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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices 2. Commenter Views and Final Provisions One commenter requested changes to the proposed Covered Entity definition, to reflect that under the French framework the requisite authorizations to provide credit and investment services are provided by the ACPR, in conjunction with the AMFs approval of the provision of investment services.62 In addition, as described in the French Substituted Compliance Notice and Proposed Order, and confirmed by the AMF,63 the AMF uses a risk-based approach to supervision whereby investment firms are categorized within four Tiers. Tier 1
firms receive the most supervisory attention and the staff has been told that all firms that use substituted compliance will be treated as Tier 1
firms.64 The Commission has revised the Order in response to the comment and to reflect the AMFs approach.65
B. Additional General Conditions 1. Proposed Approach The proposed Order incorporated a number of additional general conditions and other prerequisites, to help ensure that the relevant French and EU
requirements that form the basis for substituted compliance in practice will apply to the Covered Entitys securitybased swap business and activities, and to promote the Commissions oversight over entities that avail themselves of substituted compliance:
Subject to and Complies with applicability conditionFor each relevant section of the proposed Order, a positive substituted compliance determination would be predicated on the entity being subject to and complying with the applicable French and EU requirements needed to establish comparability.66
MiFID investment services or activitiesThe Covered Entitys 62 See
SIFMA Letter II at Appendix A.
Memorandum, dated June 10, 2021, from Patrice Aguesse of the French AMF.
64 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85735.
65 See para. g1iii of the Order providing that a Covered Entity in part means an investment firm authorized by the ACPR to provide investment services or perform investment activities in the French Republic, or a credit institution authorized by the ACPR, after approval by the AMF of its program of operations to provide investment services or perform investment activities in the French Republic, and supervised by the AMF under its Tier 1 framework.
66 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85723. The Commission stated, as an example, that this proposed condition would not be satisfied when the comparable French or EU requirements would not apply to the securitybased swap activities of a third-country branch of a French SBS Entity.

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security-based swap activities would have to constitute investment services or activities for purposes of applicable provisions 67 under MiFID, MFC and related EU and French requirements, and must fall within the scope of the firms authorization from the AMF or from the ACPR after approval by the AMF of the firms program of operations.68
Counterparties as MiFID clients The Covered Entitys counterparties or potential counterparties would have to be clients or potential clients for purposes of MiFID, provisions under MFC that implement MiFID and/or other EU and French requirements adopted pursuant to those provisions.69
MiFID financial instruments The relevant security-based swaps would have to be financial instruments for purposes of applicable provisions under MiFID, MFC and related EU and French requirements.70
CRD institutionsThe Covered Entity would have to be an institution for purposes of applicable provisions under CRD, MFC, CRR and related EU
and French requirements.71
67 Under this condition, a Covered Entitys security-based swap activities must constitute investment services or activities only to the extent that the relevant part of the Order requires the Covered Entity to be subject to and comply with a provision of MiFID, provisions under MFC that implement MiFID and related EU and French requirements. If the relevant part of the Order does not require the Covered Entity to be subject to and comply with one of those provisions, then the Covered Entitys security-based swap activities do not have to constitute investment services or activities to be able to use substituted compliance under that part of the Order.
68 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85723. The EUs Markets in Financial Instruments Directive MiFID, Directive 2014/65/EU, has been implemented in France as part of article L. 511 to the French Monetary and Financial CodeCode monetaire et financier MFC. MiFID and MFC address, inter alia, organizational, compliance and conduct requirements applicable to nonbank investment firms. In significant part, those requirements also apply to credit institutions that provide investment services or perform investment activities.
Commission Delegated Regulation EU 2017/565
MiFID Org Reg in part supplements MiFID with respect to organizational requirements for firms.
The Markets in Financial Instruments Regulation MiFIR, Regulation EU 648/2012, generally addresses trading venues and transparency.
Commission Delegated Directive EU 2017/593
MiFID Delegated Directive in part supplements MiFID with regard to safeguarding client property, and in France is implemented in relevant part by the Reglement General de LAutorite des Marches Financiers AMF General Regulation. Directive EU 2015/849 MLD addresses requirements on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and in France is implemented by article L. 561 to the MFC.
69 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85723.
70 Id.
71 Id. The EUs Capital Requirements Directive IV
CRD, Directive 2013/36/EU has been adopted in
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Memoranda of understanding Consistent with the requirements of rule 3a716 and the Commissions need for access to information regarding registered entities, substituted compliance under the proposed Order would be conditioned on the Commission having applicable memoranda of understanding or other arrangements in place with the French Authorities and with the ECB, addressing cooperation with respect to the Order at the time the Covered Entity makes use of substituted compliance.72
Notice of reliance on substituted complianceTo assist the Commissions oversight of firms that avail themselves of substituted compliance, a Covered Entity relying on the substituted compliance order would have to provide notice of its intent to rely on the Order by notifying the Commission in writing.73
When the Commission reopened the comment period and addressed the possible removal of certain MiFIDrelated conditions, the Commission also discussed the possibility of adding two new EMIR-related conditions related to counterparty status under EMIR and related to products subject to the European Market Infrastructure Regulation EMIR, to satisfy the prerequisites to substituted France as part of article L. 533 to the MFC, and sets forth prudential requirements and certain related requirements applicable to credit institutions and certain nonbank investment firms. Certain CRD
requirements regarding reporting obligations have been incorporated into French law as part of articles L. 511 and L. 634 to the MFC. The Capital Requirements Regulation CRR, Regulation EU
575/2013, further addresses prudential requirements and related recordkeeping requirements for credit institutions and certain investment firms. Commission Implementing Regulation EU 680/2014 CRR Reporting ITS
sets forth implementing technical standards regarding supervisory reporting. Pursuant to amendments that will become effective in June 2021, the requirements of CRD and the CRR will apply to credit institutions and to certain nonbank undertakings that carry on activities involving dealing, portfolio management, investment advice and underwriting/placing that meet specified thresholds e.g., consolidated assets of 30 billion or more. See generally Investment Firms Regulation IFR, Regulation EU 2019/2033, art.
62 amending certain definitions in the CRR.
72 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85723. The Commission, AMF and ACPR have entered into a memorandum of understanding to address substituted compliance cooperation. The Commission and the ECB are also in the process of developing a memorandum of understanding or other arrangement to address cooperation matters related to substituted compliance. See notes 1719, supra. Consistent with the Order, Covered Entities must ensure that this memorandum of understanding remains in place at the time the Covered Entity relies on substituted compliance.
73 French Substituted Compliance Notice and Proposed Order, 85 FR at 85723.

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