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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Notices
Exchange Act; 12 3 is a systemically important bank authorized by the Swiss Financial Market Supervisory Authority FINMA to conduct banking activities in Switzerland; and 4 is supervised by FINMA under the intensive and continual supervision model as a Category 1 firm as that term is defined in BO Annex 3. In making its substituted compliance determination, the Commission will consider public comments on the Swiss Application and the proposed Order.
The Swiss Firms seek substituted compliance for Swiss market participants in connection with a number of requirements under Exchange Act section 15F, including:
A. Relevant Market Participants The Commission will consider whether to allow substituted compliance to be used by any Covered Entity.13

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B. Relevant Section 15F Requirements The Swiss Firms request that the Commission issue an order determining thatfor substituted compliance purposesapplicable requirements in Switzerland are comparable with the following requirements under Exchange Act section 15F:
Risk control requirements Requirements related to internal risk management, trade acknowledgment and verification, portfolio reconciliation and dispute reporting, portfolio compression and trading relationship documentation.14
Internal supervision, chief compliance officer and additional Exchange Act section 15Fj requirementsRequirements related to diligent supervision, conflicts of interest, information gathering under Exchange Act section 15Fj and chief compliance officers.15
Recordkeeping, reporting, and notification requirements Requirements related to making and keeping current certain prescribed records, the preservation of records, reporting, and notification.16
C. Comparability Considerations and Proposed Order In the view of the Swiss Firms, Swiss requirements taken as a whole produce regulatory outcomes that are comparable to those of the relevant requirements under the Exchange Act.17 In the Commissions preliminary view, 12 17

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para. d1 of the proposed Order.
14 See part V, infra.
15 See part VI, infra.
16See part VII, infra.
17 See Swiss Application section II at 3.
13 See
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requirements under the Exchange Act and Swiss requirements maintain similar approaches with respect to achieving regulatory goals in several respects, but follow differing approaches or incorporate disparate elements in certain other respects. The Commission has considered those similarities and differences when analyzing comparability and developing preliminary views, while recognizing that differences in approach do not necessarily preclude substituted compliance in light of the Commissions holistic, outcomes-oriented framework for assessing comparability.18
Based on the Commissions analysis of the Swiss Application and review of relevant Swiss requirements, the Commission is proposing an Order, located at Attachment A, granting substituted compliance subject to specific conditions and limitations.
When Covered Entities seek to rely on substituted compliance to satisfy particular requirements under the Exchange Act, non-compliance with the applicable Swiss requirements would lead to a violation of those requirements under the Exchange Act and potential enforcement action by the Commission as opposed to automatic revocation of the substituted compliance order.
III. Scope of Substituted Compliance The Swiss Application relates solely to entity-level requirements and for entity-level Exchange Act requirements a Covered Entity must choose either to apply substituted compliance pursuant to the Order with respect to all securitybased swap business subject to the relevant Swiss requirements or to comply directly with the Exchange Act with respect to all such business; a Covered Entity may not choose to apply substituted compliance for some of the business subject to the relevant Swiss requirements and comply directly with the Exchange Act for another part of the business that is subject to the relevant Swiss requirements. Additionally, for entity-level Exchange Act requirements, if the Covered Entity also has securitybased swap business that is not subject to the relevant Swiss requirements, the 18 In
this context, the Commission recognizes that other regulatory regimes will have exclusions, exceptions and exemptions that may not align perfectly with the corresponding requirements under the Exchange Act. Where the Commission preliminarily has found that the Swiss regime produces comparable outcomes notwithstanding those particular differences, the Commission proposes to make a positive determination on substituted compliance. Where the Commission preliminarily has found that those exclusions, exemptions and exceptions lead to outcomes that are not comparable, however, the proposed Order would not provide for substituted compliance.

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Covered Entity must either comply directly with the Exchange Act for that business or comply with the terms of another applicable substituted compliance order.
IV. Applicable Entities and General Conditions A. Covered Entities for Which the Commission is Proposing a Positive Conditional Substituted Compliance Determination Under the proposed Order, substituted compliance would be available to Covered Entitiesa term that would limit the scope of the substituted compliance determination to SBSDs that are subject to applicable Swiss requirements and oversight.
Consistent with the parameters of substituted compliance under Exchange Act rule 3a716, the proposed Covered Entity definition provides that the relevant entity must be a security-based swap dealer registered with the Commission, and that the entity cannot be a U.S. person.19 The proposed Covered Entity definition further would provide that the entity must be a systemically important bank authorized by FINMA to conduct banking activities in Switzerland.20
Each entity also must be supervised by FINMA under the intensive and continual supervision model as a Category 1 firm as that term is defined in BO Annex 3.21 These prongs of the definition are intended to help ensure that Covered Entities are subject to relevant Swiss requirements and oversight.
B. General Conditions and Prerequisites Substituted compliance under the proposed Order would be subject to a number of conditions and other prerequisites, to help ensure that the relevant Swiss requirements that form the basis for substituted compliance in practice will apply to the SBSDs security-based swap business and activities, and to promote the Commissions oversight over entities that avail themselves of substituted compliance.
1. Subject to and complies with Applicable Provisions Each relevant section of the proposed Order would be subject to the condition that the Covered Entity is subject to and complies with the applicable Swiss requirements that are needed to establish comparability. Accordingly, 19 See para. e1i and ii of the proposed Order.
20 See para. e1iii of the proposed Order.
21 See para. e1iv of the proposed Order.

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