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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices management systems adequate for managing its day-to-day business. In addition, Exchange Act rule 15Fh 3h2iiiI 141 requires an SBS Entity to establish and maintain a system to supervise, and to diligently supervise, its business and the activities of its associated persons. This system of internal supervision must include, in relevant part, the establishment, maintenance, and enforcement of written policies and procedures reasonably designed, taking into consideration the nature of the SBS
Entitys business, to comply with its duty under Exchange Act section 15Fj2 to establish an internal risk management system.
The Commission continues to believe that UK internal risk management requirements promote regulatory outcomes comparable to Exchange Act requirements, and is making a positive substituted compliance determination for internal risk management requirements that is consistent with the proposed Order except for the addition of certain risk management requirements. A commenter requested that the Commission not require a Covered Entity to be subject to and comply with certain of the UK
requirements specified in the proposed Order.142 By contrast, another commenter stated that, if the Commission makes a positive substituted compliance determination, it must at a minimum ensure that the conditions in the proposed Order are applied with full force and without exceptions or dilution. 143 The Commission details below its consideration of comments received.
A commenter stated that the Commission should delete from the Order the provisions of FCA IFPRU, FCA BIPRU, and FCA SYSC 19A listed in paragraphs b1i and b1iv of the proposed Order. These provisions apply only to IFPRU investment firms, and the commenter stated that it expects only banks and PRA-designated investment firms will register as SBS
Entities.144 For the reasons described in part III.B.2.e above, the Commission is retaining the references to these provisions.
Similarly, the commenter stated that the Commission should delete from the Order the provisions of FSMA and FCA
COND listed in paragraph b1v of the proposed Order that apply to firms 141 17

CFR 240.15Fh3h2iiiI.
SIFMA 5/3/2021 Letter at 2021 and Appendix A part d3.
143 See Better Markets Letter at 2.
144 See SIFMA 5/3/2021 Letter Appendix A part b1.
142 See
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regulated only by the FCA, rather than to firms dually regulated by both the FCA and the PRA.145 The commenter again stated that it expects only dually regulated banks and PRA-designated investment firms will register as SBS
Entities.146 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 b1v 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 risk management requirements: 147
PRA Internal Capital Adequacy Assessment Rules 4.1 through 4.4, which implement CRD article 79, address a Covered Entitys management of credit and counterparty risk. PRA
Internal Capital Adequacy Assessment Rule 5.1, which implements CRD article 80, addresses a Covered Entitys management of residual risk. PRA
Internal Capital Adequacy Assessment Rule 6.1, which implements CRD article 81, addresses a Covered Entitys management of concentration risk. PRA
Internal Capital Adequacy Assessment Rules 7.1 and 7.2, which implement CRD article 82, address a Covered Entitys management of securitization risk. PRA Internal Capital Adequacy Assessment Rules 8.1 through 8.5, which implement CRD article 83, address a Covered Entitys management of market risk. PRA Internal Capital Adequacy Assessment Rule 9.1, which implements CRD article 84, addresses a Covered Entitys management of interest rate risk. PRA Internal Capital Adequacy Assessment Rules 10.1 and 10.2, which implement CRD article 85, address a Covered Entitys management of operational risk. 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 article 86, address a Covered Entitys management of liquidity risk and funding risk. PRA Internal Capital Adequacy Assessment Rules 11.1
145 See SIFMA 5/3/2021 Letter Appendix A part b1.
146 See SIFMA 5/3/2021 Letter Appendix A part b1 n.2.
147 See SIFMA 5/3/2021 Letter Appendix A part b1.

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through 11.3, which implement CRD
article 87, address a Covered Entitys management of risk from excessive leverage.
FCA SYSC 4.1.1R, which implements a portion of CRD article 741, requires a Covered Entity to have robust governance arrangements, including effective processes to identify, manage, monitor, and report the risks it is or might be exposed to. FCA SYSC
4.1.2R and PRA General Organisational Requirement Rule 2.2, which implement CRD article 742, requires these arrangements and processes to be comprehensive and proportionate to the nature, scale, and complexity of the risks of the Covered Entitys business and activities. FCA SYSC 7.1.4R, 7.1.17R, 7.1.18R, 7.1.18BR, 7.1.19R, 7.1.20R, 7.1.21R, and 7.1.22R and PRA
Risk Control Rules 2.3, 2.7, and 3.1
through 3.5, which implement CRD
article 76, address the Covered Entitys internal governance structures for risk management.
FCA SYSC 19D.2.1R and PRA
Remuneration Rule 6.2 require a Covered Entity to establish and maintain a remuneration policy, practices, and procedures that are consistent with and that promote sound and effective risk management.148
FSMA schedule 6 part 3C and FCA
COND 2.4.1C, which address issues similar to MiFID articles 164 and 5, require the Covered Entitys nonfinancial resources to be appropriate in relation to its regulated activities, taking into account factors such as the nature and scale of the business, the risks to the continuity of the Covered Entitys services, the Covered Entitys membership in a group or any effect that membership may have, the skills and experience of those managing the Covered Entitys affairs, and whether the Covered Entitys non-financial resources are sufficient to enable it to comply with applicable requirements of the FCA. FSMA schedule 6 part 5D, which also addresses issues similar to MiFID articles 164 and 5, requires the Covered Entitys business to be conducted in a prudent manner, which requires the Covered Entity to have appropriate financial and non-financial resources, taking into account factors such as the nature and complexity of the 148 The FCA also recommended that the Commission delete from the Order the requirement for a Covered Entity to be subject to and comply with provisions of FCA SYSC 19D and PRA
Remuneration Rule 6.2 along with corollary provisions of FCA SYSC 19A applicable to IFPRU
firms as a condition to substituted compliance for internal risk management requirements. See FCA
Comments stating that these provisions appear in excess of what is strictly required for substituted compliance with the US provision.

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