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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
clients.395 Because UK suitability requirements permit a Covered Entity, when conducting a suitability analysis for elective professional clients, to make certain assumptions,396 while the Exchange Act permits a similar mechanism only for institutional counterparties, the Commission believes that UK suitability requirements are comparable only in respect of per se professional clients. Accordingly, the Commission is retaining the condition requiring the Covered Entitys counterparty to be a per se professional client and is not expanding that condition to permit Covered Entities to apply substituted compliance for Exchange Act suitability requirements when its counterparty is an elective professional client.

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5. Fair and Balanced Communications A commenter requested that the Commission not require a Covered Entity to be subject to and comply with some of these specified requirements.397
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. 398 The Commission details below its consideration of each of these requests.
First, the commenter asked the Commission not to require a Covered Entity to be subject to and comply with FCA COBS 2.2A.2R1d, 6.1ZA.11R, 6.1ZA.12R, and 6.1ZA.13R because they relate to disclosure of costs and charges and thus go beyond the scope of Exchange Act fair and balanced communications requirements.399
Exchange Act rule 15Fh3g1 requires a Covered Entitys communications to provide a sound basis for evaluating the facts with regard to any particular security-based swap or trading strategy involving a security-based swap. The Commission believes that information about costs and charges required to be disclosed under these UK requirements is comparable to one type of information that would help to provide a sound basis for evaluating the facts as required under 15Fh3g1. Accordingly, the Commission is retaining the references to these provisions.
Second, the commenter asked the Commission not to require a Covered Entity to be subject to and comply with 395 See,
e.g., FCA COBS 3.5.3R.
e.g., UK MiFID Org Reg article 543.
397 See SIFMA 5/3/2021 Letter at 21 and Appendix A part e5.
398 See Better Markets Letter at 2.
399 See SIFMA 5/3/2021 Letter at 21 and Appendix A part e5.
396 See,
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FCA COBS 2.2A.2R1c because it relates to insurance-based investments and thus goes beyond the scope of Exchange Act fair and balanced communications requirements.400 FCA
COBS 2.2A.2R1c would require a Covered Entity to provide its client in good time appropriate information about the distribution of insurancebased investment products. The Commission is not making a determination whether an insurancebased investment product, as defined for purposes of this UK provision, could also be a security-based swap. However, even without this provision, FCA COBS
2.2A.2R1b would require the Covered Entity to provide its client in good time appropriate information about any relevant financial instruments, which are a defined set of instruments to which this and other MiFID-based provisions apply. The general condition in paragraph a3 of the Order would require any Covered Entity using substituted compliance for Exchange Act fair and balanced communications requirements to ensure that its relevant security-based swap activities in this case, communications with counterparties constitute MiFID or equivalent third country business, which is defined to include the same set of instruments in the definition of financial instruments. As a result, the communications of a Covered Entity applying substituted compliance for Exchange Act fair and balanced communications requirements would always be in relation to a security-based swap that is a financial instrument.
Accordingly, the Commission believes it is appropriate to delete the reference to FCA COBS 2.2A.2R1c in the Order.
Third, the commenter asked the Commission not to require a Covered Entity to be subject to and comply with FCA COBS 2.2A.3R because it relates to the format of disclosure and thus goes beyond the scope of Exchange Act fair and balanced communications requirements.401 Exchange Act rule 15Fh3g1 requires a Covered Entitys communications to provide a sound basis for evaluating the facts with regard to any particular security-based swap or trading strategy involving a securitybased swap. FCA COBS 2.2A.3R would require the Covered Entity to provide the information required by FCA COBS
2.2A.2R in a comprehensive form in such a manner that the client is reasonably able to understand the nature and risks of the investment 400 See SIFMA 5/3/2021 Letter at 21 and Appendix A part e5.
401 See SIFMA 5/3/2021 Letter at 21 and Appendix A part e5.

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service and of the specific type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis. This requirement to provide information in a manner that the client is reasonably able to take informed investment decisions is well within the scope of the Exchange Act requirement to provide counterparties a sound basis for evaluating the relevant facts of a transaction or strategy. Accordingly, the Commission is retaining the reference to this provision.
Fourth, the commenter asked the Commission not to require a Covered Entity to be subject to and comply with FCA COBS 6.1ZA.8UK because it relates to portfolio management services and thus goes beyond the scope of Exchange Act fair and balanced communications requirements. FCA COBS 6.1ZA.8UK
would require a Covered Entity, when providing or proposing to provide portfolio management services, to provide certain information to its client to enable the client to assess the Covered Entitys performance. The Commission is not making a determination whether particular examples of portfolio management, as the term is used in this provision, also constitute dealing in a security-based swap for purposes of the Exchange Act.
However, to the extent that FCA COBS
6.1ZA.8UK applies to a Covered Entitys communication, it is an element of the UKs fair and balanced communications framework that compares to Exchange Act requirements to provide a sound basis for evaluating the facts with regard to a security-based swap or trading strategy involving a security-based swap. If the Covered Entity is applying substituted compliance in relation to such a communication, the Commission believes that it is appropriate to require the Covered Entity to comply with this requirement. Accordingly, the Commission is retaining the reference to this provision.
Fifth, the commenter asked the Commission not to require a Covered Entity to be subject to and comply with UK MAR Investment Recommendations Regulation articles 3 and 4 and UK MAR
articles 121c, 15, and 201 because they relate to investment recommendations and market manipulation and thus go beyond the scope of Exchange Act fair and balanced communications requirements.
Exchange Act rule 15Fh3g requires in relevant part that an SBS Entitys communications with counterparties provide a sound basis for evaluating the facts with regard to a particular securitybased swap or trading strategy involving a security-based swap; not imply that
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