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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices In proposing to provide conditional substituted compliance in connection with this part of the French Authorities Application, the Commission preliminarily concluded that the relevant EU and French requirements, subject to conditions and limitations, would produce regulatory outcomes that are comparable to the outcomes associated with the vast majority of the recordkeeping, reporting, notification, and securities count requirements under the Exchange Act applicable to SBS
Entities pursuant to Exchange Act rules 18a5, 18a6, 18a7, 18a8, and 18a9
and Exchange Act section 15Fg collectively, the Exchange Act Recordkeeping and Reporting Requirements.440
In the Reopening Release, the Commission sought comment on whether the structure of the substituted compliance determinations with respect to Exchange Act rules 18a5, 18a6, 18a7, 18a8, and 18a9 as well as Exchange Act Section 15Fg should permit a covered entity to apply substituted compliance with respect to certain of these rules e.g., Exchange Act rules 18a5 and 18a6 and comply with the Exchange Act requirements of the remaining rules and statute i.e., Exchange Act rules 18a7, 18a8, and 18a9, as well as Exchange Act Section 15Fg.441 Moreover, the Commission sought comment on whether the structure of the substituted compliance determinations with respect to the recordkeeping rules should provide Covered Entities with greater flexibility to select distinct requirements within the broader rules for which they want to apply substituted compliance.442
B. Commenter Views and Final Provisions
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1. General Considerations The Commission received comments addressing the proposed conditional substituted compliance determinations to consider in addition to any conditions imposed whether the foreign financial regulatory systems required records and reports, the timeframes for recording or reporting information, the accounting standards governing the records and reports, and the required format of the records and reports are comparable to applicable provisions under the Exchange Act, and whether the foreign provisions would permit the Commission to examine and inspect regulated firms compliance with the applicable securities laws.
440 See French Substituted Compliance Notice and Proposed Order, 85 FR at 8573134.
441 See Reopening Release, 86 FR at 1834748.
442 Id. The Commission directed commenters to the UK Substituted Compliance Notice and Proposed Order to indicate how the approaches discussed above would be implemented in ordering language. See also UK Substituted Compliance Notice and Proposed Order, 86 FR at 18394404, 1841520.

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for the Exchange Act Recordkeeping and Reporting Requirements, including with respect to the potential approaches for which comment was sought in the Reopening Release.443 The comments and the Commissions response to them are discussed below.
The Commission received comment requesting the elimination of references to EU or French requirements that do not apply to third-country branches or that apply to multiple countries branches of an SBS Entity.444 The same commenter suggested as another possible solution that SBS Entities be permitted to elect to comply directly with U.S. law instead of EU or French requirements.445 Accordingly, in the Reopening Release, the Commission solicited comment on whether to structure its preliminary substituted compliance determinations for Exchange Act rules 18a5, 18a6, 18a 7, and 18a8 to provide Covered Entities with greater flexibility to select which distinct requirements within the broader rules for which they want to apply substituted compliance.446 This flexibility was intended to permit Covered Entities to leverage existing recordkeeping and reporting systems that are designed to comply with the broker-dealer recordkeeping and reporting requirements on which the recordkeeping and reporting requirements applicable to SBS Entities are based. For example, it may be more efficient for a Covered Entity to comply with certain Exchange Act requirements within a given recordkeeping or reporting rule rather than apply substituted compliance because it can utilize systems that its affiliated brokerdealer has implemented to comply with them.
As applied to Exchange Act rules 18a5 and 18a6, this approach of providing greater flexibility resulted in preliminary substituted compliance determinations with respect to the different categories of records these rules require SBS Entities to make, keep current, and/or preserve. The objectives of these rulestaken as a wholeis to assist the Commission in monitoring and examining for compliance with Exchange Act requirements applicable to SBS Entities as well as to promote the prudent operation of these firms.447 The Commission preliminarily found that the comparable EU and French 443 See
SIFMA Letter II at 1718 and Appendix
A.
SIFMA Letter I at 24.
SIFMA Letter I at 89.
446 See Reopening Release, 86 FR at 1834748.
447 See, e.g., Exchange Act Release No. 71958
Apr. 17, 2014, 79 FR 25194, 25199200 May 2, 2014.

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444 See 445 See
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recordkeeping rules achieve these outcomes with respect to compliance with EU and French requirements for which positive substituted compliance determinations were made e.g., capital and margin requirements. At the same time, the recordkeeping rules address different categories of records through distinct requirements within the rules.
Each requirement with respect to a specific category of records e.g., paragraph a2 of Exchange Act rule 18a5 addressing ledgers or other records reflecting all assets and liabilities, income and expense and capital accounts can be viewed in isolation as a distinct recordkeeping rule. Therefore, the Commission solicited comment on whether it would be appropriate to make substituted compliance determinations at this level of Exchange Act rules 18a5 and 18a 6.448
A commenter generally supported the Commissions proposed granular approach to making substituted compliance determinations.449 The Order takes this granular approach.
The Commissions substituted compliance determinations for the Exchange Act Recordkeeping and Reporting Requirements were subject to the condition that the Covered Entity is subject to and complies with the relevant EU and French laws.450
Further, the Commission proposed or solicited comment on limitations and additional conditions for certain of the proposed substituted compliance determinations. The limitations and conditions are discussed below as well any comments on them and the Commissions response to those comments.
First, the Commission solicited comment on not making a positive substituted compliance determination with respect to a discrete provision of the Exchange Act Recordkeeping and Reporting Requirements if it was fully or partially linked to a substantive Exchange Act requirement for which substituted compliance was not available or for which a positive substituted compliance determination was not being made.451 The 448 See Reopening Release, 86 FR 18347. The Commission directed commenters to the UK
Substituted Compliance Notice and Proposed Order to indicate how this approach would be implemented in ordering language. See also UK
Substituted Compliance Notice and Proposed Order, 86 FR at 18396404, 1841518.
449 See SIFMA Letter II at 1718.
450 See French Substituted Compliance Notice and Proposed Order, 85 FR at 8573134; Reopening Release, 86 FR at 1834748.
451 See Reopening Release, 86 FR at 1834748
discussing this limitation. The Commission
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