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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
Entitys home country regulator,437
while other commenters urged that Covered Entities be subject to monthly instead of quarterly reporting of their financial condition.438 Third, commenters supported a potential approach identified by the Commission under which Covered Entities would be permitted to satisfy their Exchange Act rule 18a7 obligations for a two-year period by filing the FOCUS Report Part IIC with only a limited number of the required line items completed.439
Fourth, the Commission received comment recommending that the FOCUS Report be modified to omit certain line items either permanently or during a two-year transition.440 The Commission will consider these comments as it works towards completing a Commission order or rule pursuant to the provision in this Order that substituted compliance with respect to Exchange Act rule 18a7s FOCUS Report filing requirements is conditioned on Covered Entities filing unaudited financial and operational information in the manner and format specified by Commission order or rule.
Seventh, the Commission proposed to make a positive substituted compliance determination with respect to Exchange Act rule 18a6b2v but not with respect to Exchange Act rule 18a 6b1viiiL, even though both provisions require firms to preserve detail relating to information for possession or control requirements under Exchange Act rule 18a4 and reported on Part II of Form X17A5.
These provisions are fully linked with Exchange Act rule 18a4 for which a positive substituted compliance is not available, so a positive substituted compliance determination should not be made for these linked record retention requirements. Accordingly, the Order does not make a positive substituted compliance determination with respect to Exchange Act rule 18a6b2v.
The Commission also received comment suggesting certain modifications to the ordering language.
Specifically, a commenter suggested revising paragraph f4iiA1 of the proposed Order, which requires a Covered Entity to send a copy of any notice required to be sent by UK laws cited in paragraph f4 simultaneously to the Commission. The commenter recommended revising this provision to require the notices that a Covered Entity would be required to send to the 437 See
SIFMA 5/3/2021 Letter Appendix B.
438 See Americans for Financial Reform Education Fund Letter at 1.
439 See SIFMA 5/3/2021 Letter Appendix B.
440 See SIFMA 5/3/2021 Letter Appendix B.

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Commission be limited to those notices required by UK law cited in paragraph f4iC only instead of paragraph f4. Furthermore, the commenter recommended conditioning the requirement to provide these notices to the Commission to be limited to those notifications that are related to: 1 A
breach of the UK laws cited in the relevant portions of paragraphs f1 or 2 of the Order, which, in the case of a Covered Entity that is prudentially regulated, also relates to the Covered Entitys business as a security-based swap dealer or major security-based swap participant; or 2 a deficiency relating to capital requirements.441 The commenter reasoned that the provisions of UK law requiring notification referenced in paragraph f4 require notification of a far wider array of matters than those described in Exchange Act rule 18a8.
The Commission disagrees. Exchange Act rule 18a8 requires security-based swap dealers and major security-based swap participants for which there is no prudential regulator to notify the Commission of a failure to meet minimum net capital. Exchange Act rule 18a8 also specifies several events that trigger a requirement that a securitybased swap dealer or major securitybased swap participant for which there is no prudential regulator must send notice within twenty-four hours to the Commission. These notices are designed to provide the Commission with early warning that the SBS entity may experience financial difficulty.
Furthermore, Exchange Act rule 18a8
requires bank security-based swap dealers to give notice to the Commission when it files an adjustment of its reported capital category with its prudential regulator. Additional notification requirements arise with respect to the failure to maintain and keep current required books and records, the discovery of material weaknesses, and failure to make a required deposit into the special reserve account for the exclusive benefit of security-bases swap customers.442 While the specific UK requirements cited with respect to Exchange Act rule 18a8 are different from the specific requirements set forth in Exchange Act rule 18a8, the Commission believes the UK notice requirements cited in paragraph f4 of the Order provide for comparable regulatory outcomes by requiring notification of events or conditions which may impact an SBS Entitys capital or signal the potential for financial difficulty, indicate the failure 441 See 442 See
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SIFMA 5/3/2021 Letter Appendix A.
17 CFR 240.18a8.

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to maintain and keep current books and records, or the potential for the failure to comply with other requirements related to the protection of customer assets. The recommended revisions would reduce the scope of notifications the Commission would receive.
Consequently, the Commission is not making the recommended revisions with respect to paragraph f4iiA1.
The commenter also recommended revising paragraphs f2iH1, f3iA, and f3iiA to include the qualifier as applicable with respect to citations to UK CRR Reporting ITS annexes. The commenter stated that not all firms submit all of the UK CRR
Reporting ITS annexes.443 Accordingly, the Commission is modifying these paragraphs to include the qualifier as applicable. 444
Finally, with respect to recordkeeping rules that are linked with Exchange Act rule 15Fh3, references to Exchange Act rule 15Fh3 are revised to clarify that substituted compliance is available with respect to Exchange Act rule 15Fh3
except paragraphs a and d of the rule, instead of the entirety of Exchange Act rule 15Fh3. Accordingly, the Commission is revising the conditions in paragraphs f1iM2 and f2iK2 of the Order to state that the Covered Entity must apply substituted compliance with respect to the portion of the recordkeeping rule that relates to one or more provisions of Exchange Act rule 15Fh3 for which substituted compliance is available under this Order instead of just Exchange Act rule 15Fh3.
2. Citations to UK Law The Commission also received comment recommending changes to the proposed Order to refine the scope of UK law provisions that would operate as conditions to substituted compliance.445 The Commission reviewed each of the UK law citations that the commenter recommended adding or removing from the Order for relevance to the comparable Exchange Act requirement while also keeping in mind that each UK law citation was included in the FCA Application intentionally. The Commissions conclusion and reasoning with respect to the commenters recommendations is discussed in further detail below. In addition to refining the scope of UK law citations in response to comment, the 443 See
SIFMA 5/3/2021 Letter Appendix A.
paras. f2iH1, f3iA, and f3iiA of the UK Substituted Compliance Notice and Proposed Order, with paras.
f2iH1, f3iA, and f3iiA of the Order.
445 See SIFMA 5/3/2021 Letter Appendix A.
444 Compare
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