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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
Similarly, the commenter stated that the Commission should delete from the Order the provisions of FSMA and FCA
COND listed in paragraph d3vii of the proposed Order that apply to firms regulated only by the FCA, rather than to firms dually regulated by both the FCA and the PRA.339 The commenter again stated that it expects only dually regulated banks and PRA-designated investment firms will register as SBS
Entities.340 The proposed Order would not require a Covered Entity that is a dually regulated firm to be subject to and comply with these provisions.
Rather, paragraph d3vii of the proposed Order would require the Covered Entity to be subject to and comply with either the provisions of FSMA and FCA COND that apply to solo-regulated firms or analogous provisions that apply to dually regulated firms. Accordingly, the Commission is retaining the references to these provisions.
The commenter also recommended that the Commission delete from the Order the following provisions because they do not correspond to and go beyond Exchange Act internal supervision and chief compliance officer requirements: 341
FCA CASS 6.2.1R and 7.12.1R, which implement MiFID articles 168
and 9, require a Covered Entity to make adequate arrangements to safeguard client assets and client money held by the Covered Entity and to prevent the use of client assets or client money for the Covered Entitys own account. FCA CASS 7.11.1R, which implements MiFID article 1610, prohibits a Covered Entity from entering into, as part of its implementation of organizational arrangements, arrangements for a retail client to transfer full ownership of money to the Covered Entity as collateral for the clients obligations to the Covered Entity.
PRA Internal Capital Adequacy Assessment Rules 4.1 through 4.4, 5.1, 6.1, 7.1, 7.2, 8.1 through 8.5, 9.1, 10.1, 10.2, and 11.1 through 11.3 and PRA
Internal Liquidity Adequacy Assessment Rules 3.1 through 3.3, 4.1, 7.2, 8.1, 9.2, 11.1, 11.2, 11.4, 12.1, 12.3, and 12.4, which implement CRD articles 79 through 87, are described in part IV.B.1.
FCA SYSC 4.1.1R1, 4.1.2R, 7.1.4R, 7.1.17R, 7.1.18R, 7.1.18BR, 7.1.19R, 7.1.20R, 7.1.21R, 7.1.22R, and 19D.2.1R, 339 See SIFMA 5/3/2021 Letter Appendix A part d3.
340 See SIFMA 5/3/2021 Letter Appendix A part d3.
341 See SIFMA 5/3/2021 Letter Appendix A part d3.

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PRA Remuneration Rule 6.2, and PRA
Risk Control Rules 2.3, 2.7, and 3.1
through 3.5, which implement parts of CRD articles 74 and 76, are described in part IV.B.1.
FCA SYSC 4.3A.1R, which implements parts of CRD article 881, requires a Covered Entity to ensure that the management body defines, oversees, and is accountable for the implementation of governance arrangements that ensure effective and prudent management of the Covered Entity, including segregation of duties and prevention of conflicts of interest.
PRA Senior Management Functions Rule 8.2, which implements CRD article 881e, requires a Covered Entity to ensure that the same person does not serve as both the chair of the Covered Entitys governing body and the Covered Entitys chief executive officer.342
FCA SYSC 4.3A.3R, which implements parts of CRD article 911, 2, 7, and 8, requires members of a Covered Entitys management body to have certain qualifications to be able to perform their duties, understand the Covered Entitys activities and main risks, effectively assess and challenge senior management decisions, and effectively oversee and monitor management decision-making.
FCA SYSC 4.3A.4R, which implements parts of CRD article 919, requires a Covered Entity to devote adequate human and financial resources to the induction and training of members of the management body.
FCA SYSC 9.1.1AR and PRA
Record Keeping Rule 2.1, which implement MiFID article 166, require a Covered Entity to arrange to keep business records sufficient to assess its compliance with applicable UK legal requirements.
FCA SYSC 10A.1.6R, 10A.1.8R, and 10A.1.11R, which implement MiFID
article 167, require a Covered Entity to take all reasonable steps to make and keep records of telephone and electronic communications and to notify clients that telephone communications will be recorded.
FCA SYSC 19D.3.1R, 19D.3.3R, 19D.3.7R through 19D.3.11R, 19D.3.15R, 19D.3.17R, and 19D.3.37R and PRA
Remuneration Rules 3.1, 4.2, 5.1, 6.2, 8.2, and 15.2, which implement parts of CRD article 92, address implementation of a Covered Entitys remuneration policy in a manner that avoids conflicts of interest and that is consistent with sound and effective risk management, as 342 To ensure that Covered Entities regulated only by the FCA and not the PRA must be subject to and comply with a similar requirement, the Commission is adding FCA SYSC 4.3A.2R to the list of UK
requirements in paragraph d3 of the Order.

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well as internal supervision and review of this implementation for compliance with the policies and procedures adopted by the management body.
PRA Fundamental Rule 5,343 which contains provisions similar to MiFID
articles 164 and 5, requires a Covered Entity to have effective risk strategies and risk management systems.
UK CRR articles 286 through 288
and 293 344 are described in part IV.B.1.
UK EMIR Margin RTS article 2 345 is described in part IV.B.1.
UK MiFID Org Reg articles 23,346
27, 30 through 32, 35, 36, and 72
through 76 and Annex IV address a Covered Entitys policies and procedures governing risk management, remuneration, and documentation of compliance, the Covered Entitys supervision of and responsibility for outsourced functions and documentation of conflicts of interest relevant to the Covered Entitys compliance with conflict of interest requirements.
Taken as a whole, these UK
requirements help to produce regulatory outcomes comparable to Exchange Act requirements to establish internal systems to supervise the Covered Entitys business and associated persons, obtain information necessary to perform regulated functions in its capacity as an SBS Entity and address conflicts of interest, as well as Exchange Act requirements to submit an annual compliance report to the Commission and to ensure that the chief compliance officers removal and compensation is subject to approval by a majority of the board of directors. The comparability analysis requires consideration of Exchange Act requirements as a whole against analogous UK requirements as a whole, recognizing that U.S. and nonU.S. regimes may follow materially different approaches in terms of specificity and technical content. This as a whole approachwhich the Commission is following in lieu of requiring requirement-by-requirement 343 The commenter stated that these requirements are more appropriately addressed in connection with substituted compliance for internal risk management requirements. As discussed below, the Commission believes that these UK requirements are relevant to substituted compliance for Exchange Act internal supervision and chief compliance officer requirements.
344 The commenter also stated that these requirements are more appropriately addressed in connection with substituted compliance for capital and margin requirements. See SIFMA 5/3/2021
Letter Appendix A part d3. As discussed below, the Commission believes that these UK
requirements are relevant to substituted compliance for Exchange Act internal supervision and chief compliance officer requirements.
345 See supra note 344.
346 See supra note 343.

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