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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Notices the proposed Order would not provide substituted compliance when a Covered Entity is excused from compliance with relevant foreign provisions, such as, for example, if relevant Swiss requirements do not apply to the security-based swap activities of a branch of a Swiss SBSD
located outside of Switzerland. In that event, the Covered Entity would not be subject to those requirements, and the Covered Entity could not rely on substituted compliance in connection with those activities.22

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2. Additional General Conditions Substituted compliance under the proposed Order would be subject to the following general conditions intended to help ensure the applicability of relevant Swiss requirements. In particular:
Security-based swaps and transactions as derivatives or derivative transactionsFor each condition in paragraphs b through d of this Order that requires the application of, and the Covered Entitys compliance with, provisions of FinMIA
and FMIO, the relevant security-based swaps and security-based swap transactions are derivatives and/or derivative transactions for purposes of FinMIA article 2c, or otherwise are described by the relevant language of that provision.23
Counterparty statusFor each condition in paragraph b through d of this Order that requires the application of, and the Covered Entitys compliance with, the provisions of FinMIA and FMIO, the Covered Entity complies with the applicable conditions of the Order regardless of whether the Covered Entitys counterparty is a counterparty for purposes of FinMIA
article 93, or otherwise is described by the relevant language of that provision.24
Counterparty status as companyFor each condition in paragraph b through d of this Order that requires the application of, and the Covered Entitys compliance with, the provisions of FMIO, the Covered Entity 22 An SBSDs voluntary compliance with the relevant Swiss requirements would not suffice for these purposes. Substituted compliance reflects an alternative means by which an SBSD may comply with applicable requirements under the Exchange Act, and thus mandates that the SBSD be subject to the requirements needed to establish comparability and face consequences arising from any failure to comply with those requirements.
Moreover, the comparability assessment takes into account the effectiveness of the supervisory compliance program administered and the enforcement authority exercised by FINMA, which would not be expected to promote comparable outcomes when compliance merely is voluntary.
23 See para. a1 of the proposed Order.
24 See para. a2 of the proposed Order.

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complies with the applicable conditions of the Order regardless of whether a Covered Entitys counterparty is a company for purposes of FMIO article 77, or otherwise is described by the relevant language of that provision.25
Covered Entity as bankFor each condition in paragraph b through d of this Order that requires the application of, and the Covered Entitys compliance with, the provisions of the BA and BO
and/or other Swiss requirements adopted pursuant to those provisions, the Covered Entity is a bank for purposes of BA article 1a, or otherwise is described by the relevant language of that provision.26
Covered Entity as systemically importantFor each condition in paragraph b through d of this Order that requires the application of, and the Covered Entitys compliance with, the provisions of the FINMA Circular 2017/
1, the Covered Entity is systemically important for purposes of BA article 83, or otherwise is described by the relevant language of that provision.27
Covered Entity as category 1For each condition in paragraph b through d of this Order that requires the application of, and the Covered Entitys compliance with, the provisions of FINMA Circular 2017/1, the Covered Entity is supervised as category 1, as defined in BO articles 22 and 23 and BO Annex 3, or otherwise is described by the relevant language of those provisions.28
Institution-specific approach to operational risk quantificationFor each condition in paragraphs b through d of this Order that requires the application of, and the Covered Entitys compliance with, the provisions of FINMA Circular 2008/21 margins 45
107, the Covered Entity applies the institution-specific approach to quantifying capital requirements for operational risk, as defined in CAO
article 94, or otherwise is described by the relevant language of those provisions, and as approved by FINMA.29
Memorandum of understanding The Commission has an applicable memorandum of understanding or other arrangement with FINMA addressing cooperation with respect of the proposed Order at the time the Covered Entity makes use of substituted compliance.30
25 See
para. a3 of the proposed Order.
para. a4 of the proposed Order.
27 See para. a5 of the proposed Order.
28 See para. a6 of the proposed Order.
29 See para. a7 of the proposed Order.
30 See para. a8 of the proposed Order.
26 See
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Notice of reliance on substituted complianceA Covered Entity must provide notice of its intent to rely on the proposed Order by notifying the Commission in the manner specified on the Commissions website.31 In the notice, the Covered Entity would need to identify each specific substituted compliance determination in the proposed Order for which the Covered Entity intends to apply substituted compliance.32 If a Covered Entity elects not to apply substituted compliance with respect to a specific substituted compliance determination in the proposed Order, it must comply with the Exchange Act requirements subject to that determination. Finally, a Covered Entity must promptly update its notice to the Commission if it intends to modify its reliance on the positive substituted compliance determinations in the proposed Order.33
Notification related to changes in capital categoryCovered Entities with a prudential regulator would need to apply substituted compliance with respect to the requirements of Exchange 31 See
para. a9 of the proposed Order.
the Covered Entity intends to rely on all the substituted compliance determinations in a given paragraph of the proposed Order, it can cite that paragraph in the notice. For example, if the Covered Entity intends to rely on the risk control determinations in paragraph b of the proposed Order, it would indicate in the notice that it is relying on the determinations in paragraph b.
However, if the Covered Entity intends to rely on the internal risk management, trade acknowledgement and verification, and portfolio reconciliation determinations but not the portfolio compression determination, it would need to indicate in the notice that it is relying on paragraphs b13 of the proposed Order. In this case, paragraph b4 of the proposed Order the portfolio compression determination would be excluded from the notice and the Covered Entity would need to comply with the Exchange Act portfolio compression requirements. Further, as discussed below in section VII.B of this notice, the recordkeeping and reporting determinations in the proposed Order have been structured to provide Covered Entities with a high level of flexibility in selecting specific requirements within those rules for which they want to rely on substituted compliance. For example, paragraph d1i of the proposed Order sets forth the Commissions preliminary substituted compliance determinations with respect to the requirements of Exchange Act rule 18a5, 17 CFR 240.18a5. These proposed determinations are set forth in paragraphs d1iA through O. If a Covered Entity intends to rely on some but not all of the determinations, it would need to identify in the notice the specific determinations in this paragraph it intends to rely on e.g., paragraphs d1iA, B, C, D, G, H, I, and O. For any determinations excluded from the notice, the Covered Entity would need to comply with the Exchange Act rule 18a5
requirement.
33 A Covered Entity would modify its reliance on the positive substituted compliance determinations in the proposed Order, and thereby trigger the requirement to update its notice, if it adds or subtracts determinations for which it is applying substituted compliance or completely discontinues its reliance on the proposed Order.
32 If
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