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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
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Covered Entity must comply with the applicable condition as if the counterparty were a financial counterparty or non-financial counterparty. If the Covered Entity reasonably determines that the counterparty conducts a financial business that would cause it to be a financial counterparty if it were UKestablished and UK-authorized, then the proposed Order would require the Covered Entity to treat the counterparty as a financial counterparty; otherwise, the proposed Order would require the Covered Entity to treat the counterparty as a non-financial counterparty. In addition, the proposed Order would provide that a Covered Entity complying with UK EMIR could not apply substituted compliance by complying with third country requirements that UK
authorities may determine to be equivalent to UK EMIR.53
Security-based swap status under UK EMIRFor each condition in the proposed Order that requires the application of, and compliance with, provisions of UK EMIR, UK EMIR RTS, and/or UK EMIR Margin RTS, either: 1
The relevant security-based swap must be an OTC derivative or OTC
derivative contract, as defined in UK
EMIR article 27, that has not been cleared by a central counterparty and otherwise is subject to the provisions of UK EMIR article 11, UK EMIR RTS
articles 11 through 15, and UK EMIR
Margin RTS article 2; or 2 the relevant security-based swap must have been cleared by a central counterparty that has been authorized or recognized to clear derivatives contracts in the UK.54
Memorandum of understanding Consistent with the requirements of rule 3a716 and the Commissions need for access to information regarding registered entities, substituted compliance under the proposed Order would be conditioned on the Commission having an applicable memorandum of understanding or other arrangement with the FCA and the PRA
addressing cooperation with respect to the Order at the time the Covered Entity makes use of substituted compliance.55
Notice of reliance on substituted complianceTo assist the 53 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18382.
54 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18382.
55 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18382. The Commission has entered into a memorandum of understanding with the FCA and the PRA to address substituted compliance cooperation. See supra note 14.
Consistent with the final Order, Covered Entities must ensure that this memorandum of understanding remains in place at the time the Covered Entity relies on substituted compliance.

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Commissions oversight of firms that avail themselves of substituted compliance, a Covered Entity relying on the Order would have to provide notice of its intent to rely on the Order by notifying the Commission in writing. In the notice, the Covered Entity would need to identify each specific substituted compliance determination in the Order for which the Covered Entity intends to apply substituted compliance. The Covered Entity would have to promptly update the notice if it intends to modify its reliance on substituted compliance.56
2. Commenter Views and Final Provisions One commenter expressed general support for several of the general conditions, subject to certain changes and clarifications.57 Another commenter stated that, if the Commission makes a positive substituted compliance determination, it must ensure that the conditions in the proposed Order are applied with full force and without exception or dilution.58 The Commission is issuing the general conditions largely as proposed,59 and details its responses to the requested changes and clarifications below. In the Commissions view, the conditions are structured appropriately to predicate a positive substituted compliance determination on the applicability of relevant UK requirements needed to establish comparability, as well as on the continued effectiveness of the requisite memorandum of understanding, and the provision of notice to the Commission regarding the Covered Entitys intent to rely on substituted compliance.
a. UK Territorial Condition A commenter stated that the Commission should delete the requirement in paragraphs a1
through a6 of the Order that, for purposes of certain UK requirements, a Covered Entitys relevant security-based swap activities be carried on . . . from an establishment in the United Kingdom. 60 The commenter stated that this UK territorial aspect of the conditions was not necessary because some of the UK requirements listed in 56 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18382.
57 See Letter from Kyle L. Brandon, Managing Director, Head of Derivatives Policy, SIFMA May 3, 2021 SIFMA 5/3/2021 Letter at 39.
58 See Better Markets Letter at 2.
59 See paras. a1 through 16 of the Order. The Commission is correcting typographical errors in paragraphs a3, a7, and a8 of the Order by replacing references to FCA COBS 14A with references to FCA COBS 16A.
60 See SIFMA 5/3/2021 Letter at 34.

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these conditions apply to a Covered Entity with respect to activities wherever they are carried on.61 The commenter suggested that the Commission instead add a new general condition that would require a Covered Entity, when relying on a part of the Order that requires it to be subject to and comply with the UK requirements listed in paragraphs a1 through a6
of the Order, to carry on the relevant security-based swap activities from a UK establishment, but only to the extent that those UK requirements are limited in their applicability to activity carried on from a UK establishment. 62 The commenter did not identify any specific instances in which it believes that a Covered Entity would carry on a particular security-based swap activity outside the United Kingdom and that activity would be subject to the UK
requirements listed in paragraphs a1
through a6 of the Order.
Many, though not all, of these UK
requirements contain clearly articulated scoping provisions that apply the requirements to Covered Entities only when the relevant activity is carried on from an establishment in the UK.63
Other requirements contain more complex scoping provisions, and the Commission is aware that in limited cases it is possible for these requirements to apply to some aspects of a Covered Entitys activities carried on from an establishment outside the UK. For example, the FCA commented that certain organizational requirements generally apply in a prudential context to activities wherever they are carried on.64 In addition, PRA General 61 See
SIFMA 5/3/2021 Letter at 3.
SIFMA 5/3/2021 Letter at 34 and Appendix A. Together with its request to amend the UK territorial condition in paragraphs a1 through a6 of the Order, the commenter requested that the Commission delete, where feasible, references to compliance with territorially limited UK laws as conditions to substituted compliance. See SIFMA 5/
3/2021 Letter at 4. The Commission addresses this additional request below in the relevant parts of this release.
63 See FCA SYSC 1 Annex 1 2.15R The common platform requirements, which include FCA SYSC 4, 5, 6, 7, and 10, apply in relation to activities carried on from an establishment in the UK.; FCA SYSC
10A.1.1R2 FCA SYSC 10A applies only to activities carried on from an establishment in the UK.; Money Laundering, Terrorist Financing and Transfer of Funds Information on the Payer Regulations 2017 MLR 2017 Regulation 8 The relevant requirements of MLR 2017 apply to persons acting in the course of business carried on by them in the UK.; FCA CASS 1.3.2R FCA CASS
6 and 7 apply to regulated activities carried on from an establishment in the UK..
64 See comments from FCA May 20, 2021 FCA
Comments noting that common platform organizational requirements, including FCA SYSC 4
to 9, and parallel PRA General Organisational Requirements, generally apply in a prudential context to activities wherever they are carried on.
62 See
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