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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices of the Order help to produce regulatory outcomes comparable to Exchange Act internal risk management requirements.
The Commission recognizes that some of the UK requirements related to internal risk management follow a more granular approach than the high-level approach of Exchange Act internal risk management requirements, but these UK
requirements, taken as a whole, are crafted to promote a Covered Entitys risk management. Within the requisite outcomes-oriented approach for analyzing comparability, the Commission concludes that a Covered Entitys failure to comply with any of those UK internal risk management requirements would be inconsistent with a Covered Entitys obligations under Exchange Act internal risk management requirements and that compliance with the full set of UK
internal risk management requirements listed in paragraph b1 of the Order would promote comparable regulatory outcomes.

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2. Trade Acknowledgement and Verification The Commission continues to believe that UK trade acknowledgment and verification requirements promote regulatory outcomes comparable to Exchange Act requirements, and is making a positive substituted compliance determination for trade acknowledgment and verification requirements consistent with the proposed Order. The Commission details below its consideration of comments received.
One commenter stated that the Commission inappropriately attempted to compensate for inadequate UK trade acknowledgment and verification requirements by relying on guidance.153
The same commenter stated that, if the Commission nevertheless makes a positive substituted compliance determination, it must at a minimum ensure that the conditions in the proposed Order are applied with full force and without exceptions or dilution. 154 The commenter misinterpreted the role of guidance in the Commissions comparability analysis.
UK EMIR article 11 requires financial counterparties and nonfinancial counterparties to ensure appropriate procedures and 153 See Better Markets Letter at 56 arguing that the Commissions reliance on multiple layers of non-binding guidance, one of which is issued by a jurisdiction the UK does not belong to, one of which is so vague as to border on useless, would be an abdication of the SECs responsibility to protect the U.S. financial system.
154 See Better Markets Letter at 2.

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arrangements are in place to achieve timely confirmation of the terms of an OTC derivative contract.155 Similarly, UK EMIR RTS article 12 requires noncentrally cleared OTC derivative contracts between financial counterparties and non-financial counterparties to be confirmed.156
These counterparty categories do not include entities organized outside the UK, such as U.S. persons.157
Confirmation means the documentation of the agreement of the counterparties to all the terms of the OTC derivative contract.158 The UK requirements as a whole thus require a Covered Entity 159
to provide a confirmation that serves as a trade acknowledgment, without regard to where its counterparty is organized, and also require the Covered Entitys counterparty, when it is a financial counterparty or non-financial counterparty, to provide a confirmation that serves as the trade verification, and the Commission considers these requirements to promote regulatory outcomes comparable to Exchange Act trade acknowledgment and verification requirements for those counterparties.
The UK requirements in most instances do not require a Covered Entitys counterparty that is organized outside the UK to provide a confirmation that serves as the Exchange Act trade verification,160 though they do require 155 See
UK EMIR article 111a.
UK EMIR RTS articles 121 and 2.
157 See UK EMIR article 28 definition of financial counterparty; UK EMIR article 29
definition of non-financial counterparty.
158 See UK EMIR RTS article 1c.
159 The Order defines a Covered Entity to include a MiFID investment or a third country investment firm. A MiFID investment firm is included in the definition of financial counterparty, so a Covered Entity that is a MiFID investment firm is also a financial counterparty and thus is subject to UK
EMIR article 11 and related provisions of UK EMIR
RTS and UK EMIR Margin RTS for purposes of the Order. A third country investment firm is not included in the definitions of financial counterparty or non-financial counterparty, but may nevertheless be subject to UK EMIR article 11 and related provisions of UK EMIR RTS and UK
EMIR Margin RTS for purposes of the Order if its OTC derivative contract would be subject to those obligations if it were established in the UK and either the contract has a direct, substantial, and foreseeable effect within the UK or applying UK
EMIR article 11 is necessary or appropriate to prevent evasion of UK EMIR. See UK EMIR article 1112.
160 See UK EMIR article 28 definition of financial counterparty limited to entities defined or authorized in a manner that in most instances is reserved for UK-established entities; UK EMIR
article 29 definition of non-financial counterparty limited to UK-established entities;
UK EMIR article 111a, 1112 confirmation requirement applies to financial counterparties, non-financial counterparties, and third-country entities that would be subject to the confirmation requirement if established in the UK and either the relevant contract has a direct, substantial, and foreseeable effect in the UK or the obligation is 156 See
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the Covered Entity to confirm the transaction.161 Confirmation is defined as documenting the agreement of the Covered Entity and its counterparty to all the terms of the OTC derivative contract.162
To confirm that the Commissions analysis of the UK requirements for OTC
derivatives contracts with non-UKorganized counterparties is consistent with the FCAs view of these requirements, the Commission considered the requirements together with guidance on this exact point from the FCA and ESMA.163 In interpreting EU confirmation requirements that are identical to the relevant UK
requirements, ESMAs guidance provides that when an EU counterparty is transacting with a third country entity, the EU counterparty would be required to ensure that the requirements for . . . timely confirmation . . . are met for the relevant . . . transactions even though the third country entity would not itself be subject to EMIR. 164
That guidance also provides that compliance with the EMIR confirmation requirements means reaching a legally binding agreement to all the terms of an OTC derivative contract. 165
The FCA has published guidance indicating that ESMAs guidance will remain relevant after the UKs exit from the EU to the FCA and market participants in their compliance with regulatory requirements. 166 This necessary or appropriate to prevent the evasion of any provision of UK EMIR.
161 Paragraph b2 of the Order requires the Covered Entity to be subject to and comply with UK
EMIR-based trade acknowledgment and verification requirements. A Covered Entity will be subject to those requirements only if it is a financial counterparty, non-financial counterparty, or thirdcountry entity that would be subject to the confirmation requirement if established in the UK
and either the relevant contract has a direct, substantial, and foreseeable effect in the UK or the obligation is necessary or appropriate to prevent the evasion of any provision of UK EMIR. See UK EMIR
article 111a, 1112.
162 See UK EMIR RTS article 1c.
163 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, available at: https
www.esma.europa.eu/sites/default/files/library/
esma70-1861941480-52_qa_on_emir_
implementation.pdf ESMA EMIR Q&A.
164 See ESMA EMIR Q&A, OTC Answer 12b.
165 See ESMA EMIR Q&A, OTC Answer 5a.
166 See Financial Conduct Authority, Brexit: our approach to EU non-legislative materials, para. 9, available at: https www.fca.org.uk/publication/
corporate/brexit-our-approach-to-eu-nonlegislative-materials.pdf FCA Brexit Guidance;
see also FCA Brexit Guidance at para. 12 We will continue to have regard to other EU non-legislative material where and if they are relevant, taking account of Brexit and ongoing domestic legislation.
Firms, market participants and stakeholders should also continue to do so..

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