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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
the dispute reports required under French law.50 Consistent with rule 3a716, conditioning substituted compliance on the Commission receiving those reports helps to promote timely notice of disputes to support a comparable regulatory outcome.
3. Ensuring Ongoing Appropriateness of Substituted Compliance One commenter stated that the Commission must ensure, on an ongoing basis, that each grant of substituted compliance remains appropriate over time. 51 The commenter added that substituted compliance orders and memoranda of understanding should incorporate the obligation that the Commission be apprised regarding the effectiveness of the jurisdictions supervision and enforcement programs, and to immediately apprise the Commission of material changes to the regulatory regime.52 The Commission concurs that the ongoing availability of substituted compliance should account for relevant changes in the foreign jurisdictions regulatory requirements and in the effectiveness of that jurisdictions supervisory and enforcement program.53
Accordingly, the Commission and the French Authorities recently entered into a substituted compliance memorandum of understanding that addresses ongoing information regarding potential changes to substantive legal requirements and supervisory and enforcement effectiveness.54 Additionally, the Commission and the ECB are in the process of developing a memorandum of understanding to address cooperation matters related to substituted compliance. The Commission believes that these arrangements will provide timely information to ensure that the Commission is aware of material developments that may affect the 50 See
para. b3ii of the Order.
Markets Letter at 5.

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52 Id.
53 See Business Conduct Adopting Release, 81 FR
at 3007879 stating that order conditions and memoranda of understanding are possible tools for providing that the Commission be notified of material changes.
54 The memorandum of understanding between the Commission and the French Authorities in part provides that the French Authorities will provide ongoing information sharing regarding Firm Information incorporating supervisory and related information as to the Covered Entities using substituted compliance and regarding Regulatory Change Information incorporating information about any material publicly available draft, proposed, or final change in law, regulation, or order of the jurisdiction of the French Authorities that may have a material impact on the firms at issue with respect to their relevant activities. See note 17, supra information on publication of memoranda of understanding with the French Authorities and ECB.

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comparability of the relevant French and EU requirements, including the scope and objectives of those requirements and the effectiveness of the French Authorities supervision and enforcement programs. In response to any such developments, the Commission may amend the Order as needed to ensure that it continues to require a Covered Entity to comply with comparable French and EU
requirements, or may withdraw the Order if the relevant French or EU
requirements are no longer comparable.55 Moreover, substituted compliance under the Order is conditioned on the Commission having these memoranda of understanding, or another arrangement with the French Authorities and ECB addressing cooperation with respect to the Order, at the time the Covered Entity makes use of substituted compliance.56 If the arrangements in the memoranda of understanding prove in practice not to provide information about relevant developments, the Commission could terminate the memoranda of understanding in accordance with its terms and/or amend or withdraw the Order.57 If the Commission, the French Authorities or the ECB terminates either memorandum of understanding, Covered Entities would not be able to rely on substituted compliance under the Order to satisfy Exchange Act compliance obligations that arise after the termination takes effect. For these reasons, in the Commissions view, the Orders memoranda of understanding conditions, coupled with the ongoing information sharing provisions in the memoranda of understanding with the French Authorities and with the ECB, establish the commenters suggested mechanism to apprise the Commission of changes that may affect the ongoing appropriateness of substituted compliance.
4. Request for Transition Period Commenters stated that the Commissions proposed approach to certain entity-level requirements could result in the Commissions requirements still applying to a non-U.S. Entitys security-based swap transaction with non-U.S. counterparties and a resulting need for SBS Entities to obtain written agreement from their non-U.S.
counterparties.58 As a result, 55 Any such amendment or withdrawal may be at the Commissions own initiative after appropriate notice and opportunity for comment. See Exchange Act rule 3a716a3.
56 See part II.C.2, supra; paras. a7 and a8 of the Order.
57 See note 18, supra.
58 See SIFMA Letter I at 10; FBF Letter I at 3.

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commenters requested a one-year transition period from the November 1, 2021, date by which security-based swap dealers must register with the Commission to come into compliance with any documentation requirements.59
The Commission is not providing an additional transition period at this time for documentation requirements related to Exchange Act requirements that will apply to Covered Entities existing nonU.S. counterparties. The registration compliance date for U.S. and non-U.S.
SBS Entities is October 6, 2021, and that is also the compliance date for the entity-level requirements at issue. These dates have been known to potential SBS
Entities since February 4, 2020.60 In areas where the Commission makes a positive substituted compliance determination under the Order, Covered Entities will have additional flexibility with respect to how to comply with the relevant Exchange Act requirements, but they, like all registered SBS Entities, must comply with the Exchange Act as of the registration compliance date. The Commission staff will be available to discuss implementation issues with Covered Entities during the implementation period.
III. General Availability of Substituted Compliance Under the Order A. Covered Entities 1. Proposed Approach Under the proposed Order, the definition of Covered Entity specified which entities could make use of substituted compliance. Consistent with the availability of substituted compliance under Exchange Act rule 3a716, the proposed definition in part would limit the availability of substituted compliance to registered SBS Entities that are not U.S. persons.
In addition, to help ensure that firms that rely on substituted compliance are subject to relevant French and EU
requirements and oversight, the proposed definition would require that Covered Entities be investment firms authorized to provide investment services by the AMF or credit institutions authorized by the ACPR
after approval by the AMF of its program of operations to provide investment services or perform investment activities in France.61
59 Id.
60 See Exchange Act Release No. 87780 Dec. 18, 2019, 85 FR 6270 at 634546 Feb. 4, 2020.
61 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85723.

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