Quiero saber acerca de...

43354

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

proposed Order would additionally condition substituted compliance for suitability requirements on the counterparty being a per se professional client as defined in FCA
COBS rather an elective professional client or a retail client 370 and not a special entity as defined in Exchange Act section 15Fh2C and Exchange Act rule 15Fh2d.371 Finally, in the proposed Order the Commission preliminarily viewed UK daily portfolio reconciliation requirements as comparable to Exchange Act daily mark disclosure requirements.372 These daily portfolio reconciliation requirements apply to portfolios of a financial counterparty or a non-financial counterparty subject to the clearing obligation in UK EMIR in which the counterparties have 500 or more OTC
derivatives contracts outstanding with each other.373 The Commission preliminarily viewed UK portfolio reconciliation requirements for other types of portfolios, which may be reconciled less frequently than each business day, as not comparable to Exchange Act daily mark requirements.374 Accordingly, the proposed Order would condition substituted compliance for daily mark requirements on the Covered Entity being required to reconcile, and in fact reconciling, the portfolio containing the relevant security-based swap on each Covered Entity that is an IFPRU investment firm, UK bank or UK designated investment firm, each as defined for purposes of UK law, would be subject to all of the required UK requirements related to know your counterparty requirements and thus eligible to apply substituted compliance for know your counterparty requirements.
Finally, the Commission preliminarily determined that any Covered Entity that is a financial counterparty would be subject to all of the required UK requirements related to daily mark disclosure and thus eligible to apply substituted compliance for daily mark disclosure requirements.
See UK Substituted Compliance Notice and Proposed Order, 86 FR at 1839293.
370 FCA COBS 3.5 describes which clients are professional clients. FCA COBS 3.5.2R describes the types of clients considered to be professional clients unless the client elects non-professional treatment; these clients are per se professional clients. FCA COBS 3.5.3R describes the types of clients who may be treated as professional clients on request; these clients are elective professional clients. See FCA COBS 3.5. Retail clients are those that are not professional clients nor eligible counterparties, in contexts other than suitability assessments in which treatment as an eligible counterparty is permitted. See FCA COBS 3.4.1R.
371 15 U.S.C. 78o10h2C; 17 CFR 240.15Fh 2d. See UK Substituted Compliance Notice and Proposed Order, 86 FR at 1839394.
372 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18393.
373 See UK EMIR RTS article 133ai; UK EMIR
article 10.
374 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18393.

VerDate Sep<11>2014

20:04 Aug 05, 2021

Jkt 253001

business day pursuant to relevant UK
requirements.375
The proposed Order would not provide substituted compliance in connection with Exchange Act requirements for SBS Entities to disclose a counterpartys clearing rights under Exchange Act section 3Cg5.376
The FCA Application argued that certain UK provisions related to a counterpartys clearing rights in the UK
are comparable to requirements to disclose the counterpartys Exchange Act-based clearing rights. Because these UK provisions do not require disclosure of these clearing rights, the Commission preliminarily viewed the UK clearing provisions as not comparable to Exchange Act clearing rights disclosure requirements.
B. Commenter Views and Final Provisions Having considered commenters recommendations regarding the counterparty protection requirements, the Commission is making positive substituted compliance determinations in connection with disclosure of material risks and characteristics, disclosure of material incentives or conflicts of interest, know your counterparty, suitability, fair and balanced communications, and daily mark disclosure requirements. With respect to Exchange Act clearing rights disclosure requirements, however, consistent with the proposed Order the Commission is not providing substituted compliance. The Order is largely consistent with the proposed Order except for removing one UK
requirement listed in two sections of the Order and correcting a typographical error.377
One commenter expressed general support for the proposed approach toward substituted compliance for the counterparty protection provisions.378
Another commenter stated that UK
requirements are not sufficiently comparable to Exchange Act requirements.379 The Commission 375 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18393.
376 15 U.S.C. 78c3g5.
377 See paras. e1i, e5ii and e4iA of the Order.
378 See SIFMA 5/3/2021 Letter at 21. The commenter also requested that the Commission not require a Covered Entity to be subject to and comply with some of the UK counterparty protection requirements listed in the proposed Order. See SIFMA 5/3/2021 Letter at 21 and Appendix A part e. The Commission addresses those requests in the relevant sections of this part VII below.
379 See Better Markets Letter at 2. The commenter also stated that, if the Commission nevertheless makes a positive substituted compliance determination, it must at a minimum ensure that
PO 00000

Frm 00038

Fmt 4701

Sfmt 4703

continues to believe that, taken as a whole, applicable requirements under UK law subject Covered Entities to obligations that promote standards of professional conduct, transparency, and the fair treatment of parties, and thus produce regulatory outcomes that are comparable to the outcomes associated with the relevant counterparty protection requirements under the Exchange Act. The Commission recognizes that there are differences between the approaches taken by disclosure of material risks and characteristics, disclosure of material incentives or conflicts of interest, know your counterparty, suitability, fair and balanced communications, and daily mark disclosure requirements under the Exchange Act, on the one hand, and relevant UK requirements, on the other hand. The Commission continues to view those differences as not so material as to be inconsistent with substituted compliance within the requisite outcomes-oriented context.
To help ensure the comparability of outcomes, substituted compliance for counterparty protection requirements is subject to certain conditions.
Substituted compliance for disclosure of material risks and characteristics, disclosure of material incentives or conflicts of interest, know your counterparty, suitability, and fair and balanced communications requirements is conditioned on the Covered Entity being subject to, and complying with, relevant UK requirements.380
Substituted compliance for daily mark disclosure requirements is conditioned on the Covered Entity being required to reconcile, and in fact reconciling, the portfolio containing the relevant security-based swap on each business day pursuant to relevant UK
requirements.381 Substituted compliance for suitability requirements additionally is conditioned on the counterparty being a per se professional client mentioned in FCA
COBS 3.5.2R i.e., not an elective professional client or a retail client and not a special entity as defined in Exchange Act section 15Fh2C and Exchange Act rule 15Fh2d.382 A
Covered Entity that is unable to comply with a conditionand thus is not eligible to use substituted compliance for the particular set of Exchange Act counterparty protection requirements related to that conditionnevertheless the conditions in the proposed Order are applied with full force and without exceptions or dilution.
The Commission addresses that comment in the relevant sections of this part VII below.
380 See paras. e1 through 5 of the Order.
381 See para. e6 of the Order.
382 See para. e4ii of the Order.

E:FRFM06AUN2.SGM

06AUN2