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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
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Organisational Requirements, PRA
Recordkeeping Rules, PRA Risk Control Rules, and PRA Remuneration Rules generally apply to a Covered Entity that is a CRR firm with respect to activities carried on from a UK
establishment,65 but also apply to activities anywhere in the world in a prudential context, 66 which the PRA
defines to mean when the Covered Entitys activities have, or might reasonably be regarded as likely to have, a negative effect on the Covered Entitys safety and soundness or its ability to continue to meet certain other UK
regulatory tests.67 The Commission cannot, however, determine ex ante whether a Covered Entitys particular activity outside the UK would fall within these limited wider scope provisions. The commenter also did not identify any circumstances that would trigger the limited wider scope of these provisions. Moreover, it is unclear whether any such wider scope even would be relevant in the context of the Order or, if so, how that wider scope would impact the operation of the Order in practice. For these reasons, the Commission is retaining the requirement in paragraph a1 of the Order for the Covered Entity to carry on the relevant activities from an establishment in the UK.68
Other UK requirements listed in paragraphs a2 through a4 of the Order apply to limited activities outside the UK for which a Covered Entity might apply substituted compliance. UK
MiFID Org Reg generally applies to a Covered Entity that is a third country investment firm only when it carries on the relevant security-based swap activity from an establishment in the UK,69 but provisions of UK MiFID Org Reg in some instances can apply to a broader range of activities if the Covered Entity is a MiFID investment firm.
Similarly, FCA PROD 3 and FCA COBS
generally apply to a Covered Entity with respect to activities carried on from an establishment in the UK,70 but also 65 See PRA General Organisational Requirements Rule 1.11; PRA Recordkeeping Rule 1.11; PRA
Risk Control Rule 1.11; see also PRA
Remuneration Rule 1.11a PRA Remuneration Rules apply to a CRR firm in relation to its UK
activities..
66 See PRA General Organisational Requirements Rule 1.13; PRA Recordkeeping Rule 1.13; PRA
Risk Control Rule 1.13; PRA Remuneration Rule 1.1c.
67 See PRA Rulebook Glossary.
68 The Commission also is retaining the same requirement in paragraphs a5 and a6 of the Order, as the UK requirements referenced in those paragraphs apply only to activities carried on from an establishment in the UK.
69 See General Provisions Sourcebook of the FCA
Handbook FCA GEN 2.2.22AR.
70 See FCA PROD 1.3.4R.

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apply to a Covered Entity with respect to certain activities with a client in the UK that are carried on from an establishment outside the UK.71 The Commission is amending the general conditions in paragraphs a2 through a4 of the Order to provide that a Covered Entitys relevant security-based swap activities must be either carried on by the Covered Entity from an establishment in the UK or from any other place that would cause UK MiFID
Org Reg, FCA PROD 3, and/or the relevant provisions of FCA COBS, as applicable, to apply to those activities.
In applying these amended general conditions, a Covered Entity still must satisfy all of the applicable general conditions, as well as the other applicable provisions of the Order, relating to a particular Exchange Act requirement for which it applies substituted compliance. A Covered Entity will satisfy the conditions of the Order only when it is subject to and complies with all of the comparable UK
requirements listed in the relevant provisions of the Order. If any one of these comparable UK requirements is subject to a general condition with a territorial limitation, the relevant security-based swap activity for which the Covered Entity applies substituted compliance would have to satisfy that territorial limitation, even if another of the comparable UK requirements applies to a wider scope of activities. As a result, in these instances a Covered Entity would be able to use substituted compliance only for security-based swap activities that satisfy the territorial limitation.
b. Scope of Substituted Compliance The same commenter requested that the Commission delete, where feasible, references in the Order to territorially limited UK requirements.72 Where these deletions are not feasible, the commenter requested that the Commission confirm that, in relation to entity-level Exchange Act requirements, a Covered Entity may a rely on substituted compliance for its relevant security-based swap activities carried on from an establishment in the UK and b comply with Exchange Act requirements or another applicable substituted compliance order for its relevant security-based swap activities 71 See FCA PROD 1.3.5R1 general UK territorial rule for FCA PROD 3; FCA COBS 4.1.8R general UK territorial rule for FCA COBS 4 citing FCA
COBS 1.1.1R; but see FCA PROD 1.3.52
exclusions from FCA PROD 3 for activities from an establishment outside the UK; FCA COBS 1 Annex 1 Part 2 2.1R exclusions from FCA COBS 4 for activities from an establishment outside the UK.
72 See SIFMA 5/3/2021 Letter at 4.

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carried on from an establishment outside the UK.73 The Commission is addressing here the commenters request for clarification of the availability of substituted compliance for entity-level Exchange Act requirements, and is addressing the commenters various requested deletions below in the relevant parts of this release.74
In the proposed Order, the Commission stated that a Covered Entity applying substituted compliance for one or more entity-level Exchange Act requirements including risk control, capital, margin, internal supervision and chief compliance officer requirements, as well as recordkeeping and reporting requirements other than those linked to counterparty protection requirements would have to apply substituted compliance at an entity level, i.e., to all of its activities subject to that particular Exchange Act requirement.75 By contrast, the Commission stated that a Covered Entity applying substituted compliance for one or more transaction-level Exchange Act requirements including counterparty protection requirements, as well as recordkeeping and reporting requirements linked to them could choose to apply substituted compliance under the proposed Order for some activities and comply directly with Exchange Act requirements for other activities.76 The proposed Order thus would provide substituted compliance for transaction-level Exchange Act requirements in relation to a specific security-based swap, counterparty, recommendation, or communication;
the proposed Order did not include this proviso in relation to substituted compliance for entity-level Exchange Act requirements.77 The Commission proposed this approach in the context of assisting Covered Entities in choosing between applying substituted compliance pursuant to the Order or complying directly with relevant Exchange Act requirements. This approach did not address, and does not 73 See 74 See
SIFMA 5/3/2021 Letter at 4.
infra parts IV.B, V.B, VI.B, VII.B, and
VIII.B.
75 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18384 risk control requirements, 1838687 capital and margin requirements, 1838990 internal supervision and chief compliance officer requirements, 1839596
recordkeeping, reporting, notification, and securities count requirements other than those linked to counterparty protection requirements.
76 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18392 counterparty protection requirements, 18396 recordkeeping and reporting requirements linked to counterparty protection requirements.
77 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 1841320.

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