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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices b. Memoranda of Understanding Commenters stated that a separate memorandum of understanding with the ECB need not be in place before SBS
Entities can rely on the Order, based on the rationale that a memorandum of understanding containing certain assurances from the AMF and ACPR
would be sufficient to ensure the Commission can promptly obtain relevant ECB-controlled information.86
The Commission disagrees that such assurances would be sufficient. As the Order in part addresses substituted compliance for matters within the purview of the ECB, including but not limited to capital and margin requirements, the Commission believes that a memorandum of understanding with the ECB must be in place at the time an SBS Entity relies on the Order.
As a result, the Order incorporates, as proposed, separate conditions related to the French Authorities and to the ECB
memoranda of understanding.87

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c. Notice of Reliance on Substituted Compliance One commenter 88 requested that the Commission modify the proposed notice condition to correspond with the analogous condition that the Commission proposed in connection with the proposed substituted compliance order for the United Kingdom UK.89 The Commission agrees that the notice requirements for the substituted compliance orders should be consistent. As a result, the condition has been modified from the French proposed Order to add flexibility by stating that the notice must be sent to the Commission in the manner specified on the Commissions website while the proposed Order instead referred to an email address.90
Moreover, the condition further has been modified from the proposal by not subject to the relevant French and EU
requirements listed in the Order, and thus would not impact the Covered Entitys ability to use substituted compliance in relation to those communications. On the other hand, MiFID article 26 also provides that the other firm is legally responsible for the suitability of advice and recommendations provided to the client. The other firm, however, may not be a Covered Entity applying substituted compliance pursuant to the Order. Accordingly, the Commission believes that a Covered Entity relying on the suitability assessment of another firm pursuant to MiFID
article 26 is not subject to the relevant French suitability requirements listed in the Order, and thus may not apply substituted compliance for those recommendations.
86 See SIFMA Letter I at 16; see also FBF Letter I at 3.
87 See paras. a7 and a8 of the Order.
88 SIFMA Letter II at Appendix A.
89 Exchange Act Release No. 91476 Apr. 5, 2021, 86 FR 18378 Apr. 8, 2021 UK Proposed Order.
90 See para. a9 of the proposed Order.

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stating that the notice must identify each specific substituted compliance determination for which the Covered Entity intends to apply substituted compliance.91 Further, a Covered Entity must promptly update the notice if it intends to modify its reliance on the positive substituted compliance determinations in the Order.92 Every SBS Entity registered with the Commission, whether complying directly with Exchange Act para. a9 of the Order. If the Covered Entity intends to rely on all the substituted compliance determinations in a given paragraph of the Order, it can cite that paragraph in the notice.
For example, if the Covered Entity intends to rely on the capital and margin determinations in paragraph c of the Order, it can indicate in the notice that it is relying on the determinations in paragraph c. However, if the Covered Entity intends to rely on the margin determination but not the capital determination, it will need to indicate in the notice that it is relying on paragraph c2
of the Order the margin determination. In this case, paragraph c1 of the Order the capital determination will be excluded from the notice and the Covered Entity will need to comply with the Exchange Act capital requirements. Further, as discussed below, the recordkeeping and reporting determinations in the Order have been structured to provide Covered Entities with a high level of flexibility in selecting specific requirements within those rules for which they want to rely on substituted compliance. For example, paragraph f1i of the Order sets forth the Commissions substituted compliance determinations with respect to the requirements of Exchange Act rule 18a5, 17
CFR 240.18a5. These determinations are set forth in paragraphs f1iA through O of the Order.
If a Covered Entity intends to rely on some but not all of the determinations, it will need to identify in the notice the specific determinations in this paragraph it intends to rely on e.g., paragraphs f1iA, B, C, D, G, H, I, and O. For any determinations excluded from the notice, the Covered Entity will need to comply with the Exchange Act rule 18a5 requirement. Finally, a Covered Entity is able to apply substituted compliance at the transaction level rather than the entity level for certain counterparty protection requirements and the recordkeeping requirements that are linked to them. In this case, the notice will need to indicate the class of transactions e.g., transactions with French counterparties for which the Covered Entity is applying substituted compliance with respect to the Exchange Act counterparty protection requirements and linked recordkeeping requirements. Similarly, as discussed above, a Covered Entity is able to apply substituted compliance for entity-level Exchange Act requirements to all of its security-based swap business that is eligible for substituted compliance under the Order, and may either comply directly with the Exchange Act or apply substituted compliance under another applicable order for its security-based swap business that is not eligible for substituted compliance under the Order. In this case, the notice will need to indicate the scope of security-based swap business e.g., security-based swap business carried on from an establishment in France for which the Covered Entity is applying substituted compliance with respect to the relevant Exchange Act entity-level requirements.
92 A Covered Entity would modify its reliance on the positive substituted compliance determinations in the Order, and thereby trigger the requirement to update its notice, if it adds or subtracts determinations for which it is applying substituted compliance or completely discontinues its reliance on the Order.

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requirements or relying on substituted compliance as a means of complying with the Exchange Act, is required to satisfy the inspection and production requirements imposed on such entities under the Exchange Act,93 and specificity as to the scope of the entitys reliance on substituted compliance is necessary to facilitate the Commissions oversight under the Order.
d. Additional EMIR-Related Conditions The final rules have been modified from the proposal to add two general conditions that address Covered Entities reliance on the EMIR-related provisions. The additions should help ensure that the relevant EMIR-related provisions will apply in fact, and help avoid any gaps between the regulatory outcomes associated with Exchange Act requirements and regulatory outcomes associated with those EMIR-related provisions. Consistent with the discussion regarding scope of substituted compliance in part II.B, in the context of the EMIR counterparties condition in paragraph a5, a Covered Entity must choose 1 to apply substituted compliance pursuant to the Orderincluding compliance with paragraph a5 as applicablefor a particular set of entity-level requirements with respect to all of its business that would be subject to the relevant EMIR-based requirement if the counterparty were the relevant type of counterparty, or 2 to comply directly with the Exchange Act with respect to such business.
Some commenters expressed general support for adding the two additional EMIR-related general conditions to the Order.94 One commenter disagreed with including any additional EMIR-related conditions, expressing the view that if some industry participants may not be able to take advantage of substituted compliance under the SECs proposed framework is not, in and of itself, a reason to change the framework. 95
The first new general condition addresses the fact that the financial counterparty and non-financial counterparty definitions that trigger the application of the relevant EMIR
provisions are predicated on the entity being an undertaking established in the 93 See French Substituted Compliance Notice and Proposed Order, 85 FR 85734.
94 See FBF Letter II at 2 stating that the FBF
is generally welcoming of the new general EMIR
conditions that are introduced as a corollary to the above changes. As applied in the context of trading relationship documentation, trade acknowledgment and verification, they largely convey the manner in which EMIR has been interpreted.; see also SIFMA Letter II at 4.
95 Better Markets Letter at 6.

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