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khammond on DSKJM1Z7X2PROD with NOTICES3

Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices persons are aware of the procedures which must be followed for the proper discharge of their responsibilities. 415
Exchange Act rule 15Fh3f requires an SBS Entity, when making certain security-based swap recommendations to a counterparty, to undertake reasonable diligence to understand the potential risks and rewards associated with the recommendation the reasonable basis suitability standard and to have a reasonable basis to believe that the recommendation is suitable for the counterparty the counterpartyspecific suitability standard.416 MiFID
article 251 and MFC article L. 53312
6 would require a Covered Entity to ensure that individuals making personal recommendations to clients in relation to a relevant security-based swap have the necessary knowledge and competence so as to ensure that the Covered Entity is able to meet its obligations under MiFID articles 24 and 25 and the related provisions of the MiFID Org Reg. MiFID article 252 and MFC article L. 53313I would require the Covered Entity to obtain information about a client necessary to ensure that it makes only recommendations that are suitable for the client, and thus are relevant to the Exchange Act counterparty-specific suitability standard. Thus, MiFID article 251 and MFC article L. 533126 would require the Covered Entity to ensure that recommendations to clients are made with the knowledge and competence necessary to fulfill the Covered Entitys obligation under MiFID article 251 and MFC article L. 533126 to make only suitable recommendations. This knowledge and competence requirement in MiFID article 251 and MFC article L. 533126 is directly related to the Exchange Act reasonable basis standard.
Moreover, MiFID article 243 and MFC Article L. 53312I, are particularly relevant to the Exchange Act reasonable basis standard. MiFID
article 243, together with MiFID article 251, would require the Covered Entity to ensure that individuals making recommendations have the knowledge and competence to communicate about the relevant security-based swap in a way that is fair, clear and not misleading. The Commission believes that in order to meet the French requirement to communicate in a fair, clear, and not misleading manner, the Covered Entitys due diligence would reflect that individuals engaged in such communication understand the potential risks and rewards of the recommendation in a manner that is 415 Id.
416 See
Exchange Act rule 15Fh3f1.

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comparable to the requirement in Exchange Act rule 15Fh3f1i.
MiFID Org Reg article 211b and d, in turn, would require the Covered Entity to ensure that its personnel have the skills, knowledge and expertise, and be aware of the procedures, necessary to properly discharge their responsibilities, which include their suitability obligations. These requirements again relate to the Exchange Act reasonable basis standard because they would require the Covered Entity to ensure that personnel making recommendations are equipped with the requisite training and information to be able to properly communicate about the relevant security-based swap in a way that complies with its French and EU
communication and suitability obligations. For these reasons, the Commission is retaining in the Order the references to the French and EU
requirements that the commenter asked to delete.417
Additionally, the commenter requested that the Commission change the condition to substituted compliance for Exchange Act suitability requirements that would require the Covered Entitys counterparty to be a professional client mentioned in MiFID Annex II section I and MFC
article D. 53311.418 Professional clients mentioned in MiFID Annex II section I
and MFC article D. 53311 are per se professional clients, a category of clients that generally includes those with more experience, knowledge, expertise and resources and that excludes elective professional clients and retail clients.
The commenter requested that the Commission expand the conditions definition of professional client to include elective professional clients mentioned in MiFID Annex II section II
and MFC article D. 53312.419 Elective professional clients generally have less experience, knowledge, expertise and/or resources than per se professional clients.420 Because French and EU
suitability requirements permit a Covered Entity, when conducting a suitability analysis for elective professional clients, to make certain assumptions,421 while the Exchange Act permits a similar mechanism only for institutional counterparties, the Commission believes that French and EU suitability requirements are 417 See
para. e4i of the Order.
Letter II at Appendix A.

418 SIFMA
419 Id.

420 See MiFID Annex II section II.1. stating that elective professional clients shall not, however, be presumed to possess market knowledge and experience comparable to that of the categories listed in Section I..
421 See, e.g., MiFID Org Reg article 543.

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comparable only with respect to per se professional clients.422 Accordingly, the Commission is retaining the condition requiring the Covered Entitys counterparty to be a per se professional client and is not expanding that condition to permit Covered Entities to apply substituted compliance for Exchange Act suitability requirements when its counterparty is an elective professional client.
5. Fair and Balanced Communications The Commission is issuing the fair and balanced communications section of the Order largely as proposed, except for two changes.423 First, the Commission believes that French and EU fair and balanced communications requirements are more comparable to Exchange Act requirements when considering three additional EU
requirements: MAR article 201 would require the Covered Entity to present recommendations in a manner that ensures the information is objectively presented and to disclose interests and conflicts of interest concerning the financial instruments to which the information relates. MAR Investment Recommendations Regulation article 3
would require a Covered Entity to communicate only recommendations that present facts in a way that they are clearly distinguished from interpretations, estimates, opinions and other types of non-factual information;
label clearly and prominently projections, forecasts and price targets;
indicate the relevant material assumptions and substantial material sources of information; and include only reliable information or a clear indication when there is doubt about reliability. MAR Investment Recommendations Regulation article 4
would require the Covered Entity to provide in its recommendation additional information about the factual basis of its recommendation.
Accordingly, the Commission is adding these three requirements to the Orders list of French and EU fair and balanced communications requirements that the Covered Entity must be subject to and comply with.424 Second, the proposed Order would have required the Covered Entity to be subject to and comply with MAR Investment Recommendations Regulation article 5,425 which relates to obligations to disclose conflicts of interest. As discussed above, the Commission is requiring Covered 422 See
para. e4 of the Order.
para. e5 of the Order.
424 See para. e5 of the Order.
425 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85741.
423 See
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