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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES2

registration rules for these SBS Entities, the Commission determined that a foreign market participant whose U.S.nexus security-based swap activity qualifies it as an SBS Entity would be required to register as such, without substituted compliance available for registration requirements.21 The Commission concluded that obliging these foreign persons to register serves an important regulatory function that would be significantly impaired by permitting substituted compliance for registration requirements.22 This registration requirement thus puts into practice the Commissions consideration of the purposes of Title VII and the applicable requirements of the Exchange Act in its adoption of the definitions of security-based swap dealer and major security-based swap participant in the cross-border context, and ensures that such firms will be subject to the jurisdiction of the Commission.
Moreover, the rules applicable to these registered foreign SBS Entities reflect actions would promote efficiency, competition, and capital formation; Exchange Act section 23a2, 15 U.S.C. 78wa2 requirement to consider the impact of Exchange Act rules and regulations on competition and prohibition on adopting rules or regulations that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act;
Dodd-Frank Act section 712a2, 15 U.S.C. 8302
requirement to consult and coordinate with U.S.
financial regulatory authorities on Title VII
rulemaking; Dodd-Frank Act section 752a, 15
U.S.C. 8325 requirement to consult and coordinate, as appropriate, with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation of securitybased swaps and security-based swap entities; see also Exchange Act Release No. 77104 Feb. 10, 2016, 81 FR 8598, 8599 Feb. 19, 2016 ANE
Adopting Release A key part of the Title VII
framework is the regulation of security-based swap dealers, which may transact extensively with counterparties established or located in other jurisdictions and, in doing so, may conduct sales and trading activity in one jurisdiction and book the resulting transactions in another. These market realities and the potential impact that these activities may have on U.S. persons and potentially the U.S. financial system have informed our consideration of these rules.; Exchange Act Release No. 87780 Dec. 18, 2019, 85 FR 6270, 6272
and n.26 Feb. 4, 2020 Cross-Border Adopting Release The Title VII SBS Entity requirements . . . serve a number of regulatory purposes apart from mitigating counterparty and operational risks, including enhancing counterparty protections and market integrity, increasing transparency, and mitigating risk to participants in the financial markets and the U.S. financial system more broadly. The Commissions actions to mitigate the negative consequences potentially associated with the various uses of the arranged, negotiated, or executed test accordingly are designed to do so while preserving the important Title VII interests that the Commission advanced when it incorporated the test into the various cross-border rules. internal citations omitted.
21 See Exchange Act Release No. 75611 Aug. 5, 2015, 80 FR 48964, 4897273 Aug. 14, 2015
Registration Adopting Release.
22 See Registration Adopting Release, 80 FR at 4897273.

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the Commissions best judgment for how to achieve the purposes of Title VII
and satisfy the requirements of the Exchange Act, including the Commissions consideration of risk to the U.S. financial system.23 The Commissions rules for registered foreign SBS Entities thus reflect the Commissions consistent consideration of all of the purposes of Title VII and relevant parts of the Exchange Act, first in the context of its adoption of the definitions of security-based swap dealer and major security-based swap participant, then in its decision to require foreign SBS Entities to register and finally in its adoption of crossborder rules for SBS Entities pursuant to Title VII.
When making a substituted compliance determination, the Commissions task, as outlined in rule 3a716, is to evaluate whether the relevant foreign requirements are comparable to Title VII-based requirements and relevant provisions of the Exchange Act. The comparability assessments are to be based on a holistic, outcomes-oriented framework, 24 which in the Commissions viewconsistent with the commenters viewincludes inquiry regarding whether foreign requirements adequately reflect the interests and protections associated with the particular Title VII
requirement. 25 Also consistent with the commenters view, the Commissions comparability assessments reflect a close reading of the relevant UK requirements. In addition, the Commission recognizes that other regulatory regimes will have exclusions, exceptions, and exemptions that may not align perfectly with the corresponding requirements under the Exchange Act. 26 Accordingly, where UK requirements produce comparable outcomeswith or without conditions as discussed in part III.B below notwithstanding those particular differences, and taking into account the scope and objectives and the effectiveness of supervision and 23 See Cross-Border Entity Definitions Adopting Release, 79 FR at 47286 n.65 Future rulemakings that depend on the definitions of security-based swap dealer and major security-based swap participant are intended to address the transparency, risk, and customer protection goals of Title VII..
24 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18380; see also Business Conduct Adopting Release, 81 FR at 30076, 30078
79.
25 See Business Conduct Adopting Release, 81 FR
at 30067.
26 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18380; see also Business Conduct Adopting Release, 81 FR at 30076, 30078
79.

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enforcement of those requirements, the Commission has determined that the relevant UK requirements are comparable and has made a positive substituted compliance determination.
Conversely, where those exclusions, exemptions, and exceptions lead to outcomes that are not comparable taking into account potential conditionsthe Commission has not made a positive substituted compliance determination.
The Commission also is including certain conditions in the Order. The commenter stated that the inclusion of conditions should be viewed as an indication that the requirements of substituted compliance have not been met and as creating ad hoc, custommade rules to supplement inadequate rules of other jurisdictions. 27 Pursuant to rule 3a716, the Commission may make a conditional or unconditional substituted compliance determination.28
As described in greater detail in part III.B below, many of the conditions in the Order are designed to make substituted compliance available only when the relevant UK requirements in fact apply to the relevant security-based swap activity in a way that promotes comparable regulatory outcomes. The commenter correctly states that the Order also employs conditions to promote comparability. For example, substituted compliance in connection with Exchange Act rule 15Fi3c 29
dispute reporting provisions is conditioned in part on the Covered Entity as such term is defined in the Order providing the Commission with the dispute reports required under UK
law.30 Consistent with rule 3a716, conditioning substituted compliance on the Commission receiving those reports helps to promote timely notice of disputes to support a comparable regulatory outcome.
2. Ensuring Ongoing Appropriateness of Substituted Compliance One commenter stated that the Commission must ensure, on an ongoing basis, that each grant of substituted compliance remains appropriate over time. The commenter added that substituted compliance orders and memoranda of understanding should incorporate the obligation that the Commission be apprised of the activities and results of the jurisdictions supervision and enforcement programs, and to immediately apprise the Commission of 27 See
Better Markets Letter at 4.
Exchange Act rule 3a716a1.
29 17 CFR 240.15Fi3c.
30 See para. b3ii of the Order.
28 See
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