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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
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Covered Entities to submit compliance reports to the Commission, and suggested standards by which the Covered Entity may make an annual submission of this report 15 days after submission to the AMF. 369 One commenter explained that absent such a clarification, submission of the report seemingly would be required within 30
days following the deadline for the Covered Entity to file its annual financial report with the Commission, without regard to when the entity prepares its report pursuant to MiFID.370 Another commenter stated that providing a clarified 15 day timeline would accommodate the need to account for translation as well as other conditions in the French Order. 371
The Commission is persuaded that additional clarification is warranted, concurs that it is appropriate for the Commission to receive compliance reports shortly after their preparation, and views 15 days as providing a reasonable time to translate and convey reports. At the same time, the Commission does not believe that the suggested 15 days after submission to the AMF standard sets forth an optimal timing condition, in part given that MiFID Org Reg article 222c requires reports to the firm management body not to authorities such as the AMF.
Instead, to promote timely notice comparable to what the Exchange Act rule provides, the Commission is incorporating a timing standard that accounts for MiFID-required timing as well as the possibility that the relevant reports may be submitted to the management body early. Under the Order, the applicable compliance reports are to be provided to the Commission no later than 15 days following the earlier of: i The submission of the report to the Covered Entitys management body; or ii the time the report is required to be submitted to the management body.372
In addition, reports required to be 369 See SIFMA Letter II at 1920; see also FBF
Letter II at 3 requesting that the report be submitted to the SEC 15 days after its submission to the AMF
in April each year. With regard to the UK
Substituted Compliance Notice and Proposed Order, SIFMA supported a single annual submission for multiple reports without reference to a 15 day timing standard. See SIFMA UK Letter at 21.
370 SIFMA Letter II at 1920, 31. The 15 days after submission to the AMF language is incorporated into the commenters detailed recommendations at page 31. The commenters general discussion of the issue separately alludes to a 15 days after the Covered Entity completes its annual MiFID report as required by MiFID
standard at page 20.
371 FBF Letter II at 3.
372 See para. d2iiD of the Order.

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provided under MiFID Org Reg article 222c must together cover the entire period that an Exchange Act rule 15Fk 1 annual report would have covered.
This requirement would prevent a Covered Entity from applying for substituted compliance just prior to the due date of its Exchange Act annual report and then providing the Commission its next MiFID Org Reg report covering only a part of the year that would have been covered in the Exchange Act report.
4. Compliance Reports Subject to Disclosure One commenter requested that the proposed Order be modified to narrow the scope of the compliance reports provided to the Commission, stating that the conditions to substituted compliance should require that the Commission be provided with the compliance reports only to the extent they are related to a Covered Entitys business as an SBS Entity. 373 The commenter argued that it would be disproportionate and unnecessary to require that the Commission receive all reports prepared pursuant to MiFID Org Reg article 222c.374
The Commission disagrees, and believes that the Commission should be fully informedconsistent with the scope of MiFID Org Reg article 222cas to the implementation and effectiveness of the Covered Entitys overall control environment for investment services and activities, as well as associated risks, complaints handling and remedies. The alternative approach of apportioning compliance reports into two buckets, and only providing one bucket to the Commission, does not match the analytic approach of considering the Exchange Act and French/EU
frameworks as a whole.
5. Compliance Conditions Related to Recordkeeping The Commission also is not adopting a commenters suggestion that MiFID
Org Reg articles 72 through 76 and Annex IV recordkeeping requirements be removed from the conditions for substituted compliance for internal supervision and compliance.375
Documentation is an important component of an effective compliance system, and a firm that has failed to comply with relevant EU recordkeeping requirements cannot reasonably be viewed as having engaged in supervisory and compliance practices
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373 SIFMA

Letter II at 19.

374 Id.
375 SIFMA

Letter I at 67.

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that are sufficiently rigorous to satisfy the regulatory outcome established by the relevant requirements under the Exchange Act.
6. Additional Considerations and Final Order Provisions For these reasons, the Commission is adopting the requirements related to internal supervision and compliance largely as proposed, subject to the specific changes addressed above.376
Consistent with the proposed Order, substituted compliance in connection with internal supervision further is conditioned on the Covered Entity being subject to and complying with the applicable French and EU supervisory and compliance provisions listed in paragraph d3 of the Order, as if those provisions also require SBS Entities to comply with applicable requirements under the Exchange Act and the other applicable conditions to the Order.377
Similarly, substituted compliance in connection with the chief compliance officer requirements further is conditioned on the compliance reports provided to the Commission addressing the SBS Entitys compliance with other applicable conditions of the Order.378 A
Covered Entity that is unable to comply with an applicable conditionand thus is not eligible to use substituted compliance for the Exchange Act internal supervision and/or chief compliance officer requirements related to that conditionnevertheless may use substituted compliance for another set of Exchange Act requirements addressed in the Order if it complies with the conditions to the relevant parts of the Order.
Under the Order, substituted compliance for internal supervision and chief compliance officer requirements is not subject to a condition that the Covered Entity apply substituted compliance for related recordkeeping requirements in Exchange Act rules 18a5 and 18a6. A Covered Entity that applies substituted compliance for 376 See para. d3 of the Order. Consistent with the discussion above related to internal risk management part IV.B.1, the condition has been modified from the proposed Order by removing Prudential Supervision and Risk Assessment Order article 7.
377 See para. d4 of the Order. The Order provides that the Covered Entity must comply with relevant French and EU provisions as if those provisions address applicable conditions of the Order connected to requirements for which the Covered Entity is relying on substituted compliance. That part of the condition does not apply to parts of the Order for which the Covered Entity does not rely on substituted compliance.
378 See para. d2ii of the Order. For the reasons discussed in the proposal, the substituted compliance Order does not extend to antitrust provisions under the Exchange Act.

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