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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
counterparty requirements specified in the proposed Order, including: MiFID
article 162; MFC L. 53310.II2;
MiFID Org Reg articles 21 and 22, 25
and 26 and applicable parts of Annex I;
CRD articles 741 and 851; MFC L.
51155 and L. 511411B; MLD
articles 11 and 13; L. 5616, L. 56110, L. 56141, R. 56152, R. 5617, R.
561103, R. 561111; MLD articles 83 and 84a as applied to internal policies, controls and procedures regarding recordkeeping of customer due diligence activities; and MFC L.
56141 as applied to vigilance measures regarding recordkeeping of customer due diligence activities.407
The commenter also proposed the addition of MFC article L. 56112 to the Orders know your counterparty conditions. Similar to other elements of the counterparty protection requirements, the commenter asserted that the conditions identified for removal do not correspond to, and go beyond, the requirements of Exchange Act rule 15Fh3e. 408 However, the commenters reasons for this overarching claim are unconvincing.
The commenter describes MiFID
article 162 and MFC L. 53310.II2 as relating to broad organizational requirements without explaining how such characteristics preclude their inclusion when considering whether regulatory requirements are comparable for purposes of substituted compliance.409 MiFID article 162
requires a Covered Entity to establish, implement and maintain adequate policies and procedures sufficient to ensure the Covered Entitys compliance with its obligations under French financial services laws. This requirement relates to the requirement in Exchange Act rule 15Fh3e1 and 2 for the Covered Entity to establish, maintain and enforce written policies and procedures to obtain and retain a record of the essential facts about the counterparty that are necessary for complying with applicable laws, regulations and rules and for implementing the Covered Entitys credit and operational risk management policies. Accordingly, the Commission is retaining the references to these provisions.
The commenter similarly describes the other conditions proposed for removal, including the MiFID Org Reg articles as organizational requirements, compliance, responsibility of senior management, complaints handling and
associated recordkeeping. 410 However, MiFID Org Reg articles 21, 22, 25, 26
and applicable parts of Annex I are regulations that implement MiFID
article 162. They provide additional detail about the Covered Firms required policies and procedures under the French regulatory framework, and as such are relevant to the policies and procedures required under Exchange Act rule 15Fh3e. Accordingly, the Commission is retaining the references to these provisions.
The commenter states that CRD
articles 741 and 851, and MFC L.
51155 and L. 511411B are governance and prudential requirements, and thus go beyond the scope of Exchange Act know your counterparty requirements.411 CRD
article 741 would require the Covered Entity to have robust governance arrangements, including effective processes to identify, manage, monitor and report the risks it is or might be exposed to. CRD article 851 would require the Covered Entity to implement policies and processes to evaluate and manage the exposures to operational risk. These requirements relate to the requirement in Exchange Act rule 15Fh 3e2 for the Covered Entity to establish, maintain and enforce written policies and procedures to obtain and retain a record of the essential facts about the counterparty that are necessary for implementing the Covered Entitys credit and operational risk management policies. Accordingly, the Commission is retaining the references to these provisions.
The commenter states that MLD
articles 83, 84a, 11 and 13, are simply overbroad, and therefore do not correspond to, and go beyond, the requirements of Exchange Act rule 15Fh3e. 412 Similarly, the commenter states that MFC articles L.
5616, L. 56110, R. 56152, R. 561
7, R. 561103 and R. 561111, which in part implement MLD articles 11 and 13, and MFC article L. 56141, which implements MLD articles 83 and 84a, are related to AML
requirements other than KYC and that it is not appropriate for the Commission effectively to expand the scope and content of its requirements. 413 MLD articles 11 and 13, and the corresponding provisions of the MFC, require obliged entities such as a Covered Entity to apply customer due diligence measures at defined points of a business relationship. Those 410 Id.

407 SIFMA

Letter II at Appendix A.

411 Id.

408 Id.

412 Id.

409 Id.

413 Id.

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customer due diligence measures include verifying that any person purporting to act on behalf of a customer is so authorized. The customer due diligence measures required by MLD articles 11 and 13 and the corresponding provisions of the MFC
thus are directly related to the requirement in Exchange Act 15Fh 3e3 for a Covered Entity to establish, maintain and enforce written policies and procedures to obtain and retain a record of the essential facts about the authority of any person acting for a counterparty. MLD articles 83 and 84a and MFC article L. 56141
would require a Covered Entity to have in place policies, controls and procedures to mitigate and manage effectively the risks of money laundering and terrorist financing.
These policies and processes are related to the requirement in Exchange Act rule 15Fh3e1 and 2 for the Covered Entity to establish, maintain and enforce written policies and procedures to obtain and retain a record of the essential facts about the counterparty that are necessary for complying with applicable laws, regulations and rules and for implementing the Covered Entitys credit and operational risk management policies. Accordingly, the Commission is retaining the references to these provisions.
The commenter provided no rationale for the proposed inclusion of MFC L.
56112. Accordingly, the Commission is not adding this provision to the Order.
4. Suitability The commenter requested that the Commission not require a Covered Entity to be subject to and comply with some of the French and EU suitability requirements specified in the proposed Order, including: MiFID articles 243
and 251; MFC L. 53324, L. 53312I, and L. 533126; and MiFID Org Reg articles 211b and d. The commenter stated that each of these recommended deletions, do not correspond to, and go beyond, the requirements in Exchange Act rule 15Fh3f. 414 The commenter stated that MiFID article 243 and MFC
article L. 53312I relate to the requirement that any information communicated to clients is fair, clear and not misleading; that MiFID article 251, MFC article L. 533126, and MiFID Org Reg article 211d refer to the skills, knowledge and expertise of the firms personnel; that MFC article L. 53324 relates to obligations imposed on firms who design financial instruments; and that MiFID Org Reg article 211b requires that relevant 414 Id.

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