange Act capital 

requirements.219 This commenter, 

however, opposed additional capital 

conditions.220 The commenter reiterated 

this opposition with respect to the 

potential four pronged capital condition 

for which the Commission sought 

comment in the Reopening Release.221

The commenter stated that the potential 

capital condition was unnecessary, 

unduly rushed, and highly likely to be 

costly and disruptive to market 

participants and inconsistent with the 

Commission’s substituted compliance 

framework.222 More specifically, this 

commenter stated that the potential 

capital conditions was unnecessary 

because Covered Entities transact 

predominantly in securities and 

derivatives, do not extensively engage in 

unsecured lending or other activities 

more typical of banks, and are already 

subject to extensive liquidity 

requirements.223 The commenter also 

expressed concern that the potential 

capital condition was inconsistent with 

the Commission’s substituted 

compliance framework in that it was 

duplicative of and would contradict the 

liquidity requirements established by 

French and EU authorities.224 This 

commenter stated that the imposition of 

the potential capital condition would 

effectively substitute the Commission’s 

judgment for that of the French and EU 

authorities in terms of the best way to 

address liquidity risk, and may lead 

other regulators to refuse to extend 

deference to the Commission’s 

regulatory determinations.225

With respect to the using the concept 

of ‘‘allowable’’ and ‘‘nonallowable’’ 

assets under Exchange Act rule 18a–1, 

the commenter stated that the first and 

second prongs of the potential capital 

condition do not define these terms and 

there is no analogous concept in the 

capital framework applicable in 

France.226 The commenter stated this 

would require firms to re-categorize 

every asset on their balance sheets, 

which would not be feasible in the near 

term.227 Further, this commented asked 

the Commission to clarify what it means 

by ‘‘haircuts’’ with respect to the first 

and second prongs, since the Basel 

capital standard does not apply 

‘‘haircuts’’ to assets, but instead applies 

a risk-weighted approach.228

This commenter also stated that the 

third prong of the potential additional 

capital condition requiring ‘‘at least 

$100 million of equity capital composed 

of ‘highly liquid assets’ as defined in the 

Basel capital standard,’’ includes 

concepts that require clarification.229

For example, this commenter stated that 

is unclear how a firm would calculate 

the amount of its ‘‘equity capital’’ that 

is ‘‘composed of highly liquid assets,’’ 

since ‘‘equity’’ generally refers to a 

firm’s paid-in capital, retained earnings 

and other items on the liabilities/ 

shareholders’ equity side of the balance 

sheet.230 Finally, this commenter 

asserted that because it is approximately 

three months until the August 6th 

counting date, and firms may encounter 

significant operational challenges to 

meet the potential or revised capital 

condition, the potential condition may 

cause firms to exit the U.S. securitybased swap market, or hope that the 

conditions are modified and delayed in 

a manner that will make it feasible to 

satisfy them.231

Overall, this commenter stated that 

the Commission should take a more 

incremental and deliberative approach 

to additional capital conditions, and 

specifically recommended that the 

Commission: (1) Delete the first prong of 

the capital condition; (2) replace the 

second prong with a requirement that a 

nonbank Covered Entity provide the 

same reports concerning liquidity 

metrics that the Covered Entity provides 

to the French and EU authorities; (3) 

modify the third prong to require a 

nonbank Covered Entity to maintain at 

least $100 million of high quality liquid 

assets, as defined in the Basel capital 

standard; and (4) issue an order on 

October 6, 2024, determining whether to 

maintain, delete, modify or supplement 

the condition, based on consideration of 

the liquidity of nonbank Covered 

Entities, and after publishing a notice of 

any such changes for at least 90 days of 

public comment.232

The Commission agrees with the 

commenters who point out the 

differences between the capital standard 

of Exchange Act rule 18a–1 (i.e., the net 

liquid assets test) and the Basel capital 

standard applicable to Covered Entities, 

and who therefore believe that—at a 

minimum—additional capital 

conditions are necessary to achieve 

comparable regulatory outcomes.233 As 

the Commission explained when 

seeking comment on the potential 

additional capital condition, the net 

liquid assets test is designed to promote 

liquidity.234 In particular, Exchange Act 

rule 18a–1 allows an SBS Entity to 

engage in activities that are part of 

conducting a securities business (e.g., 

taking securities into inventory) but in 

a manner that places the firm in the 

position of holding at all times more 

than one dollar of highly liquid assets 

for each dollar of unsubordinated 

liabilities (e.g., money owed to 

customers, counterparties, and 

creditors).235 For example, Exchange 


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dealers. The basic concept of the rule is liquidity; 

its object being to require a broker-dealer to have 

at all times sufficient liquid assets to cover his 

current indebtedness.’’) (footnotes omitted); 

Exchange Act Release No. 10209 (June 8, 1973), 38 

FR 16774 (June 26, 1973) (Commission release of a 

letter from the Division of Market Regulation) (‘‘The 

purpose of the net capital rule is to require a broker 

or dealer to have at all times sufficient liquid assets 

to cover its current indebtedness. The need for 

liquidity has long been recognized as vital to the 

public interest and for the protection of investors 

and is predicated on the belief that accounts are not 

opened and maintained with broker-dealers in 

anticipation of relying upon suit, judgment and 

execution to collect claims but rather on a 

reasonable demand one can liquidate his cash or 

securities positions.’’); Exchange Act Release No. 

15426 (Dec. 21, 1978), 44 FR 1754 (Jan. 8, 1979) 

(‘‘The rule requires brokers or dealers to have 

sufficient cash or liquid assets to protect the cash 

or securities positions carried in their customers’ 

accounts. The thrust of the rule is to insure that a 

broker or dealer has sufficient liquid assets to cover 

current indebtedness.’’); Exchange Act Release No. 

26402 (Dec. 28, 1988), 54 FR 315 (Jan. 5, 1989) 

(‘‘The rule’s design is that broker-dealers maintain 

liquid assets in sufficient amounts to enable them 

to satisfy promptly their liabilities. The rule 

accomplishes this by requiring broker-dealers to 

maintain liquid assets in excess of their liabilities 

to protect against potential market and credit 

risks.’’) (footnote omitted). 

236See 17 CFR 240.15c3–1(c)(2). 

237The highly liquid assets under Exchange Act 

rule 18a–1 are otherwise known as ‘‘allowable 

assets’’ because they are not deducted when 

computing net capital. See Books and Records 

Adopting Release, 84 FR at 68673–74, 68677–80 

(the sections of the amended Part II of the FOCUS 

Report setting forth the assets side of the balance 

sheet and the net capital computation). Illiquid 

assets otherwise known as ‘‘non-allowable assets’’ 

are deducted when computing net capital. Id. 

Allowable assets include cash, certain unsecured 

receivables from broker-dealers and clearing 

organizations, reverse repurchase agreements, 

securities borrowed, fully secured customer margin 

loans, and proprietary securities, commodities, and 

swaps positions. Id. The term ‘‘high quality liquid 

assets’’ or ‘‘HQLA’’ are defined under the Basel 

capital standard’s liquidity coverage ratio (‘‘LCR’’) 

and generally consist of cash and specific classes of 

liquid securities. See BCBS, LCR30 under the Basel 

capital standards, available at: https://www.bis.org/ 

basel_framework/chapter/LCR/ 

30.htm?tldate=20191231&inforce=2019121. 

Generally, cash and securities that qualify as HQLA 

under the LCR would be allowable assets under 

Exchange Act rule 18a–1. 

238Exchange Act rule 18a–3 does not require SBS 

Entities to post initial margin (though it does not 

prohibit the practice). 

239See Capital and Margin Adopting Release, 84 

FR at 43887–88. 

240See id. at 43887. 

241SIFMA Letter II at 7–17. 

242See Better Markets Letter at 7–8 (comparing 

the differences between Exchange Act rule 18a–1 

and the Basel capital standard and stating that ‘‘not 

only are the France’s capital requirements different 

from the SEC’s in both form and substance, but the 

regulatory outcome is not comparable’’). 

243As discussed above, highly liquid assets under 

Exchange Act rule 18a–1 are also known as 

‘‘allowable assets’’ and generally are consistent the 

LCR’s HQLA. 

Act rule 18a–1 allows securities 

positions to count as allowable net 

capital, subject to standardized or 

internal model-based haircuts. The rule, 

however, does not permit most 

unsecured receivables to count as 

allowable net capital. This aspect of the 

rule limits the ability of SBS Entities to 

engage in activities, such as 

uncollateralized lending, that generate 

unsecured receivables. The rule also 

does not permit fixed assets or other 

illiquid assets to count as allowable net 

capital, which creates disincentives for 

SBS Entities to own real estate and other 

fixed assets that cannot be readily 

converted into cash. For these reasons, 

Exchange Act rule 18a–1 incentivizes 

SBS Entities to confine their business 

activities and devote capital to securitybased swap activities. 

The net liquid assets test is imposed 

through how an SBS Entity is required 

to compute net capital pursuant to 

Exchange Act rule 18a–1. The first step 

is to compute the SBS Entity’s net worth 

under U.S. generally accepted 

accounting principles (‘‘GAAP’’). Next, 

the SBS Entity must make certain 

adjustments to its net worth to calculate 

net capital, such as deducting illiquid 

assets and taking other capital charges 

and adding qualifying subordinated 

loans.236 The amount remaining after 

these deductions is defined as ‘‘tentative 

net capital.’’ Exchange Act rule 18a–1 

prescribes a minimum tentative net 

capital requirement of $100 million for 

SBS Entities approved to use models to 

calculate net capital. An SBS Entity that 

is meeting its minimum tentative net 

capital requirement will be in the 

position where each dollar of 

unsubordinated liabilities is matched by 

more than a dollar of highly liquid 

assets.237 The final step in computing 

net capital is to take prescribed 

percentage deductions (standardized 

haircuts) or model-based deductions 

from the mark-to-market value of the 

SBS Entity’s proprietary positions (e.g., 

securities, money market instruments, 

and commodities) that are included in 

its tentative net capital. The amount 

remaining is the firm’s net capital, 

which must exceed the greater of $20 

million or a ratio amount. 

In comparison, Covered Entities in 

France are subject to the Basel capital 

standard. The Basel capital standard 

counts as capital assets that Exchange 

Act rule 18a–1 would exclude (e.g., 

loans and most other types of 

uncollateralized receivables, furniture 

and fixtures, real estate). The Basel 

capital standard accommodates the 

business of banking: Making loans 

(including extending unsecured credit) 

and taking deposits. While the Covered 

Entities that will apply substituted 

compliance with respect to Exchange 

Act rule 18a–1 will not be banks, the 

Basel capital standard allows them to 

count illiquid assets such as real estate 

and fixtures as capital. It also allows 

them to treat unsecured receivables 

related to activities beyond dealing in 

security-based swaps as capital 

notwithstanding the illiquidity of these 

assets. 

Further, one critical example of the 

difference between the requirements of 

Exchange Act rule 18a–1 and the Basel 

capital standard relates to the treatment 

of initial margin with respect to 

security-based swaps and swaps. Under 

the French margin requirements, 

Covered Entities will be required to post 

initial margin to counterparties unless 

an exception applies.238 Under 

Exchange Act rule 18a–1, an SBS Entity 

cannot count as capital the amount of 

initial margin posted to a counterparty 

unless it enters into a special loan 

agreement with an affiliate.239 The 

special loan agreement requires the 

affiliate to fund the initial margin 

amount and the agreement must be 

structured so that the affiliate—rather 

than the SBS Entity—bears the risk that 

the counterparty may default on the 

obligation to return the initial margin. 

The reason for this restrictive approach 

to initial margin posted away is that it 

‘‘would not be available [to the SBS 

Entity] for other purposes, and, 

therefore, the firm’s liquidity would be 

reduced.’’ 240 Under the Basel capital 

standard, a Covered Entity can count 

initial margin posted away as capital 

without the need to enter into a special 

loan arrangement with an affiliate. 

Consequently, because of the ability to 

include illiquid assets and margin 

posted away as capital, Covered Entities 

subject to the Basel capital standard 

may have less balance sheet liquidity 

than SBS Entities subject to Exchange 

Act rule 18a–1. 

For these reasons, the Commission 

disagrees with the commenter who 

stated that additional capital conditions 

were unnecessary and inconsistent with 

the Commission’s substituted 

compliance framework.241 As discussed 

above, there are key differences between 

the net liquid assets test of Exchange 

Act rule 18a–1 and the Basel capital 

standard applicable to Covered Entities. 

Those differences in terms of the types 

of assets that count as regulatory capital 

and how regulatory capital is calculated 

lead to different regulatory outcomes.242

In particular, the net liquid assets test 

produces a regulatory outcome in which 

the SBS Entity has more than one dollar 

of highly liquid assets for each dollar of 

unsubordinated liabilities.243 The Basel 

capital standard—while having 

measures designed to promote 


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244The Basel capital standard does not preclude 

a firm from having more than a dollar of highly 

liquid assets for each dollar of unsubordinated 

liabilities. Thus, a firm operating pursuant to the 

standard may structure its assets and liabilities in 

a manner that achieves this result. However, the 

standard does not mandate this result. Rather, it 

will accommodate a firm that seeks to maintain this 

level of liquidity on its own accord. 

245See CRR, Article 412(1), Regulation (EU) 2015/ 

61. 

246See CRR, Article 413 and Articles 428a to 

428az introduced by Regulation (EU) 2019/876 

(‘‘CRR II’’), Article 1(116). 

247See CRD, Article 86, MFC Articles L. 511–41– 

1 B for credit institutions and L. 533–2–2 for 

investment firms; and Articles 148 to 186 of the 

Decree of 3 November 2014 on internal control. 

248See SIFMA Letter II at 9–12. 

249See Better Markets Letter at 8 (recommending 

that the Commission consider denying substituted 

compliance with respect to these Exchange Act 

capital requirements). 

250See AFREF Letter at 1 (‘‘The Commission 

should require that SBS entities who want to 

operate in the U.S. comply with the Net Liquid 

Assets test under the Exchange Act rule 18a–1 

rather than the Basel capital standards’’). 

251See, e.g., CRR, Part 1 (Own Funds, including 

Tier 1 capital) and Part 2 (Capital Requirements). 

252See AFREF Letter at 1 (‘‘The Commission 

should require that SBS entities who want to 

operate in the U.S. comply with the Net Liquid 

Assets test under the Exchange Act rule 18a–1 

rather than the Basel capital standards’’); SIFMA 

Letter at 17 (raising concerns that the use of the 

concept of ‘‘allowable’’ assets under Exchange Act 

rule 18a–1 in the first condition would require 

Covered Entities to re-categorize every asset on their 

balance sheets, which also pertains to the second 

condition, and seeking clarification on to how to 

calculate ‘‘equity capital’’ and allocate it to highly 

liquid assets equal to or greater than $100 million). 

253The first prong of the proposed capital 

condition would have required a Covered Entity to 

maintain an amount of assets that are allowable 

under Exchange Act rule 18a–1, after applying 

applicable haircuts under the Basel capital 

standard, that equals or exceeds the Covered 

Entity’s current liabilities coming due in the next 

365 days. The second prong would have required 

the Covered Entity to make a quarterly record 

related to the first prong. The third prong would 

have required the Covered Entity to maintain at 

least $100 million of equity capital composed of 

highly liquid assets as defined in the Basel capital 

standard. See Reopening Release, 86 FR at 18345. 

254See para. (c)(1)(iii)(A)(1) of the Order. The 

definition of ‘‘liquid assets’’ and the method of 

calculating the deductions are discussed below. 

liquidity—does not produce this 

regulatory outcome.244 Therefore, an 

additional condition is needed to bridge 

the gap between these two capital 

standards and thereby achieve more 

comparable regulatory outcomes in 

terms of promoting liquid balance 

sheets for SBS Entities and Covered 

Entities. 

However, in seeking to bridge this 

regulatory gap, the additional condition 

should take into account that Covered 

Entities are or will be subject to French 

and EU laws and measures designed to 

promote liquidity. As a commenter 

stated, Covered Entities are or will be 

subject to: (1) Requirements to hold an 

amount of HQLA to meet expected 

payment obligations under stressed 

conditions for thirty days (the ‘‘LCR 

requirement’’); 245 (2) requirements to 

hold a diversity of stable funding 

instruments sufficient to meet long-term 

obligations under both normal and 

stressed conditions (the ‘‘NSFR 

requirements’’); 246 (3) requirements to 

perform liquidity stress tests and 

manage liquidity risk (the ‘‘internal 

liquidity assessment requirements’’); 247

and (4) regular reviews of a Covered 

Entity’s liquidity risk management 

processes by the French Authorities (the 

‘‘French Authority liquidity review 

process’’).248 These French and EU laws 

and measures will require Covered 

Entities to hold significant levels of 

liquid assets. However, the laws and 

measures on their own, do not impose 

a net liquid assets test. Therefore, an 

additional condition is necessary to 

supplement these requirements. 

The Commission has taken into 

account the French and EU liquidity 

laws and measures discussed above in 

making a substituted compliance 

determination with respect to Exchange 

Act rule 18a–1, and in tailoring 

additional capital conditions designed 

to achieve comparable regulatory 

outcomes. The LCR, NSFR, and internal 

liquidity assessment requirements 

collectively will require Covered 

Entities to maintain pools of 

unencumbered HQLA to cover potential 

cash outflows during a 30-day stress 

period, to fund long-term obligations 

with stable funding instruments, and to 

manage liquidity risk. These 

requirements—coupled with the French 

Authorities’ supervisory reviews of the 

liquidity risk management practices of 

Covered Entities—will require Covered 

Entities to hold significant levels of 

liquid assets. These requirements and 

measures in combination with the other 

capital requirements applicable to 

Covered Entities provide a starting 

foundation for making a positive 

substituted compliance determination 

with respect to the capital requirements 

of Exchange Act section 15F(e) and 

Exchange Act rule 18a–1.249 However, 

more is needed to achieve a comparable 

regulatory outcome to the net liquid 

assets test of Exchange Act rule 18a–1. 

For these reasons, the Order includes 

an additional capital condition that will 

impose a simplified net liquid assets 

test.250 This simplified test will require 

the Covered Entity to hold more than 

one dollar of liquid assets for each 

dollar of liabilities. The simplified net 

liquid assets test—when coupled with 

the French and EU capital 

requirements,251 LCR requirements, 

NSFR requirements, internal liquidity 

assessment requirements, and French 

Authority liquidity review process—is 

designed to produce a regulatory 

outcome that is comparable to the net 

liquid assets test of Exchange Act rule 

18a–1 (i.e., sufficient liquidity to cover 

liabilities and to promote the 

maintenance of highly liquid balance 

sheets). 

In response to comments, the 

Commission has modified the first three 

prongs of the additional capital 

condition, as discussed below.252 In 

particular, the first and third prongs are 

being combined into a single prong of 

the second additional capital 

condition.253 Under this prong, the 

Covered Entity must maintain liquid 

assets (as defined in the capital 

condition) that have an aggregate market 

value that exceeds the amount of the 

Covered Entity’s total liabilities by at 

least: (1) $100 Million before applying a 

deduction (specified in the capital 

condition); and (2) $20 million after 

applying the deduction.254 Thus, the 

condition increases the scope of the 

liquid assets requirement so that it must 

cover all liabilities (rather than those 

maturing in 365 days as was 

contemplated by the Commission’s 

questions in the Reopening Release). 

These modifications align the first 

prong more closely to the $100 million 

tentative net capital requirement of 

Exchange Act rule 18a–1 applicable to 

SBS Entities approved to use models. As 

discussed above, Exchange Act rule 

18a–1 requires SBS Entities that have 

been approved to use models to 

maintain at least $100 million in 

tentative net capital. And, tentative net 

capital is the amount that an SBS 

Entity’s liquid assets exceed its total 

unsubordinated liabilities before 

applying haircuts. The first prong will 

require the Covered Entity to subtract 

total liabilities from total liquid assets. 

The amount remaining will need to 

equal or exceed $100 million. The 

modifications also align the condition 

more closely to the $20 million fixeddollar minimum net capital requirement 

of Exchange Act rule 18a–1. As 

discussed above, net capital is 

calculated by applying haircuts 

(deductions) to tentative net capital and 

the fixed-dollar minimum requires that 

net capital must equal or exceed $20 

million. The first prong will require the 

Covered Entity to subtract total 

liabilities from total liquid assets and 

then apply the deduction to the 

difference. The amount remaining after 

the deduction will need to equal or 

exceed $20 million. 

For the purposes of the first prong of 

the second additional capital condition, 


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255See para. (c)(1)(iii)(B) of the Order. 

256See notes 237 and 243, supra (describing 

allowable assets under Exchange Act rule 18a–1). 

257As part of the application process, the French 

Authorities have stated that the only nonbank (i.e., 

non-prudentially regulated) French dealers that will 

register with the Commission as security-based 

swap dealers are French investment firms will be 

re-authorized by the European Central Bank as 

credit institutions in 2021. See French Authorities’ 

Application (Side Letter for Capital Requirements). 

These large investment firms publish annual 

audited financial statements. See e.g., BofA 

Securities Europe SA 2020 Annual Report, available 

at: https://investor.bankofamerica.com/regulatoryand-other-filings/subsidiary-and-countrydisclosures. 

258See Letter from Kyle L. Brandon, Managing 

Director, Head of Derivatives Policy, SIFMA (May 

3, 2021) (‘‘SIFMA UK Letter’’) at 9–20. This 

comment letter may be found on the Commission’s 

website at: https://www.sec.gov/comments/s7-04- 

21/s70421.htm. 

259The categories of liquid assets identified in the 

Balance Sheet Table are: (1) ‘‘Cash/Cash 

Equivalents; (2) ‘‘Collateralised Agreements;’’ (3) 

‘‘Trade/Other Receivables; cash collateral pledged;’’ 

and (4) ‘‘Trading/Financial Assets.’’ See SIFMA UK 

Letter, Appendix C. 

260See para. (c)(1)(iii)(B)(1) of the Order. 

261See, e.g., International Financial Reporting 

Standards Foundation (‘‘IFRS’’), IAS 7 Statement of 

Cash Flows (defining ‘‘cash’’ as comprising cash on 

hand and demand deposits and ‘‘cash equivalents’’ 

as short-term, highly liquid investments that are 

readily convertible to known amounts of cash and 

which are subject to an insignificant risk of changes 

in value). See also Books and Records Adopting 

Release, 84 FR at 68673–74 (the section of the 

amended Part II of the FOCUS Report setting forth 

the assets side of the balance sheet and identifying 

cash as an allowable asset in Box 200). 

262See para. (c)(1)(iii)(B)(2) of the Order. 

263See Books and Records Adopting Release, 84 

FR at 68673–74 (the section of the amended Part II 

of the FOCUS Report setting forth the assets side 

of the balance sheet and identifying securities 

borrowed as an allowable asset in Boxes 240 and 

250 and securities purchased under agreements to 

resell as an allowable asset in Box 360). 

264See para. (c)(1)(iii)(B)(3) of the Order. 

265See Books and Records Adopting Release, 84 

FR at 68673–74 (the section of the amended Part II 

of the FOCUS Report setting forth the assets side 

of the balance sheet and identifying fails to deliver 

as allowable assets in Boxes 220 and 230, 

receivables from clearing organizations as allowable 

assets in Boxes 280 and 290, and receivables from 

customers as allowable assets in Boxes 310, 320, 

and 330). 

266See para. (c)(1)(iii)(B)(4) of the Order. 

267See Books and Records Adopting Release, 84 

FR at 68673–74 (the section of the amended Part II 

of the FOCUS Report setting forth the assets side 

of the balance sheet and identifying securities, 

commodities, and swaps positions as allowable 

assets in Box 12019). 

268See Better Markets Letter at 7; AFREF Letter 

at 2. See also Reopening Release, 86 FR at 18344– 

45 (discussing the different treatment of initial 

margin posted to a counterparty). 

269See para. (c)(1)(iii)(B)(5) of the order. 

270See Capital and Margin Adopting Release, 84 

FR at 43887–88. 

271 Id. 

272See para. (c)(1)(iii)(B) of the Order. 

273See SIFMA UK Letter, Appendix C. 

274See para. (c)(1)(ii)(A)(1) of the order. 

‘‘liquid assets’’ are defined as: (1) Cash 

and cash equivalents; (2) collateralized 

agreements; (3) customer and other 

trading related receivables; (4) trading 

and financial assets; and (5) initial 

margin posted by the Covered Entity to 

a counterparty or third-party (subject to 

certain conditions discussed below).255

These categories of liquid assets are 

designed to align with assets that are 

considered allowable assets for 

purposes of calculating net capital 

under Exchange Act rule 18a–1.256

Further, the first four categories of 

liquid assets also are designed to align 

with how Covered Entities categorize 

liquid assets on their financial 

statements. 257 In addition, the 

commenter who has raised concerns 

about the potential capital conditions 

made similar comments with respect to 

proposed capital conditions that would 

apply to SBS Entities in the United 

Kingdom.258 The commenter’s letter to 

the Commission included a table 

summarizing categories of liquid assets 

on the balance sheets of six UK dealers 

(the ‘‘Balance Sheet Table’’) that the 

commenter expects will register with 

the Commission as security-based swap 

dealers, and that do not have a 

prudential regulator and therefore 

would be subject to Exchange Act rule 

18a–1.259

The first category of liquid assets is 

cash and cash equivalents.260 These 

assets consist of cash and demand 

deposits at banks (net of overdrafts) and 

highly liquid investments with original 

maturities of three months or less that 

are readily convertible into known 

amounts of cash and subject to 

insignificant risk of change in value.261

The second category of liquid assets is 

collateralized agreements.262 These 

assets consist of secured financings 

where securities serve as collateral such 

as repurchase agreements and securities 

loaned transactions.263 The third 

category of liquid assets is customer and 

other trading related receivables.264

These assets consist of customer margin 

loans, receivables from broker-dealers, 

receivables related to fails to deliver, 

and receivables from clearing 

organizations.265 The fourth category of 

liquid assets is trading and financial 

assets.266 These assets consist of cash 

market securities positions and listed 

and over-the-counter derivatives 

positions.267

As discussed above, initial margin 

posted to a counterparty is treated 

differently under Exchange Act rule 

18a–1 and the Basel capital standard, 

and commenters highlighted this 

difference.268 The fifth category of 

liquid assets is initial margin posted by 

the Covered Entity to a counterparty or 

a third-party custodian, provided: (1) 

The initial margin requirement is 

funded by a fully executed written loan 

agreement with an affiliate of the 

Covered Entity; (2) the loan agreement 

provides that the lender waives repayment of the loan until the initial 

margin is returned to the Covered 

Entity; and (3) the liability of the 

Covered Entity to the lender can be fully 

satisfied by delivering the collateral 

serving as initial margin to the 

lender.269 As discussed above, one 

critical difference between Exchange 

Act rule 18a–1 and the Basel capital 

standard is that an SBS Entity cannot 

count as capital the amount of initial 

margin posted to a counterparty or 

third-party custodian unless it enters 

into a special loan agreement with an 

affiliate.270 Under the Basel capital 

standard, a Covered Entity can count 

initial margin posted away as capital 

without the need to enter into a special 

loan arrangement with an affiliate. 

Consequently, to count initial margin 

posted away as a liquid asset for 

purposes of the second additional 

capital condition, the Covered Entity 

must enter into the same type of special 

agreement that an SBS Entity must 

execute to count initial margin as an 

allowable asset for purposes of 

Exchange Act rule 18a–1.271

If an asset does not fall within one of 

the five categories of ‘‘liquid assets’’ as 

defined in the Order,272 it will be 

considered non-liquid, and could not be 

treated as a liquid asset for purposes of 

the second additional capital condition 

in the Order. For example, one 

commenter listed the following 

categories of non-liquid assets on the 

Balance Sheet Table: (1) ‘‘Investments;’’ 

(2) ‘‘Loans;’’ and (3) ‘‘Other Assets.’’ 273

Assets that fall into these categories 

could not be treated as liquid assets. 

The non-liquid ‘‘investment’’ category 

would include the Covered Entity’s 

ownership interests in subsidiaries or 

other affiliates. The non-liquid ‘‘loans’’ 

category would include unsecured loans 

and advances. The non-liquid ‘‘other’’ 

assets category generally refers to assets 

that do not fall into any of the other 

categories of liquid or non-liquid assets. 

These non-liquid ‘‘other’’ assets would 

include furniture, fixtures, equipment, 

real estate, property, leasehold 

improvements, deferred tax assets, 

prepayments, and intangible assets. 

As discussed above, the first prong of 

the second additional capital condition 

will require the Covered Entity to 

subtract total liabilities from total liquid 

assets and then apply a deduction 

(haircut) to the difference.274 The 

amount remaining after the deduction 


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275See BCBS, Risk-based capital requirements 

(RBC20), available at: https://www.bis.org/basel_

framework/chapter/RBC/ 

20.htm?inforce=20191215&published=20191215. 

276 Id. 

277See para. (c)(1)(iii)(C) of the Order. The 

Commission acknowledges that a Covered Entity’s 

risk-weighted assets will include components in 

addition to market and credit risk charges (e.g., 

operational risk charges). However, the Commission 

expects the combined market and credit risk 

charges will make up the substantial majority of the 

risk-weighted assets. In addition, the Commission 

believes that this method of calculating the 

deduction in the first prong of the second 

additional capital condition is a reasonable 

approach in that it addresses market and credit risk 

similar to the process used by security-based swap 

dealers authorized to use internal models to 

compute market and credit risk deductions under 

Exchange Act rule 18a–1. See, e.g., Exchange Act 

rule 18a–1(e) (prescribing requirements to calculate 

market and credit risk charges, including use of an 

8% multiplication factor for calculating the credit 

risk charges). 

278For example, assume a Covered Entity has 

total assets of $600 million (of which $595 million 

are liquid and $5 million are illiquid) and total 

liabilities of $450 million. In this case, the Covered 

Entity’s liquid assets would exceed total liabilities 

by $145 million ($590 million minus $450 million) 

and, therefore, the Covered Entity would have 

excess liquid assets greater than $100 million as 

required by the first prong of the second additional 

capital condition. Assume further that the Covered 

Entity’s risk-weighted assets under the Basel capital 

standard equal $400 million. In this case, the 

Covered Entity’s deduction would equal $32 

million ($400 million divided by 12.5). Subtracting 

$32 million from $145 million leaves $113 million, 

which exceeds $20 million. Therefore, the Covered 

Entity would meet the second requirement of the 

first prong of the second additional capital 

condition. 

279See para. (c)(1)(iii)(A)(2) of the order. 

280See para. (c)(1)(iii)(A)(3) of the Order. 

281See para. (c)(1)(ii) of the Order. 

282See para. (c)(1)(iii)(A)(4) of the Order. As 

discussed above, a commenter objected to the 

capital conditions generally and provided specific 

comments with respect to the first three conditions, 

but not the fourth condition. See SIFMA Letter at 

9–20. This commenter did support the fourth 

condition as part of its recommended incremental 

approach to implementing the capital conditions. 

See SIFMA Letter at 19–20. 

283See SIFMA Letter at 19. 

284See SIFMA Letter at 10–11. 

will need to equal or exceed $20 

million. The method of calculating the 

amount of the deduction relies on the 

calculations Covered Entities must make 

under the Basel capital standard.275 In 

particular, under the Basel capital 

standard, Covered Entities must riskweight their assets. This involves 

adjusting the nominal value of each 

asset based on the inherent risk of the 

asset. Less risky assets are adjusted to 

lower values (i.e., have less weight) than 

more risky assets. As a result, Covered 

Entities must hold lower levels of 

regulatory capital for less risky asset and 

higher levels of capital for riskier assets. 

Similarly, under Exchange Act rule 18a– 

1, less risky assets incur lower haircuts 

than riskier assets and, therefore, 

require less net capital to be held in 

relation to them. Consequently, the 

process of risk-weighting assets under 

the Basel capital standard provides a 

method to account for the inherent risk 

in an asset held by a Covered Entity 

similar to how the haircuts under the 

Exchange Act rule 18a-1 account for the 

risk of assets held by SBS Entities. For 

these reasons, it is appropriate to use 

the process of risk-weighting assets 

under the Basel capital standard to 

determine the amount of the deduction 

(haircuts) under the first prong of the 

second additional capital condition. 

Under the Basel capital standard, 

Covered Entities must hold regulatory 

capital equal to at least 8% of the 

amount of their risk-weighted assets.276

Therefore, the deduction (haircut) 

required for purposes of the first prong 

of the second additional capital 

condition is determined by dividing the 

amount of the Covered Entity’s riskweighted assets by 12.5 (i.e., the 

reciprocal of 8%).277 In sum, the 

Covered Entity must maintain an excess 

of liquid assets over total liabilities that 

equals or exceeds $100 million before 

the deduction (derived from the firm’s 

risk-weighted assets) and $20 million 

after the deduction. 278

The second prong of the second 

additional capital condition requires the 

Covered Entity to make and preserve for 

three years a quarterly record that: (1) 

Identifies and values the liquid assets 

maintained pursuant to the first prong; 

(2) compares the amount of the 

aggregate value the liquid assets 

maintained pursuant to the first prong 

to the amount of the Covered Entity’s 

total liabilities and shows the amount of 

the difference between the two amounts 

(‘‘the excess liquid assets amount’’); and 

(3) shows the amount of the deduction 

required under the first prong and the 

amount that deduction reduces the 

excess liquid assets amount.279 This 

prong has been modified from the 

proposed Order to conform to the 

modifications to the first and third 

prongs of the proposed capital condition 

discussed above (i.e., combining them 

into a single prong that imposes a 

simplified net liquid assets test). Under 

the Order, the quarterly record will 

include details showing whether the 

Covered Entity is meeting the $100 

million and $20 million requirements of 

the first prong. 

The third prong of the second 

additional capital condition requires the 

Covered Entity to notify the 

Commission in writing within 24 hours 

in the manner specified on the 

Commission’s website if the Covered 

Entity fails to meet the requirements of 

the first prong and include in the notice 

the contact information of an individual 

who can provide further information 

about the failure to meet the 

requirements.280 As discussed above, 

the first additional capital condition 

requires the Covered Entity to apply 

substituted compliance with respect to 

notification requirements of Exchange 

Act rule 18a–8 relating to capital.281 A 

Covered Entity applying substituted 

compliance with respect to Exchange 

Act rule 18a–8 must simultaneously 

submit to the Commission any 

notifications relating to capital that it 

must submit to the French authorities. 

However, French and EU notification 

requirements do not address a failure to 

adhere to the simplified net liquid 

assets test required by the first prong of 

the second additional capital condition. 

Moreover, due to the differences 

between Exchange Act rule 18a–1 and 

the Basel capital standard discussed 

above, a Covered Entity could fall out of 

compliance with the requirements of the 

first prong but still remain in 

compliance with the requirements of the 

Basel capital standard. Accordingly, the 

third prong requires the Covered Entity 

to notify the Commission if the firm 

fails to meet the requirements of the first 

prong. This will alert the Commission of 

potential issues with the Covered 

Entity’s financial condition that could 

pose risks to the firm’s customers and 

counterparties. 

The fourth prong of the additional 

capital condition in the proposed Order 

would have required the Covered Entity 

to include its most recently filed 

statement of financial condition 

(whether audited or unaudited) with its 

initial notice to the Commission of its 

intent to rely on substituted compliance. 

No commenters raised specific concerns 

with this condition and the Order 

includes it as proposed, but now it is 

the fourth prong of the second 

additional capital condition.282

The commenter who opposed 

additional capital conditions stated that 

their burdens would be disruptive to 

market participants and could cause 

Covered Entities to exit the U.S. 

security-based swap market.283

However, this may not be case. For 

example, the commenter stated that the 

Covered Entities expected to register 

with the Commission transact 

predominantly in securities and 

derivatives and do not extensively 

engage in unsecured lending or other 

activities more typical of banks.284 The 

commenter based this statement on a 

high-level review of public information 

about the balance sheets of six Covered 

Entities undertaken to create the 


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285See SIFMA Letter at 10–11, Appendix C. 

286The Bank of England publishes a list of PRAdesignated investment firms. This list is available 

at: https://www.bankofengland.co.uk/prudentialregulation/authorisations/which-firms-does-thepra-regulate. 

287See SIFMA Letter II at 8; Reopening Release, 

86 FR at 18345. 288Reopening Release, 86 FR at 18345. 289See Better Markets Letter at 7–8; AFREF Letter 

at 1–2. 290See SIFMA Letter II at 16–17. 291See SIFMA Letter II at 16. 

292See SIFMA UK Letter, Appendix C. 

293SIFMA Letter II at Appendix A. 

294SIFMA Letter II, Appendix A. 

295SIFMA Letter II, Appendix A. 

296French Authorities’ Application (Side Letter 

for Capital Requirements) at p.4. More specifically, 

in the final Order, the Commission is including 

references to the CRR to read: CRR, Part One 

(General Provisions) Article 6(1), Part Two (Own 

Funds), Part Three (Capital Requirements), Part 

Four (Large Exposures), Part Five (Exposures to 

Transferred Credit Risk), Part Six (Liquidity), and 

Part Seven (Leverage). 

297SIFMA Letter II, Appendix A. 

298More specifically, in the final order, the 

Commission is: (1) Deleting BRRD Articles 27(1), 

31(2), 31(1)(a) and (5), and 32(5); (2) deleting CRD 

Articles 97, 98(1)(e), 98(6), 99, 100(1), 102(1), 104, 

104(1), 105. 142(4) and narrowing the scope of 

Balance Sheet Table.285 Based on this 

review, the commenter stated that the 

‘‘vast majority of each firm’s total assets 

consists of cash and cash equivalents, 

collateralized agreements, trade and 

other receivables, and other trading and 

financial assets. The commenter 

characterized these assets as being 

‘‘liquid.’’ The commenter stated further 

that the amount of illiquid assets held 

by these firms as a proportion of their 

balance sheets is comparable to the 

proportion of illiquid assets held by 

U.S. broker-dealers. The commenter also 

stated that the long-term debt, 

subordinated debt, and equity of the 

Covered Entities, as a proportion of their 

total liabilities and equity, also was 

comparable to U.S. broker-dealers. 

Moreover, based on the Balance Sheet 

Table and the staff’s analysis of the 

public financial reports of the major 

investment firms regulated by the 

Prudential Regulatory Authority 

(‘‘PRA’’) in the United Kingdom (i.e., a 

PRA-designated investment firm) and a 

large investment firm in France, these 

firms report total liquid assets that 

exceed total liabilities and, in most 

cases, substantially in excess of $100 

million.286

This information suggests that 

Covered Entities may be able to meet the 

second additional capital condition 

without having to significantly adjust 

their assets, liabilities, and equity. 

Moreover, the modifications to the 

second additional capital condition that 

incorporate how Covered Entities 

categorize liquid and illiquid assets and 

calculate risk-weighted assets, will 

allow them to use existing processes to 

derive the measures needed to adhere to 

the condition. Therefore, while the 

condition imposes a simplified net 

liquid assets test and associated 

recordkeeping requirement, it may not 

cause Covered Entities to withdraw 

from the U.S. security-based swap 

market. Nonetheless, it is possible that 

the simplified net liquid assets test and 

associated recordkeeping burden could 

cause a Covered Entity to withdraw 

from the U.S. security-based swap 

market. However, as discussed above, 

this additional capital condition is 

designed to produce a comparable 

regulatory outcome with respect to SBS 

Entities subject to Exchange Act rule 

18a–1 and Covered Entities applying 

substituted compliance with respect to 

that rule. 

In response to a specific request for 

comment in the Reopening Release, a 

commenter stated that the capital 

conditions would not be necessary if the 

balance sheets of the Covered Entities 

seeking to apply substituted compliance 

with respect to Exchange Act rule 18a– 

1 were similar to the balance sheets of 

U.S. broker-dealers.287 However, the 

Commission also sought comment on 

whether the capital conditions would 

serve to ensure that these firms do not 

engage in non-securities business 

activities that could impair their 

liquidity.288 Two commenters expressed 

support for the capital conditions.289

The fact that today certain Covered 

Entities have liquid balance sheets does 

not mean this will hold true in the 

future or with respect to other potential 

registrants. For these reasons, it is 

appropriate to include additional 

conditions with respect to applying 

substituted compliance to Exchange Act 

rule 18a–1. 

It would not be appropriate to take a 

more incremental approach to the 

additional capital conditions as 

suggested by a commenter.290

Substituted compliance is premised on 

comparable regulatory outcomes. As 

discussed above, the additional capital 

condition is designed to supplement 

French and EU capital laws in order to 

achieve a comparable regulatory 

outcome in terms of the net liquid assets 

test of Exchange Act rule 18a–1. 

Delaying the implementation of the 

additional capital condition would 

mean that Covered Entities are operating 

as registered security-based swap 

dealers under a capital standard that 

does impose the net liquid assets test. 

This would be inconsistent with the 

objective of substituted compliance and 

could increase risk to the U.S. securitybased swap markets and participants in 

those markets. Moreover, the 

modifications to the capital conditions 

discussed above may ease the 

implementation burdens. 

In addition, the Commission does not 

believe a commenter’s suggestion for an 

alternative capital condition requiring a 

Covered Entity to maintain $100 million 

of HQLA as defined in the LCR 

requirements would be adequate in 

terms of achieving comparable 

regulatory outcomes with Exchange Act 

rule 18a–1.291 The Balance Sheet Table 

and public financial reports of 

investment firms in the UK and France 

indicates that Covered Entities have 

total liabilities of many billions of 

dollars.292 A condition requiring $100 

million in highly liquid assets would 

not cover these liabilities and would not 

impose a net liquid assets test. 

Finally, the Commission has modified 

the citations to French and EU laws in 

the capital section of the Order in 

response to comment and further 

analysis.293 In response to comments, 

the capital section of the Order does not 

cite ‘‘recitals’’ because they are not part 

of a legally binding regulation.294

The Commission agrees with the 

comments that the specific provisions to 

the CRR citied in the proposed Order 

are not comprehensive .295 In response, 

the Commission has modified the final 

ordering language to use more 

comprehensive citations to the CRR 

(including the specific CRR provisions 

cited in the proposed Order), as the 

capital analysis includes only 

discussion of entities that are fully 

subject to CRR and CRD IV.296 In 

addition, this commenter recommended 

that the Commission modify the final 

ordering language to qualify the 

citations to the CRR with a reference to 

waivers and permissions.297 In 

response, the specific provisions in the 

CRR referenced in the capital 

comparability analysis were analysed 

without reference to waivers or 

permissions, and the condition states 

that the Covered Entity must be subject 

to and comply with these specific 

capital requirements. Therefore, the 

more comprehensive references to the 

CRR in the final order are cited without 

reference to waivers or permissions. 

Further, the Commission agrees with 

the commenter that some of the 

citations do not relate to requirements 

imposed on Covered Entities, but 

generally relate to the powers of 

relevant authorities. In these cases, 

citations in the ordering language have 

been deleted or modified to reference 

requirements that a Covered Entity is 

subject to and must comply with.298


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Article 142 to (1) and (2); (3) deleting MFC Articles 

L. 511–15; 511–41–1 A(XIV), L. 511–41–3.II–IV., L. 

511–41–1 C, L. 511–41–3, L. 511–41–4, L. 511–41– 

5, L. 511–42, L. 532–6, 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, and L. 613–50.I, L. 631–2–1, 

narrowing the reference to L. 613–49 to 613–49I.; 

(4) deleting the reference to Article 10 of the Decree 

of 3 November 2014 on internal control; (5) deleting 

the Ministerial Order on the Supervisory Review 

and Evaluation Process, articles 6 through 10; and 

(6) deleting Articles 37, 38, 63, and 64 of Decree of 

3 November 2014 relating to capital buffers. 

299For example, Article L. 511–41–1–B of the 

MFC implements Article 73 of CRD (Internal 

Capital) for credit institutions, and MFC article L. 

533–2–2 implements it for investment firms. 

300French Authorities’ Application, Side Letter 

for Capital Requirements at n.13 (and 

accompanying text). 

301See SIFMA Letter II at Appendix A. 

302The commenter also recommended deleting 

CRD Article 23 since it has been replaced by recent 

amendments to CRD. The proposed Order does not 

cite Article 23 of the CRD. Therefore, this comment 

is moot. 

303French Authorities’ Application, Side Letter 

for Capital Requirements at 22. For example, the 

EMIR Margin RTS require a Covered Entity to 

segregate initial margin from the firm’s assets by 

either placing it with a third-party holder or 

custodian or via other legally binding arrangements, 

making the initial margin remote in the case of the 

firm’s default or insolvency. Id. 

304French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85726. 

305 Id., 85 FR at 85726, n.50; See Capital and 

Margin Adopting Release, 84 FR at 43908–09. See 

also BCBS/IOSCO, Margin Requirements for Noncentrally Cleared Derivatives (April 2020), available 

at https://www.bis.org/bcbs/publ/d499.pdf (‘‘BCBS/ 

IOSCO Paper’’). The French and EU margin 

requirements also are based on the recommendation 

in the BCBS/IOSCO Paper. 306See 17 CFR 240.18a–3(c)(1)(ii) and French 

Authorities’ Application at 27–28. 307See 17 CFR 240.18a–3(c)(1)(ii) and French 

Authorities’ Application at 40–43. 308See 17 CFR 240.18a–3(d)(2)(i) and French 

Authorities’ Application at 12–20. 309See 17 CFR 240.18a–3(d)(2)(i) and French 

Authorities’ Application at 12. The Commission 

must approve the use of an initial margin model. 

17 CFR 240.18a–3(d)(2)(i). EMIR Article 11(15) 

directs European supervisory authorities to develop 

regulatory technical standards under which initial 

margin models have to be approved (initial and 

ongoing approval). EU requirements currently 

provide that, upon request, counterparties using an 

initial margin model shall provide the regulators 

with any documentation relating to the risk 

management procedures relating to such model at 

any time. EMIR Margin RTS, Article 2(6). 

310See 17 CFR 240.18a–3(c)(1)(iii) and French 

Authorities’ Application at 54–65. 

311See 17 CFR 240.18a–3(c)(1)(iii) and French 

Authorities’ Application at 54–65. 

In response to the comment that the 

reference to MFC Article L. 511–13 be 

deleted because it relates to governance 

requirements and is beyond the scope of 

capital requirements, the Commission 

agrees. Therefore, the Commission is 

deleting this reference from the Order. 

Further, in response to comments to 

insert the phrase ‘‘as applicable’’ in 

certain places in the capital condition, 

the Commission is not modifying the 

Order to ensure Covered Entities remain 

subject to and comply with the laws and 

regulations cited in the capital 

condition. The Commission 

acknowledges that some of the citations 

to the French laws apply only to 

specific types of institutions (i.e., credit 

institutions or investment firms).299 In 

such cases, a Covered Entity would 

comply with the relevant citation in the 

MFC article that corresponds to its 

entity type. 

In response to the comment that the 

Commission narrow the scope of 

references to CRD Articles 129 

(Requirement to maintain a capital 

conservation buffer), 130 (Requirement 

to maintain an institution-specific 

countercyclical capital buffer), and 131 

(Global and other systemically 

important institutions) because some of 

the paragraphs do not impose any 

obligations on firms, the Commission 

disagrees and is retaining these citations 

in the Order. These references were 

cited in the French Authorities’ 

Application in their entirety with 

reference to the requirement that 

‘‘institutions must maintain certain 

capital buffers above the minimum 8 

percent capital level composed of 

Common Equity Tier 1 capital 

instruments.’’ 300 Therefore, it is 

appropriate to retain these citations in 

the Order. 

In response to the comments that the 

Commission update the reference to 

BRRD Article 45(6), since it had been 

amended, the Commission is retaining 

the reference, since the references are to 

citations in the French Authorities’ 

Application.301 In addition, the term 

BRRD means Bank Recovery and 

Resolution Directive 2014/59/EU of the 

European Parliament and of the Council 

of 15 May 2014, as amended from time 

to time. Therefore, amendments to the 

BRRD are already included in the 

definition and covered by the capital 

conditions in the Order.302

In addition, in response to a 

recommendation to delete references to 

the EMIR margin requirements, the 

Commission is retaining the references 

to the EMIR Margin RTS requirements 

as the French Authorities’ Application 

states ‘‘if liquidation did occur, EU 

regulations also protect counterparties 

and promote continued market liquidity 

through margin requirements.’’ 303

Finally, the references to the EMIR 

Margin RTS and the final references in 

the capital ordering language contribute 

to the conclusion that French and EU 

laws produces a comparable regulatory 

outcome to the capital requirements 

under the Exchange Act. 

2. Margin 

The Commission’s preliminary view, 

based on the French Authorities’ 

Application and the Commission’s 

review of applicable provisions, was 

that relevant French and EU margin 

requirements would produce regulatory 

outcomes that are comparable to those 

associated with Exchange Act margin 

requirements without the need for 

additional conditions.304 For example, 

in adopting final margin requirements 

for non-cleared security-based swaps, 

the Commission modified the rule to 

more closely align it 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 BCBS 

and the Board of the International 

Organization of Securities Commissions 

(‘‘IOSCO’’) with respect to margin 

requirements for non-centrally cleared 

derivatives.305

Exchange Act rule 18a–3 and the 

French and EU margin rules require 

firms to collect liquid collateral from a 

counterparty to cover variation and/or 

initial margin requirements.306 Both sets 

of rules also require firms to deliver 

liquid collateral to a counterparty to 

cover variation margin requirements. 

Under both sets of rules, the fair market 

value of collateral used to meet a margin 

requirement must be reduced by a 

haircut.307 Further, both sets of rules 

permit the use of a model (including a 

third party model such as ISDA’s 

SIMMTM model) to calculate initial 

margin.308 The initial margin model 

under both sets of rules must meet 

certain minimum qualitative and 

quantitative requirements, including 

that the model must use a 99 percent, 

one-tailed confidence level with price 

changes equivalent to a 10-day 

movement in rates and prices.309 Both 

sets of rules have common exceptions to 

the requirements to collect and/or post 

initial or variation margin, including 

exceptions for certain commercial end 

users, the Bank for International 

Settlements, and certain multilateral 

development banks.310 Both sets of rules 

also permit a threshold below which 

initial margin is not required to be 

collected and incorporate a minimum 

transfer amount.311

In the French Substituted Compliance 

Notice and Proposed Order, the 

Commission stated substituted 

compliance with respect to the margin 

requirements accordingly would be 

conditioned on Covered Entities being 

subject to those French and EU 

provisions that, the Commission has 

determined, in the aggregate, establish a 

framework that produces outcomes 

comparable to those associated with the 


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312French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85726. 

313FBF Letter I at 4; SIFMA Letter I at 13. 

314SIFMA Letter II, Appendix A. 

315SIFMA Letter II, Appendix A. 

316The references to the CRR were included in 

the comparability assessment for margin 

requirements, and in the Commission’s view the 

holistic approach for comparing regulatory 

outcomes should seek to reflect the whole of a 

jurisdiction’s relevant requirements, rather than 

select subsets of those requirements. 

317For example Article L. 511–41–1–B of the 

MFC implements Article 73 of CRD (Internal 

Capital) for credit institutions, and MFC article L. 

533–2–2 implements it for investment firms. 

318See para. (c)(2)(i) of the order. The first margin 

condition requires that Covered Entities must be 

subject to and 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. 

319French Substituted Compliance Notice and 

Proposed Order, 85 FR at 85737. 

320See paras. (c)(2)(ii) and (iii) of the order. 

321Better Markets Letter at 3. 

322Better Markets Letter at 2. 

323Better Markets Letter at 2–3. 

324See Capital, Margin, and Segregation 

Requirements for Security-Based Swap Dealers and 

Major Security-Based Swap Participants and Capital 

Requirements for Broker-Dealers; Proposed Rule, 

Exchange Act Release No. 68071 (Oct. 18, 2021), 77 

FR 70214, 70258 (Nov. 23, 2012). 

325See 17 CFR 240.3a71–6(d)(5)(i) and (ii). 

326See Capital and Margin Adopting Release, 84 

FR at 43949 (‘‘Obtaining collateral is one of the 

ways OTC derivatives dealers manage their credit 

risk exposure to OTC derivatives counterparties. 

Prior to the financial crisis, in certain 

circumstances, counterparties were able to enter 

into OTC derivatives transactions without having to 

deliver collateral. When ‘‘trigger events’’ occurred 

during the financial crisis, those counterparties 

faced significant liquidity strains when they were 

required to deliver collateral.) Id. 

327See 17 CFR 240.18a–3(c)(ii)(A)(1) and (2). 

328French Authorities’ Application at 60. 

329See 17 CFR 240.18a–3(c)(ii)(B). 

requirements under the Exchange Act 

rule 18a–3.312 Commenters supported 

the Commission’s proposed approach 

for substituted compliance with respect 

to margin requirements.313

One commenter suggested technical 

comments with respect to refining the 

French and EU laws cited in the 

proposed Order.314 In particular, this 

commenter recommended that the 

Commission (1) delete the citations to 

the CRR; (2) narrow the scope of the 

reference to EMIR Article 11 to Article 

11(3); and (3) insert the phrase ‘‘as 

applicable’’ before the citations to the 

French laws.315 The Commission 

disagrees with the commenter that the 

scope of the citation to EMIR Article 11 

should be narrowed. Other provisions of 

EMIR Article 11 relate to margin 

requirements, including the provisions 

regarding intragroup transactions. 

Therefore, the Commission is not 

modifying this citation in the final 

order. With respect to the suggestion by 

the commenter to delete references to 

the CRR requirements, the Commission 

concludes that the requirements which 

were set out in the proposed Order, 

contribute to the conclusion that French 

and EU law produce a comparable 

regulatory outcome to the margin 

requirements under the Exchange 

Act.316 Finally, the Commission is not 

modifying the Order to insert the phrase 

‘‘as applicable’’ because it is overly 

broad. The Commission acknowledges 

that some of the citations to the French 

laws apply only to specific types of 

institutions (i.e., credit institutions or 

investment firms).317 In such cases, a 

Covered Entity would comply with the 

relevant citation in the MFC article that 

corresponds to its entity type. For the 

foregoing reasons, the first margin 

condition requires the covered entity to 

be subject to and comply with certain 

identified French and EU margin 

requirements.318

The proposed Order did not contain 

any additional conditions for 

substituted compliance with respect to 

the margin requirements of Exchange 

Act section 15F(e) and Exchange Act 

rule 18a–3. The Commission, however, 

requested comment on whether there 

were any conditions that should be 

applied to substituted compliance for 

the margin requirements to promote 

comparable regulatory outcomes.319 As 

discussed below, in response to 

comments received, the Order includes 

two additional margin conditions 

designed to produce comparable 

regulatory outcomes with respect to 

collecting variation and initial margin 

from counterparties.320

In particular, a commenter raised 

general concerns with the Commission’s 

regulatory outcomes approach to 

substituted compliance, and suggested 

additional general principles that the 

Commission should consider in 

evaluating applications for substituted 

compliance.321 This commenter 

believed regulatory arbitrage within and 

outside the United States was one of the 

key factors that led to and exacerbated 

the 2008 financial crisis, and stated that 

the Dodd-Frank Act was enacted in 

response, which includes the 

Commission’s authority to promulgate 

capital, margin, and other rules for noncleared security-based swaps ‘‘to reduce 

the possibility and severity of another 

crisis related to excessive buildup of 

risk in the swaps markets.’’ 322

The Commission responds to the 

comments on the Commission’s 

approach to substituted compliance in 

part II.D.2 above. However, as stated 

above, the commenter raises concerns 

about regulatory arbitrage and the 

potential impacts of differences in 

requirements that merit re-consideration 

of whether additional margin conditions 

are needed to produce comparable 

regulatory outcomes.323 When 

proposing margin requirements for noncleared security-based swaps, the 

Commission stated that the ‘‘DoddFrank Act seeks to address the risk of 

uncollateralized credit risk exposure 

arising from OTC derivatives by, among 

other things, mandating margin 

requirements for non-cleared securitybased swaps and swaps.’’ 324 Further, 

the comparability criteria for margin 

requirements under Exchange Act rule 

3a71–6 provides that prior to making a 

substituted compliance determination, 

the Commission intends to consider (in 

addition to any conditions imposed) 

whether the foreign financial regulatory 

system requires registrants to adequately 

cover their current and future exposure 

to OTC derivatives counterparties, and 

ensures registrants’ safety and 

soundness, in a manner comparable to 

the applicable provisions arising under 

the Exchange Act and its rules and 

regulations.325 In adopting this 

comparability criteria for margin 

requirements, the Commission stated 

that obtaining collateral is one of the 

ways OTC derivatives dealers manage 

their credit risk exposure to OTC 

derivatives counterparties.326

To address the risk of uncollateralized 

exposures, Exchange Act rule 18a–3 

requires SBS entities without a 

prudential regulator to collect variation 

margin from all counterparties, 

including affiliates, unless an exception 

applies.327 Under the French and EU 

margin requirements, there are 

exceptions from the variation margin 

requirements for certain intragroup 

transactions (i.e., transactions between 

affiliates).328 In addition, Exchange Act 

rule 18a–3 requires firms to collect 

initial margin from all counterparties, 

unless an exception applies.329 This 

initial margin requirement under 

Exchange Act rule 18a–3 requires the 

firm to collect initial margin from a 

financial counterparty such as a hedge 

fund without regard to whether the 

counterparty has material exposures to 

non-cleared security-based swaps and 

uncleared swaps. In contrast, the French 

and EU margin requirements do not 

require Covered Entities to collect initial 

margin from financial counterparties, if 

their notional exposure to non-centrally 


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330French Authorities’ Application at 7. These 

thresholds are being phased-in with the last initial 

margin threshold set at EUR 8 billion. 

331The Commission recognizes there are also 

cases where the French and EU margin rules are 

more restrictive than Exchange Act rule 18a–3. 

French and EU margin rules require Covered 

Entities to post initial margin to covered 

counterparties, while the Exchange Act rule 18a–3 

would permit posting but not require it. In addition, 

French and EU margin rules also require a Covered 

Entity to collect (and post) initial margin to 

financial and non-financial counterparties if their 

notional exposure to non-centrally cleared 

derivatives exceeds a certain threshold on a group 

basis. In contrast, Exchange Act rule 18a–3 does not 

require (but permits) a nonbank security-based 

swap dealer to collect initial margin from 

counterparties that are financial market 

intermediaries. 17 CFR 240.18a–3(c)(1)(iii)(B). The 

comparability analysis, however, focuses on 

determining whether the French and EU margin 

rules are comparable to Exchange Act rule 18a–3. 

332See para. (c)(2)(ii) of the order. 

333See para. (c)(2)(iii) of the order. 334See para. (c)(2)(iv) of the Order. 335See UK Substituted Compliance Notice and 

Proposed Order, 86 FR at 18396–98, 18416. The 

Commission sought comment in the Reopening 

Release on whether this approach should be taken 

in the final Order. See Reopening Release, 86 FR at 

18348. 

336See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85726–27. 

337See id. at 85727 n.55. 

cleared derivatives does not exceed a 

certain threshold on a group basis.330

In some cases these differences may 

result in a Covered Entity not being 

adequately collateralized to cover its 

current or future exposure to these 

counterparties with respect to its OTC 

derivatives transactions. In addition, 

differences in the counterparty 

exceptions could potentially incentivize 

market participants to engage in noncleared security-based swap 

transactions outside of the United 

States.331 Consequently, it is 

appropriate to impose additional margin 

conditions to produce comparable 

regulatory outcomes in terms of 

counterparty exceptions between 

Exchange Act rule 18a–3 and the French 

and EU requirements. 

The first additional condition 

addresses differences in the 

counterparty exceptions with respect to 

variation margin. It requires a Covered 

Entity to collect variation margin, as 

defined in the EMIR Margin RTS, from 

a counterparty with respect to a 

transaction in non-cleared securitybased swaps, unless the counterparty 

would qualify for an exception under 

Exchange Act rule 18a–3 from the 

requirement to deliver variation margin 

to the Covered Entity.332 This condition 

defines variation margin by referencing 

EMIR Margin RTS to facilitate 

implementation of the condition by 

Covered Entities. Under this condition, 

for example, Covered Entities would be 

required to collect variation margin 

from their affiliates, but would be 

permitted to comply with all other 

French and EU margin requirements, 

including calculation, collateral, 

documentation, and timing of collection 

requirements. The first additional 

condition will close the gap between the 

counterparty exceptions of Exchange 

Act rule 18a–3 and the French and EU 

margin rules with respect to variation 

margin. 

The second additional condition 

addresses differences in the 

counterparty exceptions with respect to 

initial margin. It requires a Covered 

Entity to collect initial margin, as 

defined in the EMIR Margin RTS, from 

a counterparty with respect to 

transactions in non-cleared securitybased swaps, unless the counterparty 

would qualify for an exception under 

Exchange Act rule 18a–3 from the 

requirement to deliver initial margin to 

Covered Entity.333 The condition 

defines initial margin by referencing 

EMIR Margin RTS to facilitate 

implementation of the condition by 

Covered Entities. Under this condition, 

for example, Covered Entities would be 

required to collect initial margin from 

their certain counterparties, but would 

be permitted to comply with all other 

French and EU margin requirements, 

including calculation, collateral, 

documentation, and timing of collection 

requirements. The second additional 

condition will close the gap between the 

counterparty exceptions of Exchange 

Act rule 18a–3 and the French and EU 

margin rules with respect to initial 

margin. 

Finally, for the reasons discussed 

above in part III.B.2.e of this release, the 

third additional condition is that the 

Covered Entity applies substituted 

compliance with respect to Exchange 

Act rules 18a–5(a)(12) (a record making 

requirement).334 This record making 

requirement is directly linked to the 

margin requirements of Exchange Act 

rule 18a–3. The UK Proposed Order 

conditioned substituted compliance 

with respect to this record making 

requirement on the Covered Entity 

applying substituted compliance with 

respect to Exchange Act rule 18a–3.335

This additional condition is designed to 

provide clarity as to the Covered 

Entity’s obligations under this record 

making requirement when applying 

substituted compliance with respect to 

Exchange Act rule 18a–3 pursuant this 

Order. 

VI. Substituted Compliance for Internal 

Supervision and Compliance 

Requirements 

A. Proposed Approach 

The French Authorities’ Application 

further requested substituted 

compliance in connection with 

requirements relating to: 

• Internal supervision—Diligent 

internal supervision and conflict of 

interest provisions that generally require 

SBS Entities to establish, maintain and 

enforce supervisory policies and 

procedures that reasonably are designed 

to prevent violations of applicable law, 

and implement certain systems and 

procedures related to conflicts of 

interest. 

• Chief compliance officers—Chief 

compliance officer provisions that 

generally require SBS Entities to 

designate individuals with the 

responsibility and authority to establish, 

administer and review compliance 

policies and procedures, to resolve 

conflicts of interest, and to prepare and 

certify annual compliance reports to the 

Commission. 

• Additional Exchange Act section 

15F(j) requirements—Certain additional 

requirements related to informationgathering and antitrust prohibitions.336

Taken as a whole, these requirements 

generally help to advance SBS Entities’ 

use of structures, processes and 

responsible personnel reasonably 

designed to promote compliance with 

applicable law, identify and cure 

instances of noncompliance, and 

manage conflicts of interest. 

In proposing to provide conditional 

substituted compliance in connection 

with this part of the French Authorities’ 

Application, the Commission 

preliminarily concluded that the 

relevant French and EU requirements in 

general would produce comparable 

regulatory outcomes 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. Substituted compliance 

under the proposed Order was to be 

conditioned in part on SBS Entities 

being subject to and complying with 

specified French and EU provisions that 

in the aggregate produce regulatory 

outcomes that are comparable to those 

associated with those internal 

supervision, compliance and related 

requirements under the Exchange 

Act.337

Under the proposed Order, 

substituted compliance was to be 

subject to certain additional conditions 

to help ensure the comparability of 

regulatory outcomes. First, substituted 

compliance in connection with the 

internal supervision requirements 


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338See id. at 85727–85728. The condition was 

designed to allow Covered Entities to use their 

existing internal supervision and compliance 

frameworks to comply with the relevant Exchange 

Act requirements and Order conditions, rather than 

having to establish separate special-purpose 

supervision and compliance frameworks. 

339See id. at 85728. 

340See id. 

341See SIFMA Letter at 6–7. 

342See Reopening Release, 86 FR at 18384. 

343See id. 

344See SIFMA Letter II at 18–19 (stating that 

‘‘[g]iven that paragraph (d) of the French Order does 

not extend to the risk management requirements of 

Exchange Act Section 15F(j)(2) or related 

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

which the French Order instead addresses 

separately in paragraph (b)(1), we fail to see the 

justification for adding these requirements to 

paragraph (d)(3)’’). 

345 Id. at 19. See also, FBF Letter II at 3 (stating 

that ‘‘the attestation language a bank would need to 

use when furnishing home country reports is 

stricter than that required under the SEC rule 

itself.’’) 

346SIFMA Letter II at 19. 

347 Id. at 19–20. 

348FBF Letter II at 3. 

349See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85740. 350See SIFMA Letter II at Appendix A. 

Specifically, SIFMA recommends the deletion of 

the following conditions from paragraph (d)(3) of 

the proposed Order: (i) MiFID articles 16(6) through 

(10); (ii) MiFID Org Reg articles 23, 27, 30 through 

32, 72 through 76 and Annex IV; (iii) CRD articles 

79 through 87 and 92 through 95; (iv) MFC articles 

L. 511–71 through 86, L. 511–89 through 97 and L. 

511–102; (v) French Internal Control Order articles 

111, 121 and 130 through 134; (vi) MFC article R. 

511–16–3; and (vii) Prudential Supervision and 

Risk Assessment Order article 7. 

351SIFMA Letter I at 6–7. 

352See id. at Appendix A. 

would be conditioned on the Covered 

Entities complying with applicable 

French and EU supervisory and 

compliance provisions as if those 

provisions also require the Covered 

Entities to comply with applicable 

requirements under the Exchange Act 

and the other conditions of the Order. 

This condition was intended to reflect 

that, even with substituted compliance, 

Covered Entities still directly would be 

subject to a number of requirements 

under the Exchange Act and conditions 

of the Order that fall outside the ambit 

of French and EU internal supervision 

and compliance requirements.338

For similar reasons, the proposed 

Order conditioned substituted 

compliance in connection with 

compliance report requirements on the 

Covered Entity annually providing the 

Commission with certain compliance 

reports required pursuant to regulations 

under MiFID Org Reg 22(2)(C). Those 

reports must be in English, be 

accompanied by a certification under 

penalty of law that the report is accurate 

and complete, and would have to 

address the SBS Entity’s compliance 

with other conditions to the substituted 

compliance order.339 In addition, 

substituted compliance under the 

proposal would not extend to antitrust 

provisions under the Exchange Act, 

based on the preliminary conclusion 

that allowing an alternative means of 

compliance would not lead to 

comparable regulatory outcomes.340

B. Commenter Views and Final 

Provisions 

Following the release of the proposed 

Order, commenters requested that the 

conditions to substituted compliance in 

connection with the internal 

supervision and compliance 

requirements be narrowed by 

eliminating references to recordkeeping 

requirements pursuant to MiFID, and 

CRD provisions related to the treatment 

of risk. In the commenter’s view, 

compliance with those provisions are 

not necessary to justify substituted 

compliance.341

Partially in response to the initial 

comments to the proposed Order, the 

Reopening Release requested comment 

on a revision to the Order to include 

two additional prerequisites in 

connection with internal supervision: 

CRR articles 286 through 288 and 293, 

which address counterparty credit risk 

and risk management generally; and 

EMIR Margin RTS article 2, which 

addresses collateral-related risk 

management procedures.342 The 

proposed additions were intended to 

promote analogous compliance goals as 

the other requirements identified within 

paragraph (d)(3) of the proposed 

Order.343 The only commenter to 

address the proposed additions did not 

support them.344

Commenters requested additional 

alterations to the internal supervision 

conditions aside from those identified 

in the Reopening Release. Specifically, 

commenters recommended changes to 

the compliance report certification 

language described in paragraph 

(d)(2)(ii)(B) of the proposed Order, that 

‘‘under penalty of law, the report is 

accurate and complete,’’ to language 

‘‘consistent with the requirement of the 

linked Exchange Act rule, Exchange Act 

rule 15Fk–1(c)(2)(ii)(D).’’ 345

Additionally, one commenter requested 

that the condition requiring Covered 

Entities to provide certain reports 

pursuant to MiFID Org Reg Article 

22(2)(c) should ‘‘apply solely to the 

extent [the reports] are related to a 

Covered Entity’s business as an SBS 

Entity.’’ 346 Commenters also requested 

that the timing of compliance report 

submissions for reports required under 

MiFID Org Reg Article 22(2)(c) be ‘‘15 

days after the Covered Entity completes 

its annual MiFID report as required by 

MiFID’’ 347 and alternatively ‘‘15 days 

after [the report’s] submission to the 

AMF in April each year.’’ 348

The Commission has considered 

commenter’s views, and is making 

changes to the final Order related to 

compliance report certification, the 

timing of submission of compliance 

reports to the Commission, and certain 

French and EU predicates to substituted 

compliance. In large part, however, the 

Commission is adopting this part of the 

Order as it was proposed. 

1. French and EU Predicate Conditions 

to Internal Supervision and Compliance 

Requirements 

In the French Substituted Compliance 

Notice and Proposed Order, the 

Commission preliminarily proposed to 

make a positive substituted compliance 

determination for supervisory and 

compliance requirements conditioned 

on Covered Entities complying with 

specified French and EU requirements 

that promote internal supervision 

within those entities.349 A commenter 

requested that the Commission not 

require a Covered Entity to be subject to 

and comply with certain of these 

specified requirements because the 

commenter argued the provisions were 

related to risk management and 

therefore should be deleted or addressed 

elsewhere or alternatively the 

provisions do not correspond to, and go 

beyond, the requirements of the 

Exchange Act.350 The Commission 

details below its consideration of these 

comments. 

One commenter objected to the 

proposed inclusion of the risk control 

requirements of CRD articles 79 through 

87, and French implementing 

provisions, Internal Control Order 

articles 111, 121 and 130 through 134, 

within the prerequisites to substituted 

compliance for internal supervision and 

control, on the grounds that the 

inclusion of those provisions ‘‘are not 

necessary’’ to justify substituted 

compliance.351 The commenter also 

recommended deleting the reference to 

MiFID Org Reg article 23 related to risk 

management and which the commenter 

believed was more appropriately 

addressed with the risk control 

requirements found in paragraph (b) of 

the proposed Order.352 Following the 

comment period reopening, that 

commenter further objected to the 

Commission’s suggested inclusion of 

CRR articles 286–88 and 293 

(addressing counterparty credit risk and 

risk management generally) and EMIR 

Margin RTS article 2 (addressing 


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353See Reopening Release, 86 FR at 18348 (stating 

that those provisions ‘‘promote analogous 

compliance goals’’ as the other proposed conditions 

to substituted compliance for internal supervision 

and compliance). 

354SIFMA Letter II at 18–19 (‘‘Simply asserting 

that these requirements ‘promote analogous 

compliance goals’ is not enough; under that theory, 

seemingly every provision of EU or French law 

would be relevant to internal supervision and 

compliance, but this cannot be the case.’’). 

355SIFMA Letter II at Appendix A. 

356MFC R. 511–16–3 acts as the French 

implementing provision for CRD article 91(8), 

which the commenter did not object to including, 

and both of which were included in the proposed 

Order and are now included in paragraph (d)(3) of 

the Order. 

357MiFID articles 16(6) through 16(10) is 

implemented in France in MFC articles 1.533–10.II 

6 through 9 and L. 533–10.III which are included 

as conditions to supervisory and compliance 

substituted compliance in paragraph (d)(3) of the 

Order. 

358See SIFMA Letter II at Appendix A. Paragraph 

(d)(3) of the proposed Order also included MiFID 

Org Reg articles 23 and 72 through 76 and Annex 

IV as conditions to internal supervision substituted 

compliance. These MiFID Org Reg articles relate to 

risk management and recordkeeping, respectively, 

and are addressed elsewhere in this section. 

359See SIFMA Letter at II Appendix A. 

360 Id. 

361The Commission is deleting the requirements 

related to CRD article 93 and related implementing 

provisions, as they were not part of the French 

Authorities’ Application, and relate to 

remuneration policies for institutions that benefit 

from exceptional (French and EU) government 

intervention. 

362The Commission believes that those 

conditions to substituted compliance do not 

‘‘expand the substantive ambit of the linked 

Exchange Act requirements’’ given that substituted 

compliance is an option available to non-U.S. SBS 

Entities—not a mandate. 

363See Better Markets Letter at 3 (addressing need 

for a ‘‘compelling showing’’ of comparability). 

364See SIFMA Letter I at 7 n.14; SIFMA Letter II 

at 19 (stating that ‘‘paragraph (d)(2)(ii)(B) of the 

French Order should be conformed to be consistent 

with the linked Exchange Act requirement.’’); see 

also FBF Letter at 3 (stating that ‘‘the attestation 

language a bank would need to use when furnishing 

home country reports is stricter than that required 

under the SEC rule itself.’’). 

365See Exchange Act rule 15Fk–1(c)(2)(ii)(D). See 

also Exchange Act rule 15Fk–1(e)(2) (defining 

‘‘senior officer’’ as ‘‘the chief executive officer or 

other equivalent officer’’). 

366French Substituted Compliance Notice and 

Proposed Order, 81 FR at 85740. 

367See para. (d)(2)(ii)(B) of the Order. 

368See para. (d)(4) of the Order. 

collateral-related risk management 

procedures) to the prerequisites.353 The 

commenter argued that those additions 

inappropriately would ‘‘expand the 

substantive ambit of the linked 

Exchange Act requirements.’’ 354 The 

Commission nonetheless concludes that 

those CRD, CRR, MiFID Org Reg, and 

EMIR Margin RTS provisions 

appropriately constitute part of the 

substituted compliance conditions for 

internal supervision and compliance. 

Supervision and compliance 

requirements serve the purpose of 

causing registered entities to have 

systems and follow practices to help 

ensure they conduct their business as 

required. It would be paradoxical to 

conclude that an SBS Entity that fails to 

implement requisite internal risk 

management systems and practices 

nonetheless may be considered to be 

following supervision and compliance 

standards that are sufficient to meet the 

regulatory outcomes required under the 

Exchange Act. A risk management 

failure necessarily constitutes a 

compliance failure. Accordingly, the 

Commission is retaining the references 

to these provisions. The commenter also 

requested the removal of MFC R. 511– 

16–3, based on the claim that it does not 

exist.355 However, the Commission has 

not determined that to be the case.356

One commenter recommended that 

the Commission delete MiFID article 

16(6) through 16(10) related to 

recordkeeping and client asset 

safeguarding requirements and the 

corresponding French implementing 

provisions; 357 CRD articles 92 through 

95, MFC articles L. 511.71 through L. 

511.86, and MiFID Org Reg article 27 

related to remuneration, MiFID Org Reg 

articles 30 through 32 related to 

outsourcing; 358 and MFC articles L. 

511–89 through L. 511–97 and L. 511– 

102 related to risk and remuneration 

committees. The commenter stated that 

those provisions ‘‘do not correspond to, 

and go beyond,’’ the applicable 

requirements of the Exchange Act.359 In 

addition, the commenter stated that the 

MiFID provisions ‘‘did not relate to 

supervisory or compliance 

requirements.’’ 360 The Commission 

believes that the MiFID and 

corresponding French implementing 

provisions and MiFID Org Reg 

conditions taken as a whole are relevant 

to its substituted compliance 

determination for internal supervision 

and compliance and taken together the 

specified French and EU provisions 

promote adequate supervision within 

the Covered Entities complying with 

those requirements. Accordingly, the 

Commission is retaining the references 

to these provisions with one 

exception.361

The comparability analysis requires 

consideration of Exchange Act 

requirements as a whole against 

analogous French and EU requirements 

as a whole, recognizing that U.S. and 

non-U.S. regimes may follow materially 

different approaches in terms of 

specificity and technical content. This 

‘‘as a whole’’ approach—which the 

Commission is following in lieu of 

requiring requirement-by-requirement 

similarity—further means that the 

conditions to substituted compliance 

should encompass all French and EU 

requirements that establish 

comparability with the applicable 

regulatory outcome. It would be 

inconsistent with the holistic approach 

to excise relevant requirements and 

leave only the residual French and EU 

provisions that most closely resemble 

the analogous Exchange Act 

requirements.362 In reaching this 

conclusion, the Commission emphasizes 

the importance of ensuring that 

substituted compliance is grounded on 

the comparability of regulatory 

outcomes.363

2. Compliance Report Certifications 

Commenters requested that the 

standard applied to the certification of 

required compliance reports upon their 

submission to the Commission be 

revised to conform more closely with 

the requirements set forth in Exchange 

Act rule 15Fk–1.364 Rule 15Fk–1 states 

that the required reports must include 

‘‘a certification by the chief compliance 

officer or senior officer that, to the best 

of his or her knowledge and reasonable 

belief and under penalty of law, the 

information contained in the 

compliance report is accurate and 

complete in all material respects.’’ 365

The standard applied in the proposed 

Order required certification that ‘‘under 

penalty of law, the report is accurate 

and complete.’’ 366 The Commission 

concurs that alignment of the Order’s 

certification requirement with that of 

the applicable Exchange Act rule is 

appropriate in this instance. Therefore, 

the Order has been updated to clarify 

that the required reports should be 

certified by ‘‘the chief compliance 

officer or senior officer’’ of the Covered 

Entity and that the same certification 

standard contained in Exchange Act 

rule 15Fk–1 applies.367 In addition, the 

Order has been updated to clarify that 

the certification must cover compliance 

with applicable Exchange Act 

requirements, consistent with the 

requirements regarding internal 

supervision.368 The Commission 

believes that this clarification is 

necessary, particularly in light of its 

granular approach to substituted 

compliance, to ensure that the report 

covers applicable Exchange Act 

requirements whether or not the SBS 

Entity relies on substituted compliance 

for internal supervision. 

3. Timing of Compliance Report 

Submission 

Commenters requested that the Order 

be amended to clarify the timing for 


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369See SIFMA Letter II at 19–20; see also FBF 

Letter II at 3 (requesting that the report be submitted 

to the SEC ‘‘15 days after its submission to the AMF 

in April each year’’). With regard to the UK 

Substituted Compliance Notice and Proposed 

Order, SIFMA supported a single annual 

submission for multiple reports without reference 

to a 15 day timing standard. See SIFMA UK Letter 

at 21. 

370SIFMA Letter II at 19–20, 31. The ‘‘15 days 

after submission to the AMF’’ language is 

incorporated into the commenter’s ‘‘detailed 

recommendations’’ (at page 31). The commenter’s 

general discussion of the issue separately alludes to 

a ‘‘15 days after the Covered Entity completes its 

annual MiFID report as required by MiFID’’ 

standard (at page 20). 

371FBF Letter II at 3. 

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

373SIFMA Letter II at 19. 

374 Id. 

375SIFMA Letter I at 6–7. 

376See para. (d)(3) of the Order. Consistent with 

the discussion above related to internal risk 

management (part IV.B.1), the condition has been 

modified from the proposed Order by removing 

Prudential Supervision and Risk Assessment Order 

article 7. 

377See para. (d)(4) of the Order. The Order 

provides that the Covered Entity must comply with 

relevant French and EU provisions as if those 

provisions address applicable conditions of the 

Order connected to requirements for which the 

Covered Entity is relying on substituted 

compliance. That part of the condition does not 

apply to parts of the Order for which the Covered 

Entity does not rely on substituted compliance. 

378See para. (d)(2)(ii) of the Order. For the 

reasons discussed in the proposal, the substituted 

compliance Order does not extend to antitrust 

provisions under the Exchange Act. 

Covered Entities to submit compliance 

reports to the Commission, and 

suggested standards by which ‘‘the 

Covered Entity may make an annual 

submission of this report 15 days after 

submission to the AMF.’’ 369 One 

commenter explained that absent such a 

clarification, submission of the report 

seemingly would be required within 30 

days following the deadline for the 

Covered Entity to file its annual 

financial report with the Commission, 

without regard to when the entity 

prepares its report pursuant to 

MiFID.370 Another commenter stated 

that providing a clarified 15 day 

timeline would accommodate ‘‘the need 

to account for translation as well as 

other conditions in the French 

Order.’’ 371

The Commission is persuaded that 

additional clarification is warranted, 

concurs that it is appropriate for the 

Commission to receive compliance 

reports shortly after their preparation, 

and views 15 days as providing a 

reasonable time to translate and convey 

reports. At the same time, the 

Commission does not believe that the 

suggested ‘‘15 days after submission to 

the AMF’’ standard sets forth an optimal 

timing condition, in part given that 

MiFID Org Reg article 22(2)(c) requires 

reports to the firm management body— 

not to authorities such as the AMF. 

Instead, to promote timely notice 

comparable to what the Exchange Act 

rule provides, the Commission is 

incorporating a timing standard that 

accounts for MiFID-required timing as 

well as the possibility that the relevant 

reports may be submitted to the 

management body early. Under the 

Order, the applicable compliance 

reports are to be provided to the 

Commission no later than 15 days 

following the earlier of: (i) The 

submission of the report to the Covered 

Entity’s management body; or (ii) the 

time the report is required to be 

submitted to the management body.372

In addition, reports required to be 

provided under MiFID Org Reg article 

22(2)(c) must together cover the entire 

period that an Exchange Act rule 15Fk– 

1 annual report would have covered. 

This requirement would prevent a 

Covered Entity from applying for 

substituted compliance just prior to the 

due date of its Exchange Act annual 

report and then providing the 

Commission its next MiFID Org Reg 

report covering only a part of the year 

that would have been covered in the 

Exchange Act report. 

4. Compliance Reports Subject to 

Disclosure 

One commenter requested that the 

proposed Order be modified to narrow 

the scope of the compliance reports 

provided to the Commission, stating 

that the conditions to substituted 

compliance should require that the 

Commission be provided with the 

compliance reports only ‘‘to the extent 

they are related to a Covered Entity’s 

business as an SBS Entity.’’ 373 The 

commenter argued that it would be 

‘‘disproportionate and unnecessary’’ to 

require that the Commission receive all 

reports prepared pursuant to MiFID Org 

Reg article 22(2)(c).374

The Commission disagrees, and 

believes that the Commission should be 

fully informed—consistent with the 

scope of MiFID Org Reg article 

22(2)(c)—as to the ‘‘implementation and 

effectiveness’’ of the Covered Entity’s 

‘‘overall control environment for 

investment services and activities,’’ as 

well as associated risks, complaints 

handling and remedies. The alternative 

approach of apportioning compliance 

reports into two buckets, and only 

providing one bucket to the 

Commission, does not match the 

analytic approach of considering the 

Exchange Act and French/EU 

frameworks ‘‘as a whole.’’ 

5. Compliance Conditions Related to 

Recordkeeping 

The Commission also is not adopting 

a commenter’s suggestion that MiFID 

Org Reg articles 72 through 76 and 

Annex IV recordkeeping requirements 

be removed from the conditions for 

substituted compliance for internal 

supervision and compliance.375

Documentation is an important 

component of an effective compliance 

system, and a firm that has failed to 

comply with relevant EU recordkeeping 

requirements cannot reasonably be 

viewed as having engaged in 

supervisory and compliance practices 

that are sufficiently rigorous to satisfy 

the regulatory outcome established by 

the relevant requirements under the 

Exchange Act. 

6. Additional Considerations and Final 

Order Provisions 

For these reasons, the Commission is 

adopting the requirements related to 

internal supervision and compliance 

largely as proposed, subject to the 

specific changes addressed above.376

Consistent with the proposed Order, 

substituted compliance in connection 

with internal supervision further is 

conditioned on the Covered Entity being 

subject to and complying with the 

applicable French and EU supervisory 

and compliance provisions listed in 

paragraph (d)(3) of the Order, as if those 

provisions also require SBS Entities to 

comply with applicable requirements 

under the Exchange Act and the other 

applicable conditions to the Order.377

Similarly, substituted compliance in 

connection with the chief compliance 

officer requirements further is 

conditioned on the compliance reports 

provided to the Commission addressing 

the SBS Entity’s compliance with other 

applicable conditions of the Order.378 A 

Covered Entity that is unable to comply 

with an applicable condition—and thus 

is not eligible to use substituted 

compliance for the Exchange Act 

internal supervision and/or chief 

compliance officer requirements related 

to that condition—nevertheless may use 

substituted compliance for another set 

of Exchange Act requirements addressed 

in the Order if it complies with the 

conditions to the relevant parts of the 

Order. 

Under the Order, substituted 

compliance for internal supervision and 

chief compliance officer requirements is 

not subject to a condition that the 

Covered Entity apply substituted 

compliance for related recordkeeping 

requirements in Exchange Act rules 

18a–5 and 18a–6. A Covered Entity that 

applies substituted compliance for 


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379See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85728. 

380See Business Conduct Adopting Release, 81 

FR at 30065. 

381See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85728–29. 

382See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85729 n.72. 

383Annex 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. 

Retail clients are those that are not professional 

clients. See MiFID article 4(1)(11). 

384See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85730. 

385 Id. at 85729–85730. 

386See EMIR RTS article 13(3)(a)(i); EMIR article 

10. 

387See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85730. 

388 Id. 

internal supervision and/or chief 

compliance officer requirements, but 

does not apply substituted compliance 

for the related recordkeeping 

requirements in Exchange Act rules 

18a–5 and 18a–6, will remain subject to 

the relevant provisions of Exchange Act 

rules 18a–5 and 18a–6. Those rules 

require the Covered Entity to make and 

preserve records of its compliance with 

Exchange Act internal supervision and 

chief compliance officer requirements 

and of its security-based swap activities 

required or governed by those 

requirements. A Covered Entity that 

applies substituted compliance for 

internal supervision and/or chief 

compliance officer requirements, but 

complies directly with related 

recordkeeping requirements in rules 

18a–5 and 18a–6, therefore must make 

and preserve records of its compliance 

with the relevant conditions of the 

Order and of its security-based swap 

activities required or governed by those 

conditions and/or referenced in the 

relevant parts of rules 18a–5 and 18a– 

6. 

Finally, for the reasons discussed in 

the proposed Order, moreover, the 

substituted compliance Order does not 

extend to antitrust provisions under the 

Exchange Act.379

VII. Substituted Compliance for 

Counterparty Protection Requirements 

A. Proposed Approach 

The French Authorities’ Application 

in part requested substituted 

compliance in connection with 

counterparty protection requirements 

relating to: 

• Disclosure of material risks and 

characteristics and material incentives 

or conflicts of interest—Requirements 

that an SBS Entity disclose to certain 

security-based swap counterparties 

certain information about the material 

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

incentives or conflicts of interest that 

the SBS Entity may have in connection 

with the security-based swap. 

• ‘‘Know your counterparty’’— 

Requirements that an SBS Entity 

establish, maintain and enforce written 

policies and procedures to obtain and 

retain certain information regarding a 

security-based swap counterparty that is 

necessary for conducting business with 

that counterparty. 

• Suitability—Requirements for a 

security-based swap dealer to undertake 

reasonable diligence to understand the 

potential risks and rewards of any 

recommendation of a security-based 

swap or trading strategy involving a 

security-based swap that it makes to 

certain counterparties and to have a 

reasonable basis to believe that the 

recommendation is suitable for the 

counterparty 

• Fair and balanced 

communications—Requirements that an 

SBS Entity communicate with securitybased swap counterparties in a fair and 

balanced manner based on principles of 

fair dealing and good faith. 

• Daily mark disclosure— 

Requirements that an SBS Entity 

provide daily mark information to 

certain security-based swap 

counterparties. 

• Clearing rights disclosure— 

Requirements that an SBS Entity 

provide certain counterparties with 

information regarding clearing rights 

under the Exchange Act. 

Taken as a whole, these counterparty 

protection requirements help to ‘‘bring 

professional standards of conduct to, 

and increase transparency in, the 

security-based swap market and to 

require registered SBS Entities to treat 

parties to these transactions fairly.’’ 380

The proposed Order provided for 

conditional substituted compliance in 

connection with fair and balanced 

communications, disclosure of material 

risks and characteristics, disclosure of 

material incentives or conflicts of 

interest, ‘‘know your counterparty,’’ 

suitability and daily mark disclosure 

requirements.381 In proposing to 

provide conditional substituted 

compliance for these requirements, the 

Commission preliminarily concluded 

that the relevant French and EU 

requirements in general would produce 

regulatory outcomes that are comparable 

to requirements under the Exchange 

Act, by subjecting French Covered 

Entities to obligations that promote 

standards of professional conduct, 

transparency and the fair treatment of 

parties. 

As proposed, substituted compliance 

for these requirements would be subject 

to certain conditions to help ensure the 

comparability of outcomes. First, under 

the proposed Order, substituted 

compliance for fair and balanced 

communications, disclosure of material 

risks and characteristics, disclosure of 

material incentives or conflicts of 

interest, ‘‘know your counterparty,’’ and 

suitability requirements would be 

conditioned on Covered Entities being 

subject to, and complying with, relevant 

French and EU requirements.382

Second, the proposed Order would 

additionally condition substituted 

compliance for suitability requirements 

on the counterparty being a 

‘‘professional client’’ as defined in 

MiFID (rather than a ‘‘retail client’’ or an 

elective ‘‘professional client’’) 383 and 

not a ‘‘special entity’’ as defined in 

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

Exchange Act rule 15Fh–2(d).384

Finally, in the proposed Order the 

Commission preliminarily viewed 

certain types of EU daily portfolio 

reconciliation requirements as 

comparable to Exchange Act daily mark 

disclosure requirements.385 These daily 

portfolio reconciliation requirements 

apply to portfolios of a financial 

counterparty or a non-financial 

counterparty subject to the clearing 

obligation in EMIR in which 

counterparties have 500 or more OTC 

derivatives contracts outstanding with 

each other.386 The Commission 

preliminarily viewed EU portfolio 

reconciliation requirements for other 

types of portfolios, which may be 

reconciled less frequently than each 

business day or may not require 

disclosure to counterparties, as not 

comparable to Exchange Act daily mark 

requirements.387 Accordingly, the 

proposed Order would condition 

substituted compliance for daily mark 

requirements on the Covered Entity 

being required to reconcile, and in fact 

reconciling, the portfolio containing the 

relevant security-based swap on each 

business day and exchanging valuations 

of those contracts directly between 

counterparties, pursuant to relevant EU 

requirements.388

The Order would not provide 

substituted compliance in connection 

with Exchange Act requirements for 

SBS Entities to disclose a counterparty’s 

clearing rights under Exchange Act 

section 3C(g)(5). The French 

Authorities’ Application cited certain 


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389 Id. 

390See para. (e) of the Order. 

391See para. (e)(1) of the Order. 

392See para. (e)(2) of the Order. 

393See para. (e)(3) of the Order. 

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

395See para. (e)(5) of the Order. 

396Covered Entities must be required to reconcile, 

and in fact reconcile, the portfolio containing the 

security-based swap for which substituted 

compliance is applied, on each business day 

pursuant to EMIR articles 11(1)(b) and 11(2) and 

EMIR RTS article 13. See para. (e)(6) of the Order. 

397See para. (e)(4)(ii) of the Order. 

398See SIFMA Letter II at Appendix A. 

399 Id. 

400 Id. 

401 Id. 

EU provisions related to a 

counterparty’s clearing rights in the 

European Union. However, those 

provisions do not require disclosure of 

Exchange Act section 3C(g)(5) clearing 

rights, and the Commission 

preliminarily viewed the EU clearing 

provisions as not comparable to 

Exchange Act clearing rights disclosure 

requirements.389

B. Commenter Views and Final 

Provisions 

Having considered the commenter 

recommendations for the counterparty 

protection requirements, the 

Commission is making positive 

substituted compliance determinations 

in connection with disclosure of 

material risks and characteristics, 

disclosure of material incentives or 

conflicts of interest, ‘‘know your 

counterparty,’’ suitability, fair and 

balanced communications and daily 

mark disclosure requirements. The 

Order is largely consistent with the 

proposed Order, except for adding 

additional EU requirements in two 

sections of the Order, moving one EU 

requirement from the fair and balanced 

communications section of the Order to 

the disclosure of material incentives and 

conflicts of interest section and adding 

text to clarify that substituted 

compliance for counterparty protection 

requirements is applied at the 

transaction level.390 This action is 

grounded in the Commission’s 

conclusion that, taken as a whole, 

applicable requirements under French 

and EU law subject French Covered 

Entities to obligations that promote 

standards of professional conduct, 

transparency and the fair treatment of 

parties, and thus produce regulatory 

outcomes that are comparable to the 

outcomes associated with the relevant 

counterparty protection requirements 

under the Exchange Act. 

To help ensure the comparability of 

outcomes, substituted compliance is 

subject to certain conditions. 

Substituted compliance for disclosure of 

material risks and characteristics,391

disclosure of material incentives or 

conflicts of interest,392 ‘‘know your 

counterparty’’,393 suitability 394 and fair 

and balanced communications 395

requirements is conditioned on a 

Covered Entity being subject to, and 

complying with, relevant French and 

EU requirements. Substituted 

compliance for daily mark disclosure 

requirements is conditioned on the 

Covered Entity being required to 

reconcile, and in fact reconciling, the 

portfolio containing the relevant 

security-based swap on each business 

day pursuant to relevant EU 

requirements.396 Substituted 

compliance for suitability requirements 

is conditioned on the counterparty 

being a per se ‘‘professional client’’ as 

defined in MiFID (i.e., not an elective 

professional client or a retail client) and 

not a ‘‘special entity’’ as defined in 

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

Exchange Act rule 15Fh–2(d).397 A 

Covered Entity that is unable to comply 

with a condition—and thus is not 

eligible to use substituted compliance 

for the particular set of Exchange Act 

counterparty protection requirements 

related to that condition—nevertheless 

may use substituted compliance for 

another set of Exchange Act 

requirements addressed in the Order if 

it complies with the conditions to the 

relevant parts of the Order. 

The Commission recognizes that there 

are differences between the approaches 

taken by disclosure of material risks and 

characteristics, disclosure of material 

incentives or conflicts of interest, 

‘‘know your counterparty,’’ suitability, 

fair and balanced communications and 

daily mark disclosure requirements 

under the Exchange Act, on the one 

hand, and relevant French and EU 

requirements, on the other hand. The 

Commission continues to view those 

differences, when coupled with the 

conditions described above, as not so 

material as to be inconsistent with 

substituted compliance within the 

requisite outcomes-oriented context. 

With respect to Exchange Act clearing 

rights disclosure requirements, 

however, consistent with the proposed 

Order the Commission is not providing 

substituted compliance. 

Under the Order, substituted 

compliance for counterparty protection 

requirements (relating to disclosure of 

information regarding material risks and 

characteristics, disclosure of 

information regarding material 

incentives or conflicts of interest, 

‘‘know your counterparty,’’ suitability, 

fair and balance communications and 

daily mark disclosure) is not subject to 

a condition that the Covered Entity 

apply substituted compliance for related 

recordkeeping requirements in 

Exchange Act rules 18a–5 and 18a–6. A 

Covered Entity that applies substituted 

compliance for one or more 

counterparty protection requirements, 

but does not apply substituted 

compliance for the related 

recordkeeping requirements in 

Exchange Act rules 18a–5 and 18a–6, 

will remain subject to the relevant 

provisions of Exchange Act rules 18a–5 

and 18a–6. Those rules require the 

Covered Entity to make and preserve 

records of its compliance with Exchange 

Act counterparty protection 

requirements and of its security-based 

swap activities required or governed by 

those requirements. A Covered Entity 

that applies substituted compliance for 

a counterparty protection requirement, 

but complies directly with related 

recordkeeping requirements in rules 

18a–5 and 18a–6, therefore must make 

and preserve records of its compliance 

with the relevant conditions of the 

Order and of its security-based swap 

activities required or governed by those 

conditions and/or referenced in the 

relevant parts of rules 18a–5 and 18a– 

6. 

One commenter requested that the 

Commission make several changes to 

the conditions in the proposed Order.398

The Commission details its response to 

each of those requests below. 

1. Disclosure of Information Regarding 

Material Risks and Characteristics 

The commenter requested that the 

Commission not require a Covered 

Entity to be subject to and comply with 

MIFID Org Reg articles 49 and 50 and 

requested that the requirement for a 

Covered Entity to be subject to and 

comply with MiFID article 24(4) and 

MFC D. 533–15 be narrowed to include 

only MiFID article 24(4)(b) and MFC D. 

533–15.2°, respectively.399 The 

commenter described the proposed 

removal of conditions as addressing 

requirements ‘‘which do not correspond 

to, and go beyond, the requirements in 

Exchange Act rule 15Fh–3(b).’’ 400

The commenter stated that MiFID Org 

Reg article 49 relates to information 

about the safeguarding of client 

financial instruments or client funds 

and thus goes beyond the scope of 

Exchange Act material risks and 

characteristics disclosure 

requirements.401 This provision would 

require a Covered Entity to inform its 

client about the risks of the Covered 

Entity placing client assets, which 


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402 Id. 

403 Id. 

404 Id. 

405See para. (e)(2) of the Order. 

406See id. 

would include the relevant securitybased swap and funds related to it, to be 

held by a third party, the risks of the 

Covered Entity holding client assets in 

an omnibus account, the risks of 

holding client assets that are not 

segregated from the assets of the 

Covered Entity or a third party holding 

the client’s assets and the risks of the 

Covered Entity entering into securities 

financing transactions using client 

assets. A Covered Entity also would 

have to inform the client when the 

relevant security-based swap is held in 

an account subject to the laws of a 

jurisdiction other than France and 

indicate that client rights relating to the 

security-based swap may differ from 

those under French law. A Covered 

Entity also would have to inform the 

client about any security interest, lien or 

right of set-off that the Covered Entity or 

a depository may have over client 

assets. In comparison, Exchange Act 

rule 15Fh–3(b)(1) requires a Covered 

Entity, before entering into a securitybased swap, to disclose to certain 

counterparties material information 

about the security-based swap in a 

manner reasonably designed to allow 

the counterparty to assess the material 

risks and characteristics of the securitybased swap, which may include market, 

credit, liquidity, foreign currency, legal, 

operational and any other applicable 

risks of the security-based swap. Legal 

and operational risks of a security-based 

swap include the types of risks to client 

assets that MiFID Org Reg article 49 

would require the Covered Entity to 

disclose. Accordingly, the Commission 

is retaining the references to these 

provisions. 

The commenter stated that MiFID Org 

Reg 50 relates to the disclosure of costs 

and charges and thus goes beyond the 

scope of Exchange Act material risks 

and characteristics disclosure 

requirements.402 Exchange Act rule 

15Fh–3(b)(1) requires a Covered Entity, 

before entering into a security-based 

swap, to disclose to certain 

counterparties material information 

about the security-based swap in a 

manner reasonably designed to allow 

the counterparty to assess the material 

risks and characteristics of the securitybased swap, which may include the 

material economic terms of the securitybased swap and the rights and 

obligations of the parties during the 

term of the security-based swap. The 

material economic terms of a securitybased swap and the rights and 

obligations of the parties include the 

costs and charges associated with the 

security-based swap. Accordingly, the 

Commission is retaining the references 

to these provisions. 

Additionally, the commenter 

requested that MiFID article 24(4) and 

MFC D. 533–15 be narrowed to only 

require compliance with MiFID article 

24(4)(b) and MFC D. 533–15.2°, because 

the parts proposed for removal ‘‘relate[ ] 

to whether the advice is provided on an 

independent basis and . . . to costs and 

charges.’’ 403 As noted above, Exchange 

Act rule 15Fh–3(b)(1) requires a 

Covered Entity, before entering into a 

security-based swap, to disclose to 

certain counterparties material 

information about the security-based 

swap in a manner reasonably designed 

to allow the counterparty to assess the 

material risks and characteristics of the 

security-based swap, which may 

include the material economic terms of 

the security-based swap and the rights 

and obligations of the parties during the 

term of the security-based swap. The 

Commission believes that a 

counterparty would consider the 

independence of the Covered Entity in 

the counterparty’s assessment of these 

risks and characteristics. The 

Commission addressed the provisions 

related to costs and charges above. The 

holistic approach taken by the 

Commission in considering whether 

regulatory requirements are comparable 

further warrants the inclusion of these 

provisions in the Order. Accordingly, 

the Commission is retaining the 

references to these provisions. 

2. Disclosure of Information Regarding 

Material Incentives or Conflicts of 

Interest 

The commenter requested that the 

Commission not require a Covered 

Entity to be subject to and comply with 

MiFID article 24(9) and MFC L. 533–12– 

4.404 The commenter stated that these 

provisions relate to third-party 

payments and thus go beyond the scope 

of Exchange Act material incentives or 

conflicts of interest disclosure 

requirements. These provisions would 

require a Covered Entity to refrain from 

paying to, or accepting from, third 

parties certain fees, commissions or 

non-monetary benefits in connection 

with providing an investment service 

(inducements) and, in circumstances in 

which the general prohibition on 

inducements does not apply, to disclose 

to the client the existence, nature and 

amount of the inducement prior to 

providing the service and in a manner 

that is comprehensive, accurate and 

understandable. In comparison, 

Exchange Act rule 15Fh–3(b)(2) requires 

a Covered Entity, before entering into a 

security-based swap, to disclose to 

certain counterparties material 

information about the security-based 

swap in a manner reasonably designed 

to allow the counterparty to assess the 

material incentives or conflicts of 

interest that the Covered Entity may 

have in connection with the securitybased swap, including any 

compensation or other incentives from 

any source other than the counterparty. 

Disclosure of this compensation or other 

incentives would include disclosure of 

the existence, nature and amount of an 

inducement that MiFID article 24(9) and 

MFC L. 533–12–4 would require the 

Covered Entity to disclose. Accordingly, 

the Commission is retaining the 

references to these provisions. 

The Commission is issuing the 

disclosure of information regarding 

material incentives or conflicts of 

interest section of the Order largely as 

proposed, with the inclusion of two 

additional EU requirements.405 MAR 

Investment Recommendations 

Regulation articles 5 and 6 enumerate 

specific obligations in relation to 

disclosure of interests or of conflicts of 

interest. Article 5 requires that persons 

who produce recommendations disclose 

in their recommendations all 

relationships and circumstances that 

may reasonably be expected to impair 

the objectivity of the recommendation, 

including interests or conflicts of 

interest. Article 6 imposes additional 

obligations on certain entities, including 

the disclosure of information on their 

interests and conflicts of interest 

concerning the issuer to which a 

recommendation relates. The 

Commission believes that requiring 

Covered Entities to be subject to and 

comply with MAR Investment 

Recommendations Regulation articles 5 

and 6 contributes to a determination 

that relevant French and EU 

requirements produce regulatory 

outcomes that are comparable to 

relevant requirements of Exchange Act 

rule 15Fh–3(b). Accordingly, the 

Commission is adding these two 

requirements to the Order’s list of 

French and EU disclosure of 

information regarding material 

incentives or conflicts of interest 

requirements that the Covered Entity 

must be subject to and comply with.406

3. ‘‘Know your counterparty’’ 

The commenter requested that the 

Commission not require a Covered 

Entity to be subject to and comply with 

a series of French and EU ‘‘know your 


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407SIFMA Letter II at Appendix A. 

408 Id. 

409 Id. 

410 Id. 

411 Id. 

412 Id. 

413 Id. 414 Id. 

counterparty’’ requirements specified in 

the proposed Order, including: MiFID 

article 16(2); MFC L. 533–10.II(2); 

MiFID Org Reg articles 21 and 22, 25 

and 26 and applicable parts of Annex I; 

CRD articles 74(1) and 85(1); MFC L. 

511–55 and L. 511–41–1–B; MLD 

articles 11 and 13; L. 561–6, L. 561–10, 

L. 561–4–1, R. 561–5–2, R. 561–7, R. 

561–10–3, R. 561–11–1; MLD articles 

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

policies, controls and procedures 

regarding recordkeeping of customer 

due diligence activities; and MFC L. 

561–4–1 as applied to vigilance 

measures regarding recordkeeping of 

customer due diligence activities.407

The commenter also proposed the 

addition of MFC article L. 561–12 to the 

Order’s ‘‘know your counterparty’’ 

conditions. Similar to other elements of 

the counterparty protection 

requirements, the commenter asserted 

that the conditions identified for 

removal ‘‘do not correspond to, and go 

beyond, the requirements of Exchange 

Act rule 15Fh–3(e).’’ 408 However, the 

commenter’s reasons for this 

overarching claim are unconvincing. 

The commenter describes MiFID 

article 16(2) and MFC L. 533–10.II(2) as 

relating to ‘‘broad organizational 

requirements’’ without explaining how 

such characteristics preclude their 

inclusion when considering whether 

regulatory requirements are comparable 

for purposes of substituted 

compliance.409 MiFID article 16(2) 

requires a Covered Entity to establish, 

implement and maintain adequate 

policies and procedures sufficient to 

ensure the Covered Entity’s compliance 

with its obligations under French 

financial services laws. This 

requirement relates to the requirement 

in Exchange Act rule 15Fh–3(e)(1) and 

(2) for the Covered Entity to establish, 

maintain and enforce written policies 

and procedures to obtain and retain a 

record of the essential facts about the 

counterparty that are necessary for 

complying with applicable laws, 

regulations and rules and for 

implementing the Covered Entity’s 

credit and operational risk management 

policies. Accordingly, the Commission 

is retaining the references to these 

provisions. 

The commenter similarly describes 

the other conditions proposed for 

removal, including the MiFID Org Reg 

articles as ‘‘organizational requirements, 

compliance, responsibility of senior 

management, complaints handling and 

associated recordkeeping.’’ 410 However, 

MiFID Org Reg articles 21, 22, 25, 26 

and applicable parts of Annex I are 

regulations that implement MiFID 

article 16(2). They provide additional 

detail about the Covered Firm’s required 

policies and procedures under the 

French regulatory framework, and as 

such are relevant to the policies and 

procedures required under Exchange 

Act rule 15Fh–3(e). Accordingly, the 

Commission is retaining the references 

to these provisions. 

The commenter states that CRD 

articles 74(1) and 85(1), and MFC L. 

511–55 and L. 511–41–1–B are 

‘‘governance and prudential 

requirements,’’ and thus go beyond the 

scope of Exchange Act ‘‘know your 

counterparty’’ requirements.411 CRD 

article 74(1) would require the Covered 

Entity to have robust governance 

arrangements, including effective 

processes to identify, manage, monitor 

and report the risks it is or might be 

exposed to. CRD article 85(1) would 

require the Covered Entity to implement 

policies and processes to evaluate and 

manage the exposures to operational 

risk. These requirements relate to the 

requirement in Exchange Act rule 15Fh– 

3(e)(2) for the Covered Entity to 

establish, maintain and enforce written 

policies and procedures to obtain and 

retain a record of the essential facts 

about the counterparty that are 

necessary for implementing the Covered 

Entity’s credit and operational risk 

management policies. Accordingly, the 

Commission is retaining the references 

to these provisions. 

The commenter states that MLD 

articles 8(3), 8(4)(a), 11 and 13, are 

simply ‘‘overbroad,’’ and therefore ‘‘do 

not correspond to, and go beyond, the 

requirements of Exchange Act rule 

15Fh–3(e).’’ 412 Similarly, the 

commenter states that MFC articles L. 

561–6, L. 561–10, R. 561–5–2, R. 561– 

7, R. 561–10–3 and R. 561–11–1, which 

in part implement MLD articles 11 and 

13, and MFC article L. 561–4–1, which 

implements MLD articles 8(3) and 

8(4)(a), are related to ‘‘AML 

requirements other than KYC’’ and that 

‘‘it is not appropriate for the 

Commission effectively to expand the 

scope and content of its 

requirements.’’ 413 MLD articles 11 and 

13, and the corresponding provisions of 

the MFC, require obliged entities such 

as a Covered Entity to apply customer 

due diligence measures at defined 

points of a business relationship. Those 

customer due diligence measures 

include verifying that any person 

purporting to act on behalf of a 

customer is so authorized. The customer 

due diligence measures required by 

MLD articles 11 and 13 and the 

corresponding provisions of the MFC 

thus are directly related to the 

requirement in Exchange Act 15Fh– 

3(e)(3) for a Covered Entity to establish, 

maintain and enforce written policies 

and procedures to obtain and retain a 

record of the essential facts about the 

authority of any person acting for a 

counterparty. MLD articles 8(3) and 

8(4)(a) and MFC article L. 561–4–1 

would require a Covered Entity to have 

in place policies, controls and 

procedures to mitigate and manage 

effectively the risks of money 

laundering and terrorist financing. 

These policies and processes are related 

to the requirement in Exchange Act rule 

15Fh–3(e)(1) and (2) for the Covered 

Entity to establish, maintain and enforce 

written policies and procedures to 

obtain and retain a record of the 

essential facts about the counterparty 

that are necessary for complying with 

applicable laws, regulations and rules 

and for implementing the Covered 

Entity’s credit and operational risk 

management policies. Accordingly, the 

Commission is retaining the references 

to these provisions. 

The commenter provided no rationale 

for the proposed inclusion of MFC L. 

561–12. Accordingly, the Commission is 

not adding this provision to the Order. 

4. Suitability 

The commenter requested that the 

Commission not require a Covered 

Entity to be subject to and comply with 

some of the French and EU suitability 

requirements specified in the proposed 

Order, including: MiFID articles 24(3) 

and 25(1); MFC L. 533–24, L. 533–12(I), 

and L. 533–12–6; and MiFID Org Reg 

articles 21(1)(b) and (d). The commenter 

stated that each of these recommended 

deletions, ‘‘do not correspond to, and go 

beyond, the requirements in Exchange 

Act rule 15Fh–3(f).’’ 414 The commenter 

stated that MiFID article 24(3) and MFC 

article L. 533–12(I) ‘‘relate to the 

requirement that any information 

communicated to clients is fair, clear 

and not misleading’’; that MiFID article 

25(1), MFC article L. 533–12–6, and 

MiFID Org Reg article 21(1)(d) ‘‘refer to 

the skills, knowledge and expertise of 

the firm’s personnel’’; that MFC article 

L. 533–24 ‘‘relates to obligations 

imposed on firms who design financial 

instruments’’; and that MiFID Org Reg 

article 21(1)(b) requires ‘‘that relevant 


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415 Id. 

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

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

418SIFMA Letter II at Appendix A. 

419 Id. 

420See MiFID Annex II section II.1. (stating that 

elective professional clients ‘‘shall not, however, be 

presumed to possess market knowledge and 

experience comparable to that of the categories 

listed in Section I.’’). 

421See, e.g., MiFID Org Reg article 54(3). 

422See para. (e)(4) of the Order. 

423See para. (e)(5) of the Order. 

424See para. (e)(5) of the Order. 

425See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85741. 

persons are aware of the procedures 

which must be followed for the proper 

discharge of their responsibilities.’’ 415

Exchange Act rule 15Fh–3(f) requires 

an SBS Entity, when making certain 

security-based swap recommendations 

to a counterparty, to undertake 

reasonable diligence to understand the 

potential risks and rewards associated 

with the recommendation (the 

reasonable basis suitability standard) 

and to have a reasonable basis to believe 

that the recommendation is suitable for 

the counterparty (the counterpartyspecific suitability standard).416 MiFID 

article 25(1) and MFC article L. 533–12– 

6 would require a Covered Entity to 

ensure that individuals making personal 

recommendations to clients in relation 

to a relevant security-based swap have 

the necessary knowledge and 

competence so as to ensure that the 

Covered Entity is able to meet its 

obligations under MiFID articles 24 and 

25 and the related provisions of the 

MiFID Org Reg. MiFID article 25(2) and 

MFC article L. 533–13(I) would require 

the Covered Entity to obtain information 

about a client necessary to ensure that 

it makes only recommendations that are 

suitable for the client, and thus are 

relevant to the Exchange Act 

counterparty-specific suitability 

standard. Thus, MiFID article 25(1) and 

MFC article L. 533–12–6 would require 

the Covered Entity to ensure that 

recommendations to clients are made 

with the knowledge and competence 

necessary to fulfill the Covered Entity’s 

obligation under MiFID article 25(1) and 

MFC article L. 533–12–6 to make only 

suitable recommendations. This 

knowledge and competence requirement 

in MiFID article 25(1) and MFC article 

L. 533–12–6 is directly related to the 

Exchange Act reasonable basis standard. 

Moreover, MiFID article 24(3) and 

MFC Article L. 533–12(I), are 

particularly relevant to the Exchange 

Act reasonable basis standard. MiFID 

article 24(3), together with MiFID article 

25(1), would require the Covered Entity 

to ensure that individuals making 

recommendations have the knowledge 

and competence to communicate about 

the relevant security-based swap in a 

way that is fair, clear and not 

misleading. The Commission believes 

that in order to meet the French 

requirement to communicate in a fair, 

clear, and not misleading manner, the 

Covered Entity’s due diligence would 

reflect that individuals engaged in such 

communication understand the 

potential risks and rewards of the 

recommendation in a manner that is 

comparable to the requirement in 

Exchange Act rule 15Fh–3(f)(1)(i). 

MiFID Org Reg article 21(1)(b) and (d), 

in turn, would require the Covered 

Entity to ensure that its personnel have 

the skills, knowledge and expertise, and 

be aware of the procedures, necessary to 

properly discharge their responsibilities, 

which include their suitability 

obligations. These requirements again 

relate to the Exchange Act reasonable 

basis standard because they would 

require the Covered Entity to ensure that 

personnel making recommendations are 

equipped with the requisite training and 

information to be able to properly 

communicate about the relevant 

security-based swap in a way that 

complies with its French and EU 

communication and suitability 

obligations. For these reasons, the 

Commission is retaining in the Order 

the references to the French and EU 

requirements that the commenter asked 

to delete.417

Additionally, the commenter 

requested that the Commission change 

the condition to substituted compliance 

for Exchange Act suitability 

requirements that would require the 

Covered Entity’s counterparty to be a 

‘‘professional client’’ mentioned in 

MiFID Annex II section I and MFC 

article D. 533–11.418 Professional clients 

mentioned in MiFID Annex II section I 

and MFC article D. 533–11 are per se 

professional clients, a category of clients 

that generally includes those with more 

experience, knowledge, expertise and 

resources and that excludes elective 

professional clients and retail clients. 

The commenter requested that the 

Commission expand the condition’s 

definition of ‘‘professional client’’ to 

include elective professional clients 

mentioned in MiFID Annex II section II 

and MFC article D. 533–12.419 Elective 

professional clients generally have less 

experience, knowledge, expertise and/or 

resources than per se professional 

clients.420 Because French and EU 

suitability requirements permit a 

Covered Entity, when conducting a 

suitability analysis for elective 

professional clients, to make certain 

assumptions,421 while the Exchange Act 

permits a similar mechanism only for 

institutional counterparties, the 

Commission believes that French and 

EU suitability requirements are 

comparable only with respect to per se 

professional clients.422 Accordingly, the 

Commission is retaining the condition 

requiring the Covered Entity’s 

counterparty to be a per se professional 

client and is not expanding that 

condition to permit Covered Entities to 

apply substituted compliance for 

Exchange Act suitability requirements 

when its counterparty is an elective 

professional client. 

5. Fair and Balanced Communications 

The Commission is issuing the fair 

and balanced communications section 

of the Order largely as proposed, except 

for two changes.423 First, the 

Commission believes that French and 

EU fair and balanced communications 

requirements are more comparable to 

Exchange Act requirements when 

considering three additional EU 

requirements: MAR article 20(1) would 

require the Covered Entity to present 

recommendations in a manner that 

ensures the information is objectively 

presented and to disclose interests and 

conflicts of interest concerning the 

financial instruments to which the 

information relates. MAR Investment 

Recommendations Regulation article 3 

would require a Covered Entity to 

communicate only recommendations 

that present facts in a way that they are 

clearly distinguished from 

interpretations, estimates, opinions and 

other types of non-factual information; 

label clearly and prominently 

projections, forecasts and price targets; 

indicate the relevant material 

assumptions and substantial material 

sources of information; and include 

only reliable information or a clear 

indication when there is doubt about 

reliability. MAR Investment 

Recommendations Regulation article 4 

would require the Covered Entity to 

provide in its recommendation 

additional information about the factual 

basis of its recommendation. 

Accordingly, the Commission is adding 

these three requirements to the Order’s 

list of French and EU fair and balanced 

communications requirements that the 

Covered Entity must be subject to and 

comply with.424 Second, the proposed 

Order would have required the Covered 

Entity to be subject to and comply with 

MAR Investment Recommendations 

Regulation article 5,425 which relates to 

obligations to disclose conflicts of 

interest. As discussed above, the 

Commission is requiring Covered 


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426SIFMA Letter II at Appendix A. 

427See EMIR RTS article 13(2). 

428See para. (e)(6) of the Order. 

429French Substituted Compliance Notice and 

Proposed Order, 81 FR at 85730. 

430SIFMA Letter II at Appendix A. 

431 Id. 

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

433See 17 CFR 240.18a–5. The French 

Authorities’ Application discusses EU and French 

requirements that address firms’ record creation 

obligations related to matters such as financial 

condition, operations, transactions, counterparties 

and their property, personnel and business conduct. 

See French Authorities’ Application Annex I 

category 2 at 2–42. 

434See 17 CFR 240.18a–6. The French 

Authorities’ Application discusses EU and French 

requirements that address firms’ record 

preservation obligations related to records that 

firms are required to create, as well as additional 

records such as records of communications. See 

French Authorities’ Application Annex I category 2 

at 43–81. 

435See 17 CFR 240.18a–7. The French 

Authorities’ Application discusses EU and French 

requirements that address firms’ obligations to 

make certain reports. See French Authorities’ 

Application Annex I category 2 at 82–95, 98–104. 

436See 17 CFR 240.18a–8. The French 

Authorities’ Application discusses EU and French 

requirements that address firms’ obligations to 

make certain notifications. See French Authorities’ 

Application Annex I category 2 at 95–98. 

437See 17 CFR 240.18a–9. The French 

Authorities’ Application discusses EU and French 

requirements that address firms’ obligations to 

perform securities counts. See French Authorities’ 

Application Annex I category 2 at 32–38. 

438See 15 U.S.C. 78o–10(g). The French 

Authorities’ Application discusses EU and French 

requirements that address firms’ record 

preservation obligations related to records that 

firms are required to create, as well as additional 

records such as records of communications. See 

French Authorities’ Application Annex I category 2 

at 43–81. 

439Rule 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 

Entities to comply with this requirement 

and with MAR Investment 

Recommendations Regulation article 6 

when using substituted compliance for 

disclosure of material incentives and 

conflicts of interest requirements. 

Accordingly, the Commission believes 

that MAR Investment Recommendations 

Regulation article 5 is less relevant to 

comparability of fair and balanced 

communications requirements and is 

deleting the reference to it in relation to 

substituted compliance for fair and 

balanced communications. 

The Commission did not receive 

comments on the fair and balanced 

communications requirements of the 

counterparty protection section of the 

proposed Order. 

6. Daily Mark Disclosure 

A commenter requested that the 

Commission not require a Covered 

Entity to be subject to and comply with 

EMIR article 11(2), stating that it ‘‘is not 

related to portfolio reconciliation’’, but, 

rather, ‘‘concerns the daily mark-tomarket or mark-to-model of 

contracts.’’ 426 The commenter is correct 

that EMIR article 11(2) would require 

the Covered Entity to mark-to-market or 

mark-to-model its non-centrally cleared 

contracts. Other French portfolio 

reconciliation requirements contemplate 

that counterparties will use this 

valuation as an input to the 

reconciliation process. For example, a 

portfolio reconciliation must include at 

least the valuation attributed to each 

contract in accordance with EMIR 

article 11(2).427 As EMIR article 11(2) 

sets the standards under which a 

Covered Entity must calculate this key 

input in the portfolio reconciliation 

process, the Commission has 

determined that this provision is related 

to portfolio reconciliation and 

accordingly is retaining the Order’s 

reference to it.428

7. Clearing Rights Disclosure 

In the proposed Order, the 

Commission preliminarily determined 

that French and EU requirements are 

not comparable to Exchange Act 

clearing rights disclosure requirements 

and proposed not to make a positive 

substituted compliance determination 

with respect to those requirements.429

Because French and EU clearing 

provisions do not require disclosure of 

a counterparty’s clearing rights under 

Exchange Act section 3C(g)(5), the 

Commission views those provisions as 

not comparable to Exchange Act 

clearing rights disclosure requirements. 

Commenters did not address this 

conclusion and, consistent with the 

proposed Order, the Commission is not 

providing substituted compliance. 

8. Clarifications Related to Conditions 

A commenter asked the Commission 

to revise the Order to follow the 

approach in the UK Proposed Order, in 

which the Commission clarified that a 

Covered Entity may apply substituted 

compliance for Exchange Act rule 

15Fh–3(f)’s suitability requirements to 

‘‘one or more recommendations of a 

security-based swap or trading strategy 

involving a security-based swap’’ 

subject to those Exchange Act suitability 

requirements.430 The commenter 

proposed adding this same text to the 

Order.431 The UK Proposed Order 

contains similar text with respect to 

substituted compliance for the other 

counterparty protection requirements. 

Because the counterparty protection 

requirements are transaction-level 

requirements, a Covered Entity may 

decide to apply substituted compliance 

for those requirements to some of its 

security-based swap business and 

decide to comply directly with the 

Exchange Act (or to comply with 

another suitable substituted compliance 

order) for other parts of its securitybased swap business. The Commission 

agrees that the commenter’s requested 

change would help to clarify that 

substituted compliance for suitability is 

available for one or more of a Covered 

Entity’s recommendations and also 

believes that similar changes to the 

other counterparty protection sections 

of the Order, consistent with the UK 

Proposed Order, would clarify those 

sections of the Order as well. 

Accordingly, the Commission is 

modifying each paragraph of the 

counterparty protection section of the 

Order to clarify that substituted 

compliance for counterparty protection 

requirements is available for one or 

more of a Covered Entity’s relevant 

activities.432

VIII. Substituted Compliance for 

Recordkeeping, Reporting, Notification, 

and Securities Count Requirements 

A. Proposed Approach 

The French Authorities’ Application 

in part requested substituted 

compliance for requirements applicable 

to SBS Entities under the Exchange Act 

relating to: 

• Record Making—Exchange Act rule 

18a–5 requires prescribed records to be 

made and kept current.433

• Record Preservation—Exchange Act 

rule 18a–6 requires preservation of 

records.434

• Reporting—Exchange Act rule 18a– 

7 requires certain reports.435

• Notification—Exchange Act rule 

18a–8 requires notification to the 

Commission when certain financial or 

operational problems occur.436

• Securities Count—Exchange Act 

rule 18a–9 requires non-prudentially 

regulated security-based swap dealers to 

perform a quarterly securities count.437

• Daily Trading Records. Exchange 

Act section 15F(g) requires SBS Entities 

to maintain daily trading records.438

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.439


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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.’’ 

440See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85731–34. 

441See Reopening Release, 86 FR at 18347–48. 

442 Id. The Commission directed commenters to 

the UK Substituted Compliance Notice and 

Proposed Order to indicate how the approaches 

discussed above would be implemented in ordering 

language. See also UK Substituted Compliance 

Notice and Proposed Order, 86 FR at 18394–404, 

18415–20. 

443See SIFMA Letter II at 17–18 and Appendix 

A. 

444See SIFMA Letter I at 2–4. 

445See SIFMA Letter I at 8–9. 

446See Reopening Release, 86 FR at 18347–48. 

447See, e.g., Exchange Act Release No. 71958 

(Apr. 17, 2014), 79 FR 25194, 25199–200 (May 2, 

2014). 

448See Reopening Release, 86 FR 18347. The 

Commission directed commenters to the UK 

Substituted Compliance Notice and Proposed Order 

to indicate how this approach would be 

implemented in ordering language. See also UK 

Substituted Compliance Notice and Proposed 

Order, 86 FR at 18396–404, 18415–18. 

449See SIFMA Letter II at 17–18. 

450See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85731–34; Reopening 

Release, 86 FR at 18347–48. 

451See Reopening Release, 86 FR at 18347–48 

(discussing this limitation). The Commission 

Continued 

In proposing to provide conditional 

substituted compliance in connection 

with this part of the French Authorities’ 

Application, the Commission 

preliminarily concluded that the 

relevant EU and French requirements, 

subject to conditions and limitations, 

would produce regulatory outcomes that 

are comparable to the outcomes 

associated with the vast majority of the 

recordkeeping, reporting, notification, 

and securities count requirements under 

the Exchange Act applicable to SBS 

Entities pursuant to Exchange Act rules 

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

and Exchange Act section 15F(g) 

(collectively, the ‘‘Exchange Act 

Recordkeeping and Reporting 

Requirements’’).440

In the Reopening Release, the 

Commission sought comment on 

whether the structure of the substituted 

compliance determinations with respect 

to Exchange Act rules 18a–5, 18a–6, 

18a–7, 18a–8, and 18a–9 as well as 

Exchange Act Section 15F(g) should 

permit a covered entity to apply 

substituted compliance with respect to 

certain of these rules (e.g., Exchange Act 

rules 18a–5 and 18a–6) and comply 

with the Exchange Act requirements of 

the remaining rules and statute (i.e., 

Exchange Act rules 18a–7, 18a–8, and 

18a–9, as well as Exchange Act Section 

15F(g)).441 Moreover, the Commission 

sought comment on whether the 

structure of the substituted compliance 

determinations with respect to the 

recordkeeping rules should provide 

Covered Entities with greater flexibility 

to select distinct requirements within 

the broader rules for which they want to 

apply substituted compliance.442

B. Commenter Views and Final 

Provisions 

1. General Considerations 

The Commission received comments 

addressing the proposed conditional 

substituted compliance determinations 

for the Exchange Act Recordkeeping and 

Reporting Requirements, including with 

respect to the potential approaches for 

which comment was sought in the 

Reopening Release.443 The comments 

and the Commission’s response to them 

are discussed below. 

The Commission received comment 

requesting the elimination of references 

to EU or French requirements that do 

not apply to third-country branches or 

that apply to multiple countries’ 

branches of an SBS Entity.444 The same 

commenter suggested as another 

possible solution that SBS Entities be 

permitted to elect to comply directly 

with U.S. law instead of EU or French 

requirements.445 Accordingly, in the 

Reopening Release, the Commission 

solicited comment on whether to 

structure its preliminary substituted 

compliance determinations for 

Exchange Act rules 18a–5, 18a–6, 18a– 

7, and 18a–8 to provide Covered Entities 

with greater flexibility to select which 

distinct requirements within the broader 

rules for which they want to apply 

substituted compliance.446 This 

flexibility was intended to permit 

Covered Entities to leverage existing 

recordkeeping and reporting systems 

that are designed to comply with the 

broker-dealer recordkeeping and 

reporting requirements on which the 

recordkeeping and reporting 

requirements applicable to SBS Entities 

are based. For example, it may be more 

efficient for a Covered Entity to comply 

with certain Exchange Act requirements 

within a given recordkeeping or 

reporting rule (rather than apply 

substituted compliance) because it can 

utilize systems that its affiliated brokerdealer has implemented to comply with 

them. 

As applied to Exchange Act rules 

18a–5 and 18a–6, this approach of 

providing greater flexibility resulted in 

preliminary substituted compliance 

determinations with respect to the 

different categories of records these 

rules require SBS Entities to make, keep 

current, and/or preserve. The objectives 

of these rules—taken as a whole—is to 

assist the Commission in monitoring 

and examining for compliance with 

Exchange Act requirements applicable 

to SBS Entities as well as to promote the 

prudent operation of these firms.447 The 

Commission preliminarily found that 

the comparable EU and French 

recordkeeping rules achieve these 

outcomes with respect to compliance 

with EU and French requirements for 

which positive substituted compliance 

determinations were made (e.g., capital 

and margin requirements). At the same 

time, the recordkeeping rules address 

different categories of records through 

distinct requirements within the rules. 

Each requirement with respect to a 

specific category of records (e.g., 

paragraph (a)(2) of Exchange Act rule 

18a–5 addressing ledgers (or other 

records) reflecting all assets and 

liabilities, income and expense and 

capital accounts) can be viewed in 

isolation as a distinct recordkeeping 

rule. Therefore, the Commission 

solicited comment on whether it would 

be appropriate to make substituted 

compliance determinations at this level 

of Exchange Act rules 18a–5 and 18a– 

6.448

A commenter generally supported the 

Commission’s proposed granular 

approach to making substituted 

compliance determinations.449 The 

Order takes this granular approach. 

The Commission’s substituted 

compliance determinations for the 

Exchange Act Recordkeeping and 

Reporting Requirements were subject to 

the condition that the Covered Entity is 

subject to and complies with the 

relevant EU and French laws.450

Further, the Commission proposed or 

solicited comment on limitations and 

additional conditions for certain of the 

proposed substituted compliance 

determinations. The limitations and 

conditions are discussed below as well 

any comments on them and the 

Commission’s response to those 

comments. 

First, the Commission solicited 

comment on not making a positive 

substituted compliance determination 

with respect to a discrete provision of 

the Exchange Act Recordkeeping and 

Reporting Requirements if it was fully 

or partially linked to a substantive 

Exchange Act requirement for which 

substituted compliance was not 

available or for which a positive 

substituted compliance determination 

was not being made.451 The 


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directed commenters to the UK Substituted 

Compliance Notice and Proposed Order to indicate 

how this approach would be implemented in 

ordering language. See also UK Substituted 

Compliance Notice and Proposed Order, 86 FR at 

18395, 18415–20. 452See SIFMA Letter II at 18. 453See para. (f)(2)(i)(L) of the Order. 454See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85734 (discussing 

this condition). 

455See Reopening Release, 86 FR at 18348 

(discussing this condition). The Commission 

directed commenters to the UK Substituted 

Compliance Notice and Proposed Order to indicate 

how this approach would be implemented in 

ordering language. See also UK Substituted 

Compliance Notice and Proposed Order, 86 FR 

18395, 18415–20. 

456See para. (f)(3)(i)(D) of the Order. 

457See UK Substituted Compliance Notice and 

Proposed Order, 86 FR at 18399, 18417. The 

Commission sought comment in the Reopening 

Release on whether this approach should be taken 

in the final Order. See Reopening Release, 86 FR at 

18348. 

458See Reopening Release, 86 FR at 18348 

(discussing this condition). The Commission 

directed commenters to the UK Substituted 

Compliance Notice and Proposed Order to indicate 

how this approach would be implemented in 

ordering language. See also UK Substituted 

Compliance Notice and Proposed Order, 86 FR 

18395, 18415–20. 

459The Commission included the Rule 18a–1 

condition in the UK Substituted Compliance Notice 

and Proposed Order as part of the substituted 

compliance determination for the daily trading 

records requirement of Exchange Act section 15F(g). 

UK Substituted Compliance Notice and Proposed 

Order, 86 FR at 18420. A commenter asked that the 

condition be modified so that it applies only if the 

Covered Entity is not prudentially regulated (and 

therefore subject to Rule 18a–1). SIFMA UK Letter 

at 23. Instead, the Commission has determined to 

delete this condition from the substituted 

compliance determination with respect to Exchange 

Act section 15F(g) generally because the 

requirements of Exchange Act section 15 F(g) are 

not important for monitoring or examining for 

Commission linked a requirement in 

Exchange Act rule 18a–5 to Exchange 

Act rule 10b–10. A commenter pointed 

out that Covered Entities will not be 

subject to Exchange Act rule 10b–10.452

The Commission agrees with the 

commenter that there are no provisions 

in the Exchange Act Recordkeeping and 

Reporting Requirements that are linked 

to Exchange Act rule 10b–10. 

Consequently, the Order does not 

contain this exclusion. 

Aside from this modification, the 

Order does not extend substituted 

compliance to discrete Exchange Act 

Recordkeeping and Reporting 

Requirements that are linked to 

substantive Exchange Act requirements 

for which there is no substituted 

compliance. In particular, a positive 

substituted compliance determination is 

not being made, in full or in part, for 

recordkeeping, reporting, or notification 

requirements linked to the following 

Exchange Act rules for which 

substituted compliance is not available 

or a positive substituted compliance 

determination is not being made: (1) 

Exchange Act rule 15Fh–4; (2) Exchange 

Act rule 15Fh–5; (3) Exchange Act rule 

15Fh–6; (4) Exchange Act rule 18a–2; (5) 

Exchange Act rule 18a–4; Exchange Act 

rule 18a–7(i); and (6) Regulation SBSR. 

In addition, Exchange Act rule 18a– 

6(c) in part requires firms to preserve 

Forms SBSE, SBSE–A, SBSE–C, SBSE– 

W, all amendments to these forms, and 

all other licenses or other 

documentation showing the firm’s 

registration with any securities 

regulatory authority or the U.S. 

Commodity Futures Trading 

Commission. Because these 

requirements are linked to the 

Commission’s and other U.S. regulators’ 

registration rules, for which substituted 

compliance is not available, the Order 

excludes the requirement to preserve 

these records from the Commission’s 

positive substituted compliance 

determination with respect to Exchange 

Act rule 18a–6(c).453

Second, the Commission did not 

make a positive substituted compliance 

determination with respect to the 

inspection requirement of Exchange Act 

section 15F(f) and the records 

production the requirement of Exchange 

Act rule 18a–6(g).454 The Commission 

did not receive comment on this 

approach and the Order does not extend 

substituted compliance to these 

requirements. 

Third, the Commission solicited 

comment on conditioning substituted 

compliance with discrete provisions of 

the Exchange Act Recordkeeping and 

Reporting Requirements that were fully 

or partially linked to a substantive 

Exchange Act requirement for which 

substituted compliance was available on 

the Covered Entity applying substituted 

compliance with respect to the linked 

Exchange Act requirement.455 In 

particular, substituted compliance for a 

provision of the Exchange Act 

Recordkeeping and Reporting 

Requirements that is linked to the 

following Exchange Act rules is 

conditioned on the SBS Entity applying 

substituted compliance to the linked 

substantive Exchange Act rule: (1) 

Exchange Act rule 15Fh–3; (2) Exchange 

Act rule 15Fi–2; (3) Exchange Act rule 

15Fi–3; (4) Exchange Act rule 15Fi–4; 

(5) Exchange Act rule 15Fi–5; (6) 

Exchange Act rule 15Fk–1; (7) Exchange 

Act rule 18a–1 (‘‘Rule 18a–1 

Condition’’); (8) Exchange Act rule 18a– 

3; (8) Exchange Act rule 18a–5; and (9) 

Exchange Act rule 18a–7. The 

Commission did not receive comment 

on this approach and is adopting it in 

the Order. The only difference is that 

the positive substituted compliance 

determination for Exchange Act rule 

18a 6(b)(1)(viii) is now conditioned on 

the Covered Entity applying substituted 

compliance for the requirements of 

Exchange Act rule 18a–7(a)(1), (b), (c) 

through (h), and Exchange Act rule 18a– 

7(j) as applied to these requirements, 

rather than on the entirety of Exchange 

Act rule 18a–7, to reflect that 

substituted compliance with respect to 

Exchange Act rule 18a–7 is granted on 

a paragraph-by-paragraph basis and not 

all paragraphs of Exchange Act rule 

18a–7 are pertinent to Exchange Act 

rule 18a–6(b)(1)(viii). 

Moreover, for the reasons discussed 

above in part III.B.2.e. of this release, 

substituted compliance with respect to 

paragraphs (a)(1), (b), and (c) through (h) 

of Exchange Act rule 18a–7 is subject to 

the additional condition that the 

Covered Entity applies substituted 

compliance with respect to Exchange 

Act rule 18a–6(b)(1)(viii) (a record 

preservation requirement).456 This 

record preservation requirement is 

directly linked to the financial and 

operational reporting requirements of 

paragraphs (a)(1), (b), and (c) through (h) 

of Exchange Act rule 18a–7. The UK 

Proposed Order conditioned substituted 

compliance with respect to this record 

preservation requirement on the 

Covered Entity applying substituted 

compliance with respect to Exchange 

Act rule 18a–7(a)(1).457 This additional 

condition is designed to provide clarity 

as to the Covered Entity’s obligations 

under this record preservation 

requirement when applying substituted 

compliance with respect to paragraphs 

(a)(1), (b), and (c) through (h) of 

Exchange Act rule 18a–7 pursuant this 

Order. 

Fourth, the Commission conditioned 

substituted compliance with discrete 

provisions of the Exchange Act 

Recordkeeping and Reporting 

Requirements that would be important 

for monitoring or examining compliance 

with the capital rule for nonbank 

security-based swap dealers on the 

Covered Entity applying substituted 

compliance with respect to the capital 

rule (i.e., the Rule 18a–1 Condition).458

The Commission did not receive 

comment on this aspect of the 

Reopening Release and the Order 

includes the Rule 18a–1 condition for 

discrete provisions of the Exchange Act 

Recordkeeping and Reporting 

Requirements that would be important 

for monitoring or examining compliance 

with the capital rule for nonbank 

security-based swap dealers, as 

proposed.459


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compliance with Exchange Act rule 18a–1. 

Therefore, all Covered Entities—whether or not 

subject to Exchange Act rule 18a–1—can apply 

substituted compliance with respect to Exchange 

Act section 15F(g). 460See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85734 (discussing 

this condition). 461See FBF Letter at 2; SIFMA Letter I at 14. 462See SIFMA Letter I at 15; SIFMA Letter II at 

Appendix B. 463See SIFMA Letter I at 15.; SIFMA Letter II at 

Appendix B. See also FBF Letter at 3 (supporting 

the SIFMA Letter I’s observations and 

recommendations that would provide additional 

flexibility for SBS Entities with respect to their 

financial reporting obligations). 

464See SIFMA Letter I at 15–16; SIFMA Letter II 

at Appendix B. See also FBF Letter at 3 (supporting 

the SIFMA Letter I’s observations and 

recommendations that would provide additional 

flexibility for SBS Entities with respect to their 

financial reporting obligations). 

465See AFR Letter at 1. 

466See SIFMA Letter I at 16; SIFMA Letter II at 

Appendix B; FBF Letter at 3. 

467See SIMA Letter II at Appendix B. 468See para. (f)(3)(iii)(C) of the Order. 

Fifth, the proposed Order included a 

condition that Covered Entities must 

promptly furnish to a representative of 

the Commission upon request an 

English translation of any record, report, 

or notification of the Covered Entity that 

is required to be made, preserved, filed, 

or subject to examination pursuant to 

Exchange Act section 15F of this 

Order.460 In response, commenters 

requested that the Commission provide 

a time period for furnishing such 

translations that is commensurate with 

the scope of the Commission’s 

request.461 Records requested by the 

Commission staff must be provided 

promptly. Requests for translations of 

those records may require additional 

time. The facts and circumstances of a 

particular requests (i.e., the volume of 

records requested and the extent to 

which they contain narrative text as 

opposed to figures) will implicate the 

timing of production. Therefore, the 

Commission does not believe it would 

be appropriate to prescribe a timeframe 

for production. The Commission is 

adopting the English translation 

requirement in paragraph (f)(7) of the 

final Order as proposed. 

Sixth, the Commission conditioned 

substituted compliance with Exchange 

Act rule 18a–7 on Covered Entities 

filing periodic unaudited financial and 

operational information with the 

Commission or its designee in the 

manner and format required by 

Commission rule or order. Commenters 

made suggestions about the scope and 

requirements of such a Commission 

order or rule in addition to reiterating 

comments previously made in response 

to the same condition in the German 

order.462 First, if SBS Entities are 

required to prepare FOCUS Report Part 

II, and a positive substituted compliance 

determination is made with respect to 

the Commission’s capital requirements, 

a commenter proposed that the 

Commission permit an SBS Entity to 

submit capital computations in a 

manner consistent with its home 

country capital standards and related 

reporting rules.463 Second, some 

commenters asked that Covered Entities 

be permitted to file their unaudited 

financial information less frequently 

(e.g., quarterly) and provide a later 

submission deadline to match the 

frequency of reporting and reporting 

deadline required by the Covered 

Entity’s home country regulator,464

while other comment urged that 

Covered Entities be subject to monthly 

instead of quarterly reporting of their 

financial condition.465 Third, 

commenters supported a potential 

approach identified by the Commission 

under which Covered Entities would be 

permitted to satisfy their Exchange Act 

rule 18a–7 obligations for a two-year 

period by filing the FOCUS Report Part 

IIC with only a limited number of the 

required line items completed.466

Fourth, the Commission received 

comment recommending that the 

FOCUS Report be modified to omit 

certain line items either permanently or 

during a two-year transition.467 The 

Commission will consider these 

comments as it works towards 

completing a Commission order or rule 

pursuant to the provision in this Order 

that substituted compliance with 

respect to Exchange Act rule 18a–7’s 

FOCUS Report filing requirement is 

conditioned on Covered Entities filing 

unaudited financial and operational 

information in the manner and format 

specified by Commission order or rule. 

The Commission will consider these 

comments as it works towards 

completing a Commission order or rule 

pursuant to the provision in this Order 

that substituted compliance with 

respect to Exchange Act rule 18a–7’s 

FOCUS Report filing requirement is 

conditioned on Covered Entities filing 

unaudited financial and operational 

information in the manner and format 

specified by Commission order or rule. 

Seventh, the Commission’s positive 

substituted compliance determination 

for Exchange Act rule 18a–7 identifies a 

number of conditions regarding the 

requirement to file annual audited 

reports pursuant to Exchange Act rule 

18a–7. The third condition states SBS 

Entities that are not required under 

French or EU laws to file a report of an 

independent public accountant covering 

their financial statements must file such 

an accountant’s report. In its proposal, 

the Commission requested comment on 

whether the independent public 

accountant must meet the Commission’s 

independence standards for public 

accountants. The Commission did not 

receive comment on this point, but to 

ensure that the SBS Entity’s accountant 

is subject to independence standards, 

the Commission is adding to the third 

condition the requirement that the SBS 

Entity’s accountant complies with 

French independence requirements.468

Eighth, in its proposal, the 

Commission requested comment on 

whether there are any French SBS 

Entities that are not expected to be 

exempt from Exchange Act rule 18a–4, 

and therefore should be required to file 

certain supporting schedules under 

Exchange Act rule 18a–7 that relate to 

Exchange Act rule 18a–4. The 

Commission did not receive comment 

on this point, but in case such entities 

exist, paragraph (f)(3)(E) of the Order 

now includes a condition requiring SBS 

Entities to file with the Commission the 

supporting schedules required by 

Exchange Act rule 18a–7(c)(2)(ii) and 

(iii) that relate to Exchange Act rule 

18a–4 (i.e., Computation for 

Determination of Security-Based Swap 

Customer Reserve Requirements and 

Information Relating to the Possession 

or Control Requirements for SecurityBased Swap Customers) if the SBS 

Entity is not exempt from Exchange Act 

rule 18a–4. Substituted compliance is 

not available for Exchange Act rule 18a– 

4 and, therefore, this condition is 

designed to provide the Commission 

with similar compliance information. 

The Commission also received 

comment suggesting certain 

modifications to the ordering language. 

Specifically, a commenter suggested 

revising paragraph (f)(4) of the French 

Substituted Compliance Notice and 

Proposed Order, which requires a 

Covered Entity to send a copy of any 

notice required to be sent by EU and 

French laws cited in paragraph (f)(4) 

simultaneously to the Commission. The 

commenter recommended revising this 

provision to require the notices that a 

Covered Entity would be required to 

send to the Commission be limited to 

those notices required by EU and 

French law that are comparable to 

Exchange Act rule 18a–8(d) instead of 

the entirety of Exchange Act rule 18a– 

8. Furthermore, the commenter 

recommended conditioning the 

requirement to provide these notices to 

the Commission to be limited to those 

notifications that are related to (1) a 

breach of the EU and French laws cited 

in the relevant portions of paragraphs 


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469See SIFMA Letter II at Appendix A. 

470See Exchange Act rule 18a–8, 17 CFR 240.18a– 

8. 

471See SIFMA Letter II at Appendix A. 472See paras. (f)(2)(i)(H)(1), (f)(3)(i)(A), and 

(f)(3)(ii)(A) of the Order. 473See SIFMA Letter II at Appendix A. See also 

SIFMA Letter I at 4–7; FBF Letter at 2–3. 

474See paras. (f)(1)(i)(D)(1), (f)(1)(i)(G)(1), 

(f)(1)(i)(I)(1), (f)(2)(i)(A), (f)(2)(i)(B), and (f)(2)(i)(D) 

of the Order. 

(f)(1) or (2) of the Order, which, in the 

case of a Covered Entity that is 

prudentially regulated, also relates to 

the Covered Entity’s business as a 

security-based swap dealer or major 

security-based swap participant, or (2) a 

deficiency relating to capital 

requirements.469 The commenter 

reasoned that the provisions of EU and 

French law requiring notification 

contained in paragraph (f)(4) require 

notification of a far wider array of 

matters than those described in 

Exchange Act rule 18a–8. The 

Commission disagrees. Exchange Act 

rule 18a–8 requires security-based swap 

dealers and major security-based swap 

participants for which there is no 

prudential regulator to notify the 

Commission of a failure to meet 

minimum net capital. Exchange Act rule 

18a–8 also specifies several events that 

trigger a requirements that a securitybased swap dealer or major securitybased swap participant for which there 

is no prudential regulator must sent 

notice within twenty-four hours to the 

Commission. These notices are designed 

to provide the Commission with ‘‘early 

warning’’ that the SBS entity may 

experience financial difficulty. 

Furthermore, Exchange Act rule 18a–8 

requires bank security-based swap 

dealers to give notice to the Commission 

when it files an adjustment of its 

reported capital category with its 

prudential regulator. Additional 

notification requirements arise with 

respect to the failure to maintain and 

keep current required books and 

records, the discovery of material 

weaknesses, and failure to make a 

required deposit into the special reserve 

account for the exclusive benefit of 

security-bases swap customers.470 While 

the specific EU and French 

requirements cited with respect to 

Exchange Act rule 18a–8 are different 

from the specific requirements set forth 

in Exchange Act rule 18a–8, the 

Commission believes the EU and French 

notice requirements cited in paragraph 

(f)(4) of the Order provide for 

comparable regulatory outcomes by 

requiring notification of events or 

conditions which may impact an SBS 

Entity’s capital or signal the potential 

for financial difficulty, indicate the 

failure to maintain and keep current 

books and records, or the potential for 

the failure to comply with other 

requirements related to the protection of 

customer assets. The recommended 

revisions would reduce the scope of 

notifications the Commission would 

receive. Consequently, the Commission 

is not making the recommended 

revisions with respect to paragraph 

(f)(4). 

The commenter also recommended 

revising paragraphs (f)(2)(i)(H)(1), 

(f)(3)(i)(A), and (f)(3)(ii)(A) to include 

the qualifier ‘‘as applicable’’ with 

respect to citations to CRR Reporting 

ITS annexes. The commenter stated that 

not all firms submit all of the CRR 

Reporting ITS annexes.471 Accordingly, 

the Commission is modifying these 

paragraphs to include the qualifier ‘‘as 

applicable.’’ 472

2. Citations to EU and French Law 

The Commission also received 

comment recommending changes to the 

French Substituted Compliance Notice 

and Proposed Order to refine the scope 

of French law provisions that would 

operate as conditions to substituted 

compliance.473 The Commission 

reviewed each of the EU or French law 

citations that the commenter 

recommended adding or removing from 

the Order for relevance to the 

comparable Exchange Act requirement 

while also keeping in mind that each EU 

or French law citation was included in 

the French Authorities’ Application 

intentionally. The Commission’s 

conclusion and reasoning with respect 

to the commenter’s recommendations is 

discussed in further detail below. In 

addition to refining the scope of EU and 

French law citations in response to 

comment, the Order reflects changes to 

the EU and French law citations after 

cite checking the EU and French law 

provisions in the French Substituted 

Compliance Notice and Proposed Order 

against the EU and French law 

provisions cited in the French 

Authorities’ Application, as well as the 

UK implementation of the EU law 

provisions cited in the UK Proposed 

Order Granting Substituted Compliance 

in Connection with Certain 

Requirements Applicable to Non-U.S. 

Security-Based Swap Dealers and Major 

Security-Based Swap Participants 

Subject to Regulation in the French 

Republic. 

a. Global 

The commenter recommended 

deleting references to MiFID Org Reg, 

reasoning that these provisions could 

raise issues due to the discrepancy 

between Exchange Act requirements, 

which apply on an entity-level basis, 

and these EU requirements, which are 

territorially limited. As explained in 

part III.C. above, conducting business 

outside France does not preclude a firm 

from relying on substituted compliance 

for the business it conducts within 

France. Accordingly, unless specified 

otherwise below, the Commission is not 

removing references to these EU and 

French law requirements from the 

Order’s list of EU and French law 

requirements comparable to the 

Commission’s recordkeeping, reporting, 

notification, and securities count 

requirements. 

The commenter recommended 

deleting references to MiFID article 

25(2) and MLD articles 11 and 13 and 

their French implementing provisions, 

which relate to customer information 

and suitability requirements, reasoning 

that these provisions do not correspond 

to, and go beyond, the Commission’s 

recordkeeping, reporting, notification, 

and securities count requirements. The 

Commission agrees with the 

commenter’s reasoning, except with 

respect to Exchange Act rule 18a–5(a)(7) 

and (b)(7) (customer account records), 

Exchange Act rule 18a–5(a)(17) and 

(b)(13) (suitability record creation), and 

Exchange Act rule 18a–6 (b)(1)(xii) 

(suitability record preservation). 

Therefore, the Commission is removing 

references to these requirements from 

the Order’s list of EU and French law 

requirements comparable to the 

Commission’s recordkeeping, reporting, 

notification, and securities count 

requirements, except for Exchange Act 

rules 18a–5(a)(7), (a)(17), (b)(7), and 

(b)(13).474

The commenter recommended 

deleting references to MiFID Org Reg 

article 76, MiFID article 16(7) and its 

French implementing provisions, and 

MFC article L. 533–10 III, which relate 

to the recording of telephone and 

electronic communications, reasoning 

that they do not correspond to, and go 

beyond, the requirements of the 

Commission’s recordkeeping, reporting, 

notification, and securities count rules. 

The Commission agrees with the 

commenter’s reasoning, except with 

respect to Exchange Act rules 18a– 

6(b)(1)(iv) and (b)(2)(ii), which relate to 

communications including telephonic 

communications. Therefore, the 

Commission is removing references to 

these requirements from the Order’s list 

of EU and French law requirements 

comparable to the Commission’s 

recordkeeping, reporting, notification, 

and securities count requirements, 


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475See paras. (f)(1)(i)(A)(1), (f)(1)(i)(D)(1), 

(f)(1)(i)(F)(1), (f)(1)(i)(G)(1), (f)(1)(i)(I)(1), (f)(1)(i)(M), 

(f)(2)(i)(A), (f)(2)(i)(B), and (f)(2)(i)(O)(1) of the 

Order. 

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

477See French Authorities’ Application Annex I 

category 2 at 14. 

478See para. (f)(1)(i)(L)(1) of the Order. 

479See paras. (f)(2)(i)(A), (f)(2)(i)(B), (f)(2)(i)(D), 

(f)(2)(i)(F)(1), (f)(2)(i)(G)(1), and (f)(2)(i)(Q) of the 

Order. 

480See para. (f)(2)(i)(P)(1) of the Order. 481See paras. (f)(2)(i)(A), (f)(2)(i)(B), (f)(2)(i)(C)(1), 

(f)(2)(i)(D), (f)(2)(i)(G)(1), (f)(2)(i)(I)(1), and 

(f)(2)(i)(O)(1) of the Order. 482See French Authorities’ Application Annex 1 

category 2 at 16. 

except for Exchange Act rules 18a– 

6(b)(1)(iv) and (b)(2)(ii).475

The commenter recommended 

deleting references to the EBA 

Guidelines on Outsourcing, reasoning 

that they only contain nonbinding 

guidance. The Commission agrees with 

the commenter’s reasoning and is 

therefore removing references to this 

requirement from the Order’s list of EU 

and French law requirements 

comparable to the Commission’s 

recordkeeping, reporting, notification, 

and securities count requirements.476

b. Exchange Act Rules 18a–5 and 18a– 

6 

The commenter recommended 

deleting references to MiFIR article 

25(1), which sets a duration of five years 

for firms to keep relevant data relating 

to orders and transactions in financial 

instruments, reasoning that this does 

not correspond to, and goes beyond, the 

requirements of Exchange Act rules 

18a–5 and 18a–6. With respect to 

Exchange Act rule 18a–6, the five year 

record retention period is directly 

relevant to the record preservation 

requirement in Exchange Act rule 18a– 

6. With respect to Exchange Act rule 

18a–5, while this requirement contains 

a record retention element, it also 

contains a record creation requirement 

that is relevant to Exchange Act rule 

18a–5. Accordingly, the Commission is 

not removing references to this 

requirement from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rules 18a– 

5 and 18a–6. 

The commenter recommended 

deleting references to CRD article 73 

and its French implementing 

provisions, reasoning that it relates to 

substantive capital requirements. CRD 

article 73 requires firms to ‘‘have in 

place sound, effective and 

comprehensive strategies and processes 

to assess and maintain . . . internal 

capital’’ which the French Authorities’ 

Application states in practice will 

require ‘‘the maintenance of full records 

of the Investment Firm’s assets, 

liabilities, income and expense and 

capital accounts to be maintained on an 

on-going basis.’’ 477 Accordingly, the 

Commission is not removing references 

to this requirement from the Order’s list 

of EU and French law requirements 

comparable to Exchange Act rules 18a– 

5 and 18a–6. 

The commenter recommended 

deleting references to MiFID Delegated 

Directive article 2 and its French 

implementing provisions, reasoning that 

they do not relate to recordkeeping. The 

Commission disagrees because MiFID 

Delegated Directive article 2 requires, 

among other things, that firms ‘‘keep 

records and accounts enabling them 

. . . to distinguish assets held for one 

client from assets held for any other 

client and from its other own assets’’ 

which directly implicates record 

creation and preservation. Accordingly, 

the Commission is not removing 

references to these requirements from 

the Order’s list of EU and French law 

requirements comparable to Exchange 

Act rules 18a–5 and 18a–6. 

The commenter recommended 

deleting references to EMIR article 11, 

which relates to timely confirmation of 

transactions, and EMIR article 39, which 

relates to a firm’s requirement to 

segregate the positions they clear for a 

client with a central counterparty from 

their own positions, reasoning that they 

do not correspond to, and go beyond, 

the requirements of Exchange Act rules 

18a–5 and 18a–6. While these 

requirements contain segregation and 

confirmation requirements, they also 

contain record creation requirements 

that are relevant to Exchange Act rule 

18a–5. Accordingly, the Commission is 

not removing references to these 

requirements from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rule 18a– 

5, except with respect to Exchange Act 

rule 18a–5(a)(12) for which the 

Commission agrees with the 

commenter’s reasoning.478 However, the 

Commission agrees these provisions do 

not relate to record preservation is 

removing references to these 

requirements from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rule 18a– 

6.479

The commenter recommended 

deleting references to MiFID articles 

25(5) and 25(6) and their French 

implementing provisions, reasoning that 

they do not correspond to, and go 

beyond, the requirements of Exchange 

Act rules 18a–5 and 18a–6. Both 

provisions contain record creation 

elements, because MiFID article 25(5) 

requires firms to ‘‘establish a record’’ 

setting out the rights and obligations of 

the firm and the client, and MiFID 

article 25(6) requires firms to prepare 

client reports ‘‘in a durable medium.’’ 

Accordingly, the Commission is not 

removing references to these 

requirement from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rule 18a– 

5. However, the Commission agrees that 

these provisions do not relate to record 

preservation and is removing references 

to these requirements from the Order’s 

list of EU and French law requirements 

comparable to Exchange Act rule 18a– 

6,480 except with respect to Exchange 

Act rule 18a–6(d)(4) and (d)(5) which 

implicates record creation in addition to 

record preservation.481

The commenter recommended 

deleting references to CRR articles 103, 

105(3), and 105(10), which relate to the 

firm’s management of trading book 

exposures, reasoning that they do not 

correspond to, and go beyond, the 

requirements of Exchange Act rules 

18a–5 and 18a–6. However, the French 

Authorities’ Application states that 

these requirements in practice require 

firms to have ‘‘a record of their long and 

short positions to enable these to be 

monitored’’ which is relevant to 

Exchange Act rules 18a–5 and 18a–6.482

Accordingly, the Commission is not 

removing references to these 

requirements from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rules 18a– 

5 and 18a–6. 

The commenter recommended 

deleting references to MiFID article 

16(6) and its French implementing 

provisions, reasoning that they do not 

correspond to, and go beyond, the 

requirements of Exchange Act rules 

18a–5 and 18a–6. MiFID article 16(6) 

requires firms to ‘‘arrange for records to 

be kept of all services, activities and 

transactions undertaken by it’’ which is 

relevant to record creation and 

preservation. Accordingly, the 

Commission is not removing references 

to these requirements from the Order’s 

list of EU and French law requirements 

comparable to Exchange Act rules 18a– 

5 and 18a–6. 

The commenter recommended 

deleting references to CRR article 

104(1)(j) from the Order, reasoning that 

the provision does not exist. The 

Commission confirmed with the French 

Authorities that references to CRR 

article 104(1)(j) were intended to 

reference CRD article 104(1)(j). 

However, CRD article 104(1)(j) relates to 


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483See paras. (f)(2)(i)(E)(1) and (f)(2)(i)(H)(1) of 

the Order. 

484See paras. (f)(2)(i)(A), (f)(2)(i)(B), (f)(2)(i)(D), 

and (f)(2)(i)(G)(1) of the Order. 

485See paras. (f)(1)(i)(A)(1), (f)(1)(i)(B)(1), 

(f)(1)(i)(D)(1), (f)(1)(i)(F)(1), (f)(1)(i)(G)(1), 

(f)(1)(i)(H)(1), (f)(1)(i)(I)(1), (f)(1)(i)(K), (f)(1)(i)(N)(1), 

(f)(1)(i)(O)(1), (f)(2)(i)(C)(1), (f)(2)(i)(D), (f)(2)(i)(E)(1), 

and (f)(2)(i)(H)(1) of the Order. 

486See paras. (f)(2)(i)(I)(1) and (f)(2)(i)(J)(1) of the 

Order. 

487See para. (f)(1)(i)(K) of the Order. 

488See French Authorities’ Application Annex I 

category 2 at 51–52. 

489See paras. (f)(2)(i)(F) and (f)(2)(i)(K)(1) of the 

Order. 

supervisory power of authorities to 

impose additional reporting 

requirements which the Commission 

believes does not correspond to, and 

goes beyond the requirements of 

Exchange Act rule 18a–6. Therefore, 

references in the Order to CRD article 

104(1)(j) and its French implementing 

provisions are not included.483

The commenter recommended 

deleting references to MiFID Org Reg 

article 59, which sets out the 

requirement to confirm execution of an 

order to the client, reasoning that it does 

not correspond to, and goes beyond, the 

requirements of Exchange Act rules 

18a–5 and 18a–6. MiFID Org Reg article 

59 identifies specific data elements that 

are relevant to the records required to be 

created under Exchange Act rule 18a–5, 

so the Commission is not removing 

references to this requirement from the 

Order’s list of EU and French law 

requirements comparable to Exchange 

Act rule 18a–5. However, the 

Commission believes that MiFID Org 

Reg article 59 relates to record creation 

but not record preservation and is 

therefore removing references to this 

requirement from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rule 18a– 

6.484

The commenter recommended adding 

to paragraphs (f)(1) and (f)(2) of the 

Order references to Internal Control 

Order articles 85, 86, 92, and 93, which 

impose audit trail requirements. The 

Commission agrees these requirements 

are relevant because they relate to 

record creation and preservation, and is 

therefore adding them to the Order’s list 

of EU and French requirements 

comparable to Exchange Act rules 18a– 

5 and 18a–6.485

The commenter recommended 

deleting from paragraphs (f)(2)(i)(A) and 

(f)(2)(i)(B) of the Order references to 

MiFID article 69(2) and its French 

implementing provisions, because these 

provisions relate to the powers of the 

competent authorities rather than the 

obligations of the entity. The 

Commission disagrees, because a 

regulator can only ‘‘have access to any 

document or data . . . relevant for the 

performance of its duties’’ as required 

by MiFID article 69(2) if firms are 

required to preserve these documents 

and data. Accordingly, the Commission 

is not removing references to these 

requirements from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rule 18a– 

6(a)(1), (a)(2), (b)(1)(i), and (b)(2)(i). 

The commenter recommended adding 

to paragraphs (f)(2)(I)(1) and (f)(2)(J)(1) 

of the Order references to Internal 

Control Order articles 94 through 96 and 

99 through 102, which require firms to 

implement risk analysis, measurement 

and management systems. The 

Commission agrees these requirements 

are relevant because these systems in 

practice will require preservation of risk 

management and counterparty credit 

risk records, and is therefore adding 

them to the Order’s list of EU and 

French requirements comparable to 

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

(b)(1)(x).486

The commenter recommended 

replacing in paragraph (f)(1)(i)(K) of the 

Order references to MiFID Org Reg 

article 21(1)(a) with references to MiFID 

Org Reg article 21(1)(d) due to an 

incorrect reference in the French 

Authorities’ Application with respect to 

Exchange Act rule 18a–5(a)(10) and 

(b)(8). The Commission agrees with the 

commenter’s reasoning and is therefore 

replacing references to MiFID Org Reg 

article 21(1)(a) with references to MiFID 

Org Reg article 21(1)(d) in the Order’s 

list of EU and French law requirements 

comparable to Exchange Act rule 18a– 

5(a)(10) and (b)(8).487

The commenter recommended 

replacing in paragraphs (f)(1)(i)(N)(1) 

and (f)(1)(i)(O)(1) of the Order references 

to EMIR RTS article 15(1) with EMIR 

RTS article 15(1)(a) with respect to 

Exchange Act rule 18a–5(a)(18) and 

(b)(14) because the remainder of article 

15(1) does not include a record creation 

requirement. The Commission agrees 

with the commenter’s reasoning and is 

therefore replacing references to EMIR 

RTS article 15(1) with EMIR RTS article 

15(1)(a) in the Order’s list of EU and 

French law requirements comparable to 

Exchange Act rule 18a–5(a)(18) and 

(b)(14). 

The commenter recommended 

deleting from paragraph (f)(2)(E)(1) of 

the Order references to CRR and CRR 

Reporting ITS, which relate to 

supervisory reports to be made, 

reasoning that they do not correspond 

to, and go beyond, the requirements of 

Exchange Act rule 18a–6(b)(1)(v). 

Although these laws relate to reporting 

requirements, the information required 

to be included in these reports is 

relevant to the records required by 

Exchange Act rule 18a–6(b)(1)(v). In 

addition, the French Authorities’ 

Application specifically cites these 

requirements as comparable to 

Exchange Act rule 18a–6(b)(1)(v).488

Accordingly, the Commission is not 

removing references to this requirement 

from the Order’s list of EU and French 

law requirements comparable to 

Exchange Act rule 18a–6(b)(1)(v). 

The commenter recommended adding 

to paragraphs (f)(2)(i)(F) and 

(f)(2)(i)(K)(1) of the Order a reference to 

MFC article L. 561–12 with respect to 

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

(b)(2)(iii) (records of discretionary 

authority for security-based swap 

accounts) and (b)(1)(xii) and (b)(2)(vii) 

(business conduct records). The 

Commission agrees this provision is 

relevant because it requires firms to 

keep documents relating to business 

relationships and customers for 5 years 

after an account is closed. Therefore, the 

Commission is adding MFC article L. 

561–12 to the Order’s list of EU and 

French requirements comparable to 

Exchange Act rules 18a–6(b)(1)(vi), 

(b)(1)(xii), (b)(2)(iii), and (b)(2)(vii).489

The commenter recommended 

deleting from paragraph (f)(2)(i)(I)(1) of 

the Order references to CRR articles 286 

and 293(1)(d), which relate to the use of 

internal models for credit risk, 

reasoning that they do not correspond 

to, and go beyond, the requirements of 

Exchange Act rule 18a–6(b)(1)(ix). The 

‘‘policies, processes and systems’’ (with 

respect to CRR article 286) and 

‘‘adequate resources [ ] devoted to credit 

and counterparty risk control’’ (with 

respect to CRR article 293(1)(d)) in 

practice require firms to maintain 

records relevant to Exchange Act rule 

18a–6(b)(1)(ix). Accordingly, the 

Commission is not removing references 

to these requirements from the Order’s 

list of EU and French law requirements 

comparable to Exchange Act rule 18a– 

6(b)(1)(ix). 

The commenter recommended 

deleting from paragraph (f)(2)(i)(I)(1) of 

the Order references to EMIR RTS, 

reasoning that referencing an entire law 

without referencing a specific provision 

does not correspond to, and goes 

beyond, the requirements of Exchange 

Act rule 18a–6(b)(1)(ix). This provision 

is cited by the French Authorities’ 

Application as directly relevant because 

it requires firms to have ‘‘formalised 

processes’’ ‘‘to measure, monitor and 

mitigate operational risk and 


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490See French Authorities’ Application Annex I 

category 2 at 60. 491See French Authorities’ Application Annex I 

category 2 at 58–59. 492See paras. (f)(2)(i)(L) and (f)(2)(i)(O)(1) of the 

Order. 

493See paras. (f)(3)(i)(A) and (f)(3)(ii)(A) of the 

Order. 

494See French Authorities’ Application Annex I 

Category 2 at 91–93. 

495See para. (f)(3)(ii)(A) of the Order. 

496See para. (f)(3)(ii)(A) of the Order. 

497See French Authorities’ Application Annex I 

at 93–94. 

498See para. (f)(3)(iii) of the Order. 

counterparty credit risk,’’ 490 which is 

relevant to Exchange Act rule 18a– 

6(b)(1)(ix). Accordingly, the 

Commission is not removing references 

to this requirement from the Order’s list 

of EU and French law requirements 

comparable to Exchange Act rule 18a– 

6(b)(1)(ix). 

The commenter recommended 

removing from paragraph (f)(2)(i)(I)(1) of 

the Order the reference to CRD articles 

75 through 87 and their French 

implementing provisions, reasoning that 

these provisions cover various capital 

matters that do not correspond to, and 

go beyond, the requirements of 

Exchange Act rule 18a–6(b)(1)(ix). The 

Commission disagrees, because these 

provisions are cited in the French 

Authorities’ Application as directly 

relevant due to the ‘‘risk management 

arrangements, policies and procedures 

required to be implemented’’ under 

these provisions.491 Accordingly, the 

Commission is not removing references 

to these requirements from the Order’s 

list of EU and French law requirements 

comparable to Exchange Act rule 18a– 

6(b)(1)(ix). 

The commenter recommended 

deleting from paragraphs (f)(1)(i)(K) and 

(f)(2)(i)(M) of the Order (employment 

application record creation and 

preservation) references to MiFID 

articles 9(1) and 16(3) and their French 

implementing provisions, reasoning that 

these provisions do not relate to 

recordkeeping. Both provisions require 

recordkeeping in practice through their 

requirements to monitor conflicts of 

interest. Accordingly, the Commission 

is not removing references to these 

requirements from the Order’s list of EU 

and French law requirements 

comparable to Exchange Act rule 18a– 

5(a)(10) and (b)(8) and Exchange Act 

rule 18a–6(d)(1). 

The commenter recommended adding 

to paragraphs (f)(2)(i)(L) and (f)(2)(i)(O) 

of the Order the reference to MiFID Org 

Reg article 21(1)(f) with respect to 

Exchange Act rules 18a–6(c) 

(organizational records) and (d)(3) 

(compliance records). The Commission 

agrees this provision is relevant because 

it requires firms to ‘‘maintain adequate 

and orderly records of their business 

and internal organization.’’ Therefore, 

the Commission is adding MiFID Org 

Reg article 21(1)(f) of the Order’s list of 

EU and French requirements 

comparable to Exchange Act rule 18a– 

6(c) and (d)(3).492

c. Exchange Act Rule 18a–7 

The commenter recommended 

deleting from paragraphs (f)(3)(i)(A) and 

(f)(3)(ii)(A) references to CRD article 

104(1)(j) relating to supervisory power 

of authorities to impose additional 

reporting requirements, reasoning that 

this provision does not correspond to, 

and goes beyond the requirements of 

Exchange Act rule 18a–7(a)(1) and 

(a)(2), and (a)(3). The Commission 

agrees. Accordingly, the Commission is 

removing references to these 

requirements and references to related 

implementing regulations MFC article L. 

612–24 and Decree of 20 February 2007 

relating to prudential requirements 

article 6 from the Order’s list of EU and 

French law requirements comparable to 

Exchange Act rule 18a–7(a)(1) and 

(a)(2).493

The commenter recommended 

deleting from paragraph (f)(3)(ii)(A) 

references to CRR articles 431 through 

455 relating to public disclosures, 

reasoning that such provisions do not 

relate to regulatory reporting. However, 

the French Authorities’ Application 

cites CRR articles 431, 433, 452, 454, 

and 455 as requiring, among other 

things, firms to make ‘‘Pillar III’ 

disclosures which include information 

on the use of capital models and matters 

such as credit risk, the exposure values 

by class of exposures subject to 

evaluation using models, and internal 

controls on the development and use of 

models.494 This information is relevant 

to Rule 18a–7(a)(3) and 18a–7(j). 

Accordingly, the Commission is 

removing references to CRR articles 431 

through 455 except for CRR articles 431, 

433, 452, 454, and 455 in the Order’s list 

of EU and French law requirements 

comparable to Exchange Act rule 18a– 

7(a)(3) and 18a–7(j).495

The commenter recommended 

deleting from paragraph (f)(3)(ii)(A) 

references to Accounting Directive 

article 34, French Commerce Code 

articles L. 232–1, R. 232–1 through R. 

232–8, and L. 823–1 through L. 823–8– 

1, relating to general publication 

requirements for financial statements, 

and to the appointment of external 

financial auditors. The commenter 

reasoned that these provisions do not 

correspond to, and go beyond, the 

requirements of Exchange Act rule 18a– 

7(a)(3) and 18a–7(j). The Commission 

agrees. Accordingly, the Commission is 

removing references to these EU and 

French law requirements in the Order’s 

list of requirements comparable to 

Exchange Act rule 18a–7(a)(3) and 18a– 

7(j).496

The commenter recommended 

deleting from paragraph (f)(3)(iii) 

references to CRR articles 435–436, 441, 

444, and 450 (stating that these 

provisions are not in the UK Proposed 

Order), as well as Accounting Directive 

article 34, and French Commerce Code 

articles L. 232–1, R. 232–1 through R. 

232–8, L. 823–1 through L. 823–8–1. 

The commenter reasoned that these 

provisions do not correspond to, and go 

beyond, the requirement requirements 

of Exchange Act rule 18a–7(b). The 

Commission disagrees. The French 

Authorities’ Application states that 

pursuant to CRR articles 431 to 455, 

CRR firms are required to make ‘‘Pillar 

III’’ public disclosures at least annually 

in connection with the publication, and 

that such disclosures cover a variety of 

matters including, among other things, 

capital resources and capital 

requirements. Furthermore, in 

referencing CRR articles 431 to 455, the 

French Authorities’ Application states 

that the requirements are comparable to 

analogous requirements under relevant 

provisions of Exchange Act rule 18a– 

7(b).497 Accordingly, the references to 

these EU and French law requirements, 

and is instead including references to 

CRR articles 431 to 455 in the Order’s 

list of requirements comparable to 

Exchange Act rule 18a–7(b).498 With 

respect to Accounting Directive article 

34, and French Commerce Code articles 

L. 232–1, R. 232–1 through R. 232–8, L. 

823–1 through L .823–8–1, the 

Commission agrees with the commenter 

regarding references to Accounting 

Directive article 34, but disagrees with 

respect to the references to French 

Commerce Code L. 232–1, R. 232–1 

through R. 232–8, L. 823–1 through L. 

823–8–1. The French Authorities’ 

Application states that credit 

institutions and investment firms must 

have their financial statements audited, 

and must publish their financial 

statements and management report 

annually pursuant to Accounting 

Directive articles 30 and 34. These 

requirements are relevant to Exchange 

Act rule 18a–7(b). Accordingly, the 

Commission is deleting references to 

Accounting Directive article 34, but is 

not deleting reference to French 

Commerce Code L. 232–1, R. 232–1 

through R. 232–8, L. 823–1 through L. 

823–8–1 in the Order’s list of 


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499See para. (f)(3)(iii) of the Order. 

500See para. (f)(3)(iv)(A) of the Order. 

501See French Authorities’ Application Annex I 

categories 2 and 4 at 99–102. 

502See para. (f)(3)(iv)(A). 

503See para. (f)(3)(iv)(A) of the Order. 

504See para. (f)(3)(iv)(A) of the Order. 

505See para. (f)(3)(iv)(A) of the Order. 

506See paras. (f)(4)(i)(A)(1), (f)(4)(i)(B), 

(f)(4)(i)(C)(1), and (f)(4)(i)(D)(1) of the Order. 

507See paras. (f)(4)(i)(A)(1), (f)(4)(i)(B), 

(f)(4)(i)(C)(1), and (f)(4)(i)(D)(1) of the Order. 

requirements comparable to Exchange 

Act rule 18a–7(b).499

The commenter recommended 

deleting references in paragraph 

(f)(3)(iv)(A) references to MiFID Org Reg 

article 72(2) and Annex I, which relate 

to recordkeeping requirements. The 

Commission notes that MiFID Org Reg 

article 72(2) and Annex I are not cited 

in connection with the EU and French 

law requirements in the Order’s list of 

requirements comparable to Exchange 

Act rule 18a–7(b). The commenter also 

recommended deleting reference to CRR 

and CRD articles which set out specific 

capital requirements. With respect to 

CRD article 89, the Commission agrees 

as this provision requires member states 

to impose specified disclosure 

requirements on institutions. 

Accordingly, the Commission is 

deleting reference to this requirement in 

the Order’s list of requirements 

comparable to Exchange Act rule 18a– 

7(c) through (h).500 With respect to the 

cited CRR provisions, the Commission 

disagrees. The French Authorities’ 

Application states that CRR article 26(2) 

relates to the inclusion of a firm’s 

interim or year-end profits in Common 

Equity Tier 1 capital and the associated 

requirement that such profits be verified 

by persons independent of the firm, and 

that CRR articles 132(5) and 154 set 

forth requirements for a firm to engage 

an external auditor to confirm the 

accuracy of information regarding the 

firm’s calculations with respect to 

average risk weights for certain 

exposures which is comparable to the 

requirements under Exchange Act rules 

18a–7(c)(1)(i)(C) and 18a–7(d) through 

(g). Furthermore the French Authorities’ 

Application states that, for firms using 

internal models to calculate credit risk, 

operational risk, market risk exposures, 

or market risk capital requirement, CRR 

articles 191, 321, 325bi, and 368 require 

various levels of internal or external 

audit and/or review of the models, 

systems, and/or operations. The French 

Authorities’ application notes where 

investment firm’s rely on a depository 

or management company of a collective 

investment undertaking, CRR articles 

418, 350 and 353 require the investment 

firm to calculate and report own funds 

requirements for the market value of 

haircuts, and position risk with respect 

to positions in specified instruments.501

As a result, the French Authorities’ 

Application states that the EU report 

review requirements provide for 

comparable regulatory outcomes to the 

SEC report review requirements, as both 

regulatory regimes require firms to 

submit reports by independent auditors 

on the firm’s financial and operational 

information in order to ensure the 

accuracy of information and protect 

market participants. The Commission 

believes these provisions are relevant to 

Rule 18a–7(c), (d), (e), (f), (g), and (h). 

Accordingly, the Commission is not 

deleting references to these EU and 

French law in the Order’s list of 

requirements comparable to Exchange 

Act rule 18a–7(c) through (h).502

The commenter recommended 

deleting references to Accounting 

Directive article 34 from paragraph 

(f)(3)(iv)(A), stating that this provision 

sets out accounting and publication 

requirements applicable to corporations 

generally, and is not enforced by the 

ACPR or the AMF, and reasons that the 

provision does not correspond to, and 

goes beyond, the requirements of 

Exchange Act rule 18a–7 (c) through (h). 

The commenter suggests replacing this 

provision instead with MFC articles L. 

511–35 to L. 511–38, setting forth 

accounting and publication obligations 

for credit institutions, and article L. 

533–5 which sets forth accounting and 

publication obligations for investment 

firms. With respect to Accounting 

Directive article 34, the Commission 

agrees. As a result, the Commission is 

deleting reference to Accounting 

Directive article 34 from the Order’s list 

of requirements comparable to Exchange 

Act rule 18a–7(c) through (h).503 With 

respect to the commenter’s 

recommendation regarding MFC articles 

L. 511–35 to L. 511–38, and article L. 

533–5, the Commission agrees and, 

accordingly, is including references to 

these provisions in the Order’s list of 

requirements comparable to Exchange 

Act rule 18a–7(c) through (h).504

The commenter recommended 

deleting references in paragraph 

(f)(3)(iv)(A) to MiFID articles 16(8) 

through (10). The commenter reasoned 

that these provisions contain 

substantive, not reporting requirements, 

and do not correspond to, and go 

beyond, the requirements of Exchange 

Act rules 18a–7(c) through (h). The 

Commission agrees and is not including 

references to these provisions in the 

Order’s list of requirements comparable 

to Exchange Act rules 18a–7(c) through 

(h).505

d. Exchange Act Rule 18a–8 

The commenter recommended 

deleting references MiFID article 73, 

and CRD article 71 (as well as the 

implementing provisions) from 

paragraphs (f)(4)(i)(A)(1), (f)(4)(i)(B), 

(f)(4)(i)(C)(1), and (f)(4)(i)(D)(1), 

reasoning that these provisions do not 

correspond to, and go beyond, the 

requirements of Exchange Act Rule 18a– 

8(a)(1)(i), (a)(1)(ii), (b)(1), (b)(2), (b)(4), 

(c), (d), (e), and (h). The Commission 

agrees with respect to references to 

MiFID article 73 and CRD article 71, but 

disagrees with respect to the 

implementing provisions. The French 

Authorities’ Application cite the 

implementing provisions as providing 

for comparable regulation outcomes to 

the Commission’s notice requirements 

as both regimes aim to establish 

reporting mechanisms so that regulators 

will be promptly notified of relevant 

events. The Commission believes the 

implementing provisions, MFC articles 

L. 511–33II, L. 634–1, and L. 634–2, are 

relevant to the requirements of 

Exchange Act Rule 18a–8(a)(1)(i), 

(a)(1)(ii), (b)(1), (b)(2), (b)(4), (c), (d), (e), 

and (h). Accordingly, the Commission is 

deleting references to MiFID article 73 

and CRD article 71, but is not deleting 

references to the implementing 

regulations MFC articles L. 511–33II, L. 

634–1, and L. 634–2, from the Order’s 

list of requirements comparable to 

Exchange Act rule 18a–8(a)(1)(i), 

(a)(1)(ii), (b)(1), (b)(2), (b)(4), (c), (d), (e), 

and (h).506

The commenter recommended 

including references to Internal Control 

Order 249 and 249–1 in paragraphs 

(f)(4)(i)(A)(1), (f)(4)(i)(B), (f)(4)(i)(C)(1), 

and (f)(4)(i)(D)(1). The Commission 

agrees. Accordingly, the Commission is 

adding references to Internal Control 

Order 249 and 249–1 to the Order’s list 

of requirements comparable to Exchange 

Act rule 18a–8(a)(1)(i), (a)(1)(ii), (b)(1), 

(b)(2), (b)(4), (c), (d), (e), and (h).507

e. Exchange Act Rule 18a–9 

The commenter recommended 

deleting references to MiFID Org Reg 

articles 74 and 75, from paragraph 

(f)(5)(1), reasoning that these provisions 

relate to recordkeeping requirements 

and therefore go beyond the 

requirements of Exchange Act rule 18a– 

9. The Commission agrees. Accordingly, 

the Commission is removing references 

to these requirements from the Order’s 

list of EU and French law requirements 


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508See para. (f)(5)(1) of the Order. 

509See French Substituted Compliance Notice 

and Proposed Order, 85 FR at 85734. 510 Id. at 85734–36. 

comparable to Exchange Act rule 18a– 

9.508

f. Exchange Act Section 15F(g) 

The commenter recommended 

including references to MiFID Org Reg 

articles 21(1)(f), 21(4), and 72(1) in 

paragraph (f)(6). The Commission 

agrees. These provisions require 

investment firms to maintain adequate 

and orderly business and internal 

organization records, have policies and 

procedures in place enabling them to 

deliver to a competent authority in a 

timely manner financial reports 

reflecting a true and fair view of the 

investment firm’s financial position, 

and retain specified records. The 

Commission believes that these 

provisions are relevant to the 

requirements of Exchange Act section 

15F(g). Accordingly, the Commission is 

adding citations to these provisions in 

the Order’s list of requirements 

comparable to Exchange Act section 

15F(g). 

IX. Supervisory and Enforcement 

Considerations 

A. Proposed Approach 

Exchange Act rule 3a71–6(a)(2)(i) 

provides that the Commission’s 

assessments regarding the comparability 

of foreign requirements in part should 

take into account ‘‘the effectiveness of 

the supervisory program administered, 

and the enforcement authority 

exercised’’ by the foreign financial 

regulatory authority. This provision is 

intended to help ensure that substituted 

compliance is not predicated on rules 

that appear high-quality on paper if 

market participants in practice are 

allowed to fall short of their obligations, 

while also recognizing that differences 

among supervisory and enforcement 

regimes should not be assumed to 

reflect flaws in one regime or 

another.509 The French Authorities’ 

Application accordingly included 

information regarding the supervisory 

and enforcement framework applicable 

to derivatives markets and market 

participants in France. 

In proposing to grant substituted 

compliance in connection with the 

French Authorities’ Application, the 

Commission preliminarily concluded 

that the relevant supervisory and 

enforcement considerations were 

consistent with substituted compliance. 

That preliminary conclusion took into 

account information regarding the 

French Authorities’ and the ECB’s roles 

and practices in supervising investment 

firms and credit institutions located in 

France, as well as their enforcementrelated authority and practices.510

B. Commenter Views and Final 

Provisions 

Commenters did not address the 

Commission’s preliminary conclusions 

regarding supervisory and enforcement 

considerations, and the Commission 

continues to conclude that the relevant 

supervisory and enforcement 

considerations in France are consistent 

with substituted compliance. In 

particular, based on the available 

information regarding the French 

Authorities’ and the ECB’s authority and 

practices to oversee market participants’ 

compliance with applicable 

requirements and to take action in the 

event of violations, the Commission 

remains of the view that, consistent 

with rule 3a71–6, comparability 

determinations reflect French and EU 

requirements as they apply in practice. 

To be clear, the supervisory and 

enforcement considerations addressed 

by rule 3a71–6 do not mandate that the 

Commission make judgments regarding 

the comparative merits of U.S. and 

foreign supervisory and enforcement 

frameworks, or to require specific 

findings regarding the supervisory and 

enforcement effectiveness of a foreign 

regime. The rule 3a71–6 considerations 

regarding supervisory and enforcement 

effectiveness instead address whether 

comparability analyses related to 

substituted compliance reflect 

requirements that market participants 

must follow, and for which market 

participants are subject to enforcement 

consequences in the event of violations. 

Those considerations are satisfied here. 

X. Conclusion 

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 of 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 MiFID ‘‘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 MiFID ‘‘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 MiFID 

‘‘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 CRD/CRR 

‘‘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) Counterparties as EMIR 

‘‘counterparties.’’ 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 EMIR, EMIR RTS, EMIR 

Margin RTS, and/or other EU 


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requirements adopted pursuant to those 

provisions, if the relevant provision 

applies only to the Covered Entity’s 

activities with specified types of 

counterparties, and if the counterparty 

to the Covered Entity is not any of the 

specified types of counterparty, the 

Covered Entity complies with the 

applicable condition of this Order: 

(i) As if the counterparty were the 

specified type of counterparty; in this 

regard, if the Covered Entity reasonably 

determines that the counterparty would 

be a financial counterparty if it were 

established in the EU and authorized by 

an appropriate EU authority, it must 

treat the counterparty as if the 

counterparty were a financial 

counterparty; and 

(ii) Without regard to the application 

of EMIR article 13. 

(6) Security-based swap status under 

EMIR. 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 

EMIR and/or other EU requirements 

adopted pursuant to those provisions, 

either: 

(i) The relevant security-based swap is 

an ‘‘OTC derivative’’ or ‘‘OTC derivative 

contract,’’ as defined in EMIR article 

2(7), that has not been cleared by a 

central counterparty and otherwise is 

subject to the provisions of EMIR article 

11, EMIR RTS articles 11 through 15, 

and EMIR Margin RTS article 2; or 

(ii) The relevant security-based swap 

has been cleared by a central 

counterparty that is authorized or 

recognized to clear derivatives contracts 

by a relevant authority in the EU. 

(7) 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. 

(8) Memorandum of Understanding 

Regarding ECB-Owned Information. The 

Commission and the ECB 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. 

(9) 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 

the Commission in the manner specified 

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. 

The notice must also identify each 

specific substituted compliance 

determination within paragraphs (b) 

through (f) of the Order for which the 

Covered Entity intends to apply 

substituted compliance. A Covered 

Entity must promptly provide an 

amended notice if it modifies its 

reliance on the substituted compliance 

determinations in this Order. 

(10) European Union Cross-Border 

Matters. 

(i) If, in relation to a particular service 

provided by a Covered Entity, 

responsibility for ensuring compliance 

with any provision of MiFID or MiFIR 

or any other EU or French requirement 

adopted pursuant to MiFID or MiFIR 

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. 

(ii) If responsibility for ensuring 

compliance with any provision of MAR 

or any other EU requirement adopted 

pursuant to MAR listed in paragraphs 

(b) through (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. 

(11) Notification Requirements 

Related to Changes in Capital. A 

Covered Entity that is prudentially 

regulated relying on this Order must 

apply substituted compliance with 

respect to the requirements of Exchange 

Act rule 18a–8(c) and the requirements 

of Exchange Act rule 18a–8(h) as 

applied to Exchange Act rule 18a–8(c). 

(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 and 

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

L. 533–24 and L. 533–24–1; MiFID Org 

Reg articles 21 through 37, 72 through 

76 and Annex IV; CRD articles 74, 76, 

79 through 87, 88(1), 91(1) and (2), 91(7) 

through (9), 92, 94 and 95; 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 

85, L. 511–89 through L. 511–97, L. 

511–102, R. 511–18–2 and R. 511–16–3; 

Internal Control Order articles 106, 111, 

114–15, 121–22, 130 through 134, 146 

through 186, 211–12, 214–15; CRR 

articles 286 through 288 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 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 

articles 13 and 15; and 

(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 the Covered Entity is subject to and 

complies with the requirements of EMIR 

article 11(1)(a), EMIR RTS article 12, 

and EMIR Margin RTS article 2. 

(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, and 18a–1a 

through d, provided that: 

(i) The Covered Entity is subject to 

and complies with: CRR, Part One 

(General Provisions) Article 6(1), Part 

Two (Own Funds), Part Three (Capital 

Requirements), Part Four (Large 

Exposures), Part Five (Exposures to 

Transferred Credit Risk), Part Six 

(Liquidity), and Part Seven (Leverage); 

MiFID Org Reg, article 23(1); BRRD, 

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

73, 79, 86, 129, 129(1), 130, 130(1), 

130(5), 131, 133, 133(1), 133(4), 141, 


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142(1) and (2); MFC articles, 511–41–1 

A, L. 511–41–1 B, L. 533–2–1, L. 533– 

2–2, L. 613–44, L. 613–49.I; Decree of 3 

November 2014 on internal control, 

articles 10, 94–197, and 211–230; 

Decree of 3 November 2014 relating to 

capital buffers, articles 2, 16, 23, 56 

through 62; and EMIR Margin RTS, 

articles 2, 3(b), 7, and 19(1)(d) and (e), 

(3), and (8); 

(ii) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act rules 

18a–5(a)(9), 18a–6(b)(1)(x), and 18a– 

8(a)(1)(i), (a)(1)(ii), (b)(1), (b)(2), and 

(b)(4) pursuant to this Order; and 

(iii)(A) The Covered Entity: 

(1) Maintains liquid assets as defined 

in paragraph (c)(1)(iii)(B) that have an 

aggregate market value that exceeds the 

amount of the Covered Entity’s total 

liabilities by at least $100 million before 

applying the deduction specified in 

paragraph (c)(1)(iii)(C) and by at least 

$20 million after applying the deduction 

specified in paragraph (c)(1)(iii)(C); 

(2) Makes and preserves for three 

years a quarterly record that: 

(a) Identifies and values the liquid 

assets maintained pursuant to paragraph 

(c)(1)(iii)(A)(1); 

(b) Compares the amount of the 

aggregate value the liquid assets 

maintained pursuant to paragraph 

(c)(1)(iii)(A)(1) to the amount of the 

Covered Entity’s total liabilities and 

shows the amount of the difference 

between the two amounts (‘‘the excess 

liquid assets amount’’); and 

(c) Shows the amount of the 

deduction specified in paragraph 

(c)(1)(iii)(C) and the amount that 

deduction reduces the excess liquid 

assets amount; 

(3) The Covered Entity notifies the 

Commission in writing within 24 hours 

in the manner specified on the 

Commission’s website if the Covered 

Entity fails to meet the requirements of 

paragraph (c)(iii)(A)(1) and includes in 

the notice the contact information of an 

individual who can provide further 

information about the failure to meet the 

requirements; and 

(4) Includes its most recent statement 

of financial condition filed with its local 

supervisor (whether audited or 

unaudited) with its initial written notice 

to the Commission of its intent to rely 

on substituted compliance under 

condition (a)(9) above. 

(B) For the purposes of paragraph 

(c)(1)(iii)(A)(1), liquid assets are: 

(1) Cash and cash equivalents; 

(2) Collateralized agreements; 

(3) Customer and other trading related 

receivables; 

(4) Trading and financial assets; and 

(5) Initial margin posted by the 

Covered Entity to a counterparty or a 

third-party custodian, provided: 

(a) The initial margin requirement is 

funded by a fully executed written loan 

agreement with an affiliate of the 

Covered Entity; 

(b) The loan agreement provides that 

the lender waives re-payment of the 

loan until the initial margin is returned 

to the Covered Entity; and 

(c) The liability of the Covered Entity 

to the lender can be fully satisfied by 

delivering the collateral serving as 

initial margin to the lender. 

(C) The deduction required by 

paragraph (c)(1)(iii)(A) is the amount of 

the Covered Entity’s risk-weighted 

assets calculated for the purposes of the 

capital requirements identified in 

paragraph (c)(1)(i) divided by 12.5. 

(2) Margin. The requirements of 

Exchange Act section 15F(e) and 

Exchange Act rule 18a–3, provided that: 

(i) 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; 

(ii) The Covered Entity collects 

variation margin, as defined in the EMIR 

Margin RTS, from a counterparty with 

respect to transactions in non-cleared 

security-based swaps, unless the 

counterparty would qualify for an 

exception from the collateral collection 

requirements under paragraph (c)(1)(iii) 

or (c)(2)(iii) of Exchange Act 18a–3; 

(iii) The Covered Entity collects initial 

margin, as defined in the EMIR Margin 

RTS, from a counterparty with respect 

to transactions in non-cleared securitybased swaps, unless the counterparty 

would qualify for an exception from the 

collateral collection requirements under 

paragraph (c)(1)(iii) of Exchange Act 

rule 18a–3; and 

(iv) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act rule 18a– 

5(a)(12) pursuant to this Order. 

(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) of this 

Order; 

(ii) The Covered Entity complies with 

paragraph (d)(4) of 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) of 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 signed by 

the chief compliance officer or senior 

officer (as defined in Exchange Act rule 

15Fk–1(e)(2)) of the Covered Entity that, 

to the best of the certifier’s knowledge 

and reasonable belief and under penalty 

of law, the report is accurate and 

complete in all material respects; 

(C) Address the Covered Entity’s 

compliance with: 

(i) Applicable requirements under the 

Exchange Act; and 

(ii) The other applicable conditions of 

this Order in connection with 

requirements for which the Covered 

Entity is relying on this Order; 

(D) Be provided to the Commission no 

later than 15 days following the earlier 

of: 

(i) The submission of the report to the 

Covered Entity’s management body; or 

(ii) The time the report is required to 

be submitted to the management body; 

and 

(E) Together cover the entire period 

that the Covered Entity’s annual 

compliance report referenced in 

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

Exchange Act rule 15Fk–1(c) would be 

required to cover. 

(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 


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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 through 37, 72 

through 76 and Annex IV; CRD articles 

74, 76, 79 through 87, 88(1), 91(1) and 

(2), 91(7) through (9), 92, 94 and 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 85, 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 CRR 

articles 286–88 and 293; and EMIR 

Margin RTS article 2. 

(4) Additional condition to paragraph 

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

conditioned on the requirement that the 

Covered Entity complies 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 of 

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 one or more securitybased swaps subject thereto, provided 

that the Covered Entity, in relation to 

that security-based swap, is subject to 

and complies with the requirements of 

MiFID article 24(4); MFC L. 533–12.II 

and D. 533–15; and MiFID Org Reg 

articles 48–50. 

(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 one 

or more security-based swaps subject 

thereto, provided that the Covered 

Entity, in relation to that security-based 

swap, is subject to and complies with 

the requirements of either: 

(i) MiFID articles 23(2) and (3); MFC 

L. 533–10.II(3); and MiFID Org Reg 

articles 33 through 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) and MAR 

Investment Recommendations 

Regulation articles 5 and 6. 

(3) ‘‘Know your counterparty.’’ The 

requirements of Exchange Act rule 

15Fh–3(e), as applied to one or more 

security-based swap counterparties 

subject thereto, provided that the 

Covered Entity, in relation to the 

relevant security-based swap 

counterparty, is subject to and complies 

with the requirements of MiFID article 

16(2); MFC L 533–10.II(2); MiFID Org 

Reg articles 21 and 22, 25 and 26 and 

applicable parts of Annex I; CRD articles 

74(1) and 85(1); MFC L. 511–55 and L. 

511–41–1–B; MLD articles 11 and 13; 

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. 

(4) Suitability. The requirements of 

Exchange Act rule 15Fh–3(f), as applied 

to one or more recommendations of a 

security-based swap or trading strategy 

involving a security-based swap subject 

thereto, provided that: 

(i) The Covered Entity, in relation to 

the relevant recommendation, is subject 

to and complies with the requirements 

of MiFID articles 24(2) and (3), and 

25(1) and (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; 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), as applied 

to one or more communications subject 

thereto, 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) and (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) and (5); MFC 

L. 533–12(II) and (III) and D. 533–15; 

MiFID Org Reg articles 46 through 48; 

MAR articles 12(1)(c), 15 and 20(1); and 

MAR Investment Recommendations 

Regulation articles 3 and 4. 

(6) Daily mark disclosure. The 

requirements of Exchange Act rule 

15Fh–3(c), as applied to one or more 

security-based swaps subject thereto, 

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 that apply to a Covered 

Entity related to recordkeeping, 

reporting, notification and securities 

counts: 

(1)(i) Make and keep current certain 

records. The requirements of the 

following provisions of Exchange Act 

rule 18a–5, provided that the Covered 

Entity complies with the relevant 

conditions in this paragraph (f)(1)(i) and 

with the applicable conditions in 

paragraph (f)(1)(ii): 

(A) The requirements of Exchange Act 

rule 18a–5(a)(1) or (b)(1), as applicable, 

provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 74, 75, and 

Annex IV; MiFIR article 25(1); and 

Internal Control Order articles 85, 87, 

92, and 93; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–5(a)(1), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order. 

(B) The requirements of Exchange Act 

rule 18a–5(a)(2), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRD article 73; MiFID Delegated 

Directive article 2; MiFID Org Reg 

articles 72, 74 and 75; EMIR article 

39(4); MFC article L. 511–41–1B; Decree 

of 6 September 2017 article 3; AMF 

General Regulation article 312–6; and 

Internal Control Order articles 85, 87, 

92, and 93; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

(C) The requirements of Exchange Act 

rule 18a–5(a)(3) or (b)(2), as applicable, 

provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Delegated Directive article 2; 

MiFID Org Reg articles 72, 74 and 75; 


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EMIR article 39(4); Decree of 6 

September 2017 article 3; and AMF 

General Regulation article 312–6; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–5(a)(3), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(D) The requirements of Exchange Act 

rule 18a–5(a)(4) or (b)(3), as applicable, 

provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRR article 103; MiFID articles 16(6), 

25(5), and 25(6); MiFID Org Reg articles 

59, 74, 75 and Annex IV; MiFIR article 

25(1); EMIR articles 9(2) and 11(1)(a); 

MFC article L. 533–10 II, L. 533–14, L. 

533–15; and Internal Control Order 

articles 85, 86, 92, and 93; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–5(a)(4), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(E) The requirements of Exchange Act 

rule 18a–5(b)(4) provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg article 59; EMIR articles 

9(2) and 11(1)(a); MiFID articles 16(6), 

25(5), and 25(6); and MFC articles L. 

533–10 I and II, L. 533–14, and L. 533– 

15; 

(F) The requirements of Exchange Act 

rule 18a–5(a)(5) or (b)(5), as applicable, 

provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 74, 75, and 

Annex IV; MiFIR article 25(1); and 

Internal Control Order articles 85, 86, 

92, and 93; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–5(a)(5), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(G) The requirements of Exchange Act 

rules 18a–5(a)(6) and (a)(15) or (b)(6) 

and (b)(11), as applicable, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 103, 105(3), and 105(10); 

CRD article 73; MiFID articles 16(6), 

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

article 2; MiFID Org Reg articles 59, 74, 

75, and Annex IV; MiFIR article 25(1); 

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

MFC articles L. 511–41–1–B, L. 511–51 

to L. 511–88, L. 533–2–2, L. 533–10 II, 

L. 533–13, L. 533–14, L. 533–15; 

Internal Control Order articles 85, 86, 

92, and 93; Ministerial Order on the 

Supervisory Review and Evaluation 

Process; Decree of 6 September 2017 

article 3; and AMF General Regulation 

article 312–6; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act rule 

15Fi–2 pursuant to this Order; 

(H) The requirements of Exchange Act 

rule 18a–5(a)(7) or (b)(7), as applicable, 

provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFIR article 25(1); MLD4 articles 11 

and 13; MiFID article 25(2); Internal 

Control Order articles 85, 86, 92, and 93; 

and MFC articles L. 533–13, 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; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–5(a)(7), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(I) The requirements of Exchange Act 

rule 18a–5(a)(8), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 103, 105(3), and 105(10); 

MiFID Org Reg articles 59, 74, 75 and 

Annex IV; MiFIR article 25(1); EMIR 

articles 9(2), 11(1)(a), and 39(4); MiFID 

articles 16(6), 25(5), and 25(6); CRD 

article 73; MiFID Delegated Directive 

article 2; MFC articles L. 511–41–1–B, L. 

511–51 through L. 511–88, L. 533–2–2, 

L. 533–10 II, L. 533–13, L .533–14, L. 

533–15; Internal Control Order articles 

85, 86, 92, and 93; Ministerial Order on 

the Supervisory Review and Evaluation 

Process; Decree of 6 September 2017 

article 3; and AMF General Regulation 

article 312–6; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order.; 

(J) The requirements of Exchange Act 

rule 18a–5(a)(9), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRD article 73; MiFID Delegated 

Directive article 2; EMIR article 39(4); 

MiFID Org Reg articles 72, 74, and 75; 

MFC article L. 511–41–1B; Decree of 6 

September 2017 article 3; and AMF 

General Regulation article 312–6; 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

and 

(3) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

5(a)(9) relating to Exchange Act rule 

18a–2; 

(K) The requirements of Exchange Act 

rule 18a–5(a)(10) and (b)(8), provided 

that the Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 21(1)(d), 35; CRD 

articles 88, 91(1), 91(8); MiFID articles 

9(1) and 16(3); MFC articles L. 511–55 

through L. 511–70, L. 511–89 through L. 

511–103, and L. 533–25; and Internal 

Control Order articles 85, 86, 92, and 93; 

(L) The requirements of Exchange Act 

rule 18a–5(a)(12), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 103, 105(3) and 105(10); 

MiFID Org Reg. articles 72, 74 and 75; 

CRD article 73; MiFID Delegated 

Directive article 2; MFC article L. 511– 

41–1B; Decree of 6 September 2017 

article 3; and AMF General Regulation 

article 312–6; 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rule 18a–3 

pursuant to this Order; 

(M) The requirements of Exchange 

Act rule 18a–5(a)(17) and (b)(13), as 

applicable, regarding one or more 

provisions of Exchange Act rules 15Fh– 

3 or 15Fk–1 for which substituted 

compliance is available under this 

Order, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 72, 73, and 

Annex I; MiFID articles 16(6) and 25(2); 

MLD articles 11 and 13; EMIR article 

39(5); and MFC article L. 533–10 II, L. 

533–13, 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, 

and R. 561–19, in each case with respect 

to the relevant security-based swap or 

activity; 

(2) With respect to the portion of 

Exchange Act rule 18a–5(a)(17) and 

(b)(13) that relates to Exchange Act rule 

15Fh–3, the Covered Entity applies 

substituted compliance for such 

business conduct standard(s) of 

Exchange Act rule 15Fh–3 pursuant to 

this Order, as applicable, with respect to 

the relevant security-based swap or 

activity; and 

(3) With respect to the portion of 

Exchange Act rule 18a–5(a)(17) and 

(b)(13) that relates to Exchange Act rule 

15Fk–1, the Covered Entity applies 

substituted compliance for Exchange 


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Act section 15F(k) and Exchange Act 

rule 15Fk–1 pursuant to this Order; 

(N) The requirements of Exchange Act 

rule 18a–5(a)(18)(i) and (ii) or (b)(14)(i) 

and (ii), as applicable, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 11(1)(b) and EMIR RTS 

article 15(1)(a); and 

(2) The Covered Entity applies 

substituted compliance for Exchange 

Act rule 15Fi–3 pursuant to this Order; 

and 

(O) The requirements of Exchange Act 

rule 18a–5(a)(18)(iii) or (b)(14)(iii), as 

applicable, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 11(1)(b) and EMIR RTS 

article 15(1)(a), in each case with 

respect to such security-based swap 

portfolio(s); and 

(2) The Covered Entity applies 

substituted compliance for Exchange 

Act rule 15Fi–4 pursuant to this Order. 

(ii) Paragraph (f)(1)(i) is subject to the 

following further conditions: 

(A) Paragraphs (f)(1)(i)(A) through (D) 

and (H) are subject to the condition that 

the Covered Entity preserves all of the 

data elements necessary to create the 

records required by the applicable 

Exchange Act rules cited in such 

paragraphs and upon request furnishes 

promptly to representatives of the 

Commission the records required by 

those rules; 

(B) A Covered Entity may apply the 

substituted compliance determination 

in paragraph (f)(1)(i)(M) to records of 

compliance with Exchange Act rule 

15Fh–3(b), (c), (e), (f) and (g) in respect 

of one or more security-based swaps or 

activities related to security-based 

swaps; and 

(C) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

5(a)(13), (a)(14), (a)(16), (b)(9), (b)(10) or 

(b)(12). 

(2)(i) Preserve certain records. The 

requirements of the following 

provisions of Exchange Act rule 18a–6, 

provided that the Covered Entity 

complies with the relevant conditions in 

this paragraph (f)(2)(i) and with the 

applicable conditions in paragraph 

(f)(2)(ii): 

(A) The requirements of Exchange Act 

rule 18a–6(a)(1) or (a)(2), as applicable, 

provided that the Covered Entity is 

subject to and complies with the 

requirements of MiFID Org Reg articles 

72, 74, 75, and Annex IV; CRR article 

103; MiFIR article 25(1); EMIR article 

9(2); MiFID articles 16(6) and 69(2); 

CRD article 73; MiFID Delegated 

Directive article 2; MFC articles L. 511– 

41–1B; L. 533–10 II, L. 621–8–4, L. 621– 

9, and L. 621–10; Decree of 6 September 

2017 article 3; and AMF General 

Regulation article 312–6; 

(B) The requirements of Exchange Act 

rule 18a–6(b)(1)(i) or (b)(2)(i), as 

applicable, provided that the Covered 

Entity is subject to and complies with 

the requirements of MiFID Org Reg 

articles 72, 74, 75, and Annex IV; CRR 

article 103; MiFIR article 25(1); EMIR 

article 9(2); MiFID articles 16(6) and 

69(2); CRD article 73; MiFID Delegated 

Directive article 2; MFC articles L. 511– 

41–1B; L. 533–10 II, L. 621–8–4, L. 621– 

9, and L. 621–10; Decree of 6 September 

2017 article 3; and AMF General 

Regulation article 312–6; 

(C) The requirements of Exchange Act 

rule 18a–6(b)(1)(ii) and (iii), provided 

that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 72, 74, and 75; 

EMIR article 9(2); CRD article 73; MiFID 

Delegated Directive article 2; MiFID 

16(6); MFC article L. 511–41–1–B, L. 

511–51 through L. 511–88, L. 533–2–2, 

and L. 533–10 II; Decree of 6 September 

2017 article 3; AMF General Regulation 

article 312–6; Ministerial Order on the 

Supervisory Review and Evaluation 

Process; and Internal Control Order 

articles 85, 86, 92, and 93; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

(D) The requirements of Exchange Act 

rule 18a–6(b)(1)(iv) or (b)(2)(ii), as 

applicable, provided that the Covered 

Entity is subject to and complies with 

the requirements of CRR article 103; 

MiFID Org Reg articles 72, 73, 74, 75, 

76, Annex I and Annex IV; MiFIR article 

25(1); EMIR article 9(2); CRD article 73; 

MiFID articles 16(6), 16(7); MiFID 

Delegated Directive article 2; MFC 

articles L. 511–41–1–B, L. 511–51 to L. 

511–88, L. 533–2–2, L. 533–10 II, L. 

533–10 III, Internal Control Order 

articles 85, 86, 92, and 93; Ministerial 

Order on the Supervisory Review and 

Evaluation Process; Decree of 6 

September 2017 article 3; and AMF 

General Regulation article 312–6; 

(E) The requirements of Exchange Act 

rule 18a–6(b)(1)(v), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); CRR articles 99, 294, 

394, 415, 430 and Part Six: Title II and 

Title III; CRR Reporting ITS article 14 

and annexes I–V and VIII–XIII; MiFID 

Org Reg article 72(1); and Internal 

Control Order articles 85, 86, 92, and 93; 

(2) With respect to the requirements 

of Exchange Act rule 18a–6(b)(1)(v), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant this Order; and 

(3) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

6(b)(1)(v) relating to Exchange Act rule 

18a–2; 

(F) The requirements of Exchange Act 

rule 18a–6(b)(1)(vi) or (b)(2)(iii), as 

applicable, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); MiFID Org Reg 

articles 72(1) and 73; MiFID article 

16(6); and MFC articles L. 533–10 II, L. 

561–12; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–6(b)(1)(vi), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(G) The requirements of Exchange Act 

rule 18a–6(b)(1)(vii) or (b)(2)(iv), as 

applicable, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 72(1) and 73; 

MiFIR article 25(1); EMIR article 9(2); 

MiFID article 16(6); and MFC article L. 

533–10 II; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–6(b)(1)(vii), 

the Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(H) The requirements of Exchange Act 

rule 18a–6(b)(1)(viii), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 99, 294, 394, 415, 430 and 

Part Six: Title II and Title III; CRR 

Reporting ITS article 14 and annexes I– 

V and VIII–XIII, as applicable; MiFID 

Org Reg article 72(1); and Internal 

Control Order articles 85, 86, 92, and 93; 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act rule 18a– 

7(a)(1), (b), (c) through (h), and 

Exchange Act rule 18a–7(j) as applied to 

these requirements pursuant to this 

Order; 

(3) With respect to the requirements 

of Exchange Act rule 18a–6(b)(1)(viii), 

the Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(4) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

6(b)(1)(viii)(L); and 

(5) This Order does not extend to the 

requirements of Exchange Act rule 18a– 


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6(b)(1)(viii)(M) relating to Exchange Act 

rule 18a–2. 

(I) The requirements of Exchange Act 

rule 18a–6(b)(1)(ix), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 22(3)(c), 23, 24, 

25(2), 26, 29(2)(c), 35 and 72(1); CRR 

articles 176, 286 and 293(1)(d); EMIR 

RTS; EMIR article 9(2); MiFID articles 

16(2), 16(3), 16(5), 24(9); MiFID 

Delegated Directive article 11; CRD 

article 73, 75–87; MFC articles L. 511– 

41–1–B, L. 511–51 through L. 511–88, L. 

533–10 I and II, L. 533–2, L. 533–2–2, 

and L. 533–12–4; AMF General 

Regulation articles 314–16, 314–17; 

Ministerial Order on the Supervisory 

Review and Evaluation Process; and 

Internal Control Order articles 94 

through 96 and 99 through 102; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

(J) The requirements of Exchange Act 

rule 18a–6(b)(1)(x), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); MiFID Org Reg article 

72(1); CRD article 73; MiFID article 

16(6); MFC articles L. 511–41–1–B, L. 

511–51 through L. 511–88, L. 533–2–2, 

L. 533–10 II; Ministerial Order on the 

Supervisory Review and Evaluation 

Process; and Internal Control Order 

articles 94 through 96 and 99 through 

102; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

(K) The requirements of Exchange Act 

rule 18a–6(b)(1)(xii) or (b)(2)(vii), as 

applicable, regarding one or more 

provisions of Exchange Act rules 15Fh– 

3 or 15Fk–1 for which substituted 

compliance is available under this 

Order, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); MLD articles 11 and 

13; MiFID Org Reg article 72(1); MiFID 

article 16(6); and MFC articles L. 533– 

10 II, 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, in each case with respect to the 

relevant security-based swap or activity; 

(2) With respect to the portion of 

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

(b)(2)(vii) that relates to Exchange Act 

rule 15Fh–3, the Covered Entity applies 

substituted compliance for such 

business conduct standard(s) of 

Exchange Act rule 15Fh–3 pursuant to 

this Order, as applicable, with respect to 

the relevant security-based swap or 

activity; and 

(3) With respect to the portion of 

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

(b)(2)(vii), as applicable, that relates to 

Exchange Act rule 15Fk–1, the Covered 

Entity applies substituted compliance 

for Exchange Act section 15F(k) and 

Exchange Act rule 15Fk–1 pursuant to 

this Order; 

(L) The requirements of Exchange Act 

rule 18a–6(c), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 21(1)(f) and 

72(1); MiFID article 16(6); and MFC 

article L. 533–10 II; and 

(2) This Order does not extend to the 

requirements of Exchange act rule 18a– 

6(c) relating to Forms SBSE, SBSE–A, 

SBSE–C, SBSE–W, all amendments to 

these forms, and all other licenses or 

other documentation showing the 

registration of the Covered Entity with 

any securities regulatory authority or 

the U.S. Commodity Futures Trading 

Commission; 

(M) The requirements of Exchange 

Act rule 18a–6(d)(1), provided that the 

Covered Entity is subject to and 

complies with the requirements of 

MiFID Org Reg articles 35 and 72(1); 

CRD articles 88, 91(1), 91(8); MiFID 

article 9(1), 16(3), 16(6); and MFC 

articles L. 511–55 through L. 511–70, L. 

511–89 through L. 511–103, L. 533–10 

II, L. 533–25; 

(N) The requirements of Exchange Act 

rule 18a–6(d)(2), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); MiFID Org Reg 

articles 72(1) and 72(3); MiFID article 

16(6); and MFC article L. 533–10 II; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–6(d)(2)(i), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(O) The requirements of Exchange Act 

rule 18a–6(d)(3), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MiFID Org Reg articles 21(1)(f), 72, 73, 

and Annex I; MiFID article 16(6); and 

MFC article L. 533–10 II; and 

(2) With respect to the requirements 

of Exchange Act rule 18a–6(d)(3)(i), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; 

(P) The requirements of Exchange Act 

rule 18a–6(d)(4) and (d)(5), provided 

that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 9(2); MiFID Org Reg 

articles 24, 25(2), 72(1) and 73; MiFID 

articles 16(2), 16(6), and 25(5); and MFC 

articles L. 533–10, L. 533–14; and 

(2) The Covered Entity applies 

substituted compliance for Exchange 

Act rules 15Fi–3, 15Fi–4, and 15Fi–5 

pursuant to this Order; 

(Q) The requirements of Exchange Act 

rule 18a–6(e), provided that the Covered 

Entity is subject to and complies with 

the requirements of MiFID Org Reg 

articles 21(2), 58, 72(1) and 72(3); MiFID 

articles 16(5), 16(6); and MFC articles L. 

533–2, L. 533–10 II; and 

(R) The requirements of Exchange Act 

rule 18a–6(f), provided that the Covered 

Entity is subject to and complies with 

the requirements of MiFID Org Reg 

article 31(1); MiFID article 16(5); and 

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

(ii) Paragraph (f)(2)(i) is subject to the 

following further conditions: 

(A) A Covered Entity may apply the 

substituted compliance determination 

in paragraph (f)(2)(i)(K) to records 

related to Exchange Act rule 15Fh–3(b), 

(c), (e), (f) and (g) in respect of one or 

more security-based swaps or activities 

related to security-based swaps; and 

(B) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

6(b)(1)(xi), (b)(1)(xiii), (b)(2)(v), 

(b)(2)(vi), or (b)(2)(viii). 

(3) File Reports. The requirements of 

the following provisions of Exchange 

Act rule 18a–7, provided that the 

Covered Entity complies with the 

relevant conditions in this paragraph 

(f)(3): 

(i) The requirements of Exchange Act 

rule 18a–7(a)(1) or (a)(2), as applicable, 

and the requirements of Exchange Act 

rule 18a–7(j) as applied to the 

requirements of Exchange Act rule 18a– 

7(a)(1) or (a)(2), as applicable, provided 

that: 

(A) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 99, 394, 430 and Part Six: 

Title II and Title III; CRR Reporting ITS 

annexes I, II, III, IV, V, VIII, IX, X, XI, 

XII and XIII, as applicable; 

(B) 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 


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available or available to be issued 

financial statements in France; 

(C) With respect to the requirements 

of Exchange Act rule 18a–7(a)(1), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act section 15F(e) and 

Exchange Act rules 18a–1 through 18a– 

1d pursuant to this Order; and 

(D) With respect to the requirements 

of Exchange Act rule 18a–7(a)(1), the 

Covered Entity applies substituted 

compliance for the requirements of 

Exchange Act rule 18a–6(b)(1)(viii) 

pursuant to this Order; 

(ii) The requirements of Exchange Act 

rule 18a–7(a)(3) and the requirements of 

Exchange Act rule 18a–7(j) as applied to 

the requirements of paragraph (a)(3) of 

Exchange Act rule 18a–7, provided that: 

(A) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 99, 394, 431, 433, 452, 454, 

and 455; CRR Reporting ITS annexes I, 

II, VIII and IX, as applicable; and 

(B) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

(iii) The requirements of Exchange 

Act rule 18a–7(b), provided that: 

(A) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 431 through 455; MFC 

articles L. 511–35, L. 511–36, L. 511–37, 

R. 511–6; and French Commerce Code 

articles L. 232–1, R. 232–1 through R. 

232–8, L. 823–1 through L. 823–8–1; 

and 

(B) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act rule 18a– 

6(b)(1)(viii) pursuant to this Order. 

(iv) The requirements of Exchange Act 

rule 18a–7(c), (d), (e), (f), (g) and (h) and 

the requirements of Exchange Act rule 

18a–7(j) as applied to the requirements 

of paragraphs (c), (d), (e), (f), (g) and (h) 

of Exchange Act rule 18a–7, provided 

that: 

(A) The Covered Entity is subject to 

and complies with the requirements of 

CRR articles 26(2), 132(5), 154, 191, 321, 

325bi, 350, 353, 368, 418; MFC articles 

L. 511–35, L. 511–36, L. 511–37, L. 511– 

38 or article L. 533–5, as applicable; 

MFC articles R. 511–6, L. 511–45, and 

L. 533–10 II; French Commerce Code 

articles L. 232–1, R. 232–1 through R. 

232–8, L. 823–1 through L. 823–8–1; 

Decree of 6 September 2017 articles 3 

and 10; and AMF General Regulation 

articles 312–6 and 312–7; 

(B) With respect to financial 

statements, the Covered Entity is 

required to file annually with the 

French AMF, including a report of an 

independent public accountant covering 

the financial statements, the Covered 

Entity: 

(1) Simultaneously sends a copy of 

such annual financial statements and 

the report of the independent public 

accountant covering the annual 

financial statements to the Commission 

in the manner specified on the 

Commission’s website; 

(2) Includes with the transmission the 

contact information of an individual 

who can provide further information 

about the financial statements and 

report; 

(3) 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 

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 that the independent public 

accountant uses to perform audit and 

attestation services and the accountant 

complies with French independence 

requirements; 

(4) 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 that the independent public 

accountant uses to perform audit and 

attestation services and the accountant 

complies with French independence 

requirements; 

(5) Includes with the transmission the 

supporting schedules and 

reconciliations, as applicable, required 

by Exchange Act rules 18a–7(c)(2)(ii) 

and (iii), respectively, relating to 

Exchange Act rule 18a–2; and 

(6) Includes with the transmission the 

supporting schedules and 

reconciliations, as applicable, required 

by Exchange Act rules 18a–7(c)(2)(ii) 

and (iii), respectively, relating to 

Exchange Act rules 18a–4 and 18a–4a; 

(C) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

and 

(D) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act rule 18a– 

6(b)(1)(viii) pursuant to this Order. 

(4)(i) Provide Notification. The 

requirements of the following 

provisions of Exchange Act rule 18a–8, 

provided that the Covered Entity 

complies with the relevant conditions in 

this paragraph (f)(4)(i) and with the 

applicable conditions in paragraph 

(f)(4)(ii): 

(A) The requirements of paragraphs 

(a)(1)(i), (a)(1)(ii), (b)(1), (b)(2), and (b)(4) 

of Exchange Act rule 18a–8 and the 

requirements of Exchange Act rule 18a– 

8(h) as applied to the requirements of 

paragraphs (a)(1)(i), (a)(1)(ii), (b)(1), 

(b)(2), and (b)(4) of Exchange Act rule 

18a–8, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

CRR article 366(5); MFC articles L. 511– 

33II, L. 634–1, and L. 634–2; and 

Internal Control Order article 249 and 

249–1; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

(B) The requirements of Exchange Act 

rule 18a–8(c) and the requirements of 

Exchange Act rule 18a–8(h) as applied 

to the requirements of Exchange Act 

rule 18a–8(c), provided that the Covered 

Entity is subject to and complies with 

the requirements of MFC articles L. 

511–33II, L. 634–1, and L. 634–2; and 

Internal Control Order article 249 and 

249–1. 

(C) The requirements of Exchange Act 

rule 18a–8(d) and the requirements of 

Exchange Act rule 18a–8(h) as applied 

to the requirements of Exchange Act 

rule 18a–8(d), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MFC articles L. 511–33II, L. 634–1, and 

L. 634–2; and Internal Control Order 

article 249 and 249–1; and 

(2) This Order does not extend to the 

requirements of Exchange Act rule 18a– 

8(d) to give notice with respect to books 

and records required by Exchange Act 

rule 18a–5 for which the Covered Entity 

does not apply substituted compliance 

pursuant to this Order; 

(D) The requirements of Exchange Act 

rule 18a–8(e) and the requirements of 

Exchange Act rule 18a–8(h) as applied 

to the requirements of Exchange Act 

rule 18a–8(e), provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

MFC articles L. 511–33II, L. 634–1, and 

L. 634–2; and Internal Control Order 

article 249 and 249–1; 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 


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15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order; 

(3) This Order does not extend to the 

requirements of Exchange act rule 18a– 

8(e) relating to Exchange Act rule 18a– 

2 or to the requirements of Exchange 

Act rule 18a–8(h) as applied to the 

requirements of Exchange Act rule 18a– 

8(e) relating to Exchange Act rule 18a– 

2; and 

(4) This Order does not extend to the 

requirements of Exchange act rule 18a– 

8(e) relating to Exchange Act rule 18a– 

4 or to the requirements of Exchange 

Act rule 18a–8(h) as applied to the 

requirements of Exchange Act rule 18a– 

8(e) relating to Exchange Act rule 18a– 

4; 

(ii) Paragraph (f)(4)(i) is subject to the 

following further conditions: 

(A) The Covered Entity: 

(1) Simultaneously sends a copy of 

any notice required to be sent by French 

law cited in this paragraph of the Order 

to the Commission in the manner 

specified on the Commission’s website; 

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; 

(B) This Order does not extend to the 

requirements of paragraphs (a)(2) and 

(b)(3) of Exchange Act rule 18a–8 

relating to Exchange Act rule 18a–2 or 

to the requirements of Exchange Act 

rule 18a–8(h) as applied to the 

requirements of paragraphs (a)(2) and 

(b)(3) of Exchange Act rule 18a–8 

relating to Exchange Act rule 18a–2; and 

(C) This Order does not extend to the 

requirements of paragraph (g) of 

Exchange Act rule 18a–8 or to the 

requirements of Exchange Act rule 18a– 

8(h) as applied to the requirements of 

paragraph (g) of Exchange Act rule 18a– 

8. 

(5) Securities Counts. The 

requirements of Exchange Act rule 18a– 

9, provided that: 

(1) The Covered Entity is subject to 

and complies with the requirements of 

EMIR article 11(1)(b); EMIR RTS articles 

12 and 13; MiFID Delegated Directive 

articles 2 and 8; Decree of 6 September 

2017 articles 3 and 10; and AMF 

General Regulation articles 312–6 and 

312–7; and 

(2) The Covered Entity applies 

substituted compliance for the 

requirements of Exchange Act section 

15F(e) and Exchange Act rules 18a–1 

through 18a–1d pursuant to this Order. 

(6) Daily Trading Records. The 

requirements of Exchange Act section 

15F(g), provided that the Covered Entity 

is subject to and complies with the 

requirements of MFC articles L. 533–10 

II and L. 533–10 III; and MiFID Org Reg 

article 21(1)(f), 21(4), and 72(1). 

(7) Examination and Production of 

Records. Notwithstanding the forgoing 

provisions of paragraph (f) of this Order, 

this Order does not extend to, and 

Covered Entities remain 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. 

(8) English Translations. 

Notwithstanding the forgoing provisions 

of paragraph (f) of this Order, to the 

extent documents are not prepared in 

the English language, Covered Entities 

must promptly furnish to a 

representative of the Commission upon 

request an English translation of any 

record, report, or notification of the 

Covered Entity that is required to be 

made, preserved, filed, or subject to 

examination pursuant to Exchange Act 

section 15F of this Order. 

(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 ACPR 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 its 

program of operations, to provide 

investment services or perform 

investment activities in the French 

Republic, and supervised by the AMF 

under its Tier 1 framework. 

(2) ‘‘MiFID’’ means the ‘‘Markets in 

Financial Instruments Directive,’’ 

Directive 2014/65/EU, as amended from 

time to time. 

(3) ‘‘MFC’’ means France’s ‘‘Code 

mone ́taire et financier,’’ as amended 

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 from time to time. 

(5) ‘‘Prudential Supervision and Risk 

Assessment Order’’ means the French 

ministerial order on prudential 

supervision and risk assessment, as 

amended from time to time. 

(6) ‘‘MiFID Org Reg’’ means 

Commission Delegated Regulation (EU) 

2017/565, as amended from time to 

time. 

(5) ‘‘MiFID Delegated Directive’’ 

means Commission Delegated Directive 

(EU) 2017/593, as amended from time to 

time. 

(6) ‘‘MLD’’ means Directive (EU) 

2015/849, as amended from time to 

time. 

(7) ‘‘MiFIR’’ means Regulation (EU) 

600/2014, as amended from time to 

time. 

(8) ‘‘EMIR’’ means the ‘‘European 

Market Infrastructure Regulation,’’ 

Regulation (EU) 648/2012, as amended 

from time to time. 

(9) ‘‘EMIR RTS’’ means Commission 

Delegated Regulation (EU) 149/2013, as 

amended from time to time. 

(10) ‘‘EMIR Margin RTS’’ means 

Commission Delegated Regulation (EU) 

2016/2251, as amended from time to 

time. 

(11) ‘‘CRR Reporting ITS’’ means 

Commission Implementing Regulation 

(EU) 680/2014, as amended from time to 

time. 

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

EU, as amended from time to time. 

(13) ‘‘CRR’’ means Regulation (EU) 

575/2013, as amended from time to 

time. 

(14) ‘‘MAR’’ means the ‘‘Market 

Abuse Regulation,’’ Regulation (EU) 

596/2014, as amended from time to 

time. 

(15) ‘‘MAR Investment 

Recommendations Regulation’’ means 

Commission Delegated Regulation (EU) 

2016/958, as amended 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 from time to time. 

(20) ‘‘Decree of 6 September 2017’’ 

means France’s Decree number 2017– 

1324 of 6 September 2017, as amended 

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 from time to time. 


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(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 from time to time. 

(23) ‘‘French Commerce Code’’ means 

the French Commercial Code, as 

amended 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 

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, 

as amended from time to time. 

(26) ‘‘BRRD’’ means Bank Recovery 

and Resolution Directive 2014/59/EU of 

the European Parliament and of the 

Council of 15 May 2014, as amended 

from time to time. 

(27) ‘‘Decree of 20 February 2007 

relating to prudential requirements’’ 

means Arreˆte ́ of 20 February 2007 

relating to prudential requirements 

applicable to credit institutions and 

investment firms, as amended from time 

to time. 

By the Commission. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2021–16135 Filed 7–30–21; 8:45 am] 

BILLING CODE 8011–01–P 


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