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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices comparable MiFID-based requirements.96 The Commission believes that, in the case of an agent acting on behalf of a principal, if the principal is the counterparty for purposes of the relevant Exchange Act requirement, then this condition should require the principal, as the counterparty, to be the client for purposes of the relevant MiFID-based requirements. If the Covered Entity instead treats the agent as the client, then the Covered Entity would not be subject to UK requirements that are comparable to Exchange Act requirements related to counterparties.
Accordingly, the Commission is not amending the condition in paragraph a7 to permit a Covered Entity to treat an agent, rather than the agents principal, as its client with regard to the relevant MiFID-based requirements. In taking this position, the Commission does not prohibit Covered Entities from working with agents or others acting on behalf of a counterparty. Rather, the Covered Entity must ensure that, in working with the agent, it fulfills any duties owed to a client or potential client in relation to the counterparty.97

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g. UK EMIR Counterparties A commenter requested that the Commission clarify that the condition in paragraph a13 of the proposed Order would not require a Covered Entity to treat as financial counterparties or nonfinancial counterparties certain public sector counterparties, such as 96 Some provisions of the MiFID-based requirements cited in the condition, such as certain organizational requirements, do not pertain to counterparties or clients. In those cases, there is no relevant counterparty or potential counterparty for purposes of the condition, and the condition would have no effect.
97 FCA COBS 2.4.4R permits firms to rely upon information about a client received from another UK-regulated firm. Under this provision, the other firm is legally responsible for the completeness and accuracy of any information about the client that the other firm receives from the first firm. The Commission believes that it is appropriate to permit a Covered Entity to rely on information about its client communicated by another UK-regulated firm on behalf of the client. Accordingly, the application of this provision would not cause the Covered Entity to be not subject to the relevant UK
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, FCA COBS
2.4.4R 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 FCA COBS
2.4.4R is not subject to the relevant UK suitability requirements listed in the Order, and thus may not apply substituted compliance for those recommendations.

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multilateral development banks, that are exempt from UK EMIR or counterparties that are not undertakings for purposes of UK EMIRs definitions of financial counterparty and non-financial counterparty. 98
This condition addresses the fact that some of the UK EMIR-based requirements 99 are expressed to apply only to transactions between specified types of counterparties, such as transactions between financial counterparties and non-financial counterparties, between financial counterparties and non-financial counterparties above the clearing threshold, and/or between counterparties that are not excluded from the application of UK EMIR. The definitions of financial counterparty and non-financial counterparty are predicated on the counterparty being an undertaking established in the UK.100
In addition, UK EMIR does not apply to transactions with certain excluded counterparties.101 The condition is not based upon the concern that some industry participants may not be able to take advantage of substituted compliance, but, rather, the condition is intended to help ensure that the relevant UK EMIR-based requirements will apply in practice regardless of the 98 See SIFMA 5/3/2021 Letter at 6 and Appendix A part a recommending that the order text of paragraph a13 of the Order require application of the condition if the counterparty to the Covered Entity is not a financial counterparty or nonfinancial counterparty as defined in UK EMIR
articles 28 or 29 respectively, solely because the counterparty is not established in the United Kingdom.
99 See, e.g., UK EMIR RTS article 12 timely confirmation requirements for OTC derivatives contracts concluded between financial counterparties and non-financial counterparties.
100 See UK EMIR article 28 financial counterparties include specified UK financial firms and generally exclude non-UK entities; UK EMIR
article 29 non-financial counterparties include UK undertakings that are not financial counterparties and generally exclude natural persons, central counterparties, and non-UK
entities.
101 See UK EMIR articles 14 and 15 UK EMIR
does not apply to certain public sector and multilateral entities. Several of the multilateral development banks that the commenter mentioned are exempt from the definition of U.S. person in Exchange Act rule 3a713, 17 CFR 240.3a713, and, as a result, transactions between a foreign SBS
Entity and one of those banks without being arranged, negotiated, or executed by U.S. personnel are not subject to most Exchange Act business conduct requirements. See UK EMIR article 15a exempting from UK EMIR multilateral development banks listed in UK CRR article 117;
UK CRR article 117 listed multilateral development banks include, among others, the International Bank for Reconstruction and Development, the InterAmerican Development Bank, the Asian Development Bank, and the African Development Bank; Exchange Act rules 3a713a4iii, a7, a8i, a9 and c; Exchange Act rules 3a67
10a4, a6 and d1, 17 CFR 240.3a6710a4, a6 and d1.

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counterpartys location or status as an undertaking. The condition provides that the Covered Entity must comply with the applicable condition of this Order as if the counterparty were the type of counterparty that would trigger the application of the relevant UK
EMIR-based requirements. If the Covered Entity reasonably determines that its counterparty would be a financial counterparty102 if not for the counterpartys location and/or lack of regulatory authorization in the UK, the condition further requires the Covered Entity to treat the counterparty as if the counterparty were a financial counterparty, rather than as another type of counterparty to which the relevant UK EMIR-based requirements may apply.103 By requiring a Covered Entity to treat its counterparty as a type of counterparty that would trigger the application of the relevant UK EMIRbased requirements, the condition will require the Covered Entity to perform the relevant obligations pursuant to those UK EMIR-based requirements and thus to act in a way that is comparable to Exchange Act requirements.
Accordingly, the Commission is retaining this condition to ensure that a Covered Entity can apply substituted compliance only when it treats its counterparty as a type of counterparty that will trigger the Covered Entitys performance of obligations pursuant to those UK EMIR-based requirements.104
Because each UK EMIR-based requirement applies to different types of counterparties, the Commission is amending the condition to make clear that a Covered Entity must treat its 102 UK EMIR article 28 defines financial counterparty to encompass investment firms, credit institutions, insurers, and certain other types of businesses that have been authorized in accordance with UK law. Under UK EMIR, the distinction between financial counterparties and other types of counterparties such as non-financial counterparties is manifested, inter alia, in connection with confirmation timing standards. See UK EMIR RTS article 12.
103 See para. a13 of the Order. The condition will help clarify that the Covered Entity would be subject to the relevant UK EMIR-based requirements even if the counterparty is not an undertaking such as by virtue of being a natural person, is not established in the EU by virtue of being a U.S.
person or otherwise being established outside the UK, or is excluded from the application of UK
EMIR to its transactions by virtue of being one of the public sector or multilateral entities identified in UK EMIR articles 14 and 5.
104 See para. a13 of the Order. To correct a typographical error in the UK Substituted Compliance Notice and Proposed Order, in paragraph a13 of the Order the Commission is changing the phrase paragraphs b through e of this Order to paragraphs b through f of this Order. This correction is consistent with the description of the proposed condition in the UK
Substituted Compliance Notice and Proposed Order. See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18382.

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