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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
necessary to facilitate the Commissions oversight under the Order.

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c. Activities as UK Designated Investment Business One commenter recommended deleting paragraph a4 of the proposed Order because MiFID
business is a subset of designated investment business. 84 The commenter instead suggested adding FCA COBS 11 to the general condition in paragraph a3 of the proposed Order, which is identical to paragraph a4 except for the reference to designated investment business in paragraph a4.
The only provision of FCA COBS 11
included in the Order is FCA COBS
11.7A.3R.85 By its terms, FCA COBS
11.7A.3R applies to a firms designated investment business. FCA COBS
11.7A.1R further states that FCA COBS
11.7A.3R applies, in relevant part, to a firm in relation to its MiFID or equivalent third country business. The condition as proposed thus accurately reflects the activities that FCA COBS
describes as subject to FCA COBS
11.7A.3R. The Commission believes that deleting the reference to designated investment business would be inconsistent with the terms of the relevant provisions of FCA COBS 11.
Moreover, the definitions of designated investment business and MiFID or equivalent third country business vary substantially. Designated investment business includes, among other things, dealing in investments as principal or agent, arranging deals in investments, making arrangements with a view to transactions in investments, managing investments, and advising on investments.86 By contrast, MiFID or equivalent third country business includes, among other things, reception and transmission of orders in relation to one or more financial instruments, execution of orders on behalf of clients, dealing on own account, portfolio management, and the making of a personal recommendation.87 Given the lack of overlap in terminology used in these two definitions, the Commission believes that deleting the reference to designated investment business could cause confusion among Covered Entities, while keeping the reference would not restrict a Covered Entity from 84 See
SIFMA 5/3/2021 Letter Appendix A.
para. d3ii of the Order.
86 See FCA Handbook Glossary, definition of designated investment business.
87 See FCA Handbook Glossary, definitions of MiFID or equivalent third country business, MiFID business, equivalent third country business, and investment services and/or activities.
85 See
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being able to comply with the condition in respect of MiFID or equivalent third country business that is a subset of designated investment business.
Accordingly the Commission has determined not to delete this paragraph.
d. Activities as UK MiFID Business One commenter recommended deleting paragraph a5 of the proposed Order to reflect its recommendations to delete any FCA
CASS provisions elsewhere in the Order as conditions to substituted compliance.88 The commenter believes that the FCA CASS rules, which address client asset requirements, expand the scope of applicable Exchange Act requirements and are inappropriate as conditions to substituted compliance.89
As discussed below in the relevant parts of this release,90 the Commission has determined to retain the citations to FCA CASS as conditions to substituted compliance and, accordingly, has not deleted this paragraph.
e. Covered Entity as UK IFPRU
Investment Firm One commenter recommended deleting paragraph a11 of the proposed Order because the UK
requirements listed in that paragraph do not apply to UK banks or UK designated investment firms and the commenter expects only banks and PRAdesignated investment firms to apply substituted compliance pursuant to the Order.91 These requirements apply to IFPRU investment firmsthat is, certain investment firms regulated by the FCA
but not the PRAand are nearly identical to requirements that apply to UK banks and UK designated investment firms. For the same reason, the commenter also recommended deleting the references to firms regulated only by the FCA from the general conditions in paragraphs a1
through a3 and a6 of the proposed Order and the UK requirements in paragraphs b, d, and e of the proposed Order that apply only to IFPRU investment firms.92 The proposed Order would not require a Covered Entity that is a UK bank or UK
designated investment firm to be subject to and comply with these requirements.
Rather, in each place that the proposed Order refers to these requirements that are unique to IFPRU investment firms, the proposed Order would require the Covered Entity to be subject to and 88 See
SIFMA 5/3/2021 Letter Appendix A.
SIFMA 5/3/2021 Letter Appendix A.
90 See infra part VI.B.1.
91 See SIFMA 5/3/2021 Letter Appendix A.
92 See SIFMA 5/3/2021 Letter Appendix A parts a, b, d, and e.
89 See
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comply with either the provisions that apply to IFPRU investment firms in which case paragraph a11 of the proposed Order would require the Covered Entity to be an IFPRU
investment firm or analogous provisions of the FCA Handbook and PRA Rulebook that apply to UK banks and UK designated investment firms in which case paragraph a12 of the proposed Order would require the Covered Entity to be a UK bank or UK
designated investment firm. Moreover, the FCA Application requested substituted compliance for all investment firms, and was not limited to the entities described by the commenter.
Accordingly, the Commission is retaining the references to these requirements in paragraph a11 and in paragraphs b, d, and e of the Order and the references to firms regulated only by the FCA in paragraphs a1
through a6 of the Order.
f. Counterparties as UK MiFID Clients A commenter requested that the Commission modify paragraph a7 of the proposed Order to permit a Covered Entity to treat an agent, rather than the agents principal, as the Covered Entitys client for purposes of the MiFID-based requirements listed in the Order.93 The commenter stated that this modification would be consistent with the FCAs agent as client rule, which provides that a firm, if it is aware that a person with or for whom it is providing services is acting as agent for another person and satisfies certain other conditions, must treat the agent, and not the agents principal, as the firms client in respect of that business.94 The firm may override the agent as client rule by agreeing in writing with the agent to treat the agents principal as the firms client instead.95
The proposed Order would require a Covered Entity to be subject to and comply with relevant MiFID-based requirements. The Commission proposed that requirement of the proposed Order to ensure that comparable MiFID-based requirements in practice would apply to a Covered Entity using substituted compliance.
The condition in paragraph a7 to the proposed Order would ensure that the Covered Entitys counterpartyi.e., the entity to whom it owes its various duties under the Exchange Actis the client to whom the Covered Entity owes its performance of the duties to which it is subject under the 93 See
SIFMA 5/3/2021 Letter at 46.
FCA COBS 2.4.3R.
95 See FCA COBS 2.4.3R2.
94 See
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