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Federal Register / Vol. 86, No. 149 / Friday, August 6, 2021 / Notices
market participants. The Commission believes these provisions are relevant to Exchange Act rules 18a7c, d, e, f, g, and h. Accordingly, the Commission is not deleting references to these UK requirements from the Orders list of UK requirements comparable to Exchange Act rules 18a7c, d, e, f, g, and h and Exchange Act rule 18a 7j.
The commenter recommended deleting from paragraph f3ivA
reference to Capital Requirements 2013
Regulation 24, reasoning that this provision does not impose requirements directly on firms. The Commission agrees with the commenters reasoning and, accordingly, is removing reference to this requirement from the Orders list of UK requirements comparable to Exchange Act rules 18a7c, d, e, f, g, and h and Exchange Act rule 18a 7j. However, the FCA Application cites regulation 24 of the Capital Requirements Country-by-Country Reporting Regulations 2013 as relevant and which the Commission understands imposes reporting obligations directly on firms. As a result, the Commission is including reference to this requirement in the Orders list of UK requirements comparable to Exchange Act rule 18a 7c, d, e, f, g, and h and Exchange Act rule 18a7j.488

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d. Exchange Act Rule 18a8
The commenter recommended deleting from paragraphs f4iA1, f4iB, f4iC1, and f4iD1 references to FCA SUP
15.3.12G and 15.3.14G, reasoning that these provisions are guidance. The Commission agrees. Accordingly, the removing reference to these requirements from the Orders list of UK
requirements comparable to Exchange Act rule 18a8a1i, a1ii, b1, b2, b4, c, d, e, and h.489
The commenter recommended deleting from paragraphs f4iA1, f4iB, f4iC1, and f4iD1 references to: FCA SUP
15.3.15R, 15.3.17R, 15.3.21R; PRA
Notifications Rules 2.6, 2.8, and 2.9;
FCA CASS 6.657R, 7.15.33R, and Schedule 2; FCA SYSC 18.6.1R and 18.6.4G; and PRA General Organisational Requirements 2A.2, 2A.12, and 2A.3 to 2A.6. The commenter reasoned that these provisions do not correspond to, and go 488 Compare para. f3ivA of the UK
Substituted Compliance Notice and Proposed Order, with para. f3ivA of the Order.
489 Compare paras. f4iA1, f4iB, f4iC1, and f4iD1 of the UK
Substituted Compliance Notice and Proposed Order, with paras. f4iA1, f4iB, f4iC1, and f4iD1 of the Order.

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beyond, the requirements of Exchange Act rule 18a8a1i, a1ii, b1, b2, b4, c, d, e, and h.
However, the FCA Application states that these provisions provide for a comparable regulatory outcome to the SEC notice requirements as these provisions require a CRR firm to notify the FCA immediately if the firm becomes aware of, or has information that reasonably suggests, that specified matters have occurred, may have occurred, or may occur in the foreseeable future. Additionally, specific notification obligations apply for breaches of requirements related to client money and assets, and with respect to civil, criminal, or disciplinary proceedings, fraud, errors, or other regularities, and insolvency, bankruptcy, and winding up.
Furthermore, CRR firms must have procedures in place for employees to report a breach of, among other things, any rule, as well as appropriate arrangements for individuals, including employees, to disclose reportable concerns internally.490 In practice, these provisions establish reporting mechanisms that will result in regulators being notified of events relevant to the disclosures required under rule 18a8. Accordingly, the Commission is not deleting references to this UK requirement from the Orders list of UK requirements comparable to Exchange Act rule 18a8a1i, a1ii, b1, b2, b4, c, d, e, and h.
e. Exchange Act Rule 18a9
The commenter recommends deleting from paragraph f51 references to FCA CASS 6.2.1R, 6.2.2R, 6.3.4A1R, 6.3.6AR, 6.6.2R, 6.6.3R, 6.6.33G, 6.6.34R, 6.6.47G, 6.6.5G, 6.6.8R, 7.12.1R, 7.12.2R, 7.13.12R, 7.13.32R3, 7.13.33R3, 7.15.2R, 7.15.5R, 7.15.9R, 7.15.3R, 7.15.8R, 7.15.20R, 7.15.21G, 10.1.2G, 10.1.3R, 10.1.7, and 10.1.9E.
The commenter also recommended deleting references to UK MiFID Org Reg articles 74 and 75, and to UK EMIR
RTS article 12. The commenter reasoned that these provisions do not correspond to, and go beyond, the requirements of Exchange act rule 18a9. With respect to FCA CASS 7.12R, 7.12.2R, 7.13.12R, 7.13.32R3, 7.13.33R3, 7.15.2R, 7.15.5R, 7.15.9R, 7.15.3R, 7.15.8R, 7.15.20R, and 7.15.21G the Commission agrees. These provisions relate to treatment of client money, and not the holding of client financial instruments.
Accordingly, the Commission is removing references to these requirements from the Orders list of UK
490 See
PO 00000

FCA Application at 18185.

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requirements comparable to Exchange Act rule 18a9. Additionally, the Commission is removing references to FCA CASS 6.6.33G, 6.6.47G, and 6.6.5G
as these provisions are non-binding guidance.491
With respect to the remaining provisions, the Commission disagrees.
The FCA Applications states that, pursuant to FCA CASS 6.2.1R, firms holding financial instruments belonging to clients must make adequate arrangements to safeguard the ownership rights of clients and to prevent the use of a clients financial instruments on own account except with express consent of the client. To that end, the FCA Application states that the remaining provisions require investment firms to, among other things, maintain records enabling the firm to distinguish client assets from the firms assets, including maintaining a clientspecific safe custody asset record, and conduct on a regular basis reconciliations between internal accounts and records and those of any third-parties by whom client assets are held. Additionally, firms must ensure that client financial instruments deposited with third-party are identifiable separately from those of the firm and the third-party, and must minimize risk of loss of client assets.
Moreover, the remaining provisions also require that checks and reconciliations must be carried out by a person who is independent of the production or maintenance of the records to be checked and/or reconciled, and must record any liens or rights of set-off against so that ownership is clear. Firms are also required, pursuant to the remaining provisions, to keep any internal records and accounts of client assets separate from any records the firm obtains from any third parties, and must also create specified records regarding each record check and reconciliation. Firms are required under the cited provision to keep detailed records in relation to every client order and decision to deal, and must also, with respect to verifying open transactions, comply with certain confirmation and portfolio reconciliation requirements for uncleared OTC derivatives contracts.
Finally, firms must maintain a client asset resolution pack that can be used to achieve a timely return of client assets in a resolution scenario, as well as internal and external client asset reconciliations that must be available or retrievable within prescribed time 491 Compare para. f51 of the UK Substituted Compliance Notice and Proposed Order, with para.
f51 of the Order.

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