Quiero saber acerca de...

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

those differences on balance should not preclude substituted compliance for these requirements, as the relevant UK
requirements taken as a whole help to produce comparable regulatory outcomes.
To help ensure the comparability of outcomes, substituted compliance for internal supervision and chief compliance officer requirements is subject to certain conditions.
Substituted compliance in connection with those requirements is conditioned on the Covered Entity being subject to, and complying with, relevant UK
requirements. In addition, consistent with the proposed Order, substituted compliance for internal supervision requirements 1 is conditioned on the Covered Entity complying with the relevant UK requirements as if they also require compliance with applicable Exchange Act requirements and other applicable conditions under the Order and 2 does not extend to certain specified internal supervision requirements.333 Consistent with the proposed Order, substituted compliance in connection with chief compliance officer requirements is conditioned on the Covered Entity at least annually providing the Commission with an English-language copy of all compliance reports required pursuant to UK MiFID
Org Reg article 222c. As described below, in response to comments the Commission is amending the certification of each report to better align with the certification in Exchange Act rule 15Fk1c2iiD,334 requiring each report to address the Covered Entitys compliance with applicable Exchange Act requirements and other applicable conditions under the Order, amending the deadline by which such reports must be provided to the Commission and clarifying that all such reports together must cover the entire period that the Covered Entitys Exchange Act annual compliance report would be required to cover. A Covered Entity that is unable to comply with an applicable conditionand thus is not eligible to use substituted compliance for the Exchange Act internal 333 See para. d1iii of the Order. In particular, the Order does not extend to internal supervision requirements under Exchange Act rule 15Fh3h related to compliance with internal risk management requirements in Exchange Act rule 15Fj2 which are addressed by paragraph b1
of the Order in connection with internal risk management, requirements to disclose or provide information to the Commission and any relevant U.S. prudential regulator pursuant to Exchange Act sections 15Fj3 and j4B for which substituted compliance is not available, or the antitrust provisions of Exchange Act section 15Fj6
for which the Commission is not making a positive substituted compliance determination.
334 17 CFR 240.15Fk1c2iiD.

VerDate Sep<11>2014

20:04 Aug 05, 2021

Jkt 253001

supervision and/or chief compliance officer requirements related to that conditionnevertheless may use substituted compliance for another set of Exchange Act requirements addressed in the Order if it complies with the conditions to the relevant parts of the Order.
Under the Order, substituted compliance for internal supervision and chief compliance officer requirements is not subject to a condition that the Covered Entity apply substituted compliance for related recordkeeping requirements in Exchange Act rules 18a5 and 18a6. A Covered Entity that applies substituted compliance for internal supervision and/or chief compliance officer requirements, but does not apply substituted compliance for the related recordkeeping requirements in Exchange Act rules 18a5 and 18a6, will remain subject to the relevant provisions of Exchange Act rules 18a5 and 18a6. Those rules require the Covered Entity to make and preserve records of its compliance with Exchange Act internal supervision and chief compliance officer requirements and of its security-based swap activities required or governed by those requirements. A Covered Entity that applies substituted compliance for internal supervision and/or chief compliance officer requirements, but complies directly with related recordkeeping requirements in rules 18a5 and 18a6, therefore must make and preserve records of its compliance with the relevant conditions to the Order and of its security-based swap activities required or governed by those conditions and/or referenced in the relevant parts of rules 18a5 and 18a 6.
The Commission details below its consideration of comments on the proposed Order.
1. Applicable UK Internal Supervision and Chief Compliance Officer Requirements Exchange Act rule 15Fh3h requires an SBS Entity to establish and maintain a system to supervise, and to diligently supervise, its business and the activities of its associated persons. This system must be reasonably designed to prevent violations of the provisions of applicable Federal securities laws relating to its business as an SBS Entity.
The rule specifies detailed minimum requirements for this internal supervision system. Exchange Act sections 15Fj4A and j5 similarly require a registered SBS Entity to establish and enforce internal systems and procedures to obtain any necessary information to perform any regulated
PO 00000

Frm 00033

Fmt 4701

Sfmt 4703

43349

functions in its capacity as an SBS
Entity and to implement conflict of interest systems and procedures, respectively. Exchange Act section 15Fk 335 and Exchange Act rule 15Fk 1 require an SBS Entity to designate a chief compliance officer with specified duties, including requirements to report directly to the SBS Entitys board of directors or senior officer, review and ensure the SBS Entitys compliance with applicable Exchange Act requirements, resolve conflicts of interest that may arise, administer the policies and procedures required by the Exchange Act, and establish and follow procedures for addressing noncompliance. In addition, the chief compliance officer must submit to the Commission an annual report of the SBS
Entitys assessment of the effectiveness of its policies and procedures, material changes to the policies and procedures, areas for improvement, potential changes to its compliance program, material noncompliance matters identified, and the resources for its compliance program. Exchange Act rule 15Fk1 further provides that the compensation and removal of the chief compliance officer must require the approval of a majority of the SBS
Entitys board of directors.
A commenter requested that the Commission not require a Covered Entity to be subject to and comply with certain of the UK requirements specified in the proposed Order.336 By contrast, another commenter stated that, if the Commission 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. 337 The Commission details below its consideration of each of these comments.
The commenter stated that the Commission should delete from the Order the provisions of FCA IFPRU, FCA BIPRU, and FCA SYSC 19A listed in paragraphs d3iii and d3vi of the proposed Order. These provisions apply only to IFPRU investment firms, and the commenter stated that it expects only banks and PRA-designated investment firms will register as SBS
Entities.338 For the reasons described in part III.B.2.e above, the Commission is retaining the references to these provisions.
335 15

U.S.C. 78o10k.
SIFMA 5/3/2021 Letter at 2021 and Appendix A part d3.
337 See Better Markets Letter at 2.
338 See SIFMA 5/3/2021 Letter Appendix A part d3.
336 See
E:FRFM06AUN2.SGM

06AUN2