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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
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In response to the comment that the reference to MFC Article L. 51113 be deleted because it relates to governance requirements and is beyond the scope of capital requirements, the Commission agrees. Therefore, the Commission is deleting this reference from the Order.
Further, in response to comments to insert the phrase as applicable in certain places in the capital condition, the Commission is not modifying the Order to ensure Covered Entities remain subject to and comply with the laws and regulations cited in the capital condition. The Commission acknowledges that some of the citations to the French laws apply only to specific types of institutions i.e., credit institutions or investment firms.299 In such cases, a Covered Entity would comply with the relevant citation in the MFC article that corresponds to its entity type.
In response to the comment that the Commission narrow the scope of references to CRD Articles 129
Requirement to maintain a capital conservation buffer, 130 Requirement to maintain an institution-specific countercyclical capital buffer, and 131
Global and other systemically important institutions because some of the paragraphs do not impose any obligations on firms, the Commission disagrees and is retaining these citations in the Order. These references were cited in the French Authorities Application in their entirety with reference to the requirement that institutions must maintain certain capital buffers above the minimum 8
percent capital level composed of Common Equity Tier 1 capital instruments. 300 Therefore, it is appropriate to retain these citations in the Order.
In response to the comments that the Commission update the reference to BRRD Article 456, since it had been amended, the Commission is retaining the reference, since the references are to Article 142 to 1 and 2; 3 deleting MFC Articles L. 51115; 511411 AXIV, L. 511413.IIIV., L.
511411 C, L. 511413, L. 511414, L. 51141
5, L. 51142, L. 5326, L. 53323, L. 61224, R.
61230, L. 61232, R. 61232, L. 61233.I, L. 612
33.II, L. 61240, and L. 61350.I, L. 63121, narrowing the reference to L. 61349 to 61349I.;
4 deleting the reference to Article 10 of the Decree of 3 November 2014 on internal control; 5 deleting the Ministerial Order on the Supervisory Review and Evaluation Process, articles 6 through 10; and 6 deleting Articles 37, 38, 63, and 64 of Decree of 3 November 2014 relating to capital buffers.
299 For example, Article L. 511411B of the MFC implements Article 73 of CRD Internal Capital for credit institutions, and MFC article L.
53322 implements it for investment firms.
300 French Authorities Application, Side Letter for Capital Requirements at n.13 and accompanying text.

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citations in the French Authorities Application.301 In addition, the term BRRD means Bank Recovery and Resolution Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014, as amended from time to time. Therefore, amendments to the BRRD are already included in the definition and covered by the capital conditions in the Order.302
In addition, in response to a recommendation to delete references to the EMIR margin requirements, the Commission is retaining the references to the EMIR Margin RTS requirements as the French Authorities Application states if liquidation did occur, EU
regulations also protect counterparties and promote continued market liquidity through margin requirements. 303
Finally, the references to the EMIR
Margin RTS and the final references in the capital ordering language contribute to the conclusion that French and EU
laws produces a comparable regulatory outcome to the capital requirements under the Exchange Act.
2. Margin The Commissions preliminary view, based on the French Authorities Application and the Commissions review of applicable provisions, was that relevant French and EU margin requirements would produce regulatory outcomes that are comparable to those associated with Exchange Act margin requirements without the need for additional conditions.304 For example, in adopting final margin requirements for non-cleared security-based swaps, the Commission modified the rule to more closely align it with the margin rules of the Commodity Futures Trading Commission and the U.S. prudential regulators and, in doing so, with the recommendations made by the BCBS
and the Board of the International Organization of Securities Commissions IOSCO with respect to margin requirements for non-centrally cleared derivatives.305
SIFMA Letter II at Appendix A.
commenter also recommended deleting CRD Article 23 since it has been replaced by recent amendments to CRD. The proposed Order does not cite Article 23 of the CRD. Therefore, this comment is moot.
303 French Authorities Application, Side Letter for Capital Requirements at 22. For example, the EMIR Margin RTS require a Covered Entity to segregate initial margin from the firms assets by either placing it with a third-party holder or custodian or via other legally binding arrangements, making the initial margin remote in the case of the firms default or insolvency. Id.
304 French Substituted Compliance Notice and Proposed Order, 85 FR at 85726.
305 Id., 85 FR at 85726, n.50; See Capital and Margin Adopting Release, 84 FR at 4390809. See also BCBS/IOSCO, Margin Requirements for Non-

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Exchange Act rule 18a3 and the French and EU margin rules require firms to collect liquid collateral from a counterparty to cover variation and/or initial margin requirements.306 Both sets of rules also require firms to deliver liquid collateral to a counterparty to cover variation margin requirements.
Under both sets of rules, the fair market value of collateral used to meet a margin requirement must be reduced by a haircut.307 Further, both sets of rules permit the use of a model including a third party model such as ISDAs SIMMTM model to calculate initial margin.308 The initial margin model under both sets of rules must meet certain minimum qualitative and quantitative requirements, including that the model must use a 99 percent, one-tailed confidence level with price changes equivalent to a 10-day movement in rates and prices.309 Both sets of rules have common exceptions to the requirements to collect and/or post initial or variation margin, including exceptions for certain commercial end users, the Bank for International Settlements, and certain multilateral development banks.310 Both sets of rules also permit a threshold below which initial margin is not required to be collected and incorporate a minimum transfer amount.311
In the French Substituted Compliance Notice and Proposed Order, the Commission stated substituted compliance with respect to the margin requirements accordingly would be conditioned on Covered Entities being subject to those French and EU
provisions that, the Commission has determined, in the aggregate, establish a framework that produces outcomes comparable to those associated with the centrally Cleared Derivatives April 2020, available at https www.bis.org/bcbs/publ/d499.pdf BCBS/
IOSCO Paper. The French and EU margin requirements also are based on the recommendation in the BCBS/IOSCO Paper.
306 See 17 CFR 240.18a3c1ii and French Authorities Application at 2728.
307 See 17 CFR 240.18a3c1ii and French Authorities Application at 4043.
308 See 17 CFR 240.18a3d2i and French Authorities Application at 1220.
309 See 17 CFR 240.18a3d2i and French Authorities Application at 12. The Commission must approve the use of an initial margin model.
17 CFR 240.18a3d2i. EMIR Article 1115
directs European supervisory authorities to develop regulatory technical standards under which initial margin models have to be approved initial and ongoing approval. EU requirements currently provide that, upon request, counterparties using an initial margin model shall provide the regulators with any documentation relating to the risk management procedures relating to such model at any time. EMIR Margin RTS, Article 26.
310 See 17 CFR 240.18a3c1iii and French Authorities Application at 5465.
311 See 17 CFR 240.18a3c1iii and French Authorities Application at 5465.

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