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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
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Entity using substituted compliance for trade acknowledgment and verification requirements will be required to document the agreement of the counterparties to all the terms of the relevant transaction, the Commission is issuing the Order with two new general conditions that will require the Covered Entity to treat its counterparty as a financial counterparty or non-financial counterparty when complying with French and EU trade acknowledgment and verification requirements and to ensure that the relevant security-based swap is either non-centrally cleared and subject to EMIR or cleared by a central counterparty that has been authorized or recognized to clear derivatives contracts by a relevant authority in the EU.167
Another commenter recommended removal of conditions requiring compliance with EMIR RTS article 124
because it does not relate to and goes beyond Exchange Act trade acknowledgment and verification requirements.168 As part of the French and EU framework for trade 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. This approach appears to be consistent with EU guidance. See European Securities and Markets Authority, Questions and Answers: Implementation of the Regulation EU No 648/2012 on OTC derivatives, central counterparties and trade repositories EMIR
https www.esma.europa.eu/sites/default/files/
library/esma70-1861941480-52_qa_on_emir_
implementation.pdf answer 5a stating that compliance with the EMIR confirmation requirement necessitates that the counterparties must reach a legally binding agreement to all terms of the OTC derivative contract, and that the EMIR
RTS implies that both parties must comply and agree in advance to a specific process to do so;
answer 12b stating that where an EU counterparty transacts with a third-country entity, the EU
counterparty generally must ensure that the EMIR
requirements for portfolio reconciliation, dispute resolution, timely confirmation and portfolio compression are met for the relevant portfolio and/
or transactions even though the third country entity would not itself be subject to EMIR.
167 See paras. a5 and a6 of the Order; see also part III.B, supra. Commenters supported those additions. See FBF Letter II at 2 stating that the FBF is generally welcoming of the new general EMIR conditions that are introduced as a corollary to the above changes. As applied in the context of trading relationship documentation, trade acknowledgment and verification, they largely convey the manner in which EMIR has been interpreted.. See also SIFMA Letter II at 6 stating that we agree with the Commission that the cited provisions of EMIR are comparable to the Exchange Act trade acknowledgment and verification and trading relationship documentation requirements..
168 See SIFMA Letter II at Appendix A stating that the requirements of the rule, which relate to the obligation of financial counterparties to report, on a monthly basis, the number of unconfirmed OTC
derivative transactions that have been outstanding for more than five business days, do not correspond to and go beyond the general requirements of rule 15Fi2.

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acknowledgment and verification, EMIR
RTS article 124 requires a Covered Entity to have the necessary procedures to report on a monthly basis to the competent authority the number of unconfirmed, non-centrally cleared OTC
derivative transactions that have been outstanding for more than five business days. Though Exchange Act rule 15Fi 2 does not have a similar requirement to report unconfirmed trades, the Commission considers that EMIR RTS
article 124s requirement to report unconfirmed trades to the competent authority is an inseparable part of the French and EU framework for trade acknowledgment and verification, as those reports support the frameworks mandate to confirm transactions.
Requiring a Covered Entity to be subject to and comply with EMIR RTS article 124 thus is consistent with a holistic approach for comparing regulatory outcomes that reflects the whole of a jurisdictions relevant requirements.
Accordingly, the Order retains as a condition to substituted compliance for trade acknowledgment and verification requirements the requirement that the Covered Entity be subject to and comply with the entirety of EMIR RTS article 12.
In summary, the Commission believes that French and EU requirements promote the goal of avoiding legal and operational risks by requiring definitive written records of transactions and procedures to avoid disagreements regarding the meaning of transaction terms, in a manner that is comparable to the purpose of Exchange Act rule 15Fi 2.169 The Commission recognizes that the MiFID confirmation requirements, particularly MiFID Org Reg article 59, are more specific regarding relevant categories of information to be disclosed in the context of a one-way requirement for firms to provide reports to their clients, but does not believe that those additional one-way confirmation provisions are necessary to achieve the policy goal of avoiding legal and operational risks. While the Commission recognizes the differences between French and EU requirements and Exchange Act trade acknowledgment and verification requirements, in the Commissions view those differences on balance would not preclude substituted compliance, particularly as requirement-byrequirement similarity is not needed for substituted compliance. The 169 The two new EMIR-related general conditions addressed above should further help ensure that the EMIR confirmation provisions comprehensively apply to relevant non-cleared transactions of SBS
Entities.

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Commission is not persuaded by a commenter view that denying substituted compliance under the applicable circumstances seems perfectly reasonable, given the Commissions conclusion that the relevant EMIR-related conditions provide regulatory outcomes that are comparable to those associated with the Exchange Act requirement, and the regulatory efficiency benefits associated with substituted compliance.170 That commenters request for a robust, evidence-based analysis has been met here in the context of the requisite holistic analysis,171 and the commenters suggestion that there is a need for analysis regarding protection of the American financial system has been addressed above.172
3. Portfolio Reconciliation and Dispute Reporting In the French Substituted Compliance Notice and Proposed Order, the Commission proposed to make a positive substituted compliance determination conditioned on the Covered Entity being subject to and complying with specific French portfolio reconciliation and dispute reporting requirements.173 One commenter expressed general support for the proposed approach toward substituted compliance for the risk control provisions.174 Another commenter stated that, if the Commission makes a positive substituted compliance determination, it must at a minimum ensure that it does not weaken the conditions any further. 175 The Commission continues to believe that French portfolio reconciliation and dispute reporting requirements promote regulatory outcomes comparable to Exchange Act requirements, by subjecting Covered Entities to risk mitigation practices that are appropriate to the risks associated with their security-based swap businesses, and is making a positive substituted compliance determination 170 Better
Markets Letter at 6.
Better Markets Letter at 6 alluding to the need for a robust, evidence-based analysis. As discussed above see part II.D.2, supra, the Commission believes that the present approach toward comparability analyseswhich are based on a close reading of relevant foreign requirements and careful consideration of regulatory outcomes appropriately reflects the holistic comparability approach and the rejection of requirement-byrequirement similarity.
172 See Better Markets Letter at 6 stating that the Commission must provide analysis that the change would protect the American financial system. See also discussion in part II.D.2 supra.
173 French Substituted Compliance Notice and Proposed Order, 85 FR at 85740.
174 See SIFMA Letter II at 6.
175 See Better Markets Letter at 2.
171 See
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