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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
compliance.74 The Commission explained that those additional two conditions may promote certainty that EMIR will apply and help preclude gaps between the regulatory outcomes associated with the Exchange Act and those associated with the relevant EMIR
provisions. 75 This is particularly significant due to the Orders removal of proposed MiFID-related conditions with respect to substituted compliance for trade acknowledgement and verification requirements and for trading relationship documentation requirements, and the accompanying heightened reliance on certain EMIRrelated conditions.76 The two additional EMIR-related conditions are:
Covered Entitys counterparties as EMIR counterpartiesFor each condition in the proposed Order that requires the application of, and compliance with, provisions of EMIR, Commission Delegated Regulation EU
149/2013 EMIR RTS and/or Delegated Regulation EU 2016/2251
EMIR Margin RTS, if the counterparty to the Covered Entity is not a financial counterparty or nonfinancial counterparty as defined in EMIR articles 28 or 29, respectively, the Covered Entity must comply with the applicable condition as if the counterparty were a financial counterparty or non-financial counterparty. In other words, the Covered Entity would be subject to the relevant requirements under EMIR even if the counterparty is not authorized pursuant to EU law as anticipated by the EMIR article 28 financial counterparty definition, or if the counterparty is not an undertaking such as by virtue of being a natural person, or is not established in the EU
by virtue of being a U.S. person or otherwise being established in some non-EU jurisdiction, as anticipated by the EMIR article 29 non-financial counterparty definition.77
Security-based swap status under EMIRFor each condition in the proposed Order that requires the application of, and compliance with, provisions of EMIR, EMIR RTS and/or EMIR Margin RTS, either: 1 The relevant security-based swap must be an OTC derivative or OTC derivative contract, as defined in EMIR article 27, that has not been cleared by a central counterparty CCP and otherwise is subject to the provisions of EMIR; or 2 the relevant security-based swap must have been cleared by a 74 Reopening
Release, 86 FR at 18342.

75 Id.
76 See 77 See
generally parts IV.B.2 and IV.B.5 infra.
Reopening Release, 86 FR at 18342 n.9.

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central counterparty that has been authorized or recognized to clear derivatives contracts in the EU.78
2. Commenter Views and Final Provisions Commenters addressed the proposed general conditions related to MiFID
clients, the memoranda of understanding, and the notice to the Commission.79 Commenters also addressed the two additional EMIRrelated conditions the Commission discussed when it reopened the comment period.80 For the reasons discussed below, the Order largely incorporates the general conditions as proposed, subject to certain changes and the addition of the two EMIR-related conditions.81 In the Commissions view, the conditions are structured appropriately to predicate a positive substituted compliance determination on the applicability of relevant French and EU requirements needed to establish comparability, as well as on the continued effectiveness of the requisite MOU, and the provision of notice to the Commission regarding the Covered Entitys intent to rely on substituted compliance.
a. Counterparties as MiFID clients One commenter requested that the Commission modify the general condition regarding MiFID client status, which as proposed required that the counterparty be a client or potential client as defined in MiFID, such that the condition also would encompass counterparties that are acting through an agent which the Covered Entity treats as its client or potential client. 82
The commenter stated that this change would address circumstances in which an agent acted on its counterpartys behalf, such as an investment manager acting for a fund, reasoning that in practice entities will look to the agent at 18342.
SIFMA Letter II at 7, 16, and Appendix A;
FBF Letter II at 3 addressing counterparties as MiFID clients; Better Markets Letter at 5
addressing the memorandum of understanding.
80 See SIFMA Letter II at 4; FBF Letter II at 2;
Better Markets Letter at 57.
81 The Commission is adopting, largely as proposed, other general conditions that were not the subject of comments and that are not otherwise addressed below. See paras. a1, a3, and a4
of the Order. The Commission is making technical changes to clarify the captions of certain of the general conditions e.g., in the final Order the caption to the proposed condition related to Activities as investment services or activities now refers to Activities as MiFID investment services or activities. Certain of the general conditions also have been renumbered from the proposal.
82 SIFMA Letter II at Appendix A.

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rather than the agents principal when satisfying applicable requirements.83
As noted above, the proposed Order would require a Covered Entity to be subject to and comply with relevant MiFID-based requirements. The Commission proposed that requirement of the proposed Order to ensure that comparable MiFID-based requirements in practice would apply to a Covered Entity using substituted compliance.
The condition in paragraph a2 to the proposed Order would ensure that the Covered Entitys counterpartyi.e., the entity to whom it owes its various duties under the Exchange Actis the client to whom the Covered Entity owes its performance of the duties to which it is subject under the comparable MiFID-based requirements.84 The Commission believes that, in the case of an agent acting on behalf of a principal, if the principal is the counterparty for purposes of the relevant Exchange Act requirement, then this condition should require the principal, as the counterparty, to be the client for purposes of the relevant MiFID-based requirements. If the Covered Entity instead treats the agent as the client, then the Covered Entity would not be subject to French and EU
requirements that are comparable to Exchange Act requirements related to counterparties. Accordingly, the Commission is not amending the Order to modify the condition in paragraph a2 to permit a Covered Entity to treat an agent, rather than the agents principal, as its client with regard to the relevant MiFID-based requirements. In taking this position, the Commission does not prohibit Covered Entities from working with agents or others acting on behalf of a counterparty. Rather, the Covered Entity must ensure that, in working with the agent, it fulfills any duties owed to a client or potential client in relation to the counterparty.85

78 Id.

79 See
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83 SIFMA

Letter II at 7.
provisions of the MiFID-based requirements cited in the condition, such as certain organizational requirements, do not pertain to counterparties or clients. In those cases, there is no relevant counterparty or potential counterparty for purposes of the condition, and the condition would have no effect.
85 MiFID article 26 permits firms to rely upon information about a client received from another French and EU-regulated firm. Under that provision, the other firm is legally responsible for the completeness and accuracy of any information about the client that the other firm receives from the first firm. The Commission believes that it is appropriate to permit a Covered Entity to rely on information about its client communicated by another French and EU-regulated firm on behalf of the client. Accordingly, the application of this provision would not cause the Covered Entity to be 84 Some
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