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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices similarityfurther means that the conditions to substituted compliance should encompass all UK requirements that establish comparability with the applicable regulatory outcome, and helps to avoid ambiguity in the application of substituted compliance. It would be inconsistent with the holistic approach to excise relevant requirements and leave only the residual UK provisions that most closely resemble the analogous Exchange Act requirements.347 Moreover, because Exchange Act internal supervision and chief compliance officer requirements serve the purpose of causing SBS
Entities to have systems and follow practices to help ensure they conduct their businesses as required, it would be paradoxical to conclude that an SBS
Entity that fails to implement requisite internal risk management, documentation, capital, and/or margin systems and practices nonetheless may be considered to be following internal supervision and chief compliance officer standards that are sufficient to meet the regulatory outcomes required under the Exchange Act. An internal risk management, documentation, capital, or margin-related failure necessarily constitutes a compliance failure. For these reasons, the Commission believes that these UK
provisions appropriately constitute part of the substituted compliance conditions for internal supervision and chief compliance officer requirements and is retaining the references to these provisions. In reaching this conclusion, the Commission emphasizes the importance of ensuring that substituted compliance is grounded on the comparability of regulatory outcomes.
Retaining conditions of the Order necessary to help produce regulatory outcomes comparable to Exchange Act internal risk management requirements also should address another commenters concern that any substituted compliance determination not weaken the internal supervision and chief compliance officer conditions in the proposed Order.348
The Commission is making two changes to the proposed Orders list of UK requirements to which a Covered Entity must be subject and with which it must comply if it uses substituted compliance for internal supervision and/or chief compliance officer requirements. First, the UK Substituted Compliance Notice and Proposed Order
requested comment on whether the Commission should revise the Order to require compliance with UK provisions that implement CRD articles 93 to 95
which relate to a Covered Entitys remuneration policies.349 The proposed additions were intended to promote compliance goals similar to those of the other UK requirements listed in paragraph d3 of the proposed Order.350 No commenters addressed this issue, and the Commission has determined to add a requirement for the Covered Entity to be subject to and comply with certain provisions of either FCA SYSC 19A in the case of a Covered Entity that is an IFPRU investment firm or FCA SYSC 19D in the case of a Covered Entity that is a UK bank or UK
designated investment firm.351 These provisions together implement CRD
articles 94 and 95 and address additional aspects of a Covered Entitys internal systems for preventing and addressing conflicts of interest related to compensation. The Commission is not adding provisions that implement CRD
article 93, as they relate to remuneration policies for institutions that benefit from exceptional government intervention.
The Commission believes that the UK
provisions implementing CRD articles 94 and 95 are necessary to better promote regulatory outcomes comparable to the relevant Exchange Act requirements on a holistic, outcomes-oriented basis. Second, the Commission is requiring a Covered Entity using substituted compliance for internal supervision and/or chief compliance officer requirements to be subject to and comply with FCA SYSC
4.3A.2R. This requirement implements parts of CRD article 881 and is nearly identical to PRA Senior Management Functions Rule 8.2, which appeared in the proposed Order.352 Including FCA
SYSC 4.3A.2R will ensure that Covered Entities regulated by only the FCA, rather than by the FCA and the PRA
together, will be subject to a requirement similar to PRA Senior Management Functions Rule 8.2. In deciding to make a positive substituted compliance determination for UK
internal supervision and chief compliance officer requirements, the Commission considers that the Orders condition requiring a Covered Entity to be subject to and comply with all of the UK requirements listed in paragraph d3 of the Order help to produce
347 The Commission further believes that those conditions to substituted compliance do not expand the scope of Exchange Act requirements because substituted compliance is an option available to non-U.S. person SBS Entitiesnot a mandate.
348 See Better Markets Letter at 2.

349 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18409.
350 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 18409.
351 See para. d3vi of the Order.
352 See supra note 342 and accompanying text.

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regulatory outcomes comparable to Exchange Act internal supervision and chief compliance officer requirements.
The Commission recognizes that some of the UK requirements related to internal supervision and chief compliance officers follow a more granular approach than the high-level approach of Exchange Act internal supervision and chief compliance officer requirements, but these UK
requirements, taken as a whole, are crafted to promote a Covered Entitys compliance with applicable law and ability to identify and cure instances of noncompliance and manage conflicts of interest. Within the requisite outcomesoriented approach for analyzing comparability, the Commission concludes that a Covered Entitys failure to comply with any of those UK internal supervision and chief compliance officer requirements would be inconsistent with a Covered Entitys obligations under Exchange Act internal supervision and chief compliance officer requirements and that compliance with the full set of UK
requirements listed in paragraph d3
of the Order would promote comparable regulatory outcomes.
2. Compliance Reports A commenter requested that the Commission amend three aspects of the proposed Orders compliance reportrelated condition to a Covered Entitys use of substituted compliance for chief compliance officer requirements.353
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. 354 The Commission details below its consideration of each of these requests.
First, the proposed Order would require all compliance reports required by UK law to include a certification that, under penalty of law, the report is accurate and complete.355 The commenter requested that the Commission revise this certification to conform more closely with the required certification of annual compliance reports pursuant to Exchange Act rule 15Fk1.356 Rule 15Fk1 requires an 353 See SIFMA 5/3/2021 Letter at 2021 and Appendix A part d2ii.
354 See Better Markets Letter at 2.
355 See UK Substituted Compliance Notice and Proposed Order, 86 FR at 85692.
356 See SIFMA 5/3/2021 Letter at 20 and Appendix A part d2 stating that paragraph d2iiB of the Order, consistent with Exchange Act rule 15Fk1c2iiD, should be amended so
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