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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
of Exchange Act rule 18a8h as applied to Exchange Act rule 18a8c.
C. European Union Cross-Border Matters
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1. Proposed Approach The proposed Order also included general conditions to address the crossborder application of MiFID and MAR, along with EU and French requirements adopted pursuant to those directives.
For some requirements under MiFID
and other EU and Member State requirements adopted pursuant to MiFID, EU law allocates the responsibility for supervising and enforcing those requirements to authorities of the Member State where an entity provides certain services.
Similarly, for some requirements under MAR and other EU and Member State requirements adopted pursuant to MAR, EU law allocates the responsibility for supervising and enforcing those requirements to authorities of potentially multiple Member States. To help ensure that the prerequisites to substituted compliance with respect to supervision and enforcement are satisfied in fact, the proposed Order provided substituted compliance only if one of the authorities responsible for supervision and enforcement of those requirements is the AMF or the ACPR.116
2. Commenter Views and Final Provisions Commenters raised concerns with the proposed approach to European Union cross-border matters. The commenters did not object to the Commissions underlying premise, with one commenter noting that they understood that the Commission has included these conditions in the order to ensure that the prerequisites with respect to supervision and enforcement are satisfied. 117 Commenters instead asserted that the proposed condition would significantly curtail the ability to rely on the Order, with one commenter stating that requiring the AMF or ACPR
to be allocated responsibility for the supervision and enforcement of applicable MiFID and MAR provisions, will in practice lead to an untenable patchwork of substituted compliance. 118 To address these issues, commenters urged the Commission to consider whether it could dispense with certain of the requirements cited in the proposed Order and still make a holistic, 116 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85724, 85739.
117 See SIFMA Letter I at 28.
118 See SIFMA Letter I at 3.

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outcomes based comparability determination.
The Commission continues to believe that requiring that the AMF or ACPR
have responsibility for applicable MiFID
and MAR provisions will help ensure that the supervision and enforcement prerequisites to substituted compliance are satisfied.119 Additionally, the proposed approach helps ensure that applicable MiFID and MAR provisions are interpreted and applied in a consistent manner by entities that are party to the MOUs and/or other arrangements which are a prerequisite to substituted compliance.120 In light of these considerations the Commission is issuing the general conditions related to EU cross-border matters largely as proposed.121 In the Commissions view, these conditions are structured appropriately to permit the use of substituted compliance only when the AMF or the ACPR is the entity responsible for supervising a Covered Entitys compliance with a relevant provision of MiFID, MAR or related EU
or French requirements.
The Commission agrees, however, that in light of the EU cross-border implications, further consideration of the specific conditions cited with respect to internal risk management, trade acknowledgement and verification, trading relationship documentation, internal supervision and compliance and recordkeeping, reporting, notification, and securities counts is warranted to ensure that the scope of substituted compliance is appropriate. The Commission addresses those specific requirements below.122
This part of the Order has been modified from the proposed Order to incorporate references to conditions requiring compliance with MiFIR, given that certain relevant MiFIR conditions to substituted compliance are subject to the same principles regarding the allocation of authority.123
IV. Substituted Compliance for Risk Control Requirements A. Proposed Approach The French Authorities Application in part requested substituted compliance in connection with risk control requirements relating to:
119 See Business Conduct Adopting Release, 81
FR at 30080; see also id. at 30067.
120 See id. at 30087.
121 See para. a8 of the Order.
122 See also discussion in part III.B.2.d.
123 MiFID article 358 particularly provides that these allocation principles apply in connection with MiFIR articles 14 to 26. The Commission requested comment on the addition of MiFIR and received no comment.

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Internal risk managementInternal risk management system requirements that address the obligation of registered entities to follow policies and procedures reasonably designed to help manage the risks associated with their business activities.
Trade acknowledgment and verificationTrade acknowledgment and verification requirements intended to help avoid legal and operational risks by requiring definitive written records of transactions and procedures to avoid disagreements regarding the meaning of transaction terms.
Portfolio reconciliation and dispute reportingPortfolio reconciliation and dispute reporting provisions that require that counterparties engage in portfolio reconciliation and resolve discrepancies in connection with uncleared securitybased swaps, and to provide prompt notification to the Commission and applicable prudential regulators regarding certain valuation disputes.
Portfolio compressionPortfolio compression provisions that require that SBS Entities have procedures addressing bilateral offset, bilateral compression and multilateral compression in connection with uncleared security-based swaps.
Trading relationship documentationTrading relationship documentation provisions that require SBS Entities to have procedures to execute written security-based swap trading relationship documentation with their counterparties prior to, or contemporaneously with, executing certain security-based swaps.124
Taken as a whole, these risk control requirements help to promote market stability by mandating that registered entities follow practices that are appropriate to manage the market, counterparty, operational, and legal risks associated with their securitybased swap businesses.
In considering conditional substituted compliance for the risk control portion of the French Authorities Application, the Commission preliminarily concluded that the relevant French and EU requirements generally would help to produce regulatory outcomes that are comparable to those under the Exchange Act by subjecting Covered Entities to risk mitigation and documentation practices that are appropriate to the risks associated with their securitybased swap businesses.125 Substituted compliance under the proposed Order was to be conditioned in part on Covered Entities being subject to and 124 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85724.
125 Id. at 85724.

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