Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

1

6351-01-P

COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter I

Notice of Proposed Order and Request for Comment on an Application for a 

Capital Comparability Determination Submitted on behalf of Nonbank Swap 

Dealers subject to Capital and Financial Reporting Requirements of the United 

Kingdom and Regulated by the United Kingdom Prudential Regulation Authority

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed order and request for comment.

SUMMARY: The Commodity Futures Trading Commission is soliciting public 

comment on an application submitted by the Institute of International Bankers, 

International Swaps and Derivatives Association, and Securities Industry and Financial 

Markets Association requesting that the Commission determine that the capital and 

financial reporting laws and regulations of the United Kingdom applicable to CFTCregistered swap dealers organized and domiciled in the United Kingdom, which are 

licensed under the United Kingdom Financial Services and Markets Act 2000 as 

investment firms and designated for prudential supervision by the United Kingdom

Prudential Regulation Authority, provide sufficient bases for an affirmative finding of 

comparability with respect to the Commission’s swap dealer capital and financial 

reporting requirements adopted under the Commodity Exchange Act. The Commission is 

also soliciting public comment on a proposed order providing for the conditional 

availability of substituted compliance in connection with the application.

DATES: Comments must be received on or before March 24, 2024.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

2

ADDRESSES: You may submit comments, identified by “UK-PRA Swap Dealer 

Capital Comparability Determination,” by any of the following methods:

• CFTC Comments Portal: https://comments.cftc.gov. Select the “Submit 

Comments” link for this proposed order and follow the instructions on the Public 

Comment Form.

• Mail: Send to Christopher Kirkpatrick, Secretary of the Commission, 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, DC 20581.

• Hand Delivery/Courier: Follow the same instructions as for Mail, above.

Please submit your comments using only one of these methods. To avoid possible delays 

with mail or in-person deliveries, submissions through the CFTC Comments Portal are 

encouraged.

All comments must be submitted in English, or if not, accompanied by an English 

translation. Comments will be posted as received to https://comments.cftc.gov. You 

should submit only information that you wish to make available publicly. If you wish the 

Commission to consider information that you believe is exempt from disclosure under the

Freedom of Information Act (“FOIA”), a petition for confidential treatment of the exempt 

information may be submitted according to the procedures established in Commission 

Regulation 145.9.

1

The Commission reserves the right, but shall have no obligation, to review, prescreen, filter, redact, refuse or remove any or all of your submission from 

 1 17 CFR 145.9. Commission regulations referred to in this release are found at 17 CFR chapter I, and are 

accessible on the Commission’s website:

https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

3 

https://comments.cftc.gov that it may deem to be inappropriate for publication, such as 

obscene language. All submissions that have been redacted or removed that contain 

comments on the merits of the proposed determination and order will be retained in the 

public comment file and will be considered as required under the Administrative 

Procedure Act and other applicable laws, and may be accessible under the FOIA.

FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, 202-418-

5283, aolear@cftc.gov; Thomas Smith, Deputy Director, 202-418-5495, 

tsmith@cftc.gov; Rafael Martinez, Associate Director, 202-418-5462, 

rmartinez@cftc.gov; Liliya Bozhanova, Special Counsel, 202-418-6232, 

lbozhanova@cftc.gov; Joo Hong, Risk Analyst, 202-418-6221, jhong@cftc.gov; Justin 

McPhee, Risk Analyst, 202-418-6223; jmchpee@cftc.gov, Market Participants Division; 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, DC 20581. 

SUPPLEMENTARY INFORMATION: The Commodity Futures Trading 

Commission (“Commission” or “CFTC”) is soliciting public comment on an application 

dated May 4, 2021 (the “UK Application”) submitted by the Institute of International 

Bankers, International Swaps and Derivatives Association, and Securities Industry and 

Financial Markets Association (together, the “Applicants”).

2

 The Applicants request that 

the Commission determine that registered nonbank swap dealers3 (“nonbank SDs”) 

 

2 See Letter dated May 4, 2021 from Stephanie Webster, General Counsel, Institute of International 

Bankers, Steven Kennedy, Global Head of Public Policy, International Swaps and Derivatives Association, 

and Kyle Brandon, Managing Director, Head of Derivatives Policy, Securities Industry and Financial 

Markets Association. The UK Application is available on the Commission’s website at:

https://www.cftc.gov/LawRegulation/DoddFrankAct/CDSCP/index.htm. 

3 As discussed in Section I.A. immediately below, the Commission has the authority to impose capital 

requirements on registered swap dealers (“SDs”) that are not subject to regulation by a U.S. prudential 

regulator (i.e., nonbank SDs).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

4 

organized and domiciled within the United Kingdom (“UK”), which are licensed as 

investment firms and designated for prudential supervision by the UK Prudential 

Regulation Authority (“PRA”) (“PRA-designated UK nonbank SDs”), may satisfy certain 

capital and financial reporting requirements under the Commodity Exchange Act 

(“CEA”)4 by being subject to, and complying with, comparable capital and financial 

reporting requirements under UK laws and regulations.5 The Commission also is 

soliciting public comment on a proposed order under which PRA-designated UK

nonbank SDs would be able, subject to defined conditions, to comply with certain CFTC 

nonbank SD capital and financial reporting requirements in the manner set forth in the 

proposed order. 

I. Introduction

A. Regulatory Background – Swap Dealer and Major Swap Participant Capital 

and Financial Reporting Requirements

Section 4s(e) of the CEA6 directs the Commission and “prudential regulators” 7 to 

impose capital requirements on all SDs and major swap participants (“MSPs”) registered 

 

4 7 U.S.C. 1 et seq. The CEA may be accessed through the Commission’s website at: 

https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm. 

5 The Applicants also requested that the Commission determine that nonbank SDs licensed as investment 

firms and prudentially regulated by the UK Financial Conduct Authority (“FCA”) (“FCA-regulated UK 

nonbank SDs”) may satisfy certain capital and financial reporting requirements under the CEA by being 

subject to, and complying with, comparable capital and financial reporting requirements under UK laws 

and regulations. Due to the differences between the capital and financial reporting regimes applicable to 

PRA-designated UK nonbank SD and FCA-regulated UK nonbank SDs, the Commission anticipates 

assessing the comparability of the rules applicable to FCA-regulated UK nonbank SDs through a separate

capital comparability determination. 

6 7 U.S.C. 6s(e).

7 The term “prudential regulator” is defined in the CEA to mean the Board of Governors of the Federal 

Reserve System (“Federal Reserve Board”); the Office of the Comptroller of the Currency; the Federal 

Deposit Insurance Corporation; the Farm Credit Administration; and the Federal Housing Finance Agency.

See 7 U.S.C. 1a(39).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

5

with the Commission.8

 Section 4s(e) of the CEA also directs the Commission and 

prudential regulators to adopt regulations imposing initial and variation margin 

requirements on swaps entered into by SDs and MSPs that are not cleared by a registered 

derivatives clearing organization (“uncleared swaps”).

Section 4s(e) applies a bifurcated approach with respect to the above 

Congressional directives, requiring each SD and MSP that is subject to the regulation of a 

prudential regulator (“bank SD” and “bank MSP,” respectively) to meet the minimum 

capital requirements and uncleared swaps margin requirements adopted by the applicable 

prudential regulator, and requiring each SD and MSP that is not subject to the regulation 

of a prudential regulator (“nonbank SD” and “nonbank MSP,” respectively) to meet the 

minimum capital requirements and uncleared swaps margin requirements adopted by the 

Commission.9

 Therefore, the Commission’s authority to impose capital requirements and 

margin requirements for uncleared swap transactions extends to nonbank SDs and

nonbank MSPs, including nonbanking subsidiaries of bank holding companies regulated 

by the Federal Reserve Board.10

 8 Subject to certain exceptions, the term “swap dealer” is generally defined as any person that: (i) holds 

itself out as a dealer in swaps; (ii) makes a market in swaps; (iii) regularly enters into swaps with 

counterparties as an ordinary course of business for its own account; or (iv) engages in any activity causing 

the person to be commonly known in the trade as a dealer or market maker in swaps. See 7 U.S.C. 1a(49). 

The term “major swap participant” is generally defined as any person who is not an SD, and: (i) subject to 

certain exclusions, maintains a substantial position in swaps for any of the major swap categories as 

determined by the Commission; (ii) whose outstanding swaps create substantial counterparty exposure that 

could have serious adverse effects on the financial stability of the U.S. banking system or financial 

markets; or (iii) maintains a substantial position in outstanding swaps in any major swap category as 

determined by the Commission. See 7 U.S.C. 1a(33).

9 7 U.S.C. 6s(e)(2).

10 7 U.S.C. 6s(e)(1) and (2).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

6

The prudential regulators implemented Section 4s(e) in 2015 by amending

existing capital requirements applicable to bank SDs and bank MSPs to incorporate swap 

transactions into their respective bank capital frameworks, and by adopting rules 

imposing initial and variation margin requirements on bank SDs and bank MSPs that 

engage in uncleared swap transactions.11 The Commission adopted final rules imposing 

initial and variation margin obligations on nonbank SDs and nonbank MSPs for 

uncleared swap transactions on January 6, 2016.12 The Commission also approved final 

capital requirements for nonbank SDs and nonbank MSPs on July 24, 2020, which were 

published in the Federal Register on September 15, 2020 with a compliance date of 

October 6, 2021 (“CFTC Capital Rules”).

13

Section 4s(f) of the CEA addresses SD and MSP financial reporting 

requirements.14 Section 4s(f) of the CEA authorizes the Commission to adopt rules 

imposing financial condition reporting obligations on all SDs and MSPs (i.e., nonbank 

SDs, nonbank MSPs, bank SDs, and bank MSPs). Specifically, Section 4s(f)(1)(A) of the 

CEA provides, in relevant part, that each registered SD and MSP must make financial 

condition reports as required by regulations adopted by the Commission.15 The 

Commission’s financial reporting obligations were adopted with the Commission’s 

 11 See Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (Nov. 30, 2015).

12 See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 

636 (Jan. 6, 2016).

13 See Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020).

14 7 U.S.C. 6s(f).

15 7 U.S.C. 6s(f)(1)(A).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

7 

nonbank SD and nonbank MSP capital requirements, and have a compliance date of 

October 6, 2021 (“CFTC Financial Reporting Rules”).16

B. Commission Capital Comparability Determinations for Non-U.S. Nonbank

Swap Dealers and Non-U.S. Nonbank Major Swap Participants 

Commission Regulation 23.106 establishes a substituted compliance framework 

whereby the Commission may determine that compliance by a non-U.S. domiciled 

nonbank SD or non-U.S. domiciled nonbank MSP with its home country’s capital and 

financial reporting requirements will satisfy all or parts of the CFTC Capital Rules and all 

or parts of the CFTC Financial Reporting Rules (such a determination referred to as a 

“Capital Comparability Determination”).

17 The availability of such substituted 

compliance is conditioned upon the Commission issuing a determination that the relevant 

foreign jurisdiction’s capital adequacy and financial reporting requirements, and related 

 

16 See 85 FR 57462. 

17 17 CFR 23.106. Commission Regulation 23.106(a)(1) provides that a request for a Capital 

Comparability Determination may be submitted by a non-U.S. nonbank SD or a non-U.S. nonbank MSP, a 

trade association or other similar group on behalf of its SD or MSP members, or a foreign regulatory 

authority that has direct supervisory authority over one or more non-U.S. nonbank SDs or non-U.S. 

nonbank MSPs. In addition, Commission regulations provide that any non-U.S. nonbank SD or non-U.S. 

nonbank MSP that is dually-registered with the Commission as a futures commission merchant (“FCM”) is 

subject to the capital requirements of Commission Regulation 1.17 (17 CFR 1.17) and may not petition the 

Commission for a Capital Comparability Determination. See 17 CFR 23.101(a)(5) and (b)(4), respectively. 

Furthermore, non-U.S. bank SDs and non-U.S. bank MSPs may not petition the Commission for a Capital 

Comparability Determination with respect to their respective financial reporting requirements under

Commission Regulation 23.105(p) (17 CFR 23.105(p)). Commission staff has issued, however, a timelimited no-action letter stating that the Market Participants Division will not recommend enforcement 

action against a non-U.S. bank SD that files with the Commission certain financial information that is 

provided to its home country regulator in lieu of certain financial reports required by Commission

Regulation 23.105(p). See CFTC Staff Letter 21-18, issued on August 31, 2021, and CFTC Staff Letter 23-

11, issued on July 10, 2023 (extending the expiration of CFTC Staff Letter 21-18 until the earlier of 

October 6, 2025 or the adoption of any revised financial reporting requirements applicable to bank SDs 

under Regulation 23.105(p)). On December 15, 2023, the Commission issued for public comment 

proposed amendments to Regulation 23.105(p) addressing the financial reporting requirements applicable 

to bank SDs in a manner consistent with the position taken in CFTC Letters 21-18 and 23-11. See CFTC 

Press Release 8836-23 issued on December 15, 2023, available at cftc.gov. 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

8 

financial recordkeeping requirements, for non-U.S. nonbank SDs and/or non-U.S. 

nonbank MSPs are comparable to the corresponding CFTC Capital Rules and CFTC 

Financial Reporting Rules. The Commission will issue a Capital Comparability 

Determination in the form of a Commission order (“Capital Comparability Determination 

Order”).18

The Commission’s approach for conducting a Capital Comparability 

Determination with respect to the CFTC Capital Rules and the CFTC Financial Reporting 

Rules is a principles-based, holistic approach that focuses on whether the applicable 

foreign jurisdiction’s capital and financial reporting requirements achieve comparable 

outcomes to the corresponding CFTC requirements.19 In this regard, the approach is not 

a line-by-line assessment or comparison of a foreign jurisdiction’s regulatory 

requirements with the Commission’s requirements.20 In performing the analysis, the 

Commission recognizes that jurisdictions may adopt differing approaches to achieving 

comparable outcomes, and the Commission will focus on whether the foreign 

jurisdiction’s capital and financial reporting requirements are comparable to the 

Commission’s in purpose and effect, and not whether they are comparable in every aspect 

or contain identical elements.

A person requesting a Capital Comparability Determination is required to submit 

an application to the Commission containing: (i) a description of the objectives of the 

relevant foreign jurisdiction’s capital adequacy and financial reporting requirements 

 

18 17 CFR 23.106(a)(3).

19 See 85 FR 57462 at 57521.

20 Id. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

9

applicable to entities that are subject to the CFTC Capital Rules and the CFTC Financial 

Reporting Rules; (ii) a description (including specific legal and regulatory provisions) of 

how the relevant foreign jurisdiction’s capital adequacy and financial reporting 

requirements address the elements of the CFTC Capital Rules and CFTC Financial 

Reporting Rules, including, at a minimum, the methodologies for establishing and 

calculating capital adequacy requirements and whether such methodologies comport with 

any international standards; and (iii) a description of the ability of the relevant foreign 

regulatory authority to supervise and enforce compliance with the relevant foreign 

jurisdiction’s capital adequacy and financial reporting requirements. The applicant must 

also submit, upon request, such other information and documentation as the Commission 

deems necessary to evaluate the comparability of the capital adequacy and financial 

reporting requirements of the foreign jurisdiction.21

The Commission may consider all relevant factors in making a Capital 

Comparability Determination, including: (i) the scope and objectives of the relevant 

foreign jurisdiction’s capital and financial reporting requirements; (ii) whether the 

relevant foreign jurisdiction’s capital and financial reporting requirements achieve 

comparable outcomes to the Commission’s corresponding capital requirements and 

financial reporting requirements; (iii) the ability of the relevant foreign regulatory 

authority or authorities to supervise and enforce compliance with the relevant foreign 

jurisdiction’s capital adequacy and financial reporting requirements; and (iv) any other 

facts or circumstances the Commission deems relevant, including whether the 

Commission and foreign regulatory authority or authorities have a memorandum of 

 21 17 CFR 23.106(a)(2).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

10

understanding (“MOU”) or similar arrangement that would facilitate supervisory 

cooperation.

22

In performing the comparability assessment for foreign nonbank SDs, the 

Commission’s review will include the extent to which the foreign jurisdiction’s 

requirements address: (i) the process of establishing minimum capital requirements for 

nonbank SDs and how such process addresses risk, including market risk and credit risk 

of the nonbank SD’s on-balance sheet and off-balance sheet exposures; (ii) the types of 

equity and debt instruments that qualify as regulatory capital in meeting minimum 

requirements; (iii) the financial reports and other financial information submitted by a 

nonbank SD to its relevant regulatory authority and whether such information provides 

the regulatory authority with the means necessary to effectively monitor the financial 

condition of the nonbank SD; and (iv) the regulatory notices and other communications 

between a nonbank SD and its foreign regulatory authority that address potential adverse 

financial or operational issues that may impact the firm. With respect to the ability of the 

relevant foreign regulatory authority to supervise and enforce compliance with the

foreign jurisdiction’s capital adequacy and financial reporting requirements, the 

Commission’s review will include a review of the foreign jurisdiction’s surveillance

program for monitoring nonbank SDs’ compliance with such capital adequacy and 

financial reporting requirements, and the disciplinary process imposed on firms that fail 

to comply with such requirements.

 22 See 17 CFR 23.106(a)(3) and 85 FR 57520-57522.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

11

In performing the comparability assessment for foreign nonbank MSPs,23 the 

Commission’s review will include the extent to which the foreign jurisdiction’s 

requirements address: (i) the process of establishing minimum capital requirements for a 

nonbank MSP and how such process establishes a minimum level of capital to ensure the 

safety and soundness of the nonbank MSP; (ii) the financial reports and other financial 

information submitted by a nonbank MSP to its relevant regulatory authority and whether 

such information provides the regulatory authority with the means necessary to 

effectively monitor the financial condition of the nonbank MSP; and (iii) the regulatory 

notices and other communications between a nonbank MSP and its foreign regulatory 

authority that address potential adverse financial or operational issues that may impact 

the firm. With respect to the ability of the relevant foreign regulatory authority to 

supervise and enforce compliance with the foreign jurisdiction’s capital adequacy and 

financial reporting requirements, the Commission’s review will include a review of the 

foreign jurisdiction’s surveillance program for monitoring nonbank MSPs’ compliance 

with such capital adequacy and financial reporting requirements, and the disciplinary 

process imposed on firms that fail to comply with such requirements.

Commission Regulation 23.106 further provides that the Commission may impose 

any terms or conditions that it deems appropriate in issuing a Capital Comparability 

Determination.

24 Any specific terms or conditions with respect to capital adequacy or 

financial reporting requirements will be set forth in the Commission’s Capital 

Comparability Determination Order. As a general condition to all Capital Comparability 

 23 Commission Regulation 23.101(b) requires a nonbank MSP to maintain positive tangible net worth. 

There are no MSPs currently registered with the Commission. 17 CFR 23.101(b).

24 See 17 CFR 23.106(a)(5).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

12 

Determination Orders, the Commission expects to require notification from applicants of 

any material changes to information submitted by the applicants in support of a 

comparability finding, including, but not limited to, changes in the relevant foreign 

jurisdiction’s supervisory or regulatory regime. 

The Commission’s capital adequacy and financial reporting requirements are 

designed to address and manage risks that arise from a firm’s operation as a SD or MSP. 

Given their functions, both sets of requirements and rules must be applied on an entitylevel basis (meaning that the rules apply on a firm-wide basis, irrespective of the type of 

transactions involved) to effectively address risk to the firm as a whole. Therefore, in 

order to rely on a Capital Comparability Determination, a nonbank SD or nonbank MSP 

domiciled in the foreign jurisdiction and subject to supervision by the relevant regulatory 

authority (or authorities) in the foreign jurisdiction must file a notice with the 

Commission of its intent to comply with the applicable capital adequacy and financial 

reporting requirements of the foreign jurisdiction set forth in the Capital Comparability 

Determination in lieu of all or parts of the CFTC Capital Rules and/or CFTC Financial 

Reporting Rules.25 Notices must be filed electronically with the Commission’s Market 

Participants Division (“MPD”).

26 The filing of a notice by a non-U.S. nonbank SD or 

non-U.S. nonbank MSP provides MPD staff, acting pursuant to authority delegated by 

the Commission,27 with the opportunity to engage with the firm and to obtain 

representations that it is subject to, and complies with, the laws and regulations cited in 

 

25 17 CFR 23.106(a)(4).

26 Notices must be filed in electronic form to the following email address: 

MPDFinancialRequirements@cftc.gov. 

27 See 17 CFR 140.91(a)(11).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

13

the Capital Comparability Determination and that it will comply with any listed 

conditions. MPD will issue a letter under its delegated authority from the Commission 

confirming that the non-U.S. nonbank SD or non-U.S. nonbank MSP may comply with 

foreign laws and regulations cited in the Capital Comparability Determination in lieu of 

complying with the CFTC Capital Rules and the CFTC Financial Reporting Rules upon 

MPD’s determination that the firm is subject to and complies with the applicable foreign 

laws and regulations, is subject to the jurisdiction of the applicable foreign regulatory 

authority (or authorities), and can meet any conditions in the Capital Comparability 

Determination.

Each non-U.S. nonbank SD and/or non-U.S. nonbank MSP that receives, in 

accordance with the applicable Commission Capital Comparability Determination Order,

confirmation from the Commission that it may comply with a foreign jurisdiction’s 

capital adequacy and/or financial reporting requirements will be deemed by the 

Commission to be in compliance with the corresponding CFTC Capital Rules and/or 

CFTC Financial Reporting Rules.

28 Accordingly, if a nonbank SD or a nonbank MSP 

fails to comply with the foreign jurisdiction’s capital adequacy and/or financial reporting 

requirements, the Commission may initiate an action for a violation of the corresponding 

CFTC Capital Rules and or CFTC Financial Reporting Rules.29 In addition, a non-U.S. 

nonbank SD or non-U.S. nonbank MSP that receives confirmation of its ability to use 

substituted compliance remains subject to the Commission’s examination and 

 28 17 CFR 23.106(a)(4).

29 Id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

14

enforcement authority.30 A finding of a violation by a foreign jurisdiction’s regulatory 

authority is not a prerequisite for the exercise of such examination and enforcement 

authority by the Commission.

The Commission will consider an application for a Capital Comparability 

Determination to be a representation by the applicant that the laws and regulations of the 

foreign jurisdiction that are submitted in support of the application are finalized and in 

force, that the description of such laws and regulations is accurate and complete, and that, 

unless otherwise noted, the scope of such laws and regulations encompasses the relevant 

non-U.S. nonbank SDs and/or non-U.S. nonbank MSPs domiciled in the foreign

jurisdiction.31 A non-U.S. nonbank SD or non-U.S. nonbank MSP that is not legally 

required to comply with a foreign jurisdiction’s laws or regulations determined to be 

comparable in a Capital Comparability Determination may not voluntarily comply with 

such laws or regulations in lieu of compliance with the CFTC Capital Rules or the CFTC 

Financial Reporting Rules. Each non-U.S. nonbank SD or non-U.S. nonbank MSP that 

seeks to rely on a Capital Comparability Determination Order is responsible for 

determining whether it is subject to the foreign laws and regulations found comparable in 

the Capital Comparability Determination and the Capital Comparability Determination 

Order.

 30 Id.

31 The Commission has provided the Applicants with an opportunity to review for accuracy and 

completeness, and comment on, the Commission’s description of relevant UK laws and regulations on 

which this proposed Capital Comparability Determination is based. The Commission relies on this review 

and any corrections received from the Applicants in making its proposal. Thus, to the extent that the 

Commission relies on an inaccurate description of foreign laws and regulations submitted by the 

Applicants, the comparability determination may not be valid.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

15

C. Application for a Capital Comparability Determination for PRA-designated 

UK Nonbank Swap Dealers

The Applicants submitted the UK Application requesting that the Commission 

issue a Capital Comparability Determination finding that a PRA-designated UK nonbank 

SD’s compliance with the capital requirements of the UK and the financial reporting 

requirements of the UK, as specified in the UK Application and applicable to PRAdesignated UK nonbank SDs, satisfies corresponding CFTC Capital Rules and the CFTC 

Financial Reporting Rules applicable to a nonbank SD under Sections 4s(e)-(f) of the 

CEA and Commission Regulations 23.101 and 23.105.32 

To be designated for prudential supervision by the PRA, a UK-domiciled 

investment firm must be authorized, or have requested authorization, to deal in 

investments as principal.33 For an investment firm that is authorized, or has requested 

authorization, to deal in investments as principal, the PRA may designate the firm for 

prudential supervision if the PRA determines that the dealing activities of the firm should 

be a PRA-regulated activity. The PRA considers the following in determining whether 

an investment firm should be subject to PRA supervision: (i) the assets of the investment 

firm; and (ii) where the investment firm is a member of a group, (a) the assets of other 

firms within the group that are authorized, or have sought authorization, to deal in 

investments as principal, (b) whether any other member of the group is subject to 

 32 UK Application, p. 1. There are currently no MSPs registered with the Commission, and the Applicants 

have not requested that the Commission issue a Capital Comparability Determination concerning UK

nonbank MSPs. Accordingly, the Commission’s Capital Comparability Determination and proposed 

Capital Comparability Determination Order do not address UK nonbank MSPs.

33 Article 3(1) and (2) of The Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 

2013.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

16 

prudential supervision by the PRA, and (c) whether the investment firm’s activities have, 

or might have, a material impact on the ability of the PRA to advance any of its 

objectives in relation to PRA-authorized person in its group.34 The PRA also must 

consult with the FCA before designating a person for prudential supervision.35 

The PRA also has issued a Statement of Policy providing further detail regarding 

the factors that are considered in assessing an investment firm for prudential 

supervision.36 The factors include: (i) whether the firm’s balance sheet exceeds an 

average of GBP 15 billion total gross assets over four quarters; (ii) where the investment 

firm is part of a group, whether the sum of the balance sheets of all firms within the 

group that are authorized, or have requested authorization, to deal in investments as 

principals exceeds an average of GBP 15 billion over four quarters; and/or (iii) where the 

firm is part of a group subject to PRA supervision, whether the investment firm’s 

revenues, balance sheet and risk taking is significant relative to the group’s revenues, 

balance sheet, and risk-taking.37 There are currently six PRA-designated UK nonbank 

SDs registered with the Commission: Citigroup Global Markets Limited, Goldman Sachs 

International, Merrill Lynch International, Morgan Stanley & Co. International Plc, 

MUFG Securities EMEA Plc, and Nomura International Plc.

 

34 Id., Article 3(4).

35 Id., Article 3(6).

36 See PRA, Statement of Policy, Designation of Investment Firms for Prudential Supervision by the 

Prudential Regulation Authority, December 2021, available here: https://www.bankofengland.co.uk/-

/media/boe/files/prudential-regulation/statement-of-policy/2021/designation-of-investment-firms-forprudential-supervision-by-the-pra-december2021.pdf?la=en&hash=007EB17EDF2FA84714D372095F9E03627355776F. 

37 Id., at p. 5.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

17

The Applicants represent that the capital and financial reporting framework 

applicable to PRA-designated UK nonbank SDs is primarily based on the framework 

established by the European Union’s (“EU”) Capital Requirements Regulation38 and 

Capital Requirements Directive, 39 which set forth capital and financial reporting 

requirements applicable to “credit institutions”40 and “investment firms.”41 CRR, as a 

regulation, is directly applicable in all member states of the EU (“EU Member States”)

and was, therefore, binding law in the UK during the UK’s membership in the EU.42 

CRD, as a directive, was required to be transposed into EU Member States’ national law, 

including UK law.

43 With regard to PRA-designated UK nonbank SDs, the UK 

 38 Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on 

prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (“Capital 

Requirements Regulation” or “CRR”).

39 Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the 

activity of credit institutions and the prudential supervision of credit institutions, amending Directive 

2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (“Capital Requirements Directive” or

“CRD”).

40 The term “credit institution” is defined as an entity whose business consists of taking deposits and other 

repayable funds from the public and granting credits. CRR, Article 4(1), as applicable in the UK. For a 

reference to CRR provisions applicable in the UK, see infra notes 49 and 50. 

41 The term “investment firm” is defined as an entity authorized under Directive 2014/65/EU of the 

European Parliament and of the Council of 15 May 2014 on markets in financial instruments and 

amending Directive 2002/92/EC and Directive 2011/61/EU (“Markets in Financial Instruments Directive” 

or “MiFID”), and whose regular business is the provision of one or more investment services to third 

parties and/or the performance of one or more investment-related activities on a professional basis, which 

includes dealing in derivatives for its own account. CRR, Article 4(1)(2) cross-referencing Article 4(1)(1) 

of MiFID.

42 Consolidated Version of the Treaty on the Functioning of the European Union, OJ (C 326) 171, Oct. 26, 

2012 (“TFEU”), Article 288. 

43 Id., Article 288 (stating that a directive is binding as to the result to be achieved upon each EU Member 

State to which the directive is addressed, and further provides, however, that each EU Member State elects 

the form and method of implementing the directive). In this connection, EU Member States were required 

to implement and start applying amendments to CRD, introduced by Directive (EU) 2019/878 of the 

European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU as regards 

exempted entities, financial holding companies, mixed financial holding companies, remuneration, 

supervisory measures and powers and capital conservation measures (“CRD V”) by December 29, 2020. 

Some CRD V provisions were subject to delayed implementation deadlines of June 28, 2021 and January 1, 

2022. CRD V, Article 2.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

18 

implemented CRD primarily through a series of regulations, including the Capital 

Requirements Regulations 201344 and the Capital Requirements (Capital Buffers and 

Macro-prudential Measures) Regulations 2014,45 and the rules of the PRA.46 

Following the UK’s withdrawal from EU membership (“Brexit”), EU laws that 

were in effect and applicable as of December 31, 2020, were retained in UK law subject 

to certain non-substantive amendments seeking to reflect the UK’s new position outside 

of the EU.47 As such, directly applicable EU law, such as CRR, was converted into 

domestic UK law and UK legislation implementing EU directives, such as CRD, was 

preserved. The UK subsequently adopted additional changes, generally consistent with 

amendments introduced by the EU to CRR, CRD and other relevant EU provisions,48 and 

incorporated certain CRR provisions in the PRA Rulebook.49 The CRR provisions as 

applicable in the UK are referred hereafter as “UK CRR.”50 The UK capital and financial 

 

44 Capital Requirements Regulations 2013, Statutory Instrument 2013 No. 3115 (“Capital Requirements 

Regulations 2013”). 

45 Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014, Statutory 

Instrument 2014 No. 894 (“Capital Requirements (Capital Buffers and Macro-prudential Measures) 

Regulations 2014”). 

46 The PRA’s rules (“PRA Rulebook”) are available here: https://www.prarulebook.co.uk/. 

47 See, An Act to Repeal the European Communities Act 1972 and make other provisions in connection with 

the withdrawal of the United Kingdom from the EU (2018 c.16) (“European Union (Withdrawal) Act 

2018”).

48 See PRA, Policy Statement 21/21 – The UK Leverage Framework, October 2021, available here:

https://www.bankofengland.co.uk/prudential-regulation/publication/2021/june/changes-to-the-uk-leverageratio-framework, and Policy Statement 22/21 – Implementation of Basel standards: Final rules, October 

2021, available here: https://www.bankofengland.co.uk/prudentialregulation/publication/2021/october/implementation-of-basel-standards. 

49 Pursuant to the Financial Services and Markets Act 2023 (“FSMA 2023”), the UK revoked CRR and 

replaced it with: (i) PRA rules adopted under Section 144 of the Financial Services and Markets Act 2000 

(“FSMA”) and (ii) UK regulations, adopted under Section 4 of FSMA 2023, restating CRR provisions. 

50 The UK CRR is available here: https://www.legislation.gov.uk/eur/2013/575/contents. The provisions 

that were incorporated in the PRA Rulebook are no longer part of UK CRR and appear instead in the PRA 

Rulebook. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

19

reporting framework also comprises UK-specific requirements in respect of certain 

matters. Requirements applicable to PRA-designated UK nonbank SDs are included in 

the PRA Rulebook. In addition, Commission Delegated Regulation (EU) 2015/61,

51

which supplements UK CRR with regard to liquidity coverage requirement for credit 

institutions, applies to PRA-designated UK nonbank SDs and imposes separate liquidity 

requirements to these firms.52

The Applicants also represent that in addition to UK CRR and the PRA Rulebook, 

the Banking Act 2009 and its related secondary legislation, through which the UK 

transposed the Bank Recovery and Resolution Directive (“BRRD”), include relevant UK 

capital requirements.53 Specifically, pursuant to the Banking Act 2009 and its secondary 

legislation, the Bank of England, in its role as resolution authority, requires certain 

investment firms, including PRA-designated UK nonbank SDs, to satisfy a firm-specific

minimum requirement for own funds and eligible liabilities (“MREL”).54

UK CRR, Capital Requirements Regulations 2013, Capital Requirements (Capital 

Buffers and Macro-prudential Measures) Regulations 2014, Liquidity Coverage 

 51 Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) No 

575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for 

Credit Institutions (“Liquidity Coverage Delegated Regulation”).

52 See PRA Rulebook, CRR Firms, Liquidity Coverage Requirement – UK Designated Investment Firms 

Part. 

53 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a 

framework for the recovery and resolution of credit institutions and investment firms and amending 

Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 

2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 

648/2012, of the European Parliament and of the Council. See UK Application, p. 7.

54 Banking Act 2009, Section 3A (4) and (4B); Bank Recovery and Resolution (No 2) Order 2014, Statutory 

Instrument No. 3348 (“Bank Recovery and Resolution (No 2) Order 2014”), Part 9. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

20

Delegated Regulation, the Banking Act 2009 and its secondary legislation, and relevant 

parts of the PRA Rulebook are referred to hereafter as the “UK PRA Capital Rules.” 

The Applicants further represent that with respect to supervisory financial 

reporting, the framework applicable to PRA-designated UK nonbank SDs is also based

on the EU requirements. In addition, the framework comprises PRA-specific rules for 

matters not addressed by the EU-based requirements. Specifically, Commission 

Implementing Regulation (EU) 680/2014,55 which was initially retained in UK law

following Brexit, supplemented CRR with implementing technical standards (“CRR 

Reporting ITS”) specifying, among other things, uniform formats and frequencies for the 

financial and capital requirements reporting required under CRR.56 CRR Reporting ITS 

included templates for the common reporting (“COREP”) and the financial reporting 

(“FINREP”) that specify the contents of the EU-based supervisory reporting 

requirements. As part of the regulatory reforms that followed Brexit and sought to 

implement Basel III standards, the PRA incorporated the entire body of the UK version 

of COREP and FINREP requirements into the PRA Rulebook to create a single source 

for reporting requirements for firms.57 For PRA-designated UK nonbank SDs that are 

not subject to the EU-based FINREP requirements, the PRA Rulebook includes PRAspecific requirements.

58

 55 Commission Implementing Regulation (EU) 680/2014 of 16 April 2014 laying down implementing 

technical standards with regard to supervisory reporting of institutions according to Regulation (EU) No 

575/2013 of the European Parliament and of the Council.

56 UK Application, p. 24 and Responses to Staff Questions dated October 5, 2023. 

57 PRA Rulebook, CRR Firms, Reporting (CRR) Part. 

58 PRA Rulebook, CRR Firms, Regulatory Reporting Part.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

21 

The Applicants also represent that the Companies Act 2006 contains provisions 

related to financial reporting, including a mandate that entities of a certain size be 

required to prepare annual audited financial statements and a strategic report.

59 UK 

CRR, relevant provisions of the PRA Rulebook, and relevant provisions of the 

Companies Act 2006, are collectively referred to hereafter as the “UK PRA Financial 

Reporting Rules.” 

The Applicants also note that the U.S. Securities and Exchange Commission 

(“SEC”) has issued orders permitting an SEC-registered nonbank security-based swap 

dealer domiciled in the UK (“UK nonbank SBSD”)60 to satisfy SEC capital61 and 

financial reporting requirements via substituted compliance with applicable UK capital 

and financial reporting.62 The UK Order conditioned substituted compliance for capital 

requirements on a UK nonbank SBSD complying with specified laws and regulations, 

including relevant parts of UK CRR and the PRA Rulebook, and also maintaining total 

 

59 UK Application, p.7. Companies Act 2006, Part 15 and 16. The Companies Act 2006 is available here: 

https://www.legislation.gov.uk/ukpga/2006/46/contents. 

60 All six of the PRA-designated UK nonbank SDs currently registered with the Commission are also UK 

nonbank SBSDs. 

61 Section 15F(e)(1)(B) of the Exchange Act (15 U.S.C. 78o-10) directs the SEC to adopt capital rules for 

security-based swap dealers (“SBSDs”) that do not have a prudential regulator.

62 See 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 United Kingdom, 86 FR 43318 (July 30, 2021) (“Final UK Order”); Amended and 

Restated Order Granting Conditional Substituted Compliance in Connection with Certain Requirements 

Applicable to Non-U.S. Security-Based Swap Dealers and Major Security-Based Swap Participants Subject 

to Regulation in the Federal Republic of Germany; Amended Orders Addressing Non-U.S. Security-Based 

Swap Entities Subject to Regulation in the French Republic or the United Kingdom; and Order Extending 

the Time to Meet Certain Conditions Relating to Capital and Margin, 86 FR 59797 (Oct. 28, 2021) 

(“Amended UK Order,” together with the Final UK Order, “UK Order”); and Order Specifying the Manner 

and Format of Filing Unaudited Financial and Operational Information by Security-Based Swap Dealers 

and Major Security-Based Swap Participants that are not U.S. Persons and are Relying on Substituted 

Compliance with Respect to Rule 18a-7, 86 FR 59208 (Oct. 26, 2021) (“SEC Order on Manner and Format 

of Filing Unaudited Financial and Operational Information”).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

22

liquid assets in an amount that exceeds the UK nonbank SBSD’s total liabilities by at 

least $100 million and by at least $20 million after applying certain deductions to the 

value of the liquid assets to reflect market, credit, and other potential risks to the value of 

the assets.63

II. General Overview of Commission and UK PRA Nonbank Swap Dealer

Capital Rules

A. General Overview of the CFTC Nonbank Swap Dealer Capital Rules

The CFTC Capital Rules provide nonbank SDs with three alternative capital 

approaches: (i) the Tangible Net Worth Capital Approach (“TNW Approach”); (ii) the 

Net Liquid Assets Capital Approach (“NLA Approach”); and (iii) the Bank-Based 

Capital Approach (“Bank-Based Approach”).

64

Nonbank SDs that are “predominantly engaged in non-financial activities” may 

elect the TNW Approach.65 The TNW Approach requires a nonbank SD to maintain a 

level of “tangible net worth”66 equal to or greater than the higher of: (i) $20 million plus 

 63 The conditioning of the UK substituted compliance order on UK nonbank SBSDs maintaining liquid 

assets in an amount that exceeds the UK nonbank SBSD’s total liabilities by at least $100 million and by at 

least $20 million after applying certain deductions to the value of the liquid assets reflects that the SEC’s 

capital rule for nonbank SBSDs is a liquidity-based requirement and that the SEC capital requirements are 

not based on the Basel bank capital standards. See 17 CFR 240.18a-1(a)(1) (requiring a SBSD to maintain, 

in relevant part, net capital of $20 million or, if approved to use capital models, $100 million of tentative 

net capital and $20 million of net capital).

64 17 CFR 23.101.

65 17 CFR 23.101(a)(2). The term “predominantly engaged in non-financial activities” is defined in 

Commission Regulation 23.100 and generally provides that: (i) the nonbank SD’s, or its parent entity’s, 

annual gross financial revenues for either of the previous two completed fiscal years represents less than 15 

percent of the nonbank SD’s or the nonbank SD’s parent’s, annual gross revenues for all operations (i.e.,

commercial and financial) for such years; and (ii) the nonbank SD’s, or its parent entity’s, total financial 

assets at the end of its two most recently completed fiscal years represents less than 15 percent of the 

nonbank SD’s, or its parent’s, total consolidated financial and nonfinancial assets as of the end of such 

years. 17 CFR 23.100.

66 The term “tangible net worth” is defined in Commission Regulation 23.100 and generally means the net 

worth (i.e., assets less liabilities) of a nonbank SD, computed in accordance with applicable accounting 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

23

the amount of the nonbank SD’s “market risk exposure requirement”67 and “credit risk 

exposure requirement”68 associated with the nonbank SD’s swap and related hedge 

positions that are part of the nonbank SD’s swap dealing activities; (ii) 8 percent of the 

nonbank SD’s “uncleared swap margin” amount;69 or (iii) the amount of capital required 

by a registered futures association of which the nonbank SD is a member.70 The TNW 

Approach is intended to ensure the safety and soundness of a qualifying nonbank SD by 

requiring the firm to maintain a minimum level of tangible net worth that is based on the 

 

principles, with assets further reduced by a nonbank SD’s recorded goodwill and other intangible assets. 

17 CFR 23.100.

67 The terms “market risk exposure” and “market risk exposure requirement” are defined in Commission 

Regulation 23.100 and generally mean the risk of loss in a financial position or portfolio of financial 

positions resulting from movements in market prices and other factors. 17 CFR 23.100. Market risk 

exposure is the sum of: (i) general market risks including changes in the market value of a particular asset 

that results from broad market movements, which may include an additive for changes in market value 

under stressed conditions; (ii) specific risk, which includes risks that affect the market value of a specific 

instrument but do not materially alter broad market conditions; (iii) incremental risk, which means the risk 

of loss on a position that could result from the failure of an obligor to make timely payments of principal 

and interest; and (iv) comprehensive risk, which is the measure of all material price risks of one or more 

portfolios of correlation trading positions.

68 The term “credit risk exposure requirement” is defined in Commission Regulation 23.100 and generally 

reflects the amount at risk if a counterparty defaults before the final settlement of a swap transaction’s cash 

flows. 17 CFR 23.100.

69 The term “uncleared swap margin” is defined in Commission Regulation 23.100 to generally mean the 

amount of initial margin that a nonbank SD would be required to collect from each counterparty for each 

outstanding swap position of the nonbank SD. 17 CFR 23.100. A nonbank SD must include all swap 

positions in the calculation of the uncleared swap margin amount, including swaps that are exempt or 

excluded from the scope of the Commission’s uncleared swap margin regulations. A nonbank SD must 

compute the uncleared swap margin amount in accordance with the Commission’s margin rules for 

uncleared swaps. See 17 CFR 23.154.

70 The National Futures Association (“NFA”) is currently the only entity that is a registered futures 

association. The Commission will refer to NFA in this document when referring to the requirements or 

obligations of a registered futures association.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

24

nonbank SD’s swap dealing activities to provide a sufficient level of capital to absorb 

losses resulting from its swap dealing and other business activities.

The TNW approach requires a nonbank SD to compute its market risk exposure 

requirement and credit risk exposure requirement using standardized capital charges set 

forth in SEC Rule 18a-171 that are applicable to entities registered with the SEC as 

SBSDs or standardized capital charges set forth in Commission Regulation 1.17 

applicable to entities registered as FCMs or entities dually-registered as an FCM and 

nonbank SD.72 Nonbank SDs that have received Commission or NFA approval pursuant 

to Commission Regulation 23.102 may use internal models to compute market risk 

and/or credit risk capital charges in lieu of the SEC or CFTC standardized capital 

charges.73

A nonbank SD that elects the NLA Approach is required to maintain “net capital”

in an amount that equals or exceeds the greater of: (i) $20 million; (ii) 2 percent of the 

nonbank SD’s uncleared swap margin amount; or (iii) the amount of capital required by 

NFA.74 The NLA Approach is intended to ensure the safety and soundness of a nonbank 

 71 17 CFR 240.18a-1.

72 17 CFR 23.101(a)(2)(ii)(A).

73 Id.

74 17 CFR 23.101(a)(1)(ii)(A). “Net capital” consists of a nonbank SD’s highly liquid assets (subject to 

haircuts) less all of the firm’s liabilities, excluding certain qualified subordinated debt. See 17 CFR 

240.18a-1 for the calculation of “net capital.”
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

25

SD by requiring the firm to maintain at all times at least one dollar of highly liquid assets 

to cover each dollar of the nonbank SD’s liabilities.

A nonbank SD is required to reduce the value of its highly liquid assets by the 

market risk exposure requirement and/or the credit risk exposure requirement in 

computing its net capital.75 A nonbank SD that does not have Commission or NFA 

approval to use internal models must compute its market risk exposure requirement 

and/or credit risk exposure requirement using the standardized capital charges contained 

in SEC Rule 18a-1 as modified by the Commission’s rule.76

A nonbank SD that has obtained Commission or NFA approval, may use internal 

market risk and/or credit risk models to compute market risk and/or credit risk capital 

charges in lieu of the standardized capital charges.

77 A nonbank SD that is approved to 

use internal market risk and/or credit risk models is further required to maintain a 

minimum of $100 million of “tentative net capital.”78

The Commission’s NLA Approach is consistent with the SEC’s SBSD capital 

rule, and is based on the Commission’s capital rule for FCMs and the SEC’s capital rule 

for securities broker-dealers (“BDs”). The quantitative and qualitative requirements for 

NLA Approach internal market and credit risk models are also consistent with the 

 75 See 17 CFR 240.18a-1(c) and (d).

76 See 17 CFR 23.101(a)(1)(ii).

77 See 17 CFR 23.102.

78 17 CFR 23.101(a)(1)(ii)(A)(1). The term “tentative net capital” is defined in Commission Regulation 

23.101(a)(1)(ii)(A)(1) by reference to SEC Rule 18a-1 and generally means a nonbank SD’s net capital 

prior to deducting market risk and credit risk capital charges.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

26 

quantitative and qualitative requirements of the Commission’s Bank-Based Approach as 

described below.

The Commission’s Bank-Based Approach for computing regulatory capital for 

nonbank SDs is based on certain capital requirements imposed by the Federal Reserve 

Board for bank holding companies.79 The Bank-Based Approach also is consistent with 

the Basel Committee on Banking Supervision’s (“BCBS”) international framework for 

bank capital requirements.80 The Bank-Based Approach requires a nonbank SD to 

maintain regulatory capital equal to or in excess of each of the following requirements: (i) 

$20 million of common equity tier 1 capital; (ii) an aggregate of common equity tier 1 

capital, additional tier 1 capital, and tier 2 capital (including qualifying subordinated 

debt) equal to or greater than 8 percent of the nonbank SD’s risk-weighted assets 

(provided that common equity tier 1 capital comprises at least 6.5 percent of the 8 percent 

minimum requirement); (iii) an aggregate of common equity tier 1 capital, additional tier 

1 capital, and tier 2 capital equal to or greater than 8 percent of the nonbank SD’s 

uncleared swap margin amount; and (iv) an amount of capital required by NFA.81 The 

Bank-Based Approach is intended to ensure that the safety and soundness of a nonbank 

SD by requiring the firm to maintain at all times qualifying capital in an amount 

 

79 See 17 CFR 23.101(a)(1)(i).

80 The BCBS is the primary global standard-setter for the prudential regulation of banks and provides a 

forum for cooperation on banking supervisory matters. Institutions represented on the BCBS include the 

Federal Reserve Board, the European Central Bank, Deutsche Bundesbank, Bank of England, Bank of 

France, Bank of Japan, Banco de Mexico, and Bank of Canada. The BCBS framework is available at 

https://www.bis.org/basel_framework/index.htm. 

81 17 CFR 23.101(a)(1)(i).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

27

sufficient to absorb unexpected losses, expenses, decrease in firm assets, or increases in 

firm liabilities without the firm becoming insolvent.

The terms used in the Commission’s Bank-Based Approach are defined by 

reference to regulations of the Federal Reserve Board.82 Specifically, the term “common 

equity tier 1 capital” is defined for purposes of the CFTC Capital Rules to generally mean 

the sum of a nonbank SD’s common stock instruments and any related surpluses, retained 

earnings, and accumulated other comprehensive income.83 The term “additional tier 1 

capital” is defined to include equity instruments that are subordinated to claims of general 

creditors and subordinated debt holders, but contain certain provisions that are not 

available to common stock, such as the right of nonbank SD to call the instruments for 

redemption or to convert the instruments to other forms of equity.

84 The term “tier 2 

capital” is defined to include certain types of instruments that include both debt and 

equity characteristics (e.g., certain perpetual preferred stock instruments and subordinated 

term debt instruments).85 Subordinated debt also must meet certain requirements to 

qualify as tier 2 capital, including that the term of the subordinated debt instrument is for 

a minimum of one year (with the exception of approved revolving subordinated debt 

agreements which may have a maturity term that is less than one year), and the debt 

 82 Id. Commission Regulation 23.101(a)(1)(i) references Federal Reserve Board Rule 217.20 for purposes 

of defining the terms used in establishing the minimum capital requirements under the Bank-Based 

Approach. 17 CFR 23.101(a)(1)(i) and 12 CFR 217.20.

83 See 12 CFR 217.20(b).

84 See 12 CFR 217.20(c).

85 See 12 CFR 217.20(d).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

28

instrument is an effective subordination of the rights of the lender to receive any 

payment, including accrued interest, to other creditors.86

Common equity tier 1 capital, additional tier 1 capital, and tier 2 capital are 

unencumbered and generally long-term or permanent forms of capital that help ensure 

that a nonbank SD will be able to absorb losses resulting from its operations and maintain 

confidence in the nonbank SD as a going concern. In addition, in setting an equity ratio 

requirement, this limits the amount of asset growth and leverage a nonbank SD can incur, 

as a nonbank SD must fund its asset growth with a certain percentage of regulatory 

capital.

A nonbank SD also must compute its risk-weighted assets using standardized 

capital charges or, if approved, internal models. Risk-weighting assets involves adjusting 

the notional or carrying value of each asset based on the inherent risk of the asset. Less 

risky assets are adjusted to lower values (i.e., have less risk-weight) than more risky 

assets. As a result, nonbank SDs are required to hold lower levels of regulatory capital 

for less risky assets and higher levels of regulatory capital for riskier assets.

Nonbank SDs not approved to use internal models to risk-weight their assets must 

compute market risk capital charges using the standardized charges contained in 

Commission Regulation 1.17 and SEC Rule 18a-1, and must compute their credit risk 

 86 The subordinated debt must meet the requirements set forth in SEC Rule 18a-1d (17 CFR 240.18a-1d). 

See 17 CFR 23.101(a)(1)(i)(B) providing that the subordinated debt used by a nonbank SD to meet its 

minimum capital requirement under the Bank-Based Approach must satisfy the conditions for subordinated 

debt under SEC Rule 18a-1d.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

29

charges using the standardized capital charges set forth in regulations of the Federal 

Reserve Board for bank holding companies in Subpart D of 12 CFR Part 217.87

Standardized market risk charges are computed under Commission Regulation 

1.17 and SEC Rule 18a-1 by multiplying, as appropriate to the specific asset schedule,

the notional value or market value of the nonbank SD’s proprietary financial positions 

(such as swaps, security-based swaps, futures, equities, and U.S. Treasuries) by fixed 

percentages set forth in the Regulation or Rule.88 Standardized credit risk charges require 

the nonbank SD to multiply on-balance sheet and off-balance sheet exposures (such as

receivables from counterparties, debt instruments, and exposures from derivatives) by 

predefined percentages set forth in the applicable Federal Reserve Board regulations 

contained in Subpart D of 12 CFR Part 217.

A nonbank SD also may apply to the Commission or NFA for approval to use 

internal models to compute market risk exposure and/or credit risk exposure for purposes 

of determining its total risk-weighted assets.

89 Nonbank SDs approved to use internal 

models for the calculation of credit risk or market risk, or both, must follow the model 

requirements set forth in Federal Reserve Board regulations for bank holding companies 

codified in Subpart E and F, respectively, of 12 CFR Part 217. Credit risk and market 

risk capital charges computed with internal models require the estimation of potential 

losses, with a certain degree of likelihood, within a specified time period, of a portfolio of 

assets. Internal models allow for consideration of potential co-movement of prices across 

 87 See 17 CFR 23.101(a)(1)(i)(B) and the definition of the term BHC risk-weighted assets in 17 CFR 

23.100.

88 See 17 CFR 1.17(c)(5) and 17 CFR 240.15c3-1(c)(2).

89 See 17 CFR 23.102.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

30

assets in the portfolio, leading to offsets of gains and losses. Internal credit risk models 

can also further include estimation of the likelihood of default of counterparties.

B. General Overview of UK PRA Capital Rules for PRA-designated UK

Nonbank SDs

The Applicants state that the UK PRA Capital Rules impose bank-like capital 

requirements on a PRA-designated UK nonbank SD that are consistent with the BCBS 

framework for international bank-based capital standards.90 The Applicants further state 

that the UK PRA Capital Rules are intended to require each PRA-designated UK

nonbank SD to hold a sufficient amount of qualifying equity capital and subordinated 

debt based on the PRA-designated UK nonbank SD’s activities, to absorb decreases in 

the value of firm assets, increases in the value of firm liabilities, and to cover losses from 

business activities, including possible counterparty defaults and margin collateral 

shortfalls associated with swap dealing activities, without the firm becoming insolvent.91

The UK PRA Capital Rules require each PRA-designated UK nonbank SD to 

hold and maintain regulatory capital in the form of qualifying common equity tier 1

capital, additional tier 1 capital, and tier 2 capital in an aggregate amount that equals or 

exceeds 8 percent of the PRA-designated UK nonbank SD’s total risk exposure amount, 

which is calculated as a sum of the firm’s risk-weighted assets and exposures.

92

Common equity tier 1 capital must comprise a minimum of 4.5 percent of the 8 percent 

 90 See UK Application, p. 12.

91 See UK Application, pp. 7 and 12.

92 UK CRR, Articles 26, 28, 50-52, 61-63 and 92.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

31

capital ratio,93 and tier 1 capital (which is the aggregate of common equity tier 1 capital 

and additional tier 1 capital) must comprise a minimum of 6 percent of the total 8 percent 

capital ratio.94 Tier 2 capital may comprise a maximum of 2 percent of the total 8 percent 

capital ratio.95

Under the UK PRA Capital Rules, common equity tier 1 capital is composed of 

common equity capital instruments, retained earnings, accumulated other comprehensive 

income, and other reserves of the PRA-designated UK nonbank SD.96 Additional tier 1 

capital is composed of capital instruments other than common equity and retained 

earnings (i.e., common equity tier 1 capital), and includes certain long-term convertible 

debt securities.97 Tier 2 capital instruments, which provide an additional layer of 

supplementary capital, include other reserves, hybrid capital instruments, and certain 

subordinated debt.98

To qualify as tier 2 regulatory capital, capital instruments and subordinated debt 

must meet certain conditions including that: (i) the capital instruments are issued by the 

PRA-designated UK nonbank SD and are fully paid-up; (ii) the capital instruments are 

 93 Id., Article 92(1)(a).

94 Id., Article 92(1)(b).

95 Id., Article 92(1)(c) (providing that the total capital ratio must be equal to or greater than 8 percent, with 

a minimum common equity and additional tier 1 capital comprising at least 6 percent of the 8 percent 

minimum requirement). In addition to the requirement to maintain minimum capital ratios, a PRAdesignated UK nonbank SD must maintain at all times capital resources equal to or in excess of GBP 

750,000. PRA Rulebook, CRR Firms, Definition of Capital Part, Chapter 12 Base Capital Resource 

Requirement, Rule 12.1.

96 UK CRR, Articles 26 and 28. Retained earnings, accumulated other comprehensive income and other 

reserves qualify as common equity tier 1 capital only where the funds are available to the PRA-designated 

UK nonbank SD for unrestricted and immediate use to cover risks or losses as such risks or losses occur. 

See UK CRR, Article 26(1).

97 Id., Articles 51-52.

98 Id., Articles 62-63.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

32

not purchased by the PRA-designated UK nonbank SD or its subsidiaries; (iii) the claims

on the principal amount of the capital instruments rank below any claim from instruments 

that are “eligible liabilities,”99 meaning that they are effectively subordinated to claims of 

all non-subordinated creditors of the PRA-designated UK nonbank SD; (iv) the capital 

instruments have an original maturity of at least five years; and (v) the provisions 

governing the capital instruments do not include any incentive for the principal amount to 

be redeemed or repaid by the PRA-designated UK nonbank SD prior to the capital 

instruments’ respective maturities.

100

In addition to the requirement to maintain total regulatory capital in an amount 

equal to or in excess of 8 percent of its risk-weighted assets, the UK PRA Capital Rules 

also require a PRA-designated UK nonbank SD to maintain a capital conservation buffer 

composed exclusively of common equity tier 1 capital in an amount equal to 2.5 percent 

of the firm’s total risk-weighted assets.

101 The common equity tier 1 capital used to meet 

the 2.5 percent capital conservation buffer must be separate and independent of the 4.5 

percent of common equity tier 1 capital used to meet the 8 percent core capital 

requirement.102 

 99 “Eligible liabilities” are non-capital instruments, including instruments that are directly issued by the 

PRA-designated UK nonbank SD and fully paid up with remaining maturities of at least a year. Bank 

Recovery and Resolution (No. 2) Order 2014, Article 123. In addition, the liabilities cannot be owned, 

secured, or guaranteed, by the PRA-designated UK nonbank SD itself, and the PRA-designated UK

nonbank SD cannot have either directly or indirectly funded their purchase. Id.

100 UK CRR, Article 63 (listing the conditions that capital instruments must meet to qualify as tier 2 

instruments) and Bank Recovery and Resolution (No. 2) Order 2014, Article 123. See also infra note 121.

101 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 2 Capital Conservation Buffer, Rule 2.1. 

102 Id. In effect, the UK PRA Capital Rules require a PRA-designated UK nonbank SD to hold common 

equity tier 1 capital equal to or in excess of 7 percent of the firm’s risk-weighted assets, and total capital 

equal to or in excess of 10.5 percent of the firm’s risk-weighted assets.

In addition, a PRA-designated nonbank SD may also be subject to a firm-specific countercyclical capital 

buffer, whose rate consists of the weighted average of the countercyclical buffer rates that apply to 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

33 

The UK PRA Capital Rules also impose a 3.25 percent leverage ratio floor on 

PRA-designated UK nonbank SDs that hold significant amounts of non-UK assets, as an

additional element to the capital requirements.103 Specifically, a PRA-designated UK 

nonbank SD that has non-UK assets equal to or greater than GBP 10 billion is required to 

maintain an aggregate amount of common equity tier 1 capital and additional tier 1 

capital equal to or in excess of 3.25 percent of the firm’s on-balance sheet and offbalance sheet exposures, including exposures on uncleared swaps but excluding certain 

exposures to central banks, without regard to any risk-weighting.104 The leverage ratio is 

a non-risk based minimum capital requirement that is intended to prevent a PRAdesignated UK nonbank SD from engaging in excessive leverage, and complements the 

 

exposures in the jurisdictions where the firm’s relevant credit exposures are located. The rate for each 

jurisdiction is determined by the UK Financial Policy Committee or a third country countercyclical buffer 

authority, as applicable. See PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 3 Countercyclical 

Capital Buffer, Rule 3.1., and Capital Requirements (Capital Buffers and Macro-prudential Measures) 

Regulations 2014, Articles 7-20. The sum of the capital conservation buffer and the countercyclical buffer 

is referred to as the “combined buffer.” PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 1 

Application and Definitions, Rule 1.2. To meet these additional capital buffer requirements, the PRAdesignated UK nonbank SD must maintain a level of common equity tier 1 capital that is in addition to the 

common equity tier 1 capital required to meet its core capital requirement of 4.5 percent of its riskweighted assets and the common equity tier 1 capital required to meet its capital conservation buffer. See

PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 1 Application and Definitions, Rule 1.2, and 

Capital Buffers Part, Chapter 4 Capital Conservation Measures, Rule 4.1. In practice, the countercyclical 

buffer rate in the UK, as of July 2023, is 2 percent of risk-weighted assets. Several EU Member States of 

relevance to the UK have also implemented countercyclical capital buffers with rates ranging from 0.5 

percent to 2.5 percent of risk-weighted assets. The countercyclical capital buffer rate is published by the 

Bank of England, and is available at: https://bankofengland.co.uk/financial-stability/the-countercyclicalcapital-buffer.

103 PRA Rulebook, CRR Firms, Leverage Ratio – Capital Requirements and Buffers Part, Chapter 1 

Application and Definitions and Chapter 3 Minimum Leverage Ratio. The Applicants represented that the 

six PRA-designated UK nonbank SDs currently registered with the Commission are subject to a leverage 

ratio floor requirement. See Responses to Staff Questions dated October 5, 2023. 

104 Total exposures are required to be computed in accordance with PRA Rulebook, CRR Firms, Leverage 

Ratio (CRR) Part, Chapter 3 Leverage Ratio (Part Seven CRR), Article 429 et seq. A PRA-designated UK 

nonbank SD may also be subject to a countercyclical leverage ratio buffer of common equity tier 1 capital 

equal to the firm’s institution-specific countercyclical capital buffer rate multiplied by 35 percent, 

multiplied by the firm’s total exposures. PRA Rulebook, CRR Firms, Leverage Ratio – Capital 

Requirements and Buffers Part, Chapter 4 Countercyclical Leverage Ratio Buffer. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

34

risk-based minimum capital requirement that is based on the PRA-designated UK 

nonbank SD’s risk-weighted assets.

As noted above, the amount of regulatory capital that a PRA-designated UK

nonbank SD is required to hold is determined by calculating the firm’s total risk 

exposure, which requires the PRA-designated UK nonbank SD to risk-weight its onbalance sheet and off-balance sheet assets and exposures using specified standardized 

weights or, if approved for use by the PRA, internal model-based methodologies.105 

Risk-weighting assets and exposures involves adjusting the notional or carrying value of 

each asset and risk exposure based on the inherent risk of the asset or exposure. Less 

risky assets and exposures are adjusted to lower values (i.e., have less weight) than more 

risky assets or exposures. As a result, PRA-designated UK nonbank SDs are required to 

hold lower levels of regulatory capital for less risky assets and exposures and higher 

levels of regulatory capital for riskier assets and exposures. The categories of risk 

charges that a PRA-designated UK nonbank SD must include in determining its total risk 

exposure include charges reflecting: (i) market risk; (ii) credit risk; (iii) settlement risk; 

(iv) CVA risk of OTC derivative instruments; and (v) operational risk.106 The methods 

for calculating such risk charges are based on the BCBS framework.107

 105 With regulator permission, PRA-designated UK nonbank SDs may use internal models to calculate 

credit risk (UK CRR, Article 143), including certain counterparty credit risk exposures (UK CRR, Article 

283), operational risk (UK CRR, Article 312(2)), market risk (UK CRR, Article 363), and credit valuation 

adjustment risk (“CVA risk”) of over-the-counter (“OTC”) derivatives instruments (UK CRR, Article 383). 

The permission to use, and continue using, internal models is subject to strict criteria and supervisory 

oversight by the PRA.

106 UK CRR, Article 92(3).

107 UK Application, pp. 12-15.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

35

Standardized market risk charges are generally calculated by multiplying the 

notional or carrying amount of net positions or of adjusted net positions by riskweighting factors, which are based on the underlying market risk of each asset or 

exposure. The sum of the calculated amounts comprises the portion of the risk exposure 

amount attributable to market risk.108 Standardized credit risk charges are generally 

calculated by multiplying the notional or carrying value of the PRA-designated UK

nonbank SD’s on-balance sheet and off-balance sheet assets and exposures by clearly 

defined risk-weighting factors, which are based on the underlying credit risk of each asset 

or exposure. The sum of the calculated amounts comprises the portion of the risk 

exposure amount attributable to credit risk.

109

Settlement risk charges are intended to account for the price difference to which a

PRA-designated UK nonbank SD is exposed if its transactions remain unsettled after the 

respective transaction’s due delivery date.

110 CVA risk charges reflect the current market 

value of the credit risk of the counterparty to the PRA-designated UK nonbank SD in an 

OTC derivatives transaction.

111 Operational risk charges reflect the risk of loss resulting 

from inadequate or failed internal processes, people and systems or from external events, 

and includes legal risk.

112

 108 UK CRR, Articles 326-361.

109 Id., Articles 111-134 and PRA Rulebook, CRR Firms, Standardised Approach and Internal Ratings 

Based Approach to Credit Risk (CRR) Part, Chapter 3 Credit Risk (Part Three Title Two Chapters Two and 

Three CRR), Article 132.

110 UK CRR, Article 378.

111 Id., Article 381.

112 Id., Article 4(1)(52).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

36

As noted above, PRA-designated UK nonbank SDs may use internal model-based 

methodologies to calculate certain categories of risk charges in lieu of standardized 

charges if they have obtained the requisite regulatory approval.113 The UK PRA Capital 

Rules set out quantitative and qualitative requirements that internal models must meet in 

order to obtain and maintain approval.114 Quantitative and qualitative requirements 

address, among other issues, governance, validation, monitoring, and review. Modeled 

risk charges generally require the estimation of potential losses, with a certain degree of 

likelihood, within a specified time period, of a portfolio of assets.115 Internal models 

allow for consideration of potential co-movement of prices across assets in the portfolio, 

leading to offsets of gains and losses. Credit risk models can also further include 

estimation of the likelihood of default of counterparties.

 113 Id., Articles 143 (credit risk), 283 (counterparty credit risk); 312(2) (operational risk), 363 (market risk), 

and 383 (CVA risk).

114 See e.g., UK CRR, Articles 144, 283; 321-322 and 365-369.

115 The UK PRA Capital Rules require PRA-designated UK nonbank SDs with internal model approval for 

market risk to use a VaR model with a 99 percent, one-tailed confidence interval with: (i) price change 

equivalent to 10 business-day movement in rates and prices; (ii) effective historical observation periods of 

at least one year; and (iii) at least monthly data set updates. See UK CRR, Article 365(1). PRA-designated 

UK nonbank SDs approved to use internal ratings-based credit risk models must support the assessment of 

credit risk, the assignment of exposures to rating grades or pools, and the quantification of default and loss 

estimates that have been developed for a certain type of exposures, among other conditions. See UK CRR, 

Articles 142-144. In addition, when PRA-designated UK nonbank SDs are approved to use a model to 

calculate counterparty credit risk exposures for OTC derivatives transactions, the model must specify the 

forecasting distribution for changes in the market value of a netting set attributable to joint changes in 

relevant market variables and calculate the exposure value for the netting set at each of the future dates on 

the basis of the joint changes in the market variables. See UK CRR, Article 284. PRA-designated nonbank 

SDs allowed to follow the “advanced method” of calculating CVA risk charges for OTC derivatives 

transactions must also use an internal market risk model to simulate changes in the credit spreads of 

counterparties, applying a 99 percent confidence interval and a 10-day equivalent holding period. See UK 

CRR, Article 383. Finally, PRA-designated UK nonbank SDs using “advanced measurement approaches”

based on their own measurement systems to compute operational risk exposures must calculate capital 

requirements as comprising both expected loss and unexpected loss and capture potentially severe tail 

events, achieving a sound standard comparable to a 99.9 confidence interval over a one-year period. See

UK CRR, Article 322.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

37

Furthermore, the UK PRA Capital Rules also impose separate requirements on an 

PRA-designated UK nonbank SD to address liquidity risk. More specifically, PRAdesignated UK nonbank SDs are subject to the liquidity coverage requirement applicable 

under UK CRR to credit institutions.116 The liquidity coverage requirement provides that 

PRA-designated UK nonbank SDs must hold liquid assets in an amount sufficient to 

cover liquidity outflows (less liquidity inflows) under stressed conditions over a period of 

30 days.117 For purposes of the liquidity coverage requirement, the term “stressed” 

means a sudden or severe deterioration in the solvency or liquidity position of a firm due 

to changes in market conditions or idiosyncratic factors as a result of which there is a 

significant risk that the firm becomes unable to meet its commitments as they become 

due within the next 30 days.118

In addition, Article 413 of UK CRR, which has been incorporated into the PRA 

Rulebook, establishes a general requirement that firms ensure that long-term obligations 

and off-balance sheet items are adequately met with a diverse set of funding instruments 

that are stable under both normal and stressed conditions.

119 

In addition, the Bank of England, in its capacity of resolution authority,120

requires that PRA-designated UK nonbank SDs satisfy a firm-specific MREL pursuant to 

 116 PRA Rulebook, CRR Firms, Liquidity (CRR) Part and PRA Rulebook, CRR Firms, Liquidity Coverage 

Requirement – UK Designated Investment Firms Part. 

117 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 412(1).

118 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 411(10).

119 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 413(1).

120 In application of BRRD, Article 3, EU Member States designate resolution authorities that are 

empowered to apply the resolution tools and exercise the resolution powers described in BRRD. In the 

UK, the resolution authority is the Bank of England. 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

38 

provisions of the Banking Act 2009 and the Bank Recovery and Resolution (No. 2) Order 

2014, which transposed BRRD.121 The MREL requirement is separate from the 

minimum capital requirements imposed on PRA-designated UK nonbank SDs under UK 

CRR and PRA Rulebook and is designed to ensure that PRA-designated UK nonbank 

SDs maintain at all times sufficient eligible instruments to facilitate resolution 

consistently with the resolution objectives under the preferred resolution strategy.122 

Specifically, the MREL is intended to permit loss absorption, where appropriate, such 

that the PRA-designated UK nonbank SD’s capital ratio could be restored to the level 

necessary for compliance with its capital requirements.

123 The Bank of England 

calculates a firm’s baseline MREL as the sum of two component: a loss absorption 

amount and a recapitalization amount.124 The loss absorption amount is equal to a firm’s 

capital requirements plus its capital buffers.125 The Bank of England has some discretion 

 

121 Banking Act 2009, Section 3A(4) and (4B) and the Bank Recovery and Resolution (No. 2) Order 2014, 

Part 9. Eligible liabilities include, among others items, instruments that are directly issued by the PRAdesignated UK nonbank SD and fully paid up with remaining maturities of at least a year. See Bank 

Recovery and Resolution (No. 2) Order 2014, Part 9, Article 123(4). In addition, the liabilities cannot arise 

from a derivative, be owned, secured or guaranteed by the PRA-designated UK nonbank SD itself, and the 

PRA-designated UK nonbank SD cannot have either directly or indirectly funded its purchase. Id. 

122 The Bank of England’s Approach to Setting a Minimum Requirement for Own Funds and Eligible 

Liabilities (MREL), Statement of Policy, 3 December 2021, at 3, available at: 

https://www.bankofengland.co.uk/-/media/boe/files/paper/2021/mrel-statement-of-policy-december-2021-

updating-2018.pdf. See also The Minimum Requirement for Own Funds and Eligible Liabilities (MREL) – 

Buffers and Threshold Conditions, Supervisory Statement 16/16, 28 December 2020, available at: 

https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/supervisorystatement/2020/ss1616-update-dec-2020.pdf. 

123 Bank Recovery and Resolution (No. 2) Order 2014, Part 9, Article 123(6).

124 See The Bank of England’s Approach to Setting a Minimum Requirement for Own Funds and Eligible 

Liabilities (MREL), Statement of Policy, Dec. 3, 2021, at 5.

125 Id. The reference to “capital requirements” in this context means the amount of capital the PRA thinks 

the firm should maintain at all times under PRA Rulebook, CRR Firms, Internal Capital Adequacy 

Assessment.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

39

to adjust the amount. The MREL amount varies depending on the entity’s size, funding 

model, and risk profile, among other considerations.

126 

III. Commission Analysis of the Comparability of the UK PRA Capital Rules and 

UK PRA Financial Reporting Rules with CFTC Capital Rules and CFTC 

Financial Reporting Rules

The following section provides a description and comparative analysis of the 

regulatory requirements of the UK PRA Capital Rules and UK PRA Financial Reporting 

Rules to the CFTC Capital Rules and CFTC Financial Reporting Rules. Immediately 

following a description of the requirement(s) of the CFTC Capital Rules or the CFTC 

Financial Reporting Rules for which a comparability determination was requested by the 

Applicants, the Commission provides a description of the UK’s corresponding laws, 

regulations, or rules. The Commission then provides a comparative analysis of the UK 

PRA Capital Rules or the UK PRA Financial Reporting Rules with the corresponding 

CFTC Capital Rules or CFTC Financial Reporting Rules and identifies any material 

differences between the respective rules.

The Commission performed this proposed Capital Comparability Determination 

by assessing the comparability of the UK PRA Capital Rules for PRA-designated UK

nonbank SDs as set forth in the UK Application with the Commission’s Bank-Based 

Approach. For clarity, the Commission did not assess the comparability of the UK PRA

Capital Rules to the Commission’s TNW Approach or NLA Approach as the 

Commission understands that PRA-designated UK nonbank SDs, as of the date of the UK

Application, are subject to bank-based capital requirements pursuant to the UK PRA 

 126 Bank Recovery and Resolution (No. 2) Order 2014, Part 9, Article 123(6).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

40 

Capital Rules. In addition, as noted above, due to the differences between the capital and 

financial reporting regimes applicable to PRA-designated UK nonbank SD and FCAregulated UK nonbank SDs, the Commission anticipates assessing the comparability of 

the rules applicable to FCA-regulated UK nonbank SDs through a separate capital 

comparability determination.

127 Accordingly, when the Commission makes a 

preliminary determination herein regarding the comparability of the UK PRA Capital 

Rules with the CFTC Capital Rules, the determination solely pertains to the 

comparability of the UK PRA Capital Rules as applicable to PRA-designated UK 

nonbank SD with the Bank-Based Approach under the CFTC Capital Rules. 

As described below, it is proposed that any material changes to the UK PRA

Capital Rules would require notification to the Commission. Therefore, if there are 

subsequent material changes to the UK PRA Capital Rules to include, for example, 

another capital approach, the Commission will review and assess the impact of such 

changes on the Capital Comparability Determination Order as it is then in effect, and may 

amend or supplement the Order.128

 

127 See supra note 5. 

128 The Commission also may amend or supplement the Capital Comparability Determination Order to 

address any material changes to the CFTC Capital Rules and CFTC Financial Reporting Rules that are 

adopted after a final Order is issued.

The Commission is aware that the UK PRA is considering changes to the PRA Capital Rules to implement 

Basel 3.1 standards. See PRA, PS17/23 – Implementation of the Basel 3.1 Standards Near-Final Part 1, 

December 12, 2023, available here: https://www.bankofengland.co.uk/news/2023/december/pra-publishesfirst-of-two-policy-statements-for-basel-3-1-standards-implementation. If the UK PRA proceeds with the 

implementation of the Basel 3.1 standards as proposed, the regulatory changes would be applicable after 

July 1, 2025 with a 4.5-year transitional period ending on January 1, 2030. The Commission will monitor 

progress on the UK PRA’s proposed regulatory changes and may amend or supplement the Capital 

Comparability Determination Order, as appropriate, after a final Order is issued. As noted, the 

Commission proposes to require notification of any material changes to the UK PRA Capital Rules, 

including any Basel 3.1 implementing provisions.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

41

In addition, although the BCBS bank capital standards establish minimum capital 

standards that are consistent with the requirements of the Commission’s Bank-Based

Approach, the Commission notes that consistency with the international standards is not 

determinative of a finding of comparability with the CFTC Capital Rules. In the 

Commission’s view, a foreign jurisdiction’s consistency with the BCBS international 

bank capital standards is an element in the Commission’s comparability assessment, but,

in and of itself, it may not be sufficient to demonstrate comparability with the CFTC 

Capital Rules without an assessment of the individual elements of the foreign 

jurisdiction’s capital framework.

Capital and financial reporting regimes are complex structures comprised of a 

number of interrelated regulatory components. Differences in how jurisdictions approach 

and implement these regimes are expected, even among jurisdictions that base their 

requirements on the principles and standards set forth in the BCBS international bank 

capital framework. Therefore, the Commission’s comparability determination involves a 

detailed assessment of the relevant requirements of the foreign jurisdiction and whether 

those requirements, viewed in the aggregate, lead to an outcome that is comparable to the 

outcome of the CFTC’s corresponding requirements. Consistent with this approach, the 

Commission has grouped the CFTC Capital Rules and CFTC Financial Reporting Rules 

into the key categories that focus the analysis on whether the UK PRA capital and 

financial reporting requirements are comparable to the Commission’s SD requirements in

purpose and effect, and not whether the UK PRA requirements meet every aspect or 

contain identical elements as the Commission’s requirements.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

42

Specifically, as discussed in detail below, the Commission used the following key 

categories in its review: (i) the quality of the equity and debt instruments that qualify as 

regulatory capital, and the extent to which the regulatory capital represents committed 

and permanent capital that would be available to absorb unexpected losses or 

counterparty defaults; (ii) the process of establishing minimum capital requirements for a

PRA-designated UK nonbank SD and how such process addresses market risk and credit 

risk of the firm’s on-balance sheet and off-balance sheet exposures; (iii) the financial 

reports and other financial information submitted by a PRA-designated nonbank SD to 

the PRA to effectively monitor the financial condition of the firm; and (iv) the regulatory 

notices and other communications between the PRA-designated UK nonbank SD and the 

PRA that detail potential adverse financial or operational issues that may impact the firm. 

The Commission also reviewed the manner in which compliance by a PRA-designated

UK nonbank SD with the UK PRA Capital Rules and UK PRA Financial Reporting rules 

is monitored and enforced. The Commission invites public comment on all aspects of the 

UK Application and on the Commission’s proposed Capital Comparability Determination 

discussed below.

A. Regulatory Objectives of CFTC Capital Rules and CFTC Financial 

Reporting Rules and UK PRA Capital Rules and UK PRA Financial 

Reporting Rules

1. Regulatory Objectives of CFTC Capital Rules and CFTC Financial Reporting 

Rules

The regulatory objectives of the CFTC Capital Rules and the CFTC Financial 

Reporting Rules are to further the Congressional mandate to ensure the safety and 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

43

soundness of nonbank SDs to mitigate the greater risk to nonbank SDs and the financial 

system arising from the use of swaps that are not cleared.129 A primary function of the 

nonbank SD’s capital is to protect the solvency of the firm from decreases in the value of 

firm assets, increases in the value of firm liabilities, and from losses, including losses 

resulting from counterparty defaults and margin collateral failures, by requiring the firm 

to maintain an appropriate level of quality capital, including qualifying subordinated 

debt, to absorb such losses without becoming insolvent. With respect to swap positions, 

capital and margin perform complementary risk mitigation functions by protecting 

nonbank SDs, containing the amount of risk in the financial system as a whole, and 

reducing the potential for contagion arising from uncleared swaps.

The objective of the CFTC Financial Reporting Rules is to provide the 

Commission with the means to monitor and assess a nonbank SD’s financial condition, 

including the nonbank SD’s compliance with minimum capital requirements. The CFTC 

Financial Reporting Rules are designed to provide the Commission and NFA, which,

along with the Commission, oversees nonbank SDs’ compliance with Commission 

regulations, with a comprehensive view of the financial health and activities of the 

nonbank SD. The Commission’s rules require nonbank SDs to file financial information, 

including periodic unaudited and annual audited financial statements, specific financial

position information, and notices of certain events that may indicate a potential financial 

or operational issue that may adversely impact the nonbank SD’s ability to meet its 

 129 See 7 U.S.C. 6s(e)(3)(A).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

44 

obligations to counterparties and other creditors in the swaps market, or impact the firm’s 

solvency.130

2. Regulatory Objective of UK PRA Capital Rules and UK PRA Financial 

Reporting Rules 

The regulatory objective of the UK PRA Capital Rules is to ensure the safety and 

soundness of PRA-designated UK nonbank SDs.131 The UK PRA Capital Rules are 

designed to preserve the financial stability and solvency of a PRA-designated UK

nonbank SD by requiring the firm to maintain a sufficient amount of qualifying equity 

capital and subordinated debt based on the PRA-designated UK nonbank SD’s activities 

to absorb decreases in the value of firm assets, increases in the value of firm liabilities, 

and to cover losses from business activities, including possible counterparty defaults and 

margin collateral shortfalls associated with the firm’s swap dealing activities.

132 The UK 

PRA Capital Rules are also designed to ensure that the PRA-designated UK nonbank SDs 

have sufficient liquidity to meet their financial obligations to counterparties and other 

creditors in a distress scenario by requiring each firm to hold an amount of liquid assets 

to ensure that the firm could face any possible imbalance between liquidity inflows and 

outflows under gravely stressed conditions over a period of 30 days133 and to hold a 

 

130 See 17 CFR 23.105.

131 See PRA, The Prudential Regulation Authority’s Approach to Banking Supervision, July 2023, available 

here: https://www.bankofengland.co.uk/prudential-regulation/publication/pras-approach-to-supervision-ofthe-banking-and-insurance-sectors. 

132 Id. 

133 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 412 

(Liquidity Coverage Requirement). Liquid assets primarily include cash, exposures to central banks, 

government-backed assets and other highly liquid assets with high credit quality. PRA Rulebook, CRR 

Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 416 (Reporting on Liquid 

Assets).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

45 

diversity of stable funding instruments sufficient to meet long-term obligations under 

both normal and stressed conditions.134

With respect to financial reporting, the objective of the UK PRA Financial 

Reporting Rules is to enable the PRA to assess the financial condition and safety and 

soundness of PRA-designated UK nonbank SDs.135 The UK PRA Financial Reporting 

Rules aim to achieve this objective by requiring a PRA-designated nonbank SD to 

provide financial reports and other financial position and capital information to the PRA

on a regular basis.136 The financial reporting by a PRA-designated UK nonbank SD 

provides the PRA with information necessary to effectively monitor the PRA-designated 

UK nonbank SD’s overall financial condition and its ability to meet its regulatory 

obligations as a nonbank SD. 

3. Commission Analysis 

The Commission has reviewed the UK Application and the relevant UK laws and 

regulations, and has preliminarily determined that the overall objectives of the UK PRA

Capital Rules and CFTC Capital Rules are comparable in that both sets of rules are 

intended to ensure the safety and soundness of nonbank SDs by establishing a regulatory 

regime that requires nonbank SDs to maintain a sufficient amount of qualifying 

 

134 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 413 

(Stable Funding Requirement). Stable funding instruments include common equity tier 1 capital 

instruments, additional tier 1 capital instruments, tier 2 capital instruments, and other preferred shares and 

capital instruments in excess of the tier 2 allowable amount with an effective maturity of one year or 

greater. PRA Rulebook, CRR Firms Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 

427 (Reporting on Stable Funding).

135 See generally PRA, The Prudential Regulation Authority’s Approach to Banking Supervision, July 2023, 

available here: https://www.bankofengland.co.uk/prudential-regulation/publication/pras-approach-tosupervision-of-the-banking-and-insurance-sectors. 

136 PRA Rulebook, CRR Firms, Reporting (CRR) Part. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

46

regulatory capital to absorb losses, including losses from swaps and other trading 

activities, and to absorb decreases in the value of firm assets and increases in the value of 

firm liabilities without the nonbank SDs becoming insolvent. The UK PRA Capital 

Rules and CFTC Capital Rules are also based on, and consistent with, the BCBS 

international bank capital framework, which is designed to ensure that banking entities 

hold sufficient levels of capital to absorb losses and decreases in the value of assets 

without the banks becoming insolvent.

The Commission further preliminarily believes that the UK PRA Financial 

Reporting Rules have comparable objectives with the CFTC Financial Reporting Rules as 

both sets of rules require nonbank SDs to file and/or publish, as applicable, periodic 

financial reports, including unaudited financial reports and an annual audited financial 

report, detailing their financial operations and demonstrating their compliance with 

minimum capital requirements, with the goal of providing the PRA and the CFTC staff

with information necessary to comprehensively assess the financial condition of a 

nonbank SD on an ongoing basis. In addition, to achieve this objective, the financial

reports further provide the CFTC and the PRA with information regarding potential 

changes in a nonbank SD’s risk profile by disclosing changes in account balances 

reported over a period of time. Such changes in account balances may indicate that the 

nonbank SD has entered into new lines of business, has increased its activity in an 

existing line of business relative to other activities, or has terminated a previous line of 

business. 

The prompt and effective monitoring of the financial condition of nonbank SDs 

through the receipt and review of periodic financial reports supports the Commission and 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

47

the PRA in meeting their respective objectives of ensuring the safety and soundness of 

nonbank SDs. In connection with these objectives, the early identification of potential 

financial issues provides the Commission and the PRA with an opportunity to address 

such issues with the nonbank SD before the issues develop to a state where the financial 

condition of the firm is impaired such that it may no longer hold a sufficient amount of 

qualifying regulatory capital to absorb decreases in the value of firm assets or increases in 

the value of firm liabilities, or to cover losses from the firm’s business activities, 

including the firm’s swap dealing activities and obligations to swap counterparties.

The Commission invites public comment on its analysis above, including 

comment on the UK Application and relevant UK laws and regulations.

B. Nonbank Swap Dealer Qualifying Capital

1. CFTC Capital Rules: Qualifying Capital Under Bank-Based Approach

The CFTC Capital Rules require a nonbank SD electing the Bank-Based 

Approach to maintain regulatory capital in the form of common equity tier 1 capital, 

additional tier 1 capital, and tier 2 capital in amounts that meet certain stated minimum 

requirements set forth in Commission Regulation 23.101.137 Common equity tier 1 

capital, additional tier 1 capital, and tier 2 capital are composed of certain defined forms 

of equity of the nonbank SD, including common stock, retained earnings, and qualifying 

subordinated debt.

138 The Commission’s requirement for a nonbank SD to maintain a 

minimum amount of defined qualifying capital and subordinated debt is intended to 

ensure that the firm maintains a sufficient amount of regulatory capital to absorb 

 137 See 17 CFR 23.101(a)(1)(i).

138 The terms “common equity tier 1 capital,” “additional tier 1 capital,” and “tier 2 capital” are defined in

the bank holding company regulations of the Federal Reserve Board. See 12 CFR 217.20.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

48

decreases in the value of the firm’s assets and increases in the value of the firm’s 

liabilities, and to cover losses resulting from the firm’s swap dealing and other activities,

including possible counterparty defaults and margin collateral shortfalls, without the firm 

becoming insolvent.

Common equity tier 1 capital is generally composed of an entity’s common stock 

instruments and any related surpluses, retained earnings, and accumulated other 

comprehensive income, and is a more conservative or permanent form of capital than

additional tier 1 and tier 2 capital.139 Additional tier 1 capital is generally composed of 

equity instruments such as preferred stock and certain hybrid securities that may be 

converted to common stock if triggering events occur.

140 Total tier 1 capital is composed 

of common equity tier 1 capital and further includes additional tier 1 capital.

141 Tier 2 

capital includes certain types of instruments that include both debt and equity 

characteristics such as qualifying subordinated debt.142

Subordinated debt must meet certain conditions to qualify as tier 2 capital under 

the CFTC Capital Rules. Specifically, subordinated debt instruments must have a term of 

at least one year (with the exception of approved revolving subordinated debt agreements 

which may have a maturity term that is less than one year), and contain terms that 

 139 12 CFR 217.20.

140 Id.

141 Id.

142 Id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

49

effectively subordinate the rights of lenders to receive any payments, including accrued 

interest, to other creditors of the firm.143

Common equity tier 1 capital, additional tier 1 capital, and tier 2 capital are 

permitted to be included in a nonbank SD’s regulatory capital and used to meet the firm’s 

minimum capital requirement due to their characteristics of being permanent forms of 

capital that are subordinate to the claims of other creditors, which ensures that a nonbank

SD will have this regulatory capital to absorb decreases in the value of the firm’s assets

and increases in the value of the firm’s liabilities, and to cover losses from business 

activities, including swap dealing activities, without the firm becoming insolvent.

2. UK PRA Capital Rules: Qualifying Capital

The UK PRA Capital Rules require a PRA-designated nonbank SD to maintain an 

amount of regulatory capital (i.e., equity capital and qualifying subordinated debt) equal 

to or greater than 8 percent of the PRA-designated UK nonbank SD’s total risk exposure, 

which is calculated as the sum of the firm’s: (i) capital charges for market risk; (ii) riskweighted exposure amounts for credit risk; (iii) capital charges for settlement risk; (iv) 

CVA risk of OTC derivatives instruments; and (v) capital charges for operational risk.

144 

The UK Capital Rules limit the composition of regulatory capital to common equity tier 1 

capital, additional tier 1 capital, and tier 2 capital in a manner consistent with the BCBS 

bank capital framework.145 In this regard, the UK PRA Capital Rules provide that a

 143 The subordinated debt must meet the requirements set forth in SEC Rule 18a-1d (17 CFR 240.18a-1d). 

See 17 CFR 23.101(a)(1)(i)(B) (providing that the subordinated debt used by a nonbank SD to meet its 

minimum capital requirement under the Bank-Based Approach must satisfy the conditions for subordinated 

debt under SEC Rule 18a-1d).

144 UK CRR, Article 92.

145 Id. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

50

PRA-designated UK nonbank SD’s regulatory capital may be composed of: (i) common 

equity tier 1 capital instruments, which generally include the PRA-designated UK

nonbank SD’s common equity, retained earnings, and accumulated other comprehensive 

income;

146 (ii) additional tier 1 capital instruments, which include other forms of capital 

instruments and certain long-term convertible debt instruments;147 and (iii) tier 2 capital 

instruments, which includes other reserves, hybrid capital instruments, and certain 

qualifying subordinated term debt.148 

Furthermore, subordinated debt instruments must meet certain conditions to 

qualify as tier 2 regulatory capital under the UK PRA Capital Rules, including that the: 

(i) loans are not granted by the PRA-designated UK nonbank SD or its subsidiaries; (ii) 

claims on the principal amount of the subordinated loans under the provisions governing 

the subordinated loan agreement rank below any claim from eligible liabilities 

instruments (i.e., certain non-capital instruments), meaning that they are effectively 

subordinated to claims of all non-subordinated creditors of the PRA-designated UK

nonbank SD; (iii) subordinated loans are not secured, or subject to a guarantee that 

 146 UK CRR, Articles 26 and 28. Capital instruments that qualify as common equity tier 1 capital under the 

UK PRA Capital Rules include instruments that: (i) are issued directly by the PRA-designated UK nonbank 

SD; (ii) are paid in full and not funded directly or indirectly by the PRA-designated UK nonbank SD; and 

(iii) are perpetual. In addition, the principal amount of the instruments may not be reduced or repaid, 

except in the liquidation of the PRA-designated UK nonbank SD.

147 Id., Articles 51-52. To qualify as additional tier 1 capital, the instruments must meet certain conditions 

including: (i) the instruments are issued directly by the PRA-designated UK nonbank SD and paid in full; 

(ii) the instruments are not owned by the PRA-designated UK nonbank SD or its subsidiaries; (iii) the 

purchase of the instruments is not funded directly or indirectly by the PRA-designated UK nonbank SD; 

(iv) the instruments rank below tier 2 instruments in the event of the insolvency of the PRA-designated UK 

nonbank SD; (v) the instruments are not secured or guaranteed by the PRA-designated UK nonbank SD or 

an affiliate; (vi) the instruments are perpetual and do not include an incentive for the PRA-designated UK 

nonbank SD to redeem them; and (vii) distributions under the instruments are pursuant to defined terms and 

may be cancelled under the full discretion of the PRA-designated UK nonbank SD.

148 Id., Articles 62-63.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

51 

enhances the seniority of the claim, by the PRA-designated UK nonbank SD, its 

subsidiaries, or affiliates; (iv) loans have an original maturity of at least five years; and 

(v) provisions governing the loans do not include any incentive for the principal amount 

to be repaid by the PRA-designated UK nonbank SD prior to the loans’ maturity.

149

A PRA-designated UK nonbank SD must also maintain a capital conservation 

buffer equal to 2.5 percent of the firm’s total risk exposure in addition to the requirement 

to maintain qualifying regulatory capital in excess of 8 percent of its total risk 

exposure.150 The 2.5 percent capital conservation buffer must be met with common 

equity tier 1 capital.151 Common equity tier 1 capital, as noted above, is limited to the 

PRA-designated UK nonbank SD’s common equity, retained earnings, and accumulated 

other comprehensive income, and represents a more permanent form of capital than 

equity instruments that qualify as additional tier 1 capital and tier 2 capital.

The UK PRA Capital Rules also impose different ratios for the various 

components of regulatory capital that are consistent with the BCBS bank capital 

 

149 UK CRR, Article 63. 

150 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 2 Capital Conservation Buffer, Rule 2.1. In 

addition, a PRA-designated nonbank SD may also be subject to a firm-specific countercyclical capital 

buffer, which requires the PRA-designated UK nonbank SD to hold an additional amount of common 

equity tier 1 capital equal to its total risk-weighted assets multiplied by the weighted average of the 

countercyclical buffer rates that apply to exposures in the jurisdictions where the firm’s relevant credit 

exposures are located. The rate for each jurisdiction is determined by the UK Financial Policy Committee 

or a third country countercyclical buffer authority, as applicable. See PRA Rulebook, CRR Firms, Capital 

Buffers Part, Chapter 3 Countercyclical Capital Buffer, Rule 3.1., and Capital Requirements (Capital 

Buffers and Macro-prudential Measures) Regulations 2014, Articles 7-20. In practice, the countercyclical 

buffer rate in the UK, as of July 2023, is 2 percent of risk-weighted assets. The countercyclical capital 

buffer rate is published by the Bank of England, and is available at: https://bankofengland.co.uk/financialstability/the-countercyclical-capital-buffer. Several EU Member States of relevance to the UK have also 

implemented countercyclical capital buffers with rates ranging from 0.5 percent to 2.5 percent of riskweighted assets. 

151 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 2 Capital Conservation Buffer, Rule 2.1.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

52

framework.152 In this regard, the UK PRA Capital Rules provide that a PRA-designated 

UK nonbank SD’s minimum regulatory capital must satisfy the following requirements: 

(i) common equity tier 1 capital ratio of 4.5 percent of the firm’s total risk exposure 

amount; (ii) total tier 1 capital (i.e., common equity tier 1 capital plus additional tier 1 

capital) ratio of 6 percent of the firm’s total risk exposure amount; and (iii) total capital 

(i.e., an aggregate amount of common equity tier 1 capital, additional tier 1 capital, and 

tier 2 capital) ratio of 8 percent of the firm’s total risk exposure amount. As noted above, 

a PRA-designated UK nonbank SD must also maintain a capital conservation buffer of 

2.5 percent of its total risk exposure amount that must be met with common equity tier 1 

capital.153 With the addition of the capital conservation buffer, each PRA-designated UK

nonbank SD is required to maintain minimum regulatory capital that equals or exceeds 

10.5 percent of the firm’s total risk exposure amount, with common equity tier 1 capital 

comprising at least 7 percent of the 10.5 percent minimum regulatory capital 

requirement.154

Common equity tier 1 capital, additional tier 1 capital, and tier 2 capital are 

permitted to be included in a PRA-designated UK nonbank SD’s regulatory capital and 

used to meet the firm’s minimum capital requirement due to their characteristics of being 

permanent forms of capital that are subordinate to the claims of other creditors, which 

ensures that a PRA-designated UK nonbank SD will have this regulatory capital to 

absorb decreases in the value of the firm’s assets and increases in the value of the firm’s 

 152 UK CRR, Article 92(1).

153 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 2 Capital Conservation Buffer, Rule 2.1.

154 The countercyclical capital buffer is not included in the analysis given that it is firm-specific and its rate 

depends on the location of the firm’s exposures. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

53

liabilities, and to cover losses from business activities, including swap dealing activities, 

without the firm becoming insolvent.

3. Commission Analysis

The Commission has reviewed the UK Application and the relevant UK laws and 

regulations, and has preliminarily determined that the UK PRA Capital Rules are 

comparable in purpose and effect to the CFTC Capital Rules with regard to the types and 

characteristics of a nonbank SD’s equity that qualifies as regulatory capital in meeting its 

minimum requirements. The UK PRA Capital Rules and the CFTC Capital Rules for 

nonbank SDs both require a nonbank SD to maintain a quantity of high-quality capital 

and permanent capital, all defined in a manner that is consistent with the BCBS 

international bank capital framework, that based on the firm’s activities and on-balance 

sheet and off-balance sheet exposures, is sufficient to absorb losses and decreases in the 

value of the firm’s assets and increases in the value of the firm’s liabilities without 

resulting in the firm becoming insolvent. Specifically, equity instruments that qualify as 

common equity tier 1 capital and additional tier 1 capital under the UK PRA Capital 

Rules and the CFTC Capital Rules have similar characteristics (e.g., the equity must be in 

the form of high-quality, committed and permanent capital) and the equity instruments 

generally have no priority in distribution of firm assets or income with respect to other 

shareholders or creditors of the firm, which makes the equity available to a nonbank SD 

to absorb unexpected losses, including counterparty defaults.

155 

 155 Compare 12 CFR 217.20(b) (defining capital instruments that qualify as common equity tier 1 capital 

under the rules of the Federal Reserve Board) and 12 CFR 217.20(c) (defining capital instruments that 

qualify as additional tier 1 capital under the rules of the Federal Reserve Board) with UK CRR, Articles 26 

and 28 (defining items and capital instruments that qualify as common equity tier 1 capital under the UK 

PRA Capital Rules) and UK CRR, Article 52 (defining capital instruments that qualify as additional tier 1 

capital under the UK PRA Capital Rules).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

54

In addition, the Commission has preliminarily determined that the conditions 

imposed on subordinated debt instruments under the UK PRA Capital Rules and the 

CFTC Capital Rules are comparable and are designed to ensure that the subordinated 

debt has qualities that support its recognition by a nonbank SD as equity for regulatory 

capital purposes. Specifically, in both sets of rules, the conditions include a requirement 

that the debt holders have effectively subordinated their claims for repayment of the debt 

to the claims of other creditors of the nonbank SD.

156

Having reviewed the UK Application and the relevant UK laws and regulations,

the Commission has made a preliminary determination that the UK PRA Capital Rules 

and CFTC Capital Rules impose comparable requirements on PRA-designated UK

nonbank SDs with respect to the types and characteristics of equity capital that must be 

used to meet minimum regulatory capital requirements. The Commission invites public 

comment on its analysis above, including comment on the UK Application and relevant 

UK laws and regulations.

C. Nonbank Swap Dealer Minimum Capital Requirement

1. CFTC Capital Rules: Nonbank SD Minimum Capital Requirement

The CFTC Capital Rules require a nonbank SD electing the Bank-Based 

Approach to maintain regulatory capital that satisfies each of the following criteria: (i) an 

amount of common equity tier 1capital of at least $20 million; (ii) an aggregate of 

common equity tier 1 capital, additional tier 1 capital, and tier 2 capital in an amount 

equal to or in excess of 8 percent of the nonbank SD’s uncleared swap margin amount; 

(iii) an aggregate amount of common equity tier 1 capital, additional tier 1 capital, and 

 156 Compare 17 CFR 240.18a-1d with UK CRR, Article 63(d).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

55

tier 2 capital equal to or greater than 8 percent of the nonbank SD’s total risk-weighted 

assets, provided that common equity tier 1 capital comprises at least 6.5 percent of the 8

percent; and (iv) the amount of capital required by the NFA.

157

Prong (i) above requires each nonbank SD electing the Bank-Based Approach to 

maintain a minimum of $20 million of common equity tier 1 capital to operate as a 

nonbank SD. The requirement that each nonbank SD electing the CFTC Bank-Based 

Approach maintain a minimum of $20 million of common equity tier 1 capital is also 

consistent with the minimum capital requirement for nonbank SDs electing the NLA 

Approach and the TNW Approach.

158 The Commission adopted this minimum 

requirement as it believed that the role a nonbank SD performs in the financial markets 

by engaging in swap dealing activities warranted a minimum level of capital, stated as a 

fixed dollar amount that does not fluctuate with the level of the firm’s dealing activities 

to help ensure the safety and soundness of the nonbank SD.159

Prong (ii) above is a minimum capital requirement that is based on the amount of 

uncleared margin for swap transactions entered into by the nonbank SD and is computed 

on a counterparty by counterparty basis. The requirement for a nonbank SD to maintain 

minimum capital equal to or greater than 8 percent of the firm’s uncleared swap margin 

provides a capital floor based on a measure of the risk and volume of the swap positions, 

 157 See 17 CFR 23.101(a)(1)(i). NFA has adopted the CFTC minimum capital requirements for nonbank 

SDs, but has not adopted additional capital requirements at this time.

158 Nonbank SDs electing the NLA Approach are subject to a minimum capital requirement that includes a 

fixed minimum dollar amount of net capital of $20 million. See 17 CFR 23.101(a)(1)(ii)(A)(1). Nonbank 

SDs electing the TNW Approach are required to maintain levels of tangible net worth that equals or 

exceeds $20 million plus the amount of the nonbank SDs’ market risk and credit risk associated with the 

firms’ dealing activities. See 17 CFR 23.101(a)(2)(ii)(A).

159 See, e.g., 85 FR 57492.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

56

and the number of counterparties and the complexity of operations, of the nonbank SD. 

The intent of the minimum capital requirement based on a percentage of the nonbank 

SD’s uncleared swap margin was to establish a minimum capital requirement that would 

help ensure that the nonbank SD meets all of its obligations as a SD to market 

participants, and to cover potential operational risk, legal risk, and liquidity risk in 

addition to the risks associated with its trading portfolio.160

Prong (iii) above is a minimum capital requirement that is based on the Federal 

Reserve Board’s capital requirements for bank holding companies and is consistent with 

the BCBS international capital framework for banking institutions. As noted above, a 

nonbank SD under prong (iii) must maintain an aggregate of common equity tier 1 

capital, additional tier 1 capital, and tier 2 capital in an amount equal to or greater than 8 

percent of the nonbank SD’s total risk-weighted assets, with common equity tier 1 capital 

comprising at least 6.5 percent of the 8 percent. Risk-weighted assets are a nonbank 

SD’s on-balance sheet and off-balance sheet exposures, including proprietary swap, 

security-based swap, equity, and futures positions, weighted according to risk. The 

Bank-Based Approach requires each nonbank SD to maintain regulatory capital in an 

amount that equals or exceeds 8 percent of the firm’s total risk-weighted assets to help 

ensure that the nonbank SD’s level of capital is sufficient to absorb decreases in the value 

of the firm’s assets and increases in the value of the firm’s liabilities, and to cover 

unexpected losses resulting from business activities, including uncollateralized defaults 

from swap counterparties, without the nonbank SD becoming insolvent.

 160 See 85 FR 57462.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

57

A nonbank SD must compute its risk-weighted assets using standardized market 

risk and/or credit risk charges, unless the nonbank SD has been approved by the 

Commission or NFA to use internal models.161 For standardized market risk charges, the 

Commission incorporates by reference the standardized market risk charges set forth in 

Commission Regulation 1.17 for FCMs and SEC Rule 18a-1 for nonbank SBSDs.

162 The 

standardized market risk charges under Commission Regulation 1.17 and SEC Rule 18a1 are calculated as a percentage of the market value or notional value of the nonbank 

SD’s marketable securities and derivatives positions, with the percentages applied to the 

market value or notional value increasing as the expected or anticipated risk of the 

positions increases.

163 The resulting total market risk exposure amount is multiplied by a 

factor of 12.5 to cancel the effect of the 8 percent multiplication factor applied to all of 

the nonbank SD’s risk-weighted assets, which effectively requires a nonbank SD to hold 

qualifying regulatory capital equal to or greater than 100 percent of the amount of its 

market risk exposure.164

With respect to standardized credit risk charges for exposures from nonderivatives positions, a nonbank SD computes its on-balance sheet and off-balance sheet 

exposures in accordance with the standardized credit risk charges adopted by the Federal 

 161 See 17 CFR 23.101(a)(1)(i)(B) and the definition of the term BHC equivalent risk-weighted assets in 17 

CFR 23.100.

162 See paragraph (3) of the definition of the term BHC equivalent risk-weighted assets in 17 CFR 23.100.

163 See 17 CFR 240.18a-1(c)(1).

164 See 17 CFR 23.100 (Definition of BHC equivalent risk-weighted assets). As noted, a nonbank SD is 

required to maintain qualifying capital (i.e., an aggregate of common equity tier 1 capital, additional tier 1 

capital, and tier 2 capital) in an amount that exceeds 8 percent of its market risk-weighted assets and creditrisk-weighted assets. The regulations, however, require the nonbank SD to effectively maintain qualifying 

capital in excess of 100 percent of its market risk-weighted assets by requiring the nonbank SD to multiply 

its market-risk-weighted assets by 12.5.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

58

Reserve Board and set forth in Subpart D of 12 CFR 217 as if the SD itself were a bank 

holding company subject to Subpart D.

165 Standardized credit risk charges are computed 

by multiplying the amount of the exposure by defined counterparty credit risk factors that 

range from 0 percent to 150 percent.

166 A nonbank SD with off-balance sheet exposures 

is required to calculate a credit risk charge by multiplying each exposure by a credit 

conversion factor that ranges from 0 percent to 100 percent, depending on the type of 

exposure.167 In addition to the risk-weighted assets for general credit risk, a nonbank SD 

calculating risk charges under Subpart D of 12 CFR 217 must also calculate riskweighted assets for unsettled transactions involving securities, foreign exchange 

instruments, and commodities that have a risk of delayed settlement or delivery. 

A nonbank SD may compute standardized credit risk charges for derivatives

positions, including uncleared swaps and non-cleared security-based swaps, using either 

the current exposure method (“CEM”) or the standardized approach for measuring 

counterparty credit risk (“SA-CCR”).168 Both CEM and SA-CCR are non-model, rulesbased, approaches to calculating counterparty credit risk exposures for derivatives 

 165 See 17 CFR 23.101(a)(1)(i)(B) and paragraph (1) of the definition of the term BHC equivalent riskweighted assets in 17 CFR 23.100.

166 See 17 CFR 217.32. Lower credit risk factors are assigned to entities with lower credit risk and higher 

credit risk factors are assigned to entities with higher credit risk. For example, a credit risk factor of 0% is 

applied to exposures to the U.S. government, the Federal Reserve Bank, and U.S. government agencies (see

12 CFR 217.32 (a)(1)), and a credit risk factor of 100% is assigned to an exposure to foreign sovereigns 

that are not members of the Organization of Economic Co-operation and Development (see 12 CFR 

217.32(a)(2)). 

167 See 17 CFR 217.33.

168 See 17 CFR 217.34. See also, Commission Regulation 23.100 (17 CFR 23.100) defining the term BHC 

risk-weighted assets, which provides that a nonbank SD that does not have model approval may use either 

CEM or SA-CCR to compute its exposures for over-the-counter derivative contracts without regard to the 

status of its affiliate entities with respect to the use of a calculation approach under the Federal Reserve 

Board’s capital rules.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

59

positions. Credit risk exposure under CEM is the sum of: (i) the current exposure (i.e., 

the positive mark-to-market) of the derivatives contract; and (ii) the potential future 

exposure, which is calculated as the product of the notional principal amount of the 

derivatives contract multiplied by a standard credit risk conversion factor set forth in the 

rules of the Federal Reserve Board.169 Credit risk exposure under SA-CCR is defined as 

the exposure at default amount of a derivatives contract, which is computed by 

multiplying a factor of 1.4 by the sum of: (i) the replacement costs of the contract (i.e., 

the positive mark-to market); and (ii) the potential future exposure of the contract.170

A nonbank SD may also obtain approval from the Commission or NFA to use 

internal models to compute market risk and/or credit risk charges in lieu of the 

standardized charges. A nonbank SD seeking approval to use an internal model is 

required to submit an application to the Commission or NFA.

171 The application is 

required to include, among other things, a list of categories of positions that the nonbank 

SD holds in its proprietary accounts and a brief description of the methods that the 

nonbank SD will use to calculate market risk and/or credit risk charges for such positions, 

as well as a description of the mathematical models used to compute market risk and 

credit risk charges.

A nonbank SD approved by the Commission or NFA to use internal models to 

compute market risk is required to comply with Subpart F of the Federal Reserve Board’s 

 169 See 12 CFR 217.34.

170 See 12 CFR 217.132(c).

171 See 17 CFR 23.102(c).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

60 

Part 217 regulations (“Subpart F”).172 Subpart F is based on models that are consistent 

with the BCBS Basel 2.5 capital framework.173 The Commission’s qualitative and 

quantitative requirements for internal capital models are also comparable to the SEC’s 

existing internal capital model requirements for broker-dealers in securities and 

SBSDs,174 which are broadly based on the BCBS Basel 2.5 capital framework. 

A nonbank SD approved to use internal models to compute credit risk charges is 

required to perform such computation in accordance with Subpart E of the Federal 

Reserve Board’s Part 217 regulations175 as if the SD itself were a bank holding company 

subject to Subpart E.176 The internal credit risk modeling requirements are also based on 

the Basel 2.5 capital framework and the Basel 3 capital framework. A nonbank SD that 

computes its credit risk charges using internal models must multiply the resulting capital 

requirement by a factor of 12.5.177

In adopting the final Bank-Based Approach rules, the Commission also noted that 

in choosing an alternative calculation, the nonbank SD must adopt the entirety of the 

alternative. As such, if the nonbank SD is calculating its risk-weighted assets using the 

regulations in Subpart E of 12 CFR 217, the nonbank SD must include charges reflecting 

 

172 See paragraph (4) of the definition of BHC equivalent risk-weighted assets in 17 CFR 23.100.

173 Compare 17 CFR 23.100 (providing for a nonbank SD that is approved to use internal models to 

calculate market and credit risk to calculate its risk-weighted assets using Subparts E and F of 12 CFR Part 

217), Subpart F of 12 CFR, 17 CFR 23.101(a)(1)(ii) (providing for an SD that elects the Net Liquid Assets 

Approach to calculate its net capital in accordance with Rule 18a-1), and 17 CFR § 23.102(a), with Basel 

Committee on Banking Supervision, Revisions to the Basel II Market Risk Framework (2011), 

https://www.bis.org/publ/bcbs193.pdf (describing the revised internal model approach under Basel 2.5).

174 The SEC internal model requirements for SBSDs are listed in 17 CFR 240.18a-1(d).

175 12 CFR 217 Subpart E.

176 See 85 FR 57462 at 57496.

177 12 CFR 217.131(e)(1)(iii), 217.131(e)(2)(iv), and 217.132(d)(9)(iii).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

61 

all categories of risk-weighted assets applicable under these regulations, which include 

among other things, charges for operational risk, CVA of OTC derivatives contracts, and 

unsettled transactions involving securities, foreign exchange instruments, and 

commodities that have a risk of delayed settlement or delivery.

178 The capital charge for 

operational risk and CVA of OTC derivatives contracts calculated in accordance with 

Subpart E of 12 CFR 217 must also be multiplied by a factor of 12.5.179 

Under the Basel 2.5 capital framework, nonbank SDs have flexibility in 

developing their internal models, but must follow certain minimum standards. Internal 

market risk and credit risk models must follow a Value-at-Risk (“VaR”) structure to 

compute, on a daily basis, a 99th percentile, one-tailed confidence interval for the 

potential losses resulting from an instantaneous price shock equivalent to a 10-day 

movement in prices (unless a different time-frame is specifically indicated). The 

simulation of this price shock must be based on a historical observation period of 

minimum length of one year, but there is flexibility on the method used to render 

simulations, such as variance-covariance matrices, historical simulations, or Monte Carlo.

The Commission and the Basel standards for internal models also have 

requirements on the selection of appropriate risk factors as well as on data quality and 

update frequency.180 One specific concern is that internal models must capture the non-

 

178 Settlement risk for OTC derivatives contracts is addressed as part of the counterparty-credit risk 

calculation methodology described in 12 CFR 217.132. 

179 12 CFR 217.162(c) (operational risk) and 217.132(e)(4) (CVA of OTC derivative contracts). 

180 See 17 CFR Appendix A to Subpart E of Part 23(i)(2)(iii), and Basel Committee on Banking 

Supervision, Revisions to the Basel II Market Risk Framework (2011), paragraph 718(Lxxvi)(e), available 

at: https://www.bis.org/publ/bcbs193.pdf. 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

62 

linear price characteristics of options positions, including but not limited to, relevant 

volatilities at different maturities.181

In addition, BCBS standards for market risk models include a series of additive 

components for risks for which the broad VaR is ill-suited or that may need targeted 

calculation. These include the calculation of a Stressed VaR measure (with the same 

specifications as the VaR, but calibrated to historical data from a continuous 12-month 

period of significant financial stress relevant to the firm’s portfolio); a Specific Risk 

measure (which includes the effect of a specific instrument); an Incremental Risk 

measure (which addresses changes in the credit rating of a specific obligor which may 

appear as a reference in an asset); and a Comprehensive Risk measure (which addresses 

risk of correlation trading positions). 

2. UK PRA Capital Rules: PRA-designated UK Nonbank Swap Dealer Minimum 

Capital Requirements 

The UK PRA Capital Rules impose bank-like capital requirements on a PRAdesignated UK nonbank SD that, consistent with the BCBS international bank capital 

framework, require the PRA-designated UK nonbank SD to hold a sufficient amount of 

qualifying equity capital and subordinated debt based on the PRA-designated UK

nonbank SD’s activities to absorb decreases in the value of firm assets and increases in 

the value of the firm’s liabilities, and to cover losses from its business activities,

including possible counterparty defaults and margin collateral shortfalls associated with 

the firm’s swap dealing activities, without the firm becoming insolvent. Specifically, the 

 

181 The Commission’s requirement is set forth in paragraph (i)(2)(iv)(A) of Appendix A to Subpart E of 17 

CFR Part 23. See also, Basel Committee on Banking Supervision, Revisions to the Basel II Market Risk 

Framework (2011), paragraph 718(Lxxvi)(h), available at: https://www.bis.org/publ/bcbs193.pdf. 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

63 

UK PRA Capital Rules require each PRA-designated UK nonbank SD to maintain 

sufficient levels of capital to satisfy the following capital ratios, expressed as a 

percentage of the PRA-designated UK nonbank SD’s total risk exposure amount (i.e., the 

sum of the PRA-designated UK nonbank SD’s risk-weighted assets and exposures): (i) a 

common equity tier 1 capital ratio of 4.5 percent;182 (ii) a tier 1 capital ratio of 6 

percent;

183 and (iii) a total capital ratio of 8 percent.184 The UK PRA Capital Rules 

further require a PRA-designated UK nonbank SD to maintain a capital conservation 

buffer composed of common equity capital tier 1 capital in amount equal to 2.5 percent of 

the firm’s total risk exposure.185 The common equity tier 1 capital used to meet the 

capital conservation buffer must be separate and in addition to the 4.5 percent of common 

equity tier 1 capital that the PRA-designated UK nonbank is required to maintain in 

meeting its core 8 percent capital requirement.186 Thus, a PRA-designated UK nonbank 

 

182 UK CRR, Article 92(1)(a).

183 Id., Article 92(1)(b). Tier 1 capital is the sum of the PRA-designated UK nonbank SD’s common equity 

tier 1 capital and additional tier 1 capital.

184 Id., Article 92(1)(c). The total capital is the sum of the PRA-designated UK nonbank SD’s tier 1 capital 

and tier 2 capital.

185 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 2 Capital Conservation Buffer, Rule 2.1.

186 Id. A PRA-designated UK nonbank SD may also be required to maintain a countercyclical capital 

buffer composed of common equity tier 1 capital equal to the firm’s total risk exposure multiplied by an 

institution-specific countercyclical buffer rate. The institution-specific countercyclical capital buffer rate is 

determined by calculating the weighted average of the countercyclical buffer rates that apply in the 

jurisdictions in which the PRA-designated UK nonbank SD has relevant credit exposures. See PRA 

Rulebook, CRR Firms, Capital Buffers Part, Chapter 3 Countercyclical Capital Buffer. The rate for each 

jurisdiction is determined by the UK Financial Policy Committee or a third country countercyclical buffer 

authority, as applicable. See PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 3 Countercyclical 

Capital Buffer, Rule 3.1., and Capital Requirements (Capital Buffers and Macro-prudential Measures) 

Regulations 2014, Articles 7-20. In practice, the countercyclical buffer rate in the UK, as of July 2023, is 2 

percent of risk-weighted assets. The countercyclical capital buffer rate is published by the Bank of 

England, and is available at: https://bankofengland.co.uk/financial-stability/the-countercyclical-capitalbuffer. Several EU Member States of relevance to the UK have also implemented countercyclical capital 

buffers with rates ranging from 0.5 percent to 2.5 percent of risk-weighted assets. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

64

SD is required to maintain regulatory capital equal to at least 10.5 percent of its total risk 

exposure amount, with common equity tier 1 capital comprising at least 7 percent of the 

regulatory capital (4.5 percent of the core capital plus the 2.5 percent capital conservation 

buffer).

A PRA-designated UK nonbank SD’s total risk exposure amount is calculated as 

the sum of the firm’s: (i) capital requirements for market risk; (ii) risk-weighted exposure 

amounts for credit risk; (iii) capital requirements for settlement risk; (iv) capital 

requirements for CVA risk of OTC derivatives instruments; and (v) capital requirements 

for operational risk.187 Capital charges for market risk and risk-weighted exposures for 

credit risk are computed based on the PRA-designated UK nonbank SD’s on-balance 

sheet and off-balance sheet exposures, including proprietary swap, security-based swap, 

equity, and futures positions, weighted according to risk.188 Settlement risk capital 

charges reflect the price difference to which a PRA-designated UK nonbank SD is 

exposed if its transactions in debt instruments, equity, foreign currency, and commodities

remain unsettled after the respective product’s due delivery date.

189 CVA is an 

adjustment to the mid-market value of the portfolio of OTC derivative transactions with a 

 187 UK CRR, Article 92(3).

188 To compute capital requirements for market risk, PRA-designated UK nonbank SDs are required to 

calculate capital charges for all trading book positions and non-trading book positions that are subject to 

foreign exchange or commodity risk. See UK CRR, Article 325. The risk-weighted exposure amounts for 

credit risk include: (i) risk-weighted exposure amounts for credit risk and dilution risk in respect of all the 

business activities of the PRA-designated UK nonbank SD, excluding risk-weighted exposure amounts 

from the trading book business of the firm; and (ii) risk-weighted exposure amounts for counterparty risk 

arising from the trading book business for certain derivatives transactions, repurchase agreements, 

securities or commodities lending or borrowing transactions, margin lending or long settlement 

transactions. See UK CRR, Article 92(3)(a) and (f).

189 UK CRR, Article 378. Settlement risk is calculated as 8 percent, 50 percent, 75 percent, or 100 percent 

of the price difference for transactions that are not settled within 5 to 15 business days, 16 to 30 business 

days, 31 to 45 business days, or 46 or more business days, respectively, from the due settlement date.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

65

counterparty and reflects the current market value of the credit risk of the counterparty to 

the PRA-designated UK nonbank SD.

190 Operational risk capital charges reflect the risk 

of loss resulting from inadequate or failed internal processes, people and systems or from 

external events, and includes legal risk.

191 

To compute its total risk exposure amount, a PRA-designated UK nonbank SDs is 

also required to multiply the capital requirements for market risk, settlement risk, CVA 

risk, and operational risk, calculated in accordance with the UK PRA Capital Rules, by a 

factor of 12.5, which effectively requires a PRA-designated UK nonbank SD to hold 

qualifying regulatory capital equal to or greater than the full amount of the relevant risk 

exposures.192 The formulae for calculating risk-weighted exposure amounts for credit 

risk also include a 12.5 multiplication factor.

193

Consistent with the Commission’s Bank-Based Approach and the BCBS capital 

framework, the UK PRA Capital Rules require PRA-designated UK nonbank SDs to 

compute market risk exposures and credit risk exposures using a standardized approach 

or, if approved by the PRA, internal risk models.194 In addition, UK PRA Capital Rules, 

consistent with the BCBS capital framework, require PRA-designated UK nonbank SDs 

to compute capital charges for CVA risk and operational risk using standardized 

approaches, unless approved to use internal models by the PRA.

195

 190 Id., Article 381.

191 Id., Article 4(1)(52).

192 Id., Article 92(4). 

193 Id., Article 153 et seq.

194 With the permission of the PRA, a PRA-designated UK nonbank SD may use internal models to 

calculate market risk (see UK CRR, Article 363) and credit risk (see UK CRR, Articles 143 and 283).

195 See UK CRR, Articles 382-384 for CVA risk calculations; and Article 312(2) for operational risk.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

66

PRA-designated UK nonbank SDs calculate standardized market risk charges 

generally by multiplying the notional or carrying amount of net positions by riskweighting factors, which are based on the underlying market risk of each asset or 

exposure and increase as the expected risk of the positions increase. Market risk 

requirements for debt instruments and equity instruments are calculated separately under 

the standardized approach, and are each calculated as the sum of specific risk and general 

risk of the positions.196 Securitizations are treated as debt instruments for market risk 

requirements,

197 whereas derivative positions are generally treated as exposures on their 

underlying assets,198 with options being delta-adjusted.199

The UK PRA Capital Rules also require PRA-designated UK nonbank SDs to 

include in their risk-weighted assets market risk exposures to certain foreign currency and 

gold positions. Specifically, a PRA-designated UK nonbank SD with net positions in 

foreign exchange and gold that exceed 2 percent of the firm’s total capital must calculate 

capital requirements for foreign exchange risk.200 The capital requirement for foreign 

exchange risk under the standardized approach is 8 percent of the PRA-designated UK

nonbank SD’s net positions in foreign exchange and gold.201

The UK PRA Capital Rules further require PRA-designated UK nonbank SDs to 

include exposures to commodity positions in calculating the firm’s risk-weighted assets. 

 196 Id., Article 326.

197 Id. See also UK CRR, Articles 334-340 (provisions related to debt instruments) and 341-343 

(provisions related to equities).

198 Id., Articles 328-330, 358.

199 Id., Article 329.

200 Id., Article 351.

201 Id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

67

The standardized calculation of commodity risk exposures may follow one of three 

approaches depending on type of position or exposure. The first is the sum of a flat 

percentage rate for net positions, with netting allowed among tightly defined sets, plus 

another flat percentage rate for the gross position.202 The other two standardized 

approaches are based on maturity-ladders, where unmatched portions of each maturity 

band (i.e., portions that do not net out to zero) are charged at a step-up rate in comparison 

to the base charges for matched portions.203

With respect to credit risk, the UK PRA Capital Rules require a PRA-designated 

UK nonbank SD to calculate its standardized credit risk exposure in a manner aligned 

with the Commission’s Bank-Based Approach and the BCBS framework by taking the 

carrying value or notional value of each of the PRA-designated UK nonbank SD’s onbalance sheet and off-balance sheet exposures, making certain additional credit risk 

adjustments, and then applying specific risk-weights based on the type of counterparty 

and the asset’s credit quality.204 For instance, credit exposures to the ECB, the UK 

government, and the Bank of England carry a zero percent risk-weight; exposures to 

other central governments and central banks may carry risk-weights between 0 and 150, 

depending on the credit rating available for the central government or central bank; and

exposures to banks, PRA-designated investment firms, or other businesses may carry 

risk-weights between 20 percent and 150 percent depending on the credit ratings 

available for the entity or, for exposures to banks and investment firms, for the central 

 202 Id., Article 360.

203 Id., Articles 359 and 361.

204 Id., Articles 111 and 113(1).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

68

government of the jurisdiction in which the entity is incorporated.

205 If no credit rating is 

available, the PRA-designated UK nonbank SD must generally apply a 100 percent riskweight, meaning the total accounting value of the exposure is used.206

With respect to counterparty credit risk for derivatives transactions and certain 

other agreements that give rise to bilateral credit risk, the UK PRA Capital Rules require

a PRA-designated UK nonbank SD that is not approved to use credit risk models to 

calculate its exposure using the standardized approach for counterparty credit risk (i.e.,

SA-CCR),

207 which is one of the methods that a nonbank SD may use to calculate its 

credit risk exposure under a derivatives transaction pursuant to the Commission’s BankBased Approach.208 The exposure amount under the SA-CCR is computed, under both 

the UK PRA Capital Rules and the Commission’s Bank-Based Approach, as the sum of 

the replacement cost of the contract and the potential future exposure of the contract, 

multiplied by a factor of 1.4.209

 205 Id., Articles 114-122.

206 Id., Articles 121(2) and 122(2).

207 UK CRR, Articles 92(3)(f) and PRA Rulebook, CRR Firms, Counterparty Credit Risk (CRR) Part, 

Chapter 3 Counterparty Credit Risk (Part Three, Title Two, Chapter Six CRR). PRA-designated UK 

nonbank SDs with smaller-sized derivatives business may also use a “simplified standardized approach to 

counterparty credit risk” or an “original exposure method” as simpler methods for calculating exposure 

values. PRA Rulebook, CRR Firms, Counterparty Credit Risk (CRR) Part, Chapter 3 Counterparty Credit 

Risk (Part Three, Title Two, Chapter Six CRR), Articles 281-282. To use either of these alternative 

methods, an entity’s on-and off-balance sheet derivatives business must be equal or less than 10 percent of 

the entity’s total assets and GBP 260 million or 5 percent of the entity’s total assets and GBP 88 million, 

respectively. PRA Rulebook, CRR Firms, Counterparty Credit Risk (CRR) Part, Chapter 3 Counterparty 

Credit Risk (Part Three, Title Two, Chapter Six CRR), Article 273a. 

208 12 CFR 217.34.

209 PRA Rulebook, CRR Firms, Counterparty Credit Risk (CRR) Part, Chapter 3 Counterparty Credit Risk 

(Part Three, Title Two, Chapter Six CRR), Article 274 and 12 CFR 217.132(c). 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

69

UK PRA Capital Rules also require a PRA-designated UK nonbank SD to 

calculate capital requirements for settlement risk.210 Consistent with the BCBS 

framework, the capital charge for settlement risk for transactions settled on a deliveryversus-payment basis is computed by multiplying the price difference to which a PRAdesignated UK nonbank SD is exposed as a result of an unsettled transaction by a 

percentage factor that varies from 8 percent to 100 percent based on the number of 

working days after the due settlement date during which the transaction remains 

unsettled.

211 The CFTC’s Bank-Based Approach provides for a similar calculation 

methodology for risk-weighted asset amounts for unsettled transactions involving 

securities, foreign exchange instruments, and commodities.212

Consistent with the BCBS framework, a PRA-designated UK nonbank SD is also 

required to calculate capital charges for CVA risk for OTC derivative instruments213 to 

reflect the current market value of the credit risk of the counterparty to the PRA-

 210 UK CRR, Article 378 (indicating that if transactions in which debt instruments, equities, foreign 

currencies and commodities excluding repurchase transactions and securities or commodities lending and 

securities or commodities borrowing are unsettled after their due delivery dates, a PRA-designated UK 

nonbank SD must calculate the price difference to which it is exposed). 

211 Id. The price difference to which a PRA-designated UK nonbank SD is exposed is the difference 

between the agreed settlement price for an instrument (i.e., a debt instrument, equity, foreign currency or 

commodity) and the instrument’s current market value, where the difference could involve a loss for the 

firm. UK CRR, Article 378.

212 17 CFR 23.100 (definition of BHC equivalent risk-weighted assets), 12 CFR 217.38 and 12 CFR 

217.136. 

213 UK CRR, Article 382 (1). CVA risk charges need not be calculated for credit derivatives recognized to 

reduce risk-weighted exposure amounts for credit risk. Id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

70

designated UK nonbank SD.

214 CVA can be calculated following similar methodologies

as those described in Subpart E of the Federal Reserve Board’s Part 217 regulations.

215

A PRA-designated UK nonbank SD’s total risk exposure amount also includes 

operational risk charges. Consistent with the BCBS framework, PRA-designated UK

nonbank SDs may calculate standardized operational risk charges using either one of two 

approaches – the Basic Indicator Approach or the Standardized Approach.

216 Both the 

Basic Indicator Approach and the Standardized Approach use as a calculation basis the 

three-year average of the "relevant indicator," which is the sum of certain items on the 

statement of income/loss (i.e., the firm’s net interest income and net non-interest income). 

Under the Basic Indicator Approach, PRA-designated UK nonbank SDs are required to 

multiply the relevant indicator by a factor of 15 percent. When using the Standardized 

Approach, firms need to allocate the relevant indicator into eight business lines specified 

by regulation (e.g., trading and sales; retail brokerage; corporate finance) and multiply 

the corresponding portion by a percentage factor ranging from 12 to 18 percent 

depending on the business line. The capital requirements for operational risk are

calculated as the sum of the individual business lines’ charges.

As noted above, if approved by the PRA, a PRA-designated UK nonbank SD may 

use internal models to calculate its market risk charges, credit risk charges, including 

counterparty credit risk charges, CVA risk charges, and operational risk charges in lieu of 

 214 Id., Article 381. CVA is defined to exclude debit valuation adjustment.

215 See UK CRR, Articles 383-384 and 12 CFR 217.132(e)(5) and (6). Under the CFTC’s Bank-Based 

Approach, nonbank SDs calculating their credit risk-weighted assets using the regulations in Subpart D of 

the Federal Reserve Board’s Part 217 regulations, do not calculate CVA of OTC derivatives instruments. 

216 UK CRR, Article 312 and PRA Rulebook, CRR Firms, Operational Risk (CRR) Part. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

71

using a standardized approach.

217 To obtain permission, a PRA-designated UK nonbank 

SD must demonstrate to the satisfaction of the PRA that it meets certain conditions for 

the use of models.

218 

With respect to market risk, the PRA may grant a PRA-designated UK nonbank 

SD permission to use internal models to calculate one or more of the following risk 

categories: (i) general risk of equity instruments, (ii) specific risk of equity instruments, 

(iii) general risk of debt instruments, (iv) specific risk of debt instruments, (v) foreign 

exchange risk, or (vi) commodities risk,219 along with interest rate risk on derivatives.220 

To obtain approval to use a market risk model, a PRA-designated UK nonbank SD must 

meet conditions related to specified model elements and controls including risk and 

stressed risk calculations,221 back-testing and multiplication factors,222 risk measurement 

requirements,223 governance and qualitative requirements,224 internal validation,225 and 

specific requirements by risk categories.226 A PRA-designated UK nonbank SD 

approved to use models must also obtain approval from the PRA to implement a material 

 217 UK CRR, Articles 143 (credit risk), 283 (counterparty credit risk), 312 (operational risk), 363 (market 

risk) and 383 (CVA risk). PRA-designated UK nonbank SDs are not permitted, however, to calculated 

counterparty credit risk charges using internal models when calculating large exposures. PRA Rulebook, 

CRR Firms, Large Exposures (CRR) Part, Chapter 4 Large Exposures (Part Four CRR), Article 390.

218 UK CRR, Articles 143, 283, 312(2) and 363(1).

219 Id., Article 363(1).

220 Id., Article 331(1), using sensitivity models.

221 Id., Articles 364-365.

222 Id., Article 366.

223 Id., Article 367.

224 Id., Article 368.

225 Id., Article 369.

226 Id., Articles 364-377.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

72

change to the model or make a material extension to the use of the model.227 The UK 

PRA Capital Rules’ market risk model-based methodology is based on the Basel 2.5 

standard228 and incorporates relevant aspects of the BCBS framework in terms of 

requiring PRA-designated UK nonbank SDs with model approval to use a VaR model 

with a 99 percent, one-tailed confidence level with: (i) price changes equivalent to a 10-

business day movement in rates and prices, (ii) effective historical observation periods of 

at least one year, and (iii) at least monthly data set updates.229 The UK PRA Capital 

Rules also include a framework for governance that includes requirements related to the 

implementation of independent risk management,230 senior management’s involvement in 

the risk-control process,

231 establishment of procedures for monitoring and ensuring 

compliance with a documented set of internal policies and controls,

232 and the conducting 

of independent review of the models as part of the internal audit process.

233 

With regulatory permission, PRA-designated UK nonbank SDs may also use 

models to calculate credit risk exposures.

234 Credit risk models may include internal 

ratings based on the estimation of default probabilities and loss given default, consistent 

with the BCBS framework and subject to similar model risk management guidelines.235 

 227 Id., Article 363(3).

228 Compare UK CRR, Articles 362-377 with Revisions to the Basel II Market Risk Framework.

229 UK CRR, Article 365(1).

230 Id., Articles 368 (1)(b).

231 Id., Articles 368 (1)(c).

232 Id., Articles 368 (1)(e).

233 Id., Articles 368 (1)(h).

234 Id., Article 143. 

235 Id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

73

To obtain approval for the use of internal ratings-based models, a PRA-designated UK 

nonbank SD must meet requirements related to, among other things, the structure of its

rating systems and its criteria for assigning exposures to grades and pools within a rating 

system, the parameters of risk quantification, the validation of internal estimates, and the 

internal governance and oversight of the rating systems and estimation processes.

236 

In addition, subject to regulatory approval, PRA-designated UK nonbank SDs 

may use internal models to calculate counterparty credit risk exposures for derivatives, 

securities financing, and long settlement transactions.237 The prerequisites for approval 

for such models include requirements related to the establishment and maintenance of a

counterparty credit risk management framework, stress testing, the integrity of the 

modelling process, the risk management system, and validation.238 The UK PRA Capital 

Rules’ internal counterparty credit risk model-based methodology is also based on the 

Basel 2.5 standard.

239 The UK PRA Capital Rules allow for the estimation of expected 

exposure as a measure of the average of the distribution of exposures at a particular 

future date,

240 with adjustments to the period of risk, as appropriate to the asset and 

counterparty. 

 236 Id., Articles 170-177 (rating systems), 178- 184 (risk quantification), 185 (validation of internal 

estimates), and 189-191 (internal governance and oversight).

237 Id., Article 283. As noted above, however, PRA-designated UK nonbank SDs are not permitted to 

calculate counterparty credit risk charges using internal models when calculating large exposures. PRA 

Rulebook, CRR Firms, Large Exposures (CRR) Part, Chapter 4 Large Exposures (Part Four CRR), Article 

390.

238 Id., Articles 283-294. 

239 Compare UK CRR, Article 362–377 with Revisions to the Basel II Market Risk Framework.

240 UK CRR, Article 272(19), 283-285.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

74

PRA-designated UK nonbank SDs may also obtain regulatory permission to use 

“advanced measurement approaches” based on their own operational risk measurement 

systems, to calculate capital charges for operational risk. To obtain such permission, 

PRA-designated UK nonbank SDs must meet qualitative and quantitative standards, as 

well as general risk management standards set forth in the UK PRA Capital Rules.241 

Specifically, among other qualitative standards, PRA-designated UK nonbank SDs must 

meet requirements related to the governance and documentation of their operational risk 

management processes and measurement systems.242 In addition, PRA-designated UK

nonbank SDs must meet quantitative standards related to process, data, scenario analysis, 

business environment and internal control factors laid down in the UK PRA Capital 

Rules.243

As an additional element to the capital requirements, the UK PRA Capital Rules 

further impose a 3.25 percent leverage ratio floor on PRA-designated UK nonbank SDs

that hold significant amounts of non-UK assets.

244 Specifically, a PRA-designated UK

nonbank SD that has non-UK assets equal to or greater than GBP 10 billion is required to 

maintain an aggregate amount of common equity tier 1 capital and additional tier 1 

capital equal to or in excess of 3.25 percent of the firm’s on-balance sheet and offbalance sheet exposures, including exposures on uncleared swaps but excluding certain 

 241 UK CRR, Article 312(1), cross-referencing UK CRR, Articles 321 and 322; PRA Rulebook, CRR 

Firms, General Organizational Requirements Part, Rules 2.1 and 2.2; and PRA Rulebook, CRR Firms, 

Internal Liquidity Adequacy Assessment Part. 

242 UK CRR, Article 321. 

243 Id., Article 322. 

244 PRA Rulebook, CRR Firms, Leverage Ratio – Capital Requirements and Buffers Part, Chapter 1 

Application and Definitions and Chapter 3 Minimum Leverage Ratio. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

75

exposures to central banks, without regard to any risk-weighting.245 For the purposes of 

complying with the leverage ratio requirement, at least 75 percent of the firm’s tier 1 

capital must consist of common equity tier 1 capital.246 The leverage ratio is a non-risk 

based minimum capital requirement that is intended to prevent a PRA-designated UK

nonbank SD from engaging in excessive leverage, and complements the risk-based 

minimum capital requirement that is based on the PRA-designated UK nonbank SD’s 

risk-weighted assets.

Furthermore, the UK PRA Capital Rules also impose a separate liquidity coverage 

requirement on a PRA-designated UK nonbank SD to address liquidity risk. The 

liquidity coverage requirement provides that PRA-designated UK nonbank SDs must 

hold liquid assets in an amount sufficient to cover liquidity outflows (less liquidity 

inflows) under stressed conditions over a period of 30 days.247 For purposes of the 

liquidity coverage requirement, the term “stressed” means a sudden or severe 

deterioration in the solvency or liquidity position of a firm due to changes in market 

conditions or idiosyncratic factors as a result of which there is a significant risk that the 

firm becomes unable to meet its commitments as they become due within the next 30 

days.248 In addition, Article 413 of UK CRR, which has been incorporated into the PRA 

 245 Total exposures are required to be computed in accordance with PRA Rulebook, CRR Firms, Leverage 

Ratio (CRR) Part, Chapter 3 Leverage Ratio (Part Seven CRR), Article 429 et seq. A PRA-designated UK 

nonbank SD may also be subject to a countercyclical leverage ratio buffer of common equity tier 1 capital 

equal to the firm’s institution-specific countercyclical capital buffer rate multiplied by 35 percent, 

multiplied by the firm’s total exposures. PRA Rulebook, CRR Firms, Leverage Ratio – Capital 

Requirements and Buffers Part, Chapter 4 Countercyclical Leverage Ratio Buffer. 

246 PRA Rulebook, CRR Firms, Leverage Ratio – Capital Requirements and Buffers Part, Chapter 3 

Minimum Leverage Ratio, Rule 3.2.

247 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 412(1).

248 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 411(10).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

76

Rulebook, establishes a general requirement that firms ensure that long-term obligations 

and off-balance sheet items are adequately met with a diverse set of funding instruments 

that are stable under both normal and stressed conditions.249 

The UK PRA Capital Rules also require PRA-designated UK nonbank SDs to 

maintain at all times a minimum base capital requirement of GBP 750,000.

250 

3. Commission Analysis

The Commission has reviewed the UK Application and the relevant UK laws and 

regulations, and has preliminarily determined that the UK PRA Capital Rules are 

comparable in purpose and effect to the CFTC Capital Rules with regard to the 

establishment of the nonbank SD’s minimum capital requirement and the calculation of 

the nonbank SD’s amount of regulatory capital to meet that requirement.251 Although 

there are differences between the UK PRA Capital Rules and the CFTC Capital Rules, as 

discussed below, the Commission preliminarily believes that the UK PRA Capital Rules 

and the CFTC Capital Rules are designed to ensure the safety and soundness of a 

nonbank SD and, subject to the proposed conditions discussed below, will achieve 

comparable outcomes by requiring the firm to maintain a minimum level of qualifying 

regulatory capital, including subordinated debt, to absorb losses from the firm’s business 

activities, including swap dealing activities, and decreases in the value of the firm’s

 249 PRA Rulebook, CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 413(1).

250 PRA Rulebook, CRR Firms, Definition of Capital Part, Chapter 12 Base Capital Resource Requirement, 

Rule 12.1.

251 The Commission notes that pursuant to Article 7 of UK CRR, the PRA may exempt an entity subject to 

UK CRR from the applicable capital requirements, provided certain conditions are met. In such case, the 

relevant requirements would apply to the entity’s parent entity, on a consolidated basis. The Commission’s 

assessment does not cover the application of Article 7 of UK CRR and therefore an entity that benefits 

from an exemption under Article 7 of UK CRR would not qualify for substituted compliance under the 

Capital Comparability Determination Order.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

77 

assets and increases in the value of the firm’s liabilities, without the nonbank SD 

becoming insolvent. The Commission’s preliminary finding of comparability is based on 

a comparative analysis of the three minimum capital requirements thresholds of the 

CFTC Capital Rules’ Bank-Based Approach (i.e., the three prongs recited in Section 

III.C.1. above) and the respective elements of the UK PRA Capital Rules’ requirements, 

as discussed below. 

a. Fixed Amount Minimum Capital Requirement 

CFTC Capital Rules and the UK PRA Capital Rules both require nonbank SDs to 

hold a minimum amount of regulatory capital that is not based on the risk-weighted assets 

of the firms. Prong (i) of the CFTC Capital Rules requires each nonbank SD electing the 

Bank-Based Approach to maintain a minimum of $20 million of common equity tier 1 

capital. The CFTC’s $20 million fixed-dollar minimum capital requirement is intended 

to ensure that each nonbank SD maintains a level of regulatory capital, without regard to 

the level of the firm’s dealing and other activities, sufficient to meet its obligations to 

swap market participants given the firm’s status as a CFTC-registered nonbank SD and to 

help ensure the safety and soundness of the nonbank SD.252 The UK PRA Capital Rules 

also contain a requirement that a PRA-designated UK nonbank SD maintain a fixed 

amount of minimum initial capital of GBP 750,000.253

The Commission recognizes that the $20 million fixed-dollar minimum capital

required under the CFTC Capital Rules is substantially higher than the GBP 750,000 

minimum base capital required under the UK PRA Capital Rules and the Commission 

 

252 85 FR 57492.

253 PRA Rulebook, CRR Firms, Definition of Capital Part, Chapter 12 Base Capital Resource Requirement, 

Rule 12.1.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

78 

preliminarily believes that the $20 million represents a more appropriate level of 

minimum capital to help ensure the safety and soundness of the nonbank SD that is 

engaging in uncleared swap transactions. Accordingly, the Commission is proposing to 

condition the Capital Comparability Determination Order to require each PRAdesignated UK nonbank SD to maintain, at all times, a minimum level of $20 million 

regulatory capital in the form of common equity tier 1 items as defined in Article 26 of 

UK CRR.

254 The proposed condition would require each PRA-designated UK nonbank 

SD to maintain an amount of common equity tier 1 capital denominated in British pound 

that is equivalent to the $20 million in U.S. dollars.255 The Commission is also proposing 

that a PRA-designated UK nonbank SD may convert the pound-denominated common 

equity tier 1 capital amount to the U.S. dollar equivalent based on a commercially 

reasonable and observable exchange rate.

b. Minimum Capital Requirement Based on Risk-Weighted Assets

 

254 The Commission notes that the proposed requirement that PRA-designated UK nonbank SDs maintain a 

minimum level of $20 million of common equity tier 1 capital is consistent with conditions set forth in the 

proposed Capital Comparability Determination Orders for Japan, Mexico, and the EU, respectively. See,

Notice of Proposed Order and Request for Comment on an Application for a Capital Comparability 

Determination from the Financial Services Agency of Japan, 87 FR 48092 (Aug. 8, 2022) (“Proposed 

Japan Order”); Notice of Proposed Order and Request for Comment on an Application for a Capital 

Comparability Determination Submitted on behalf of Nonbank Swap Dealers subject to Regulation by the 

Mexican Comision Nacional Bancaria y de Valores, 87 FR 76374 (Dec. 13, 2022) (“Proposed Mexico 

Order”); and Notice of Proposed Order and Request for Comment on an Application for a Capital 

Comparability Determination Submitted on Behalf of Nonbank Swap Dealers Domiciled in the French 

Republic and Federal Republic of Germany and Subject to Capital and Financial Reporting Requirements 

of the European Union (June 27, 2023) (“Proposed EU Order”). 

255 Each of the six current PRA-designated UK nonbank SDs currently maintains common equity tier 1 

capital in excess of $20 million based on financial filings made with the Commission. Therefore, the 

Commission does not anticipate that the proposed condition would have any material impact on the PRAdesignated UK nonbank SDs currently registered with the Commission. Nonetheless, the Commission 

requests comment on the proposed condition. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

79

Prong (iii) of the CFTC Capital Rules requires each nonbank SD to maintain an 

aggregate of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital in an 

amount equal to or greater than 8 percent of the nonbank SD’s total risk-weighted assets, 

with common equity tier 1 capital comprising at least 6.5 percent of the 8 percent.256

Risk-weighted assets are a nonbank SD’s on-balance sheet and off-balance sheet market 

risk and credit risk exposures, including exposures associated with proprietary swap, 

security-based swap, equity, and futures positions, weighted according to risk. The 

requirements and capital ratios set forth in prong (iii) are based on the Federal Reserve 

Board’s capital requirements for bank holding companies and are consistent with the 

BCBS international bank capital adequacy framework. The requirement for each 

nonbank SD to maintain regulatory capital in an amount that equals or exceeds 8 percent 

of the firm’s total risk-weighted assets is intended to help ensure that the nonbank SD’s 

level of capital is sufficient to absorb decreases in the value of the firm’s assets and 

increases in the value of the firm’s liabilities, and to cover unexpected losses resulting 

from the firm’s business activities, including losses resulting from uncollateralized 

defaults from swap counterparties, without the nonbank SD becoming insolvent.

The UK PRA Capital Rules contain capital requirements for PRA-designated UK

nonbank SDs that the Commission preliminarily believes are comparable to the 

requirements contained in prong (iii) of the CFTC Capital Rules. Specifically, the UK 

PRA Capital Rules require a PRA-designated UK nonbank SD to maintain: (i) common 

equity tier 1 capital equal to at least 4.5 percent of the PRA-designated UK nonbank SD’s 

total risk exposure amount; (ii) total tier 1 capital (i.e., common equity tier 1 capital plus 

 256 17 CFR 23.101(a)(1)(B).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

80

additional tier 1 capital) equal to at least 6 percent of the PRA-designated UK nonbank 

SD’s total risk exposure amount; and (iii) total capital (i.e., an aggregate amount of 

common equity tier 1 capital, additional tier 1 capital, and tier 2 capital) equal to at least 

8 percent of the PRA-designated UK nonbank SD’s total risk exposure amount.

257 In 

addition, the UK PRA Capital Rules further require each PRA-designated UK nonbank 

SD to maintain an additional capital conservation buffer equal to 2.5 percent of the PRAdesignated UK nonbank SD’s total risk exposure amount, which must be met with 

common equity tier 1 capital.258 Thus, a PRA-designated UK nonbank SD is effectively 

required to maintain total qualifying regulatory capital in an amount equal to or in excess 

of 10.5 percent of the market risk, credit risk, CVA risk, settlement risk and operational 

risk of the firm (i.e., total capital requirement of 8 percent of risk-weighted assets and an 

additional 2.5 percent of risk-weighted assets as a capital conservation buffer), which is 

higher than the 8 percent required of nonbank SDs under prong (iii) of the CFTC Capital 

Rules.

259

The Commission also preliminarily believes that the UK PRA Capital Rules and 

the CFTC Capital Rules are comparable with respect to the calculation of capital charges 

for market risk and credit risk (including as it relates to aspects of settlement risk and

CVA risk), in determining the nonbank SD’s risk-weighted assets. More specifically, 

with respect to the calculation of market risk charges and general credit risk charges, both 

regimes require a nonbank SD to use standardized approaches to compute market and 

 257 UK CRR, Article 92(1). 

258 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 2 Capital Conservation Buffer. 

259 UK CRR, Article 92(1) and PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 2 Capital 

Conservation Buffer. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

81

credit risk, unless the firms are approved to use internal models. The standardized 

approaches follow the same structure that is now the common global standard: (i) 

allocating assets to categories according to risk and assigning each a risk-weight; (ii) 

allocating counterparties according to risk assessments and assigning each a risk factor; 

(iii) calculating gross exposures based on valuation of assets; (iv) calculating a net 

exposure allowing offsets following well defined procedures and subject to clear 

limitations; (v) adjusting the net exposure by the market risk-weights; and (vi) finally, for 

credit risk exposures, multiplying the sum of net exposures to each counterparty by their 

corresponding risk factor. 

Internal market risk and credit risk models under the UK PRA Capital Rules and 

the CFTC Capital Rules are based on the BCBS framework and contain comparable 

quantitative and qualitative requirements, covering the same risks, though with slightly 

different categorization, and including comparable model risk management requirements. 

As both rule sets address the same types of risk, with similar allowed methodologies and 

under similar controls, the Commission preliminarily believes that these requirements are 

comparable.

The Commission also preliminarily believes that the UK PRA Capital Rules and 

CFTC Capital Rules are comparable in that nonbank SDs are required to account for 

operational risk in computing their minimum capital requirements. In this connection, 

the UK PRA Capital Rules require a PRA-designated UK nonbank SD to calculate an 

operational risk exposure as a component of the firm’s total risk exposure amount.260 

PRA-designated UK nonbank SDs may use either a standardized approach or, if the 

 260 UK CRR, Article 92(3). 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

82 

PRA-designated UK nonbank SD has obtained regulatory permission, an internal 

approach based on the firm’s own measurement systems, to calculate their capital charges 

for operational risk. The CFTC Capital Rules address operational risk both as a standalone, separate minimum capital requirement that a nonbank SD is required to meet under 

prong (ii) of the Bank-Based Approach261 and as a component of the calculation of riskweighted assets for nonbank SDs that use Subpart E of the Federal Reserve Board’s Part 

217 regulations to calculate their credit risk-weighted assets via internal models.262

c. Minimum Capital Requirement Based on the Uncleared Swap Margin Amount 

As noted above, prong (ii) of the CFTC Capital Rules’ Bank-Based Approach

requires a nonbank SD to maintain regulatory capital in an amount equal to or greater 

than 8 percent of the firm’s total uncleared swaps margin amount associated with its 

uncleared swap transactions to address potential operational, legal, and liquidity risks. 

The UK PRA Capital Rules differ from the CFTC Capital Rules in that they do 

not impose a capital requirement on PRA-designated UK nonbank SDs based on a 

percentage of the margin for uncleared swap transactions. The Commission notes, 

 

261 Specifically, as further discussed below, prong (ii) of the CFTC Capital Rules’ Bank-Based Approach 

requires a nonbank SD to maintain regulatory capital in an amount equal to or greater than 8 percent of the 

firm’s total uncleared swaps margin amount associated with its uncleared swap transactions to address 

potential operational, legal, and liquidity risks. 17 CFR 101(a)(i)(C). The term “uncleared swap margin” is 

defined by Commission Regulation 23.100 as the amount of initial margin, computed in accordance with 

the Commission’s margin rules for uncleared swaps, that a nonbank SD would be required to collect from 

each counterparty for each outstanding swap position of the nonbank SD. 17 CFR 23.100 and 23.154. A 

nonbank SD must include all swap positions in the calculation of the uncleared swap margin amount, 

including swaps that are exempt or excluded from the scope of the Commission's margin regulations for 

uncleared swaps pursuant to Commission Regulation 23.150, exempt foreign exchange swaps or foreign 

exchange forwards, or netting set of swaps or foreign exchange swaps, for each counterparty, as if that 

counterparty was an unaffiliated swap dealer. 17 CFR 23.100 and 23.150. Furthermore, in computing the 

uncleared swap margin amount, a nonbank SD may not exclude any de minis thresholds contained in 

Commission Regulation 23.151. 17 CFR 23.100 and 23.151.

262 17 CFR 23.101(a)(1)(i) and 17 CFR 23.100 (definition of BHC equivalent risk-weighted assets).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

83

however, that the UK PRA Capital Rules impose capital and liquidity requirements that 

may compensate for the lack of direct analogue to the 8 percent uncleared swap margin 

requirement. Specifically, as discussed above, under the UK PRA Capital Rules, the total 

risk exposure amount is computed as the sum of the PRA-designated UK nonbank SD’s 

capital charges for market risk, credit risk, settlement risk, CVA risk of OTC derivatives 

instruments, and operational risk.263 Notably, the UK PRA Capital Rules require that 

PRA-designated UK nonbank SDs, including firms that do not use internal models, 

calculate capital charges for operational risk as a separate component of the total risk 

exposure amount. The UK PRA Capital Rules also impose separate liquidity 

requirements designed to ensure that the PRA-designated UK nonbank SDs can meet 

both short- and long-term obligations, in addition to the general requirement to maintain 

processes and systems for the identification of liquidity risk.

264 In comparison, the 

Commission requires nonbank SDs to maintain a risk management program covering 

liquidity risk, among other risk categories, but does not have a distinct liquidity 

requirement.265

 263 UK CRR, Article 92(3). 

264 More specifically, the UK PRA Capital Rules impose separate liquidity buffers and “stable funding” 

requirements designed to ensure that PRA-designated UK nonbank SDs can cover both long-term 

obligations and short-term payment obligations under stressed conditions for 30 days. PRA Rulebook, 

CRR Firms, Liquidity (CRR) Part, Chapter 4 Liquidity (Part Six CRR), Article 412-413. In addition, PRAdesignated UK nonbank SDs are required to maintain robust strategies, policies, processes, and systems for 

the identification of liquidity risk over an appropriate set of time horizons, including intra-day. PRA 

Rulebook, CRR Firms, Internal Liquidity Adequacy Assessment Part.

265 Specifically, CFTC Regulation 23.600(b) requires each SD to establish, document, maintain, and 

enforce a system of risk management policies and procedures designed to monitor and manage the risks 

related to swaps, and any products used to hedge swaps, including futures, options, swaps, security-based 

swaps, debt or equity securities, foreign currency, physical commodities, and other derivatives. The 

elements of the SD’s risk management program are required to include the identification of risks and risk 

tolerance limits with respect to applicable risks, including operational, liquidity, and legal risk, together 

with a description of the risk tolerance limits set by the SD and the underlying methodology in written 

policies and procedures. 17 CFR 23.600.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

84 

As such, the Commission preliminarily believes the inclusion of an operational 

risk charge in the PRA-designated UK nonbank SD’s total risk exposure amount in all 

circumstances, and the existence of separate liquidity requirements, will achieve a 

comparable outcome to the Commission’s requirement for nonbank SDs to hold 

regulatory capital in excess of 8 percent of its uncleared swap margin amount. In that 

regard, the Commission, in establishing the requirement that a nonbank SD must 

maintain a level of regulatory capital in excess of 8 percent of the uncleared swap margin 

amount associated with the firm’s swap transactions, stated that the intent of the 

requirement was to establish a method of developing a minimum amount of required 

capital for a nonbank SD to meet its obligations as an SD to market participants, and to 

cover potential operational, legal, and liquidity risks.266

d. Preliminary Finding of Comparability 

Based on a principles-based, holistic assessment, the Commission has 

preliminarily determined, subject to the proposed condition below, and further subject to 

its consideration of public comments to the proposed Capital Comparability 

Determination and Order, that the purpose and effect of the UK PRA Capital Rules and 

the CFTC Capital Rules are comparable. In this regard, the UK PRA Capital Rules and 

the CFTC Capital Rules are both designed to require a nonbank SD to maintain a 

sufficient amount of qualifying regulatory capital and subordinated debt to absorb losses 

resulting from the firm’s business activities, and decreases in the value of firm assets, 

without the nonbank SD becoming insolvent. 

 

266 See 85 FR 57462 at 57485.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

85

The Commission invites comment on the UK Application, the relevant UK laws 

and regulations, and the Commission’s analysis above regarding its preliminary 

determination that, subject to the $20 million minimum capital requirement, the UK PRA

Capital Rules and the CFTC Capital Rules are comparable in purpose and effect and 

achieve comparable outcomes with respect to the minimum regulatory capital 

requirements and the calculation of regulatory capital for nonbank SDs. The

Commission also specifically seeks public comment on the question of whether the 

requirements under the UK PRA Capital Rules that PRA-designated UK nonbank SDs 

calculate an operational risk exposure as part of the firm’s total risk exposure amount and 

meet separate liquidity requirements are sufficiently comparable in purpose and effect to 

the Commission’s requirement for a nonbank SD to hold regulatory capital equal to or 

greater than 8 percent of its uncleared swap margin amount.

D. Nonbank Swap Dealer Financial Reporting Requirements

1. CFTC Financial Recordkeeping and Reporting Rules for Nonbank Swap 

Dealers

The CFTC Financial Reporting Rules impose financial recordkeeping and 

reporting requirements on nonbank SDs. The CFTC Financial Reporting Rules require

each nonbank SD to prepare and keep current ledgers or similar records summarizing 

each transaction affecting the nonbank SD’s asset, liability, income, expense, and capital 

accounts.

267 The nonbank SD’s ledgers and similar records must be prepared in 

accordance with generally accepted accounting principles as adopted in the United States 

(“U.S. GAAP”), except that if the nonbank SD is not otherwise required to prepare 

 267 17 CFR 23.105(b).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

86

financial statements in accordance with U.S. GAAP, the nonbank SD may prepare and 

maintain its accounting records in accordance with International Financial Reporting 

Standards (“IFRS”) issued by the International Accounting Standards Board.268

The CFTC Financial Reporting Rules also require each nonbank SD to prepare 

and file with the Commission and with NFA periodic unaudited and annual audited 

financial statements.269 A nonbank SD that elects the TNW Approach is required to file 

unaudited financial statements within 17 business days of the close of each quarter, and 

its annual audited financial statements within 90 days of its fiscal year-end.

270 A 

nonbank SD that elects the NLA Approach or the Bank-Based Approach is required to 

file unaudited financial statements within 17 business days of the end of each month, and 

to file its annual audited financial statements within 60 days of its fiscal year-end.

271

The CFTC Financial Reporting Rules provide that a nonbank SD’s unaudited 

financial statements must include: (i) a statement of financial condition; (ii) a statement 

of income/loss; (iii) a statement of changes in liabilities subordinated to claims of general 

creditors; (iv) a statement of changes in ownership equity; (v) a statement demonstrating 

compliance with and calculation of the applicable regulatory requirement; and (vi) such 

further material information necessary to make the required statements not misleading.272 

The annual audited financial statements must include: (i) a statement of financial 

condition; (ii) a statement of income/loss; (iii) a statement of cash flows; (iv) a statement 

 268 Id.

269 17 CFR 23.105(d) and (e).

270 17 CFR 23.105(d)(1) and (e)(1).

271 Id.

272 17 CFR 23.105(d)(2).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

87

of changes in liabilities subordinated to claims of general creditors; (v) a statement of 

changes in ownership equity; (vi) a statement demonstrating compliance with and 

calculation of the applicable regulatory capital requirement; (vii) appropriate footnote 

disclosures; and (viii) a reconciliation of any material differences from the unaudited 

financial report prepared as of the nonbank SD’s year-end date.273

A nonbank SD that has obtained approval from the Commission or NFA to use 

internal capital models also must submit certain model metrics, such as aggregate VaR 

and counterparty credit risk information, each month to the Commission and NFA.274 A 

nonbank SD also is required to provide the Commission and NFA with a detailed list of 

financial positions reported at fair market value as part of its monthly unaudited financial 

statements.275 Each nonbank SD is also required to provide information to the 

Commission and NFA regarding its counterparty credit concentration for the 15 largest 

exposures in derivatives, a summary of its derivatives exposures by internal credit 

ratings, and the geographical distribution of derivatives exposures for the 10 largest 

countries.276

CFTC Financial Reporting Rules also require a nonbank SD to attach to each 

unaudited and audited financial report an oath or affirmation that to the best knowledge 

and belief of the individual making the affirmation the information contained in the 

financial report is true and correct.277 The individual making the oath or affirmation must 

 273 17 CFR 23.105(e)(4).

274 17 CFR 23.105(k) and (l) and Appendix B to Subpart E of Part 23.

275 17 CFR 23.105(l) and Appendix B to Subpart E of Part 23.

276 17 CFR 23.105(l) in Schedules 2, 3, and 4, respectively.

277 17 CFR 23.105(f).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

88

be a duly authorized officer if the nonbank SD is a corporation, or one of the persons 

specified in the regulation for business organizations that are not corporations.

278

The CFTC Financial Reporting Rules further require a nonbank SD to make 

certain financial information publicly available by posting the information on its public 

website.279 Specifically, a nonbank SD must post on its website a statement of financial 

condition and a statement detailing the amount of the nonbank SD’s regulatory capital 

and the minimum regulatory capital requirement based on its audited financial statements 

and based on its unaudited financial statements that are as of a date that is six months 

after the nonbank SD’s audited financial statements.280 Such public disclosure is 

required to be made within 10 business days of the filing of the audited financial 

statements with the Commission, and within 30 calendar days of the filing of the 

unaudited financial statements required with the Commission.

281 A nonbank SD also 

must obtain written approval from NFA to change the date of its fiscal year-end for 

financial reporting.282

The CFTC Financial Reporting Rules also require a nonbank SD to provide the 

Commission and NFA with information regarding the custodianship of margin for 

uncleared swap transactions (“Margin Report”).

283 The Margin Report must contain: (i) 

the name and address of each custodian holding initial margin or variation margin that is 

 278 Id.

279 17 CFR 23.105(i).

280 Id.

281 Id.

282 17 CFR 23.105(g).

283 17 CFR 23.105(m).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

89

required for uncleared swaps subject to the CFTC margin rules (“uncleared margin 

rules”), on behalf of the nonbank SD or its swap counterparties; (ii) the amount of initial 

and variation margin required by the uncleared margin rules held by each custodian on 

behalf of the nonbank SD and on behalf its swap counterparties; and (iii) the aggregate 

amount of initial margin that the nonbank SD is required to collect from, or post with, 

swap counterparties for uncleared swap transactions subject to the uncleared margin 

rules.

284 The Commission requires this information in order to monitor the use of 

custodians by nonbank SDs and their swap counterparties. Such information assists the 

Commission in monitoring the safety and soundness of a nonbank SD by verifying 

whether the firm is current with its swap counterparties with respect to the posting and 

collecting of margin required by the uncleared margin rules. By requiring the nonbank 

SD to report the required amount of margin to be posted and collected, and the amount of 

margin that is actually posted and collected, the Commission could identify potential 

issues with the margin practices and compliance by nonbank SDs that may hinder the 

ability of the firm to meet its obligations to market participants. The Margin Report also 

allows the Commission to identify custodians used by nonbank SDs and their 

counterparties, which may permit the Commission to assess potential market issues, 

including a concentration of custodial services by a limited number of banks.

 284 Id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

90

2. PRA-designated UK Nonbank Swap Dealer Financial Reporting

Requirements

The UK PRA Financial Reporting Rules impose financial reporting requirements 

on a PRA-designated UK nonbank SD that are designed to provide the PRA with a 

comprehensive view of the financial information and capital position of the firm. 

Specifically, Article 430 of the Reporting (CRR) Part of the PRA Rulebook 

requires a PRA-designated UK nonbank SD to report information concerning its capital

and financial condition, including information on the firm’s capital requirements, 

leverage ratio, large exposures, and liquidity requirements.

285 PRA-designated UK 

nonbank SDs must follow the templates and instructions provided in the PRA Rulebook 

for purposes of the prudential requirements reporting referred to COREP.

286 Under the 

COREP requirements, PRA-designated UK nonbank SDs are required to provide, on a 

quarterly basis,287 calculations in relation to the PRA-designated UK nonbank SD’s 

capital and capital requirements,288 capital ratios and capital levels,289 and market risk, 290

among other items.

 285 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 4 Reporting (Part Seven A CRR), Rule 1. 

286 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions. 

287 PRA Rulebook, CRR Firms, Reporting (CRR) Part, 5 Reporting Requirements, Chapter 3 Format and 

Frequency of Reporting on Own Funds, Own Funds Requirements. 

288 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Annex I, 

Templates C 01.00 and C 02.00.

289 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Annex I, 

Template C 03.00.

290 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Annex I, 

Template C 02.00. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

91

In addition to the prudential requirements reporting, Article 430(3) of the 

Reporting (CRR) Part of the PRA Rulebook imposes financial information reporting on 

PRA-designated UK nonbank SDs that are subject to Section 403(1) of the Companies 

Act 2006 (i.e., entities that are parent companies291 and report on a consolidated basis 

using UK-adopted IFRS and that issue securities admitted to trading on a UK-regulated 

market).

292 The relevant reporting templates and instructions, referred to as FINREP, are 

included in Chapter 6 of the Reporting (CRR) Part of the PRA Rulebook. Under the 

FINREP requirements, PRA-designated UK nonbank SDs subject to the requirements of 

Article 430(3) of the Reporting (CRR) Part of the PRA Rulebook are required to provide

the following documents to the PRA, among other items: (i) on a quarterly basis, a

balance sheet statement (or statement of financial position) that reflects the PRAdesignated UK nonbank SD’s financial condition;293 (ii) on a quarterly basis, a statement 

of profit or loss;294 (iii) on a quarterly basis, a breakdown of financial liabilities by 

 291 A parent company (i.e., “parent undertaking”) is defined in Companies Act 2006, Section 1162.

292 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 4 Reporting (Part Seven A CRR), Article 

430, Rule 3. 

293 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Templates 

1.1., 1.2., and 1.3 at Annex III (for reporting according to IFRS) and Templates 1.1., 1.2., and 1.3 at Annex 

IV (for reporting according to national accounting frameworks).

294 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Template 2 at 

Annex III (for reporting according to IFRS) and Template 2 at Annex IV (for reporting according to 

national accounting frameworks).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

92

product and by counterparty sector;

295 (iv) on a quarterly basis, a listing of subordinated 

financial liabilities;296 and (v) on an annual basis, a statement of changes in equity.

297 

Under the FINREP requirements, a PRA-designated UK nonbank SD subject to 

the requirements of Article 430(3) of the Reporting (CRR) Part of the PRA Rulebook is 

also required to provide the PRA with additional financial information, including a

breakdown of its loans and advances by product and type of counterparty,

298 as well as 

detailed information regarding its derivatives trading activities,299 collateral and 

guarantees.

300

For PRA-designated UK nonbank SD that are not subject to financial information 

reporting under Article 430(3) of the Reporting (CRR) Part of the PRA Rulebook, the 

Regulatory Reporting Part of the PRA Rulebook dictates the applicable reporting 

requirements.301 Specifically, as firms that fall into Regulated Activity Group 3 (“RAG 

 295 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Template 8.1

at Annex III (for reporting according to IFRS) and Template 8.1 at Annex IV (for reporting according to 

national accounting frameworks).

296 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Template 8.2 

at Annex III (for reporting according to IFRS) and Template 8.2. at Template 8.2 at Annex IV (for 

reporting according to national accounting frameworks).

297 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Template 46 

at Annex III (for reporting according to IFRS) and Template 46 at Annex IV (for reporting according to 

national accounting frameworks).

298 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Templates 

5.1 and 6.1 at Annex III (for reporting according to IFRS) and Templates 5.1 and 6.1 at Annex IV (for 

reporting according to national accounting frameworks).

299 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Template 10 

at Annex III (for reporting according to IFRS) and Template 10 at Annex IV (for reporting according to 

national accounting frameworks).

300 PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Template 13 

at Annex III (for reporting according to IFRS) and Template 13 at Annex IV (for reporting according to 

national accounting frameworks).

301 As indicated by the Applicants, the Regulatory Reporting Part of the PRA Rulebook applies to all PRAdesignated UK nonbank SDs. See Responses to Staff Questions dated October 5, 2023.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

93

3”), PRA-designated UK nonbank SDs are required to provide the following documents 

to the PRA, among other items: (i) on a quarterly basis, a balance sheet statement (or 

statement of financial position) that reflects the PRA-designated UK nonbank SD’s 

financial condition;

302 (ii) on a quarterly basis, a statement of profit or loss;303 and (iii) on 

an annual basis, an annual report and accounts.304 The Applicants represented that the six 

UK PRA-designated nonbank SDs currently registered with the Commission are 

designated as RAG 3 firms and are required to provide the aforementioned documents. 305

Furthermore, all PRA-designated UK nonbank SDs are required to prepare annual 

audited accounts and a strategic report (together, “annual audited financial report”) 

pursuant to Parts 15 and 16 of the Companies Act 2006.

306 The audit of the accounts and

report is required to be performed by one or more independent statutory auditors, which 

have the required skill, resources, and experience to perform their duties based on the 

complexity of the firm’s business and the regulatory requirements to which the firm is 

 302 PRA Rulebook, CRR Firms, Regulatory Reporting Part, Chapter 9 Regulated Activity Group 3, Rule 9.2 

(referencing Templates 1.1., 1.2., and 1.3 at Annex III and Templates 1.1., 1.2., and 1.3 at Annex IV of 

Chapter 6 of the Reporting (CRR) Part) and Rule 9.3.

303 PRA Rulebook, CRR Firms, Regulatory Reporting Part, Chapter 9 Regulated Activity Group 3, Rule 9.2 

(referencing Template 2 at Annex III and Template 2 at Annex IV of Chapter 6 of the Reporting (CRR) 

Part) and Rule 9.3.

304 PRA Rulebook, CRR Firms, Regulatory Reporting Part, Chapter 9 Regulated Activity Group 3, Rule 9.2 

and Rule 9.3.

305 See Response to Staff Questions of October 5, 2023. For the avoidance of doubt, as represented by the 

Applicants, the six PRA-designated UK nonbank SDs currently registered with the Commission are subject 

to the RAG 3 requirements in the Regulatory Reporting Part of the PRA Rulebook but are not subject the 

FINREP requirements set forth in Article 430(3) of the Reporting (CRR) Part of the PRA Rulebook. As 

such, the six PRA-designated UK nonbank SDs currently registered with the Commission are required to 

submit to the PRA only Templates 1 through 3 of FINREP. 

306 Companies Act 2006, Sections 393 to 414D and 475. Section 475 provides for an exemption from the 

audit requirement for certain entities (i.e., “small companies”, qualifying “subsidiary companies” and 

“dormant companies.”) None of the six PRA-designated UK nonbank SD, however, falls into the exempt 

categories. See Responses to Staff Questions dated October 5, 2023.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

94 

subject.

307 PRA-designated UK nonbank SDs must submit the annual audited financial 

report to the PRA within 80 business days from the firm’s accounting reference date.308 

In addition, under generally applicable company law requirements, PRA-designated UK 

nonbank SDs are required to submit the annual audited financial report to the UK 

Registrar of Companies.309 The registrar makes the report available to the public on its 

website, free of charge.310 

The annual audited accounts must comprise, at a minimum, a balance sheet, a 

profit and loss statement, and notes about the accounts.311 The auditor’s audit report 

must include: (i) a description of the annual accounts subject to the audit and the financial 

reporting framework that was applied in their preparation; (ii) a description of the scope 

of the audit, which must specify the auditing standards used to conduct the audit; (iii) an 

audit opinion stating whether the annual accounts give a true and fair view of the state of 

affairs and/or the profit and loss of the firm, as applicable, and whether the annual 

accounts have been prepared in accordance with the relevant financial reporting 

 

307 Companies Act 2006, Section 485 et seq.; see also PRA Rulebook, CRR Firms, Auditors Part, Rule 3 

Auditors’ Qualifications, and Rule 4 Auditors’ Independence. 

308 PRA Rulebook, CRR Firms, Regulatory Reporting Part, Chapter 9 Regulatory Activity Group 3, Rules 

9.1. and 9.4. The “accounting reference date” is determined in accordance with Section 391 of the 

Companies Act 2006 and depending on the firm’s date of incorporation. 

309 See Companies Act 2006, Section 441. The deadline for filing the annual audited financial report with 

the UK Registrar of Companies is nine months from the firm’s accounting reference date for private 

companies and six months from the firm’s accounting reference date for public companies. Id., Articles 

442 (setting forth the filing deadlines by category of firm) and 391 (defining the terms “accounting 

reference period” and accounting reference date”). 

310 See Companies Act 2006, Sections 1080 and 1085. Information filed with the UK Registrar of 

Companies is available at: https://www.gov.uk/government/organisations/companies-house. 

311 Companies Act 2006, Section 396.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

95

framework; and (iv) a reference to any matters emphasized by the auditor that did not 

qualify the audit opinion.312

The strategic report is required to include a review of the development and 

performance of the PRA-designated UK nonbank SD’s during the financial year and a 

description of the principal risks and uncertainties that the firm faces.313 The auditors are 

required to express an opinion on whether the strategic report is consistent with the 

accounts for the same financial year, and whether the strategic report has been prepared 

in accordance with applicable legal requirements.

314 The opinion also must state whether 

the auditor has identified material misstatements in the strategic report and, if so, describe 

the misstatement.315

In addition, the SEC’s UK Order granting substituted compliance for financial 

reporting to UK nonbank SBSDs, as supplemented by the SEC Order on Manner and 

Format of Filing Unaudited Financial and Operational Information, require a UK

nonbank SBSD to file an unaudited SEC Form X-17A-5 Part II (“FOCUS Report”) with 

the SEC on a monthly basis.

316 The FOCUS Report is required to include, among other 

statements and schedules: (i) a statement of financial condition; (ii) a statement of the UK

nonbank SBSD’s capital computation in accordance with home country Basel-Based 

requirements; (iii) a statement of income/loss; and (iv) a statement of capital 

 312 Id., Section 495.

313 Id., Section 414C. 

314 Id., Section 496. 

315 Id.

316 See, UK Order. See also, SEC Order on Manner and Format of Filing Unaudited Financial and 

Operational Information.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

96

withdrawals.317 A UK nonbank SBDS is required to file its FOCUS Report with the SEC 

within 35 calendar days of the month end.318

3. Commission Analysis

The Commission has reviewed the UK Application and the relevant UK laws and 

regulations, and has preliminarily determined that, subject to the proposed conditions 

described below, the financial reporting requirements of the UK PRA Financial 

Reporting Rules are comparable to CFTC Financial Reporting Rules in purpose and 

effect as they are intended to provide the PRA and the Commission, respectively, with 

financial information to monitor and assess the financial condition of nonbank SDs and 

their ability to absorb decreases in firm assets and increases in firm liabilities, and to 

cover losses from business activities, including swap dealing activities, without the firm 

becoming insolvent.

The UK PRA Financial Reporting Rules require PRA-designated UK nonbank 

SDs to prepare and submit to the PRA on a quarterly basis unaudited financial 

information that includes a statement of financial condition and a statement of profit or 

loss. Under the FINREP reporting requirements, a PRA-designated UK nonbank SD

subject to the requirements set forth in Article 430(3) of the Reporting (CRR) Part of the 

PRA Rulebook is also required to provide the PRA with additional financial information, 

including: (i) a schedule of the breakdown of financial liabilities by product and by 

counterparty sector; (ii) a breakdown of its loans and advances by product and type of 

counterparty; and (iii) detailed information regarding its derivatives trading activities, 

 317 See, SEC Order on Manner and Format of Filing Unaudited Financial and Operational Information.

318 Id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

97

collateral, and guarantees. PRA-designated UK nonbank SDs subject to the Regulatory 

Reporting Part of the PRA Rulebook are not required to submit such additional financial 

information. To the extent the Commission believes some of this additional information 

is necessary to the exercise of its and NFA’s oversight function, the Commission is 

proposing, as noted below, to require the submission of such information as a condition 

to the Capital Comparability Determination Order.

In addition, under the COREP reporting requirement, all PRA-designated UK 

nonbank SDs are required to provide the PRA on a quarterly basis with calculations in 

relation to the PRA-designated UK nonbank SD’s capital requirements and capital ratios, 

among other items. The UK PRA Financial Reporting Rules further require all PRAdesignated UK nonbank SDs to prepare and publish an annual audited financial report. 

The annual audited financial report is required to include a statement of financial 

condition and a statement of profit or loss, and must also include relevant notes to the 

financial statements.319 

The Commission preliminarily finds that the UK PRA Financial Reporting Rules 

impose reporting requirements that are comparable with respect to overall form and 

content to the CFTC Financial Reporting Rules, which require each nonbank SD to file, 

among other items, periodic unaudited financial reports with the Commission and NFA 

that contain at a minimum : (i) a statement of financial condition; (ii) a statement of profit

or loss; (and (iii) a statement demonstrating compliance with the capital requirements. 

Accordingly, the Commission has preliminarily determined that a PRA-designated UK

nonbank SD may comply with the financial reporting requirements contained in 

 319 Companies Act 2006, Section 396.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

98

Commission Regulation 23.105 by complying with the corresponding UK PRA Financial 

Reporting Rules, subject to the conditions set forth below.320

The Commission is proposing to condition the Capital Comparability 

Determination Order on a PRA-designated UK nonbank SD providing the Commission 

and NFA with copies of the relevant templates of the FINREP reports and COREP 

reports that correspond to the PRA-designated UK nonbank SD’s statement of financial 

condition, statement of income/loss, and statement of regulatory capital, total risk 

exposure, and capital ratios. These templates consist of FINREP templates 1.1 (Balance 

Sheet Statement: assets), 1.2 (Balance Sheet Statement: liabilities), 1.3 (Balance Sheet 

Statement: equity), and 2 (Statement of profit or loss), and COREP templates 1 (Own 

Funds), 2 (Own Funds Requirements) and 3 (Capital Ratios). 

The Commission also notes that PRA-designated UK nonbank SDs submit 

COREP templates in addition to the ones listed above to the PRA. These templates 

generally provide supporting detail to the core templates that the Commission is 

proposing to require from each PRA-designated UK nonbank SD. The Commission is 

not proposing to require a PRA-designated UK nonbank SD to file these additional 

COREP templates as a condition to the Capital Comparability Order, and alternatively 

would exercise its authority under Commission Regulation 23.105(h) to direct PRAdesignated UK nonbank SDs to provide such additional information to the Commission 

 320 A PRA-designated UK nonbank SD that qualifies and elects to seek substituted compliance with the UK 

PRA Capital Rules must also seek substituted compliance with the UK PRA Financial Reporting Rules. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

99

and NFA on an ad hoc basis as necessary to oversee the financial condition of the 

firms.321

As noted in Section D.2. of this Determination, the UK PRA Financial Reporting 

Rules require PRA-designated UK nonbank SDs to submit the unaudited FINREP and 

COREP templates to PRA on a quarterly basis. The CFTC Financial Reporting Rules 

contain a more frequent reporting requirement by requiring nonbank SDs that elect the 

Bank-Based Approach to file unaudited financial information with the Commission and 

NFA, on a monthly basis.322 The financial statement reporting requirements are an 

integral part of the Commission’s and NFA’s oversight programs to effectively and 

timely monitor nonbank SDs’ compliance with capital and other financial requirements, 

and for Commission and NFA staff to assess the overall financial condition and business 

operations of nonbank SDs. The Commission has extensive experience with monitoring 

the financial condition of registrants through the receipt of financial statements, including 

FCMs and, more recently, nonbank SDs. Both FCMs and nonbank SDs that elect the 

Bank-Based Approach or NLA Approach file financial statements with the Commission 

and NFA on a monthly basis. The Commission preliminarily believes that receiving 

financial information from PRA-designated UK nonbank SDs on a quarterly basis is not 

comparable with the CFTC Financial Reporting Rules and would impede the 

Commission’s and NFA’s ability to effectively and timely monitor the financial condition 

of PRA-designated UK nonbank SDs for the purposes of assessing their safety and 

 321 Commission Regulation 23.105(h) provides that the Commission or NFA may, by written notice, 

require any nonbank SD to file financial or operational information as may be specified by the Commission 

or NFA. 17 CFR 23.105(h).

322 Commission Regulation 23.105(d) (17 CFR 23.105(d)).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

100

soundness, as well as their ability to meet obligations to creditors and counterparties 

without becoming insolvent. Therefore, the Commission is preliminarily proposing to 

include a condition in the Capital Comparability Determination Order to require PRAdesignated UK nonbank SDs to file the applicable templates of the FINREP reports and 

COREP reports with the Commission and NFA on a monthly basis. The Commission 

also is proposing to condition the Capital Comparability Determination Order on the 

PRA-designated UK nonbank SD filing the above-listed templates of the FINREP reports 

and COREP reports with the Commission and NFA within 35 calendar days of the end of 

each month.323

The Commission is further proposing that in lieu of filing such FINREP and 

COREP reports, PRA-designated UK nonbank SDs that are registered with the SEC as 

UK nonbank SBSDs could satisfy this condition by filing with the CFTC and NFA, on a 

monthly basis, copies of the unaudited FOCUS Reports that the PRA-designated UK

nonbank SDs are required to file with the SEC pursuant to the SEC UK Order, as 

supplemented by the SEC Order on Manner and Format of Filing Unaudited Financial 

and Operational Information. The FOCUS Report is required to include, among other 

statements and schedules: (i) a statement of financial condition; (ii) a statement of the UK

nonbank SBSD’s capital computation in accordance with home country Basel-Based 

 323 The proposed condition for PRA-designated UK nonbank SDs to file monthly unaudited financial 

information with the Commission and NFA is consistent with proposed conditions contained in the 

Commission’s proposed Capital Comparability Determinations for Japanese nonbank SDs, Mexican 

nonbank SDs, and EU nonbank SDs. See Proposed Japan Order, Proposed Mexico Order, and Proposed 

EU Order.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

101 

requirements; (iii) a statement of income/loss; and (iv) a statement of capital 

withdrawals.324

The filing of a FOCUS Report would be at the election of the PRA-designated 

UK nonbank SD as an alternative to the filing of unaudited FINREP and COREP 

templates that such firms would otherwise be required to file with the Commission and 

NFA pursuant to the proposed Order. All six of the PRA-designated UK nonbank SDs 

are currently registered with the SEC as UK nonbank SBSDs and would be eligible to file 

copies of their monthly FOCUS Report with the Commission and NFA in lieu of the 

FINREP and COREP templates and Schedule 1. A PRA-designated UK nonbank SD 

electing to file copies of its monthly FOCUS Report would be required to submit the 

reports to the Commission and NFA within 35 calendar days of the end of each month.325 

In addition, the Commission is proposing to condition the Capital Comparability 

Determination Order on a PRA-designated UK nonbank SD submitting to the 

Commission and NFA copies of the PRA-designated UK nonbank SD’s annual audited 

financial report that is required to be prepared pursuant to the Companies Act 2006.326 

PRA-designated UK nonbank SDs would be required to file the annual audited financial 

 

324 See, SEC Order on Manner and Format of Filing Unaudited Financial and Operational Information.

325 Commission Regulation 23.105(d)(3) currently provides that a nonbank SD or nonbank MSP that is also 

registered with the SEC as a broker or dealer, an SBSD, or a major security-based swap participant may 

elect to file a FOCUS Report in lieu of the financial reports required by the Commission. In a separate 

rulemaking, the Commission has proposed to amend Regulation 23.105(d)(3) to mandate the filing of a 

FOCUS Report by such dually-registered entities, including dually-registered non-U.S. nonbank SDs, in 

lieu of the Commission’s financial reports. See CFTC Press Release 8836-23 issued on December 15, 

2023, available at cftc.gov. If the Commission adopts such a requirement, the Commission would also 

require PRA-designated UK nonbank SDs that are registered with the SEC as UK nonbank SBSDs to file 

FOCUS Reports with the Commission.

326 Companies Act 2006, Parts 15 and 16. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

102

report with the Commission and NFA on the earlier of the date the report is filed with the 

PRA or the date the report is required to be filed with the PRA.

327

The Commission is also proposing to condition the Capital Comparability 

Determination Order on the PRA-designated UK nonbank SD providing the reports and 

statements with balances converted to U.S. dollars.328 The Commission, however, 

recognizes that the requirement to convert accounts denominated in British pound to U.S. 

dollars on the annual audited financial report may impact the opinion provided by the 

independent auditor. The Commission is therefore proposing to accept the annual 

audited financial report denominated in British pound.

The Commission is proposing to impose these conditions as they are necessary to 

ensuring that the CFTC Financial Reporting Rules and UK PRA Financial Reporting 

Rules, supplemented by the proposed conditions, are comparable and provide the 

Commission and NFA with appropriate financial information to effectively monitor the 

financial condition of PRA-designated UK nonbank SDs. Frequent financial reporting is 

a central component of the Commission’s and NFA’s programs for monitoring and 

assessing the safety and soundness of nonbank SDs as required under Section 4s(e) of the 

CEA. Although, as further discussed in Section F.2. below, the Commission 

preliminarily believes that the PRA has the necessary powers to supervise and enforce 

compliance by PRA-designated UK nonbank SDs with applicable capital and financial 

 327 PRA-designated UK nonbank SDs are required to submit the annual audited financial report to the PRA 

within 80 business days of the firm’s accounting reference date. See PRA Rulebook, Regulatory Reporting 

Part, Rule 9.1. 

328 The conversion of account balances from British pound to U.S. dollars is not required to be subject to 

the audit of the independent auditor. A PRA-designated UK nonbank SD must report the exchange rate 

that it used to convert balances from British pound to U.S. dollars to the Commission and NFA as part of 

the financial reporting.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

103

reporting requirements, the Commission is proposing the conditions to facilitate the 

timely access to information allowing the Commission and NFA to effectively monitor 

and assess the ongoing financial condition of all nonbank SDs, including PRA-designated 

UK nonbank SDs, to help ensure their safety and soundness and their ability to meet their 

financial obligations to customers, counterparties, and creditors.

The Commission preliminarily considers that its approach of requiring PRAdesignated UK nonbank SDs to provide the Commission and NFA with the selected

FINREP and COREP templates and the annual audited financial report that the firms

currently file with the PRA strikes an appropriate balance of ensuring that the 

Commission receives the financial reporting necessary for the effective monitoring of the 

financial condition of the nonbank SDs, while also recognizing the existing regulatory 

structure of the UK PRA Financial Reporting Rules. Under the proposed conditions, 

with limited exceptions, the PRA-designated UK nonbank SD would not be required to 

prepare different financial reports and statements for filing with the Commission, but 

would be required to prepare selected reports and statements in the content and format 

used for submissions to the PRA and convert the balances to U.S. dollars so that 

Commission staff may efficiently analyze the financial information. Although the 

Commission is proposing to require submission of certain reports (i.e., selected FINREP 

and COREP templates) on a more frequent basis (monthly instead of quarterly as 

required by the UK PRA Financial Reporting Rules), the proposed conditions provide the 

PRA-designated UK nonbank SDs with 35 calendar days from the end of each month to 

convert balances to U.S. dollars. In addition, PRA-designated UK nonbank SDs that are 

registered as SBSDs with the SEC would have the option of filing a copy of the FOCUS 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

104

Report they submit to the SEC in lieu of the FINREP and COREP templates. The 

Commission preliminarily believes that by requiring that PRA-designated UK nonbank 

SDs file unaudited financial reports on a monthly basis instead of quarterly, the 

Commission would help ensure that the CFTC Financial Reporting Rules and the UK 

PRA Financial Reporting Rules achieve a comparable outcome. 

The Commission is also proposing to condition the Capital Comparability 

Determination Order on PRA-designated UK nonbank SDs filing with the Commission 

and NFA, on a monthly basis, the aggregate securities, commodities, and swap positions 

information set forth in Schedule 1 of Appendix B to Subpart E of Part 23.329 The 

Commission is proposing to require that Schedule 1 be filed with the Commission and 

NFA as part of the PRA-designated UK nonbank SD’s monthly submission of selected 

FINREP and COREP templates or FOCUS Report, as applicable. Schedule 1 provides 

the Commission and NFA with detailed information regarding the financial positions that 

a nonbank SD holds as of the end of each month, including the firm’s swap positions, 

which will allow the Commission and NFA to monitor the types of investments and other 

activities that the firm engages in and will enhance the Commission’s and NFA’s ability 

to monitor the safety and soundness of the firm.

The Commission is also proposing to condition the Capital Comparability 

Determination Order on a PRA-designated UK nonbank SD submitting with each set of 

selected FINREP and COREP templates, annual audited financial report, and the 

 329 Schedule 1 of Appendix B to Subpart E of Part 23 includes a nonbank SD’s holding of U.S Treasury 

securities, U.S. government agency debt securities, foreign debt and equity securities, money market 

instruments, corporate obligations, spot commodities, cleared and uncleared swaps, cleared and non-cleared 

security-based swaps, and cleared and uncleared mixed swaps in addition to other position information.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

105

applicable Schedule 1, a statement by an authorized representative or representatives of 

the PRA-designated UK nonbank SD that to the best knowledge and belief of the 

person(s) the information contained in the respective reports and statements is true and 

correct, including the conversion of balances in the statements to U.S. dollars, as 

applicable. The statement by the authorized representative or representatives of the PRAdesignated UK nonbank SD is in lieu of the oath or affirmation required of nonbank SDs 

under Commission Regulation 23.105(f), and is intended to ensure that reports and 

statements filed with the Commission and NFA are prepared and submitted by firm 

personnel with knowledge of the financial reporting of the firm who can attest to the 

accuracy of the reporting and translation.

The Commission is further proposing to condition the Capital Comparability 

Determination Order on a PRA-designated UK nonbank SD filing the Margin Report 

specified in Commission Regulation 23.105(m) with the Commission and NFA. The 

Margin Report contains: (i) the name and address of each custodian holding initial 

margin or variation margin on behalf of the nonbank SD or its swap counterparties; (ii) 

the amount of initial and variation margin held by each custodian on behalf of the 

nonbank SD and on behalf its swap counterparties; and (iii) the aggregate amount of 

initial margin that the nonbank SD is required to collect from, or post with, swap 

counterparties for uncleared swap transactions.330

The Commission preliminarily believes that receiving this margin information 

from PRA-designated UK nonbank SDs will assist in the Commission’s assessment of 

the safety and soundness of the PRA-designated UK nonbank SDs. Specifically, the 

 330 17 CFR 23.105(m).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

106

Margin Report would provide the Commission with information regarding a PRAdesignated UK nonbank SD’s swap book, the extent to which it has uncollateralized 

exposures to counterparties or has not met its financial obligations to counterparties. This 

information, along with the list of custodians holding both the firms’ and counterparties’ 

collateral for swap transactions, is expected to assist the Commission in assessing and 

monitoring potential financial impacts to the nonbank SD resulting from defaults on its 

swap transactions. The Commission is further proposing to require a PRA-designated 

UK nonbank SD to file the Margin Report with the Commission and NFA within 35 

calendar days of the end of each month, which corresponds with the proposed timeframe 

for the PRA-designated UK nonbank SD to file the selected FINREP and COREP 

templates or FOCUS Report, as applicable, and proposing to require the Margin Report 

to be provided with balances reported in U.S. dollars.

The Commission notes that the proposed conditions in the UK PRA Capital 

Comparability Determination Order are consistent with the proposed conditions set forth 

in the proposed Capital Comparability Determination Orders for Japan, Mexico, and the 

EU,331 and reflects the Commission’s approach of preliminarily determining that nonU.S. nonbank SDs could meet their financial statement reporting obligations to the 

Commission by filing financial reports currently prepared for home country regulators, 

albeit in the case of certain financial reports under a more frequent submission schedule,

and, in certain circumstances, with balances expressed in U.S. dollars. The 

Commission’s proposed conditions also include certain financial information and notices 

 331 See Proposed Japan Order, Proposed Mexico Order, and Proposed EU Order.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

107

that the Commission believes are necessary for effective monitoring of PRA-designated 

UK nonbank SDs that are not currently part of the PRA’s supervision regimes.

The Commission is not proposing to require that a PRA-designated UK nonbank 

SD that has been approved by the PRA to use capital models files with the Commission 

or NFA the monthly model metric information contained in Commission Regulation 

23.105(k) 332 or that a PRA-designated UK nonbank SD files with the Commission or 

NFA the monthly counterparty credit exposure information specified in Commission 

Regulation 23.105(l) and Schedules 2, 3, and 4 of Appendix B to Subpart E of Part 23.

333

The Commission, in making the preliminary determination to not require a PRAdesignated UK nonbank SD to file the model metrics and counterparty exposures 

required by Commission Regulations 23.105(k) and (l), respectively, recognizes that 

NFA’s current risk monitoring program requires each bank SD and each nonbank SD, 

including each PRA-designated UK nonbank SD, to file risk metrics addressing market 

risk and credit risk with NFA on a monthly basis. NFA’s monthly risk metric 

information includes: (i) VaR for interest rates, credit, foreign exchange, equities, 

commodities, and total VaR; (ii) total stressed VaR; (iii) interest rate, credit spread, 

foreign exchange market, and commodity sensitivities; (iv) total swaps current exposure 

 332 Commission Regulation 23.105(k) requires a nonbank SD that has obtained approval from the 

Commission or NFA to use internal capital models to submit to the Commission and NFA each month

information regarding its risk exposures, including VaR and credit risk exposure information when 

applicable. The model metrics are intended to provide the Commission and NFA with information that 

would assist with the ongoing oversight and assessment of internal market risk and credit risk models that 

have been approved for use by a nonbank SD. 17 CFR 23.105(k).

333 Commission Regulation 23.105(l) requires each nonbank SD to provide information to the Commission 

and NFA regarding its counterparty credit concentration for the 15 largest exposures in derivatives, a 

summary of its derivatives exposures by internal credit ratings, and the geographic distribution of 

derivatives exposures for the 10 largest countries in Schedules 2, 3, and 4, respectively. 17 CFR 23.105(l). 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

108

both before and after offsetting against collateral held by the firm; and (v) a list of the 15 

largest swaps counterparty current exposures before collateral and net of collateral.

334

Although there are differences in the information required under Commission 

Regulations 23.105(k) and (l), the NFA risk metrics provide a level of information that 

allows NFA to identify SDs that may pose heightened risk and to allocate appropriate 

NFA regulatory oversight resources. The Commission preliminarily believes that the 

proposed financial statement reporting set forth in the proposed Capital Comparability 

Determination Order, and the risk metric and counterparty exposure information 

currently reported by nonbank SDs (including PRA-designated UK nonbank SDs) under 

NFA rules, provide the appropriate balance of recognizing the comparability of the UK 

PRA Financial Reporting Rules to the CFTC Financial Reporting Rules while also 

ensuring that the Commission and NFA receive sufficient data to monitor and assess the 

overall financial condition of PRA-designated UK nonbank SDs. The Commission has 

access to the monthly risk metric filings collected by NFA. In addition, the Commission 

retains authority to request PRA-designated UK nonbank SDs to provide information 

regarding their model metrics and counterparty exposures on an ad hoc basis.

Furthermore, the Commission notes that although the UK PRA Financial 

Reporting Rules do not contain an analogue to the CFTC’s requirements for nonbank 

SDs to file monthly model metric information and counterparty exposures information, 

the PRA has access to comparable information. More specifically, under the UK PRA

Financial Reporting Rules, the PRA has broad powers to request any information 

 334 See NFA Financial Requirements, Section 17 - Swap Dealer and Major Swap Participant Reporting 

Requirements, and Notice to Members – Monthly Risk Data Reporting for Swap Dealers (May 30, 2017).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

109

necessary for the exercise of its functions.335 As such, the PRA has access to information 

allowing it to assess the ongoing performance of risk models and to monitor the PRAdesignated UK nonbank SD’s credit exposures, which may be comprised of credit 

exposures to primarily other UK and EU counterparties. In addition, the COREP reports, 

which PRA-designated UK nonbank SDs are required to file with the PRA on a quarterly 

basis, include information regarding the PRA-designated UK nonbank SD’s risk 

exposure amounts, including risk-weighted exposure amounts for credit risk.336 

The Commission invites public comment on its analysis above, including 

comment on the UK Application and relevant UK PRA Financial Reporting Rules. The 

Commission also invites comment on the proposed conditions listed above and on the 

Commission’s proposal to exclude PRA-designated UK nonbank SDs from certain 

reporting requirements outlined above. Specifically, the Commission requests comment 

on its preliminary determination to not require PRA-designated UK nonbank SDs to 

submit the information set forth in Commission Regulations 23.105(k) and (l). Are there 

specific elements of the data required under Commission Regulations 23.105(k) and (l) 

that the Commission should require of PRA-designated UK nonbank SDs for purposes of 

monitoring model performance?

The Commission requests comment on the proposed filing dates for the reports 

and information specified above. Specifically, do the proposed filing dates provide 

sufficient time for PRA-designated UK nonbank SDs to prepare the reports, and, where 

 335 See FSMA, Part XI (indicating that the PRA has broad information gathering powers).

336 See PRA Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 6 Templates and Instructions, Annex I. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

110

required, convert balances into U.S. dollars? If not, what period of time should the 

Commission consider imposing on one or more of the reports?

The Commission also requests specific comment regarding the setting of 

compliance dates for any new reporting obligations that the proposed Capital 

Comparability Determination Order would impose on PRA-designated UK nonbank SDs. 

In this connection, if the Commission were to require PRA-designated UK nonbank SDs 

to file the Margin Report discussed above and included in the proposed Order below, 

how much time would PRA-designated UK nonbank SDs need to develop new systems 

or processes to capture information that is required? Would PRA-designated UK

nonbank SDs need a period of time to develop any systems or processes to meet any 

other reporting obligations in the proposed Capital Comparability Determination Order? 

If so, what would be an appropriate amount of time for a PRA-designated UK nonbank 

SD to develop and implement such systems or processes?

E. Notice Requirements

1. CFTC Nonbank SD Notice Reporting Requirements

The CFTC Financial Reporting Rules require nonbank SDs to provide the 

Commission and NFA with written notice of certain defined events.337 The notice 

provisions are intended to provide the Commission and NFA with an opportunity to 

assess whether the information contained in the notices indicates the existence of actual 

or potential financial and/or operational issues at a nonbank SD, and, when necessary, 

allows the Commission and NFA to engage the nonbank SD in an effort to minimize 

potential adverse impacts on swap counterparties and the larger swaps market. The 

 337 17 CFR 23.105(c).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

111

notice provisions are part of the Commission’s overall program for helping to ensure the 

safety and soundness of nonbank SDs and the swaps markets in general.

The CFTC Financial Reporting Rules require a nonbank SD to provide written 

notice within specified timeframes if the firm is: (i) undercapitalized; (ii) fails to maintain 

capital at a level that is in excess of 120 percent of its minimum capital requirement; or 

(iii) fails to maintain current books and records.338 A nonbank SD is also required to 

provide written notice if the firm experiences a 30 percent or more decrease in excess 

regulatory capital from its most recent financial report filed with the Commission.339 A 

nonbank SD also is required to provide notice if the firm fails to post or collect initial 

margin for uncleared swap and non-cleared security-based swap transactions or exchange 

variation margin for uncleared swap and non-cleared security-based swap transactions as 

required by the Commission’s uncleared swaps margin rules or the SEC’s non-cleared 

security-based swaps margin rules, respectively, if the aggregate is equal to or greater 

than: (i) 25 percent of the nonbank SD’s required capital under Commission Regulation 

23.101 calculated for a single counterparty or group of counterparties that are under 

common ownership or control; or (ii) 50 percent of the nonbank SD’s required capital 

under Commission Regulation 23.101 calculated for all of the firm’s counterparties.340

The CFTC Financial Reporting Rules further require a nonbank SD to provide 

notice two business days prior to a withdrawal of capital by an equity holder that would 

 338 17 CFR 23.105(c)(1), (2), and (3).

339 17 CFR 23.105(c)(4).

340 17 CFR 23.105(c)(7).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

112

exceed 30 percent of the firm’s excess regulatory capital.341 Finally, a nonbank SD that 

is dually-registered with the SEC as an SBSD or major security based swap participant 

(“MSBSP”) must file a copy of any notice with the Commission and NFA that the SBSD 

or MSBSP is required to file with the SEC under SEC Rule 18a-8 (17 CFR 240.18a-8).342 

SEC Rule 18a-8 requires SBSDs and MSBSPs to provide written notice to the SEC for 

comparable reporting events as in the CFTC Capital Rule in Commission Regulation 

23.105(c), including if a SBSD or MSBSP is undercapitalized or fails to maintain current 

books and records.

2. PRA-designated UK Nonbank Swap Dealer Notice Requirements

The UK capital and resolution frameworks require PRA-designated UK nonbank 

SDs to provide certain notices to the PRA concerning the firm’s compliance with relevant 

laws and regulations. Specifically, the UK PRA Financial Reporting Rules require a

PRA-designated UK nonbank SD to provide notice to the PRA within five business days 

if the firm fails to meet its combined buffer requirement, which at a minimum consists of 

a capital conservation buffer of 2.5 percent of the PRA-designated UK nonbank SD’s 

total risk exposure amount.

343 As noted earlier, to meet its capital buffer requirements, a

PRA-designated UK nonbank SDs must hold common equity tier 1 capital in addition to

the minimum common equity tier 1 ratio requirement of 4.5 percent of the firm’s core 

capital requirement of 8 percent of the firm’s total risk exposure amount. The notice to 

 341 17 CFR 23.105(c)(5).

342 17 CFR 23.105(c)(6).

343 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 4 Capital Conservation Measures, Rule 4.4. 

The combined capital buffer requirement is the total common equity tier 1 capital required to meet the sum 

of the capital conservation buffer and the institution-specific countercyclical capital buffer. PRA 

Rulebook, Capital Buffers Part, Chapter 1 Application and Definitions, Rule 1.2.
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

113 

the PRA must be accompanied by a capital conservation plan that sets out how the PRAdesignated UK nonbank SD will restore its capital levels.344 The capital conservation 

plan is required to include: (i) the “maximum distributable amount” calculated in 

accordance with the PRA rules; (ii) estimates of income and expenditures and a forecast 

balance sheet; (iii) measures to increase the capital ratios of the PRA-designated UK

nonbank SD; and (iv) a plan and timeframe for the increase in the capital of the PRAdesignated UK nonbank SD with the objective of meeting fully the combined buffer 

requirement.

345

The PRA assesses the capital conservation plan and will approve the plan only if 

it considers that the plan would be reasonably likely to conserve or raise sufficient capital 

to enable the PRA-designated UK nonbank SD to meet its combined capital buffer 

requirement within a timeframe that the PRA considers to be appropriate.346 A PRAdesignated UK nonbank SD is required to notify the PRA as early as possible where it 

has identified a material risk to its ability to meet the combined buffer according to the 

capital conservation plan and timeframe approved by the PRA.347 

In addition, a PRA-designated UK nonbank SD must notify the PRA if the firm’s 

management considers that the firm is failing or will in the near future fail to satisfy one 

or more of the “threshold conditions,” which are the minimum requirements that a PRA-

 

344 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 4 Capital Conservation Measures, Rules 4.4 

and 4.5.

345 PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 4 Capital Conservation Measures, Rule 4.5.

346 Supervisory Statement SS6/14 Implementing Capital Buffers, Prudential Regulation Authority, January 

2021 (“SS6/14”), available here: https://www.bankofengland.co.uk/prudentialregulation/publication/2014/implementing-crdiv-capital-buffers-ss. 

347 See id. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

114

designated UK nonbank SD must meet in order to be permitted to carry the regulated 

activities in which it engages.

348 In broad terms, the PRA’s threshold conditions include, 

among other things, requirements that the firm has appropriate financial resources and 

capacity to measure, monitor and manage risks.

349 

3. Commission Analysis

The Commission has reviewed the UK Application and the relevant UK laws and 

regulations, and has preliminarily determined that the UK PRA Financial Reporting 

Rules related to notice provisions, subject to the conditions specified below, are 

comparable to the notice provisions of the CFTC Financial Reporting Rules. The

Commission is therefore proposing to issue a Capital Comparability Determination Order 

providing that a PRA-designated UK nonbank SD may comply with the notice provisions 

required under UK laws and regulations in lieu of certain notice provisions required of 

nonbank SDs under Commission Regulation 23.105(c),350 subject to the conditions set 

forth below.

The notice provisions contained in Commission Regulation 23.105(c) are 

intended to provide the Commission and NFA with information in a prompt manner 

regarding actual or potential financial or operational issues that may adversely impact the 

safety and soundness of a nonbank SD by impairing the firm’s ability to meet its 

obligations to counterparties, creditors, and the general swaps market. Upon the receipt 

of a notice from a nonbank SD under Commission Regulation 23.105(c), the Commission 

 348 PRA Rulebook, CRR Firms, Notifications Part, Chapter 8 Specific Notifications, Rule 8.3.

349 FSMA, Part 4A and Schedule 6. 

350 17 CFR 23.105(c).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

115

and NFA initiate reviews of the facts and circumstances that resulted in the notice being

filed including, as appropriate, communicating with personnel of the nonbank SD. The 

review of the facts and the interaction with the personnel of the nonbank SD provide the 

Commission and NFA with information to develop an assessment of whether it is 

necessary for the nonbank SD to take remedial action to address potential financial or 

operational issues, and whether the remedial actions instituted by the nonbank SD 

properly address the issues that are the root cause of the operational or financial issues. 

Such actions may include the infusion of additional capital into the firm, or the 

development and implementation of additional internal controls to address operational 

issues. The notice filings further allow the Commission and NFA to monitor the firm’s 

performance after the implementation of remedial actions to assess the effectiveness of 

such actions.

The UK PRA Financial Reporting Rules require a PRA-designated UK nonbank 

SD to provide notice to the PRA if the firm fails to maintain a minimum capital ratio of 

common equity tier 1 capital to risk-weighted assets equal or greater than 7 percent (4.5 

percent of the core capital requirement plus the 2.5 percent capital conservation buffer

requirement, assuming no other capital buffer requirements apply). The PRA-designated 

UK nonbank SD is also required to file a capital conservation plan with its notice to the 

PRA. The capital conservation plan is required to contain information regarding actions 

that the PRA-designated UK nonbank SD will take to ensure proper capital adequacy.

The Commission has preliminarily determined that the requirement for a PRAdesignated UK nonbank SD to provide notice of a breach of its capital buffer 

requirements to the PRA is not sufficiently comparable in purpose and effect to the CFTC 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

116

notice provisions contained in Commission Regulation 23.105(c)(1) and (2),

351 which 

require a nonbank SD to provide notice to the Commission and to NFA if the firm fails to 

meet its minimum capital requirement or if the firm’s regulatory capital falls below 120 

percent of its minimum capital requirement (“Early Warning Level”). The requirement 

for a PRA-designated UK nonbank SD to provide notice of a breach of its capital buffer 

requirements does not achieve a comparable outcome to the CFTC’s Early Warning 

Level requirement due to the difference in the thresholds triggering a notice requirement 

in the respective rule sets. 

The requirement for a nonbank SD to file notice with the Commission and NFA if 

the firm becomes undercapitalized or if the firm experiences a decrease of excess 

regulatory capital below defined levels is a central component of the Commission’s and 

NFA’s oversight program for nonbank SDs.352 Therefore, the Commission preliminarily 

believes that it is necessary for the Commission and NFA to receive copies of notices 

filed under the Capital Buffers Part of the PRA Rulebook by PRA-designated UK

nonbank SDs alerting the PRA of a breach of the PRA-designated UK nonbank SD’s 

combined capital buffer. The notice must be filed by the PRA-designated UK nonbank 

SD within 24 hours of the filing of the notice with the PRA, and the Commission expects 

that, upon the receipt of a notice, Commission staff and NFA staff will engage with staff 

of the PRA-designated UK nonbank SD to obtain an understanding of the facts that led to 

the filing of the notice and will discuss with the PRA-designated UK nonbank SD the 

 351 17 CFR 23.105(c)(1) and (2).

352 See Commission Regulation 23.105(c)(4), which requires a nonbank SD to file notice with the 

Commission and NFA if it experiences decrease in excess capital of 30 percent or more from the excess 

capital reported in its last financial filing with the Commission. 17 CFR 23.105(c)(4).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

117

firm’s capital conservation plan. The proposed condition would not require the PRAdesignated UK nonbank SD to file copies of its capital conservation plan with the 

Commission or NFA. To the extent Commission staff needs further information from the 

PRA-designated UK nonbank SD, the Commission expects to request such information 

as part of its assessment of the notice and its communications with the PRA-designated 

UK nonbank SD.

In addition, due to the lack of a sufficiently comparable analogue to the CFTC 

Financial Reporting Rules’ Early Warning Level requirement, the Commission is 

proposing to condition the Capital Comparability Determination Order to require a PRAdesignated UK nonbank SD to file a notice with the Commission and NFA if the firm’s 

capital ratio does not equal or exceed 12.6 percent.353 The proposed condition would 

further require the PRA-designated UK nonbank SD to file the notice with the 

Commission and NFA within 24 hours of when the firm knows or should have known 

that its regulatory capital was below 120 percent of its minimum capital requirement.

The timing requirement for the filing of the proposed notice with the Commission and 

NFA is consistent with the Commission’s requirements for an FCM or a nonbank SD, 

which are both required to file an Early Warning Level notice with the Commission and 

NFA when the firm knows or should have known that its regulatory capital is below 

specified reporting levels.

354 The requirement for a firm to file a notice with the 

 353 The Commission’s proposed reporting level of 12.6 percent reflects the aggregate of the PRAdesignated UK nonbank SD’s core capital requirement of 8 percent and capital conservation buffer 

requirement of 2.5 percent, multiplied by a factor of 1.20. For purposes of the calculation, the Commission 

proposes that the 20 percent capital increase must be comprised of common equity tier 1 capital (i.e., 

common equity tier 1 capital must comprise a minimum of 8.4 percent, which reflects the aggregate of the 

4.5 percent core common equity tier 1 capital requirement and the 2.5 percent capital conservation buffer 

requirement, multiplied by a factor of 1.20).

354 17 CFR 1.12(b) and 17 CFR 23.105(c)(ii)(2).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

118

Commission when it knows or should have known that its capital is below the reporting 

level is designed to prevent a situation where a firm’s deficient recordkeeping leads to an 

inadequate monitoring of the Early Warning Level threshold. More generally, the 

“should have known” part of the timing standard for the filing of the proposed notice is 

intended to cover facts and circumstances that should reasonably lead the firm to believe 

that its regulatory capital is below 120 percent of the minimum requirement.355 In 

practice, even if the PRA-designated UK nonbank SD’s books and records do not reflect 

a decrease of regulatory capital below 120 percent of the minimum requirement or if the 

computations that may reveal a decrease of regulatory capital below 120 percent have not 

been made yet, the firm would be expected to provide notice if it became aware of 

deficiencies in its recordkeeping processes that could result in inaccurate recording of the 

firm’s capital levels or if it had other reasons to believe its regulatory capital is below the 

Early Warning Level threshold.

356

As noted above, a purpose of the proposed Early Warning Level notice provision 

is to allow the Commission and NFA to initiate conversations and fact finding with a 

registrant that may be experiencing operational or financial issues that may adversely 

impact the firm’s ability to meet its obligations to market participants, including 

 355 This interpretation is consistent with the Commission’s discussion of the timing standard in the 

preamble to the 1998 final rule adopting amendments to Commission Regulation 1.12, where the 

Commission noted that the part of the standard requiring an FCM to report when it “should know” of a 

problem may be defined as the point at which a party, in the exercise of reasonable diligence, should 

become aware of an event. See 63 FR 45711 at 45713.

356 To that point, in discussing the standard applicable to the timing requirement for the filing of a notice by 

an FCM to report an undersegregated or undersecured condition (i.e., situation where the FCM has 

insufficient funds in accounts segregated for the benefit of customers trading on U.S. contract markets or 

has insufficient funds set aside for customers trading on non-U.S. markets to meet the FCM’s obligations to 

its customers), the Commission noted that an obligation to file a notice could arise even before the required 

computations that would reveal deficiencies must be made. See id.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

119

customers or swap counterparties. The notice filing is a central component of the 

Commission’s and NFA’s oversight program, and the Commission believes that a firm 

that is experiencing operational challenges that prevent the firm from definitively 

computing its capital level during a period when it recognizes from the facts and 

circumstances that the firm’s capital level may be below the reporting threshold should 

file the notice with the Commission and NFA. Therefore, the Commission preliminarily 

deems it appropriate to include a similar early warning notice condition in the Capital 

Comparability Determination Order.

The UK PRA Financial Reporting Rules also do not contain an explicit 

requirement for a PRA-designated UK nonbank SD to notify the PRA if the firm fails to 

maintain current books and records, experiences a decrease in regulatory capital over 

levels previously reported, or fails to collect or post initial margin with uncleared swap 

counterparties that exceed certain threshold levels.357 The UK PRA Financial Reporting 

Rules also do not require a PRA-designated UK nonbank SD to provide the PRA with 

advance notice of equity withdrawals initiated by equity holders that exceed defined 

amounts or percentages of the firm’s excess regulatory capital.

358

To ensure that the Commission and NFA receive prompt information concerning 

potential operational or financial issues that may adversely impact the safety and 

soundness of a PRA-designated UK nonbank SD, the Commission is proposing to 

condition the Capital Comparability Determination Order to require PRA-designated UK

 357 17 CFR 23.105(c)(3), (4), and (7).

358 Commission Regulation 23.105(c)(5) requires a nonbank SD to provide written notice to the 

Commission and NFA two business days prior to the withdrawal of capital by action of the equity holders 

if the amount of the withdrawal exceeds 30 percent of the nonbank SD’s excess regulatory capital. 17 CFR 

23.105(c)(5).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

120

nonbank SDs to file certain notices required under the CFTC Financial Reporting Rules

with the Commission and NFA. In this connection, the Commission is proposing to 

condition the Capital Comparability Determination Order on a PRA-designated UK

nonbank SD providing the Commission and NFA with notice if the firm fails to maintain 

current books and records with respect to its financial condition and financial reporting 

requirements. For avoidance of doubt, in this context the Commission believes that 

books and records would include current ledgers or other similar records which show or 

summarize, with appropriate references to supporting documents, each transaction 

affecting the PRA-designated UK nonbank SD’s asset, liability, income, expense, and 

capital accounts in accordance with the accounting principles accepted by the relevant 

authorities.

359 The Commission preliminarily believes that the maintenance of current 

books and records is a fundamental and essential component of operating as a registered 

nonbank SD and that the failure to comply with such a requirement may indicate an 

inability of the firm to promptly and accurately record transactions and to ensure 

compliance with regulatory requirements, including regulatory capital requirements. 

Therefore, the proposed Order would require a PRA-designated UK nonbank SD to 

provide the Commission and NFA with a written notice within 24 hours if the firm fails 

to maintain books and records on a current basis.

The proposed Capital Comparability Determination Order would also require a

PRA-designated UK nonbank SD to file notice with the Commission and NFA if: (i) a 

single counterparty, or group of counterparties under common ownership or control, fails 

 359 For comparison, see Commission Regulation 23.105(b), which similarly defines the term “current books 

and records” as used in the context of the Commission’s requirements. 17 CFR 23.105(b).
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

121

to post required initial margin or pay required variation margin on uncleared swap and 

security-based swap positions that, in the aggregate, exceeds 25 percent of the PRAdesignated UK nonbank SD’s minimum capital requirement; (ii) counterparties fail to 

post required initial margin or pay required variation margin to the PRA-designated UK

nonbank SD for uncleared swap and security-based swap positions that, in the aggregate, 

exceeds 50 percent of the PRA-designated UK nonbank SD’s minimum capital 

requirement; (iii) a PRA-designated UK nonbank SD fails to post required initial margin 

or pay required variation margin for uncleared swap and security-based swap positions to 

a single counterparty or group of counterparties under common ownership and control 

that, in the aggregate, exceeds 25 percent of the PRA-designated UK nonbank SD’s 

minimum capital requirement; and (iv) a PRA-designated UK nonbank SD fails to post 

required initial margin or pay required variation margin to counterparties for uncleared 

swap and security-based swap positions that, in the aggregate, exceeds 50 percent of the 

PRA-designated UK nonbank SD’s minimum capital requirement. The Commission is 

proposing to require this notice so that it and the NFA may commence communication 

with the PRA-designated UK nonbank SD and the PRA in order to obtain an 

understanding of the facts that have led to the failure to exchange material amounts of 

initial margin and variation margin in accordance with the applicable margin rules, and to 

assess whether there is a concern regarding the financial condition of the firm that may 

impair its ability to meet its financial obligations to customers, counterparties, creditors, 

and general market participants, or otherwise adversely impact the firm’s safety and 

soundness.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

122

The proposed Capital Determination Order would not require a PRA-designated 

UK nonbank SD to file notices with the Commission and NFA concerning withdrawals 

of capital or changes in capital levels as such information will be reflected in the financial 

statement reporting filed with the Commission and NFA as conditions of the Order, and 

because the PRA-designated UK nonbank SD’s capital levels are monitored by the PRA, 

which the Commission preliminarily believes renders the separate reporting to the 

Commission superfluous.

The proposed Capital Comparability Determination Order would require a PRAdesignated UK nonbank SD to file any notices required under the Order with the 

Commission and NFA reflecting any balances, where applicable, in U.S. dollars. Each

notice required by the proposed Capital Comparability Determination Order must be filed 

in accordance with instructions issued by the Commission or NFA.360

The Commission invites public comment on its analysis above, including 

comment on the UK Application and relevant UK Financial Reporting Rules. The 

Commission also invites comment on the proposed conditions to the Capital 

Comparability Determination Order that are listed above. 

The Commission requests comment on the timeframes set forth in the proposed 

conditions for PRA-designated UK nonbank SDs to file notices with the Commission and 

NFA. In this regard, the proposed conditions would require PRA-designated UK

nonbank SDs to file certain written notices with the Commission within 24 hours of the 

 360 The proposed conditions for PRA-designated UK nonbank SDs to file a notice with the Commission and 

NFA if the firm fails to maintain current books and records or fails to collect or post margin with uncleared 

swap counterparties that exceed the above-referenced threshold levels are consistent with the proposed 

conditions in the proposed Capital Comparability Determination Orders for Japan, Mexico, and the EU. 

See Proposed Japan Order, Proposed Mexico Order, and Proposed EU Order.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

123

occurrence of a reportable event or of being alerted to a reportable event by the PRA. 

The Commission requests comment on the issues PRA-designated UK nonbank SDs may 

face meeting the filing requirements given time-zone difference or governance issues. 

The Commission also requests specific comment regarding the setting of compliance 

dates for the notice reporting conditions that the proposed Capital Comparability 

Determination Order would impose on PRA-designated UK nonbank SDs.

F. Supervision and Enforcement

1. Commission and NFA Supervision and Enforcement of Nonbank SDs

The Commission and NFA conduct ongoing supervision of nonbank SDs to 

assess their compliance with the CEA, Commission regulations, and NFA rules by 

reviewing financial reports, notices, risk exposure reports, and other filings that nonbank 

SDs are required to file with the Commission and NFA. The Commission and/or NFA 

also conduct periodic examinations as part of the supervision of nonbank SDs, including 

routine onsite examinations of nonbank SDs’ books, records, and operations to ensure 

compliance with CFTC and NFA requirements.361

As noted in Section D.1. above, financial reports filed by a nonbank SD provide 

the Commission and NFA with information necessary to ensure the firm’s compliance 

with minimum capital requirements and to assess the firm’s overall safety and soundness 

and its ability to meet its financial obligations to customers, counterparties, and creditors. 

A nonbank SD is also required to provide written notice to the Commission and NFA if 

 361 Section 17(p)(2) of the CEA requires NFA as a registered futures association to establish minimum 

capital and financial requirements for non-bank SDs and to implement a program to audit and enforce 

compliance with such requirements. 7 U.S.C. 21(p)(2). Section 17(p)(2) further provides that NFA’s 

capital and financial requirements may not be less stringent than the capital and financial requirements 

imposed by the Commission.
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

124

certain defined events occur, including that the firm is undercapitalized or maintains a 

level of capital that is less than 120 percent of the firm’s minimum capital 

requirements.362 The notice provisions, as stated in Section E.1. above, are intended to 

provide the Commission and NFA with information of potential issues at a nonbank SD 

that may impact the firm’s ability to maintain compliance with the CEA and Commission 

regulations. The Commission and NFA also have the authority to require a nonbank SD 

to provide any additional financial and/or operational information on a daily basis or at 

such other times as the Commission or NFA may specify to monitor the safety and 

soundness of the firm.363

The Commission also has authority to take disciplinary actions against a nonbank 

SD for failing to comply with the CEA and Commission regulations. Section 4b-1(a) of 

the CEA364 provides the Commission with exclusive authority to enforce the capital 

requirements imposed on nonbank SDs adopted under Section 4s(e) of the CEA.365

2. PRA’s Supervision and Enforcement of PRA-designated UK nonbank SDs 

The PRA has supervision, audit, and investigation powers with respect to 

PRA-designated UK nonbank SDs, which include the powers to obtain specified

information reasonably required in connection with the exercise of the PRA’s functions, 

the power to conduct or order investigations, and the power to impose sanctions on PRA-

 362 See 17 CFR 23.105(c).

363 See 17 CFR 23.105(h).

364 7 U.S.C. 6b-1(a).

365 7 U.S.C. 6s(e).
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

125 

designated UK nonbank SDs that breach their regulatory obligations, including those 

deriving from the UK PRA Capital Rules and the UK PRA Financial Reporting Rules.

366 

The PRA also monitors the capital adequacy of PRA-designated UK nonbank 

SDs through supervisory measures on an ongoing basis. The monitoring includes 

assessing the notices and the capital conservation plan discussed in Section E.2. above. 

In addition, the PRA is empowered with a variety of measures to address a PRAdesignated UK nonbank SD’s financial deterioration.

367 Under its general supervisory 

powers, the PRA may impose new requirements to a PRA-designated UK nonbank SD if 

the firm is failing, or likely to fail, to satisfy the threshold conditions for which the PRA 

is responsible.368 More specifically, a breach in a PRA-designated UK nonbank SD’s 

capital buffers automatically triggers restrictions on the firm’s ability to make certain 

distributions (e.g., pay certain dividends or employee bonuses).369 In addition, the PRA 

may impose administrative penalties or other administrative measures, including 

prudential charges, if a PRA-designated nonbank SD’s liquidity position falls below the 

liquidity and stable funding requirements.

370 

 

366 FSMA, Parts 4A, XI, and XIV. 

367 See PRA, The Prudential Regulation Authority’s approach to banking supervision, July 2023, available 

at: https://www.bankofengland.co.uk/prudential-regulation/publication/pras-approach-to-supervision-ofthe-banking-and-insurance-sectors. 

368 FSMA, Part 4A, Section 55M. 

369 See PRA Rulebook, CRR Firms, Capital Buffers Part, Chapter 4 Capital Conservation Measures, Rule 

4.3.

370 See Capital Requirements Regulations 2013, Regulation 35B and FSMA, Part XIV Disciplinary 

Measures (setting forth the PRA’s disciplinary power with respect to all rules adopted under FSMA). The 

Applicants represented that “CRR rules” (i.e., general PRA rules applying to CRR firms, including PRAdesignated UK nonbank SDs) are adopted pursuant to FSMA, Part 9D, and as such the PRA has power to 

impose disciplinary measures in connection with these rules. See Response to Staff Questions dated 

October 5, 2023. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

126

In case of non-compliance with the capital and liquidity thresholds, the PRA may 

also order PRA-designated UK nonbank SDs to comply with additional requirements, 

including: (i) maintaining additional capital in excess of the minimum requirements, if 

certain conditions are met; (ii) requiring that the PRA-designated UK nonbank SD submit 

a plan to restore compliance with applicable capital or liquidity thresholds; (iii) imposing 

restrictions on the business or operations of the PRA-designated UK nonbank SD; (iv) 

imposing restrictions or prohibitions on distributions or interest payments to shareholders 

or holders of additional tier 1 capital instruments; (v) requiring additional or more 

frequent reporting requirements; and (vi) imposing additional specific liquidity 

requirements.371 The PRA may also sanction the PRA-designated UK nonbank SD if the 

firm’s capital or liquidity fall below the applicable thresholds or the PRA has evidence 

that the firm will breach such thresholds in the next 12 months.372 The PRA may also 

withdraw a PRA-designated UK nonbank SD’s authorization if the firm no longer meets 

its minimum capital requirements.373

In addition, if the capital and liquidity requirements are breached, the PRA may 

take early measures to intervene, such as requiring management to take certain actions, 

order members of management to be removed or replaced, or require changes to the 

firm’s business strategy or legal or operational structure, among other measures.374 

 371 FSMA, Parts 4A, Sections 55M and 55P, and Capital Requirements Regulation 2013, Regulation 35B.

372 FSMA, Parts 4A and XIV.

373 FSMA, Part 4A, Sections 55J-55K. 

374 Bank Recovery and Resolution (No. 2) Order 2014, Article 2 (defining “conditions for early 

intervention” in case of breach of UK CRR requirements or requirements derived from CRD) and Part 8 

(laying down the procedure to be followed by the PRA to determine whether early intervention measures 

should be taken under FSMA). If additional requirements are met, it is also possible that the Bank of 

England, as the resolution authority, may assess the PRA-designated UK nonbank SD as “failing or likely 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

127

Although the PRA generally has broad discretion as to what powers it may 

exercise, the UK PRA Capital Rules and the UK PRA Financial Reporting Rules 

specifically mandate that the PRA require PRA-designated UK nonbank SDs to hold 

increased capital when: (i) risks or elements of risks are not covered by the capital 

requirements imposed by the UK PRA Capital Rules; (ii) the PRA-designated UK

nonbank SD lacks robust governance arrangements, appropriate resolution and recovery 

plans, processes to manage large exposures or effective processes to maintain on an 

ongoing basis the amounts, types, and distribution of capital needed to cover the nature 

and level of risks to which they might be exposed; or (iii) the sole application of other 

administrative measures would be unlikely to timely and sufficiently improve the firm’s 

arrangements and processes.

375

3. Commission Analysis

Based on the above, the Commission preliminarily finds that the PRA has the 

necessary powers to supervise, investigate, and discipline PRA-designated UK nonbank 

SDs for compliance with the applicable capital, financial and reporting requirements, and 

to detect and deter violations of, and ensure compliance with, the applicable capital and 

financial reporting requirements in the UK.

The Commission would expect to communicate and consult, to the fullest extent 

permissible under applicable law, with the PRA regarding the supervision of the financial 

and operational condition of the PRA-designated UK nonbank SDs. An appropriate 

MOU or similar arrangement with the PRA would facilitate cooperation and information 

 

to fail,” triggering a resolution action, which could occur even before the firm actually breached its 

minimum capital requirements. Banking Act 2009, Sections 4 to 83. 

375 Capital Requirements Regulation 2013, Section 34. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

128

sharing in the context of supervising the PRA-designated UK nonbank SDs. Such an 

arrangement would enhance communication with respect to entities within the 

arrangement’s scope (“Covered Firms”), as appropriate, regarding: (i) general 

supervisory issues, including regulatory, oversight, or other related developments; (ii) 

issues relevant to the operations, activities, and regulation of Covered Firms; and (iii) any 

other areas of mutual supervisory interest, and would anticipate periodic meetings to 

discuss relevant functions and regulatory oversight programs. The arrangement would 

provide for the Commission and the PRA to inform each other of certain events, 

including any material events that could adversely impact the financial or operational 

stability of a Covered Firm, and would provide a procedure for any on-site examinations 

of Covered Firms.

In the absence of an MOU or similar information sharing arrangement, the 

Commission is proposing to condition the Capital Comparability Determination Order on 

a PRA-designated UK nonbank SD providing notice to the Commission and NFA if the 

PRA has required the PRA-designated UK nonbank SD to: (i) maintain additional capital 

in excess of the minimum requirements; (ii) require that the PRA-designated UK

nonbank SD submit a plan to restore compliance with applicable capital or liquidity 

thresholds; (iii) impose restrictions on the business or operations of the PRA-designated 

UK nonbank SD; (iv) impose restrictions or prohibitions on distributions or interest 

payments to shareholders or holders of additional tier 1 capital instruments; (v) require

additional or more frequent reporting requirements; or (vi) impose additional specific 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

129

liquidity requirements.376 Upon receipt of such notice, the Commission and NFA would 

communicate with the PRA-designated UK nonbank SD to obtain further information 

regarding the underlying issues that prompted the PRA to direct the PRA-designated UK

nonbank SD to take such actions and would obtain information regarding how the PRAdesignated UK nonbank SD would address the underlying issues.

The Commission invites public comment on the UK Application, the UK laws

and regulations, and the Commission’s analysis above regarding its preliminary 

determination that the PRA and the CFTC have supervision programs and enforcement 

authority that are comparable in that the purpose of the relevant programs and authority is 

to ensure that nonbank SDs maintain compliance with applicable capital and financial 

reporting requirements.

IV. Proposed Capital Comparability Determination Order

A. Commission’s Proposed Comparability Determination

The Commission’s preliminary view, based on the UK Application and the 

Commission’s review of applicable UK laws and regulations, is that the UK PRA Capital 

Rules and the UK PRA Financial Reporting Rules, subject to the conditions set forth in 

the proposed Capital Comparability Determination Order below, achieve comparable 

outcomes and are comparable in purpose and effect to the CFTC Capital Rules and CFTC 

Financial Reporting Rules. In reaching this preliminary conclusion, the Commission 

recognizes that there are certain differences between the UK PRA Capital Rules and 

CFTC Capital Rules and certain differences between the UK PRA Financial Reporting 

 376 PRA’s authority to impose such conditions or requirements is set forth in FSMA, Part 4A, Sections 55M 

and 55P, and Capital Requirements Regulation 2013, Regulation 35B. 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

130

Rules and the CFTC Financial Reporting Rules. The proposed Capital Comparability 

Determination Order is subject to proposed conditions that are preliminarily deemed 

necessary to promote consistency in regulatory outcomes, or to reflect the scope of 

substituted compliance that would be available notwithstanding certain differences. In 

the Commission’s preliminary view, the differences between the two rules sets would not 

be inconsistent with providing a substituted compliance framework for PRA-designated 

UK nonbank SDs subject to the conditions specified in the proposed Order below.

Furthermore, the proposed Capital Comparability Determination Order is limited 

to the comparison of the UK PRA Capital Rules to the Bank-Based Approach contained 

within the CFTC Capital Rules. As noted previously, the Applicants have not requested, 

and the Commission has not performed, a comparison of the UK PRA Capital Rules to 

the Commission’s NAL Approach or TNW Approach. In addition, as discussed in 

Section I.C. above, due to the differences between the capital and financial reporting 

regimes applicable to PRA-designated UK nonbank SD and FCA-regulated UK nonbank 

SDs, the Commission anticipates assessing the comparability of the rules applicable to 

FCA-regulated UK nonbank SDs through a separate capital comparability determination.

B. Proposed Capital Comparability Determination Order

The Commission invites comments on all aspects of the UK Application, relevant 

UK laws and regulations, the Commission’s preliminary views expressed above, the 

question of whether requirements under the UK PRA Capital Rules are comparable in 

purpose and effect to the Commission’s requirement for a nonbank SD to hold regulatory 

capital equal to or greater than 8 percent of its uncleared swap margin amount, and the 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

131 

Commission’s proposed Capital Comparability Determination Order, including the 

proposed conditions included in the proposed Order, set forth below.

C. Proposed Order Providing Conditional Capital Comparability 

Determination for PRA-designated UK Nonbank Swap Dealers

IT IS HEREBY DETERMINED AND ORDERED, pursuant to Commodity 

Futures Trading Commission (“CFTC” or “Commission”) Regulation 23.106 (17 CFR 

23.106) under the Commodity Exchange Act (“CEA”) (7 U.S.C. 1 et seq.) that a swap 

dealer (“SD”) subject to the Commission’s capital and financial reporting requirements 

under Sections 4s(e) and (f) of the CEA (7 U.S.C. 6s(e) and (f)), that is organized and 

domiciled in the United Kingdom (“UK”) and designated for prudential supervision by 

the UK Prudential Regulation Authority (“PRA”), may satisfy the capital requirements 

under Section 4s(e) of the CEA and Commission Regulation 23.101(a)(1)(i) (17 CFR 

23.101(a)(1)(i)) (“CFTC Capital Rules”), and the financial reporting rules under Section 

4s(f) of the CEA and Commission Regulation 23.105 (17 CFR 23.105) (“CFTC Financial 

Reporting Rules”), by complying with certain specified requirements of the UK laws and 

regulations cited below and otherwise complying with the following conditions, as 

amended or superseded from time to time: 

(1) The SD is not subject to regulation by a prudential regulator defined in 

Section 1a(39) of the CEA (7 U.S.C. 1a(39)); 

(2) The SD is organized under the laws of the UK and is domiciled in the UK; 

(3) The SD is licensed as an investment firm in the UK and is designated for 

prudential supervision by the PRA (“PRA-designated UK nonbank SD”); 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

132

(4) The PRA-designated UK nonbank SD is subject to and complies with: 

Regulation (EU) No 575/2013 of the European Parliament and of the 

Council of 26 June 2013 on prudential requirements for credit institutions 

and amending Regulation (EU) No 648/2012 as restated and applicable in 

the UK (“UK CRR”), the provisions implementing the Directive 

2013/36/EU of the European Parliament and of the Council of 26 June 

2013 on access to the activity of credit institutions and the prudential 

supervision of credit institutions, amending Directive 2002/87/EC and 

repealing Directives 2006/48/EC and 2006/49/EC (“CRD”), including 

Capital Requirements Regulations 2013 and Capital Requirements 

(Capital Buffers and Macro-prudential Measures) Regulations 2014, 

Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to 

supplement Regulation (EU) No 575/2013 of the European Parliament 

and the Council with regard to liquidity coverage requirement for Credit 

Institutions (“Liquidity Coverage Delegated Regulation”), the Banking 

Act 2009 and its secondary legislation, and the rules of the PRA as 

reflected in the PRA Rulebook (collectively the “UK PRA Capital 

Rules”); 

(5) The PRA-designated UK nonbank SD satisfies at all times applicable 

capital ratio and leverage ratio requirements set forth in Article 92 of UK 

CRR and the rules in PRA Rulebook, CRR Firms, Leverage Ratio –

Capital Requirements and Buffers Part, Chapter 3 Minimum Leverage 

Ratio, the capital conservation buffer requirements set forth in PRA 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

133

Rulebook, CRR Firms, Capital Buffers Part, and applicable liquidity 

requirements set forth in PRA Rulebook, CRR Firms, Liquidity Coverage 

Requirement – UK Designated Investment Firms Part and PRA Rulebook, 

CRR Firms, Liquidity (CRR) Part, and otherwise complies with the 

requirements to maintain a liquidity risk management program as required 

under PRA Rulebook, CRR Firms, Internal Liquidity Adequacy 

Assessment Part;

(6) The PRA-designated UK nonbank SD is subject to and complies with: 

Reporting (CRR) and Regulatory Reporting parts of the PRA Rulebook 

and the Companies Act 2006, Parts 15 and 16 (collectively and together 

with UK CRR, the “UK PRA Financial Reporting Rules”);

(7) The PRA-designated UK nonbank SD maintains at all times an amount of 

regulatory capital in the form of common equity tier 1 capital as defined in 

Article 26 of UK CRR, equal to or in excess of the equivalent of $20 

million in United States dollars (“U.S. dollars”). The PRA-designated UK

nonbank SD shall use a commercially reasonable and observable British 

pound/U.S. dollar exchange rate to convert the value of the pounddenominated common equity tier 1 capital to U.S. dollars;

(8) The PRA-designated UK nonbank SD has filed with the Commission a 

notice stating its intention to comply with the UK PRA Capital Rules and 

the UK PRA Financial Reporting Rules in lieu of the CFTC Capital Rules 

and the CFTC Financial Reporting Rules. The notice of intent must 

include the PRA-designated UK nonbank SD’s representation that the firm 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

134

is organized and domiciled in the UK, is a licensed investment firm 

designated for prudential supervision by the PRA, and is subject to, and 

complies with, the UK PRA Capital Rules and UK PRA Financial

Reporting Rules. A PRA-designated UK nonbank SD may not rely on this 

Capital Comparability Determination Order until it receives confirmation 

from Commission staff, acting pursuant to authority delegated by the 

Commission, that the PRA-designated UK nonbank SD may comply with 

the applicable UK PRA Capital Rules and UK PRA Financial Reporting 

Rules in lieu of the CFTC Capital Rules and CFTC Reporting Rules. Each 

notice filed pursuant to this condition must be submitted to the 

Commission via email to the following address: 

MPDFinancialRequirements@cftc.gov;

(9) The PRA-designated UK nonbank SD prepares and keeps current ledgers

and other similar records in accordance with the PRA Rulebook, General 

Organisational Requirements Part, Rule 2.2 and Record Keeping Part, 

Rule 2.1 and 2.2, and conforming with the applicable accounting 

principles;

(10) The PRA-designated UK nonbank SD files with the Commission and with 

the National Futures Association (“NFA”) a copy of templates 1.1

(Balance Sheet Statement: assets), 1.2 (Balance Sheet Statement: 

liabilities), 1.3 (Balance Sheet Statement: equity), and 2 (Statement of 

profit or loss) of the financial reports (“FINREP”) that PRA-designated 

UK nonbank SDs are required to submit pursuant to PRA Rulebook, CRR 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

135

Firms, Regulatory Reporting Part, Chapter 9 Regulatory Activity Group 3, 

Rule 9.2, and templates 1 (Own Funds), 2 (Own Funds Requirements) and 

3 (Capital Ratios) of the common reports (“COREP”) that PRAdesignated UK nonbank SDs are required to submit pursuant to PRA 

Rulebook, CRR Firms, Reporting (CRR) Part, Chapter 4 Reporting (Part 

Seven A CRR), Article 430 Reporting on Prudential Requirements and 

Financial Information, Rule 1. The FINREP and COREP templates must 

be provided with balances converted to U.S. dollars and must be filed with 

the Commission and NFA within 35 calendar days of the end of each 

month. PRA-designated UK nonbank SDs that are registered as securitybased swap dealers (“SBSDs”) with the U.S. Securities and Exchange 

Commission (“SEC”) may comply with this condition by filing with the 

Commission and NFA a copy of Form X-17A-5 (“FOCUS Report”) that 

the PRA-designated UK nonbank SD is required to file with the SEC or its 

designee pursuant to an order granting conditional substituted compliance 

with respect to Securities Exchange Act of 1934 Rule 18a-7. The copy of 

the FOCUS Report must be filed with the Commission and NFA within 35 

calendar days after the end of each month in the manner, format and 

conditions specified by the SEC in Order Specifying the Manner and 

Format of Filing Unaudited Financial and Operational Information by 

Security-Based Swap Dealers and Major Security-Based Swap 

Participants that are not U.S. Persons and are Relying on Substituted 

Compliance with Respect to Rule 18a-7, 86 FR 59208 (Oct. 26, 2021);
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

136 

(11) The PRA-designated UK nonbank SD files with the Commission and with 

NFA a copy of its annual audited accounts and strategic report (together, 

“annual audited financial report”) that are required to be prepared and 

published pursuant to Parts 15 and 16 of Companies Act 2006. The 

annual audited financial report may be reported in British pound. The 

annual audited financial report must be filed with the Commission and 

NFA on the earlier of the date the report is filed with the PRA or the date 

the report is required to be filed with the PRA pursuant to the UK PRA

Financial Reporting Rules; 

(12) The PRA-designated UK nonbank SD files Schedule 1 of Appendix B to 

Subpart E of Part 23 of the CFTC’s regulations (17 CFR 23 Subpart E – 

Appendix B) with the Commission and NFA on a monthly basis. 

Schedule 1 must be prepared with balances reported in U.S. dollars and 

must be filed with the Commission and NFA within 35 calendar days of 

the end of each month; 

(13) The PRA-designated UK nonbank SD submits with each set of FINREP 

and COREP templates, annual audited financial report, and Schedule 1 of 

Appendix B to Subpart E of Part 23 of the CFTC’s regulations, a 

statement by an authorized representative or representatives of the PRAdesignated UK nonbank SD that to the best knowledge and belief of the 

representative or representatives, the information contained in the reports, 

including the conversion of balances in the reports to U.S. dollars, is true 

and correct;
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

137 

(14) The PRA-designated UK nonbank SD files a margin report containing the 

information specified in Commission Regulation 23.105(m) (17 CFR 

23.105(m)) with the Commission and with NFA within 35 calendar days 

of the end of each month. The margin report balances must be reported in 

U.S. dollars; 

(15) The PRA-designated UK nonbank SD files a notice with the Commission 

and NFA within 24 hours of being informed by the PRA that the firm is 

not in compliance with any component of the UK PRA Capital Rules or 

the UK PRA Financial Reporting Rules; 

(16) The PRA-designated UK nonbank SD files a notice within 24 hours with 

the Commission and NFA if it fails to maintain regulatory capital in the 

form of common equity tier 1 capital as defined in Article 26 of UK CRR,

equal to or in excess of the U.S. dollar equivalent of $20 million using a 

commercially reasonable and observable British pound/U.S. dollar 

exchange rate;

(17) The PRA-designated UK nonbank SD provides the Commission and NFA 

with notice within 24 hours of filing a capital conservation plan with the 

PRA pursuant to PRA Rulebook, CRR Firms, Capital Buffers Part, 

Chapter 4 Capital Conservation Measures, Rule 4.4, indicating that the 

firm has breached its combined capital buffer requirement;

(18) The PRA-designated UK nonbank SD provides the Commission and NFA 

with notice within 24 hours if it is required by the PRA to maintain 

additional capital or additional liquidity requirements, or to restrict its 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

138 

business operations, or to comply with other requirements pursuant to 

Financial Services and Markets Act 2000, Part 4A or the Capital 

Requirements Regulation 2013, Regulation 35B; 

(19) The PRA-designated UK nonbank SD files a notice with the Commission 

and NFA within 24 hours if it fails to maintain its minimum requirement 

for own funds and eligible liabilities (“MREL”), if the PRA-designated 

UK nonbank SD is subject to such requirement as set forth by the Bank of 

England pursuant to the Banking Act 2009, Section 3A and the Bank 

Recovery and Resolution (No. 2) Order 2014, Part 9; 

(20) The PRA-designated UK nonbank SD files a notice with the Commission 

and NFA within 24 hours of when the firm knew or should have known 

that its regulatory capital fell below 120 percent of its minimum capital 

requirement, comprised of the firm’s core capital requirements and any 

applicable capital buffer requirements. For purposes of the calculation, 

the 20 percent excess capital must be in the form of common equity tier 1 

capital; 

(21) The PRA-designated UK nonbank SD files a notice with the Commission 

and NFA within 24 hours if it fails to make or keep current the financial 

books and records; 

(22) The PRA-designated UK nonbank SD files a notice with the Commission 

and NFA within 24 hours of the occurrence of any of the following: (i) a 

single counterparty, or group of counterparties under common ownership 

or control, fails to post required initial margin or pay required variation 
Pre-Print Version – Commission approved 

(subject to technical corrections required for Federal Register publication)

139 

margin on uncleared swap and non-cleared security-based swap positions 

that, in the aggregate, exceeds 25 percent of the PRA-designated UK

nonbank SD’s minimum capital requirement; (ii) counterparties fail to 

post required initial margin or pay required variation margin to the PRAdesignated UK nonbank SD for uncleared swap and non-cleared securitybased swap positions that, in the aggregate, exceeds 50 percent of the 

PRA-designated UK nonbank SD’s minimum capital requirement; (iii) the 

PRA-designated UK nonbank SD fails to post required initial margin or 

pay required variation margin for uncleared swap and non-cleared 

security-based swap positions to a single counterparty or group of 

counterparties under common ownership and control that, in the 

aggregate, exceeds 25 percent of the PRA-designated UK nonbank SD’s 

minimum capital requirement; or (iv) the PRA-designated UK nonbank 

SD fails to post required initial margin or pay required variation margin to 

counterparties for uncleared swap and non-cleared security-based swap 

positions that, in the aggregate, exceeds 50 percent of the PRA-designated 

UK nonbank SD’s minimum capital requirement; 

(23) The PRA-designated UK nonbank SD files a notice with the Commission 

and NFA of a change in its fiscal year-end approved or permitted to go 

into effect by the PRA. The notice required by this paragraph will satisfy 

the requirement for a nonbank SD to obtain the approval of NFA for a 

change in fiscal year-end under Commission Regulation 23.105(g) (17 

CFR 23.105(g)). The notice of change in fiscal year-end must be filed 
Pre-Print Version – Commission approved

(subject to technical corrections required for Federal Register publication)

140

with the Commission and NFA at least 15 business days prior to the 

effective date of the PRA-designated UK nonbank SD’s change in fiscal 

year-end;

(24) The PRA-designated UK nonbank SD or an entity acting on its behalf 

notifies the Commission of any material changes to the information 

submitted in the application for capital comparability determination, 

including, but not limited to, material changes to the UK PRA Capital 

Rules or UK PRA Financial Reporting Rules imposed on PRA-designated 

UK nonbank SDs, the PRA’s supervisory authority or supervisory regime 

over PRA-designated UK nonbank SDs, and proposed or final material 

changes to the UK PRA Capital Rules or UK PRA Financial Reporting 

Rules as they apply to PRA-designated UK nonbank SDs; and

(25) Unless otherwise noted in the conditions above, the reports, notices, and 

other statements required to be filed by the PRA-designated UK nonbank 

SD with the Commission and NFA pursuant to the conditions of this 

Capital Comparability Determination Order must be submitted 

electronically to the Commission and NFA in accordance with instructions 

provided by the Commission or NFA.

Issued in Washington, DC, on January __, 2024, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.