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Federal Register / Vol. 86, No. 155 / Monday, August 16, 2021 / Notices
representative of the Commission legible, true, complete, and current copies of those records of the firm that these entities are required to preserve under Exchange Act rule 18a6 which would include records for which a positive substituted compliance determination is being made with respect to Exchange Act rule 18a6
under the Order, or any other records of the firm that are subject to examination or required to be made or maintained pursuant to Exchange Act section 15F that are requested by a representative of the Commission.
8. English Translations The proposed Order provides that to the extent documents are not prepared in the English language, Covered Entities would need to furnish to a representative of the Commission upon request an English translation of any record, report, or notification of the Covered Entity that is required to be made, preserved, filed, or subject to examination pursuant to Exchange Act section 15F or the proposed Order.108
This condition would be designed to addresses difficulties that Commission examinations staff would have examining Covered Entities that furnish documents in a foreign language. The English translations would need to be provided promptly. This condition is included in the French and UK
Substituted Compliance Orders.109

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VIII. Additional Considerations Regarding Supervisory and Enforcement Effectiveness in Switzerland A. General Considerations As noted above, Exchange Act rule 3a716 provides that the Commissions assessment of the comparability of the requirements of the foreign financial regulatory system must account for the effectiveness of the supervisory program administered, and the enforcement authority exercised by the foreign financial regulatory authority. This prerequisite accounts for the understanding that substituted compliance determinations should reflect the reality of the foreign regulatory framework, in that rules that appear high-quality on paper nonetheless should not form the basis for substituted compliance ifin practicemarket participants are permitted to fall short of their regulatory obligations. This prerequisite, however, also recognizes that differences among 108 See
para. d7 of the proposed Order.
French Substituted Compliance Order, 86
FR at 41651; UK Substituted Compliance Order, 86
FR at 43361.
109 See
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the supervisory and enforcement regimes should not be assumed to reflect flaws in one regime or another.110
In connection with these considerations, the Swiss Application includes information regarding the Swiss supervisory and enforcement framework applicable to derivatives markets and market participants. This includes information regarding the supervisory and enforcement authority afforded to FINMA to promote compliance with applicable requirements, applicable supervisory and enforcement tools and capabilities, consequences of non-compliance, and the application of FINMAs supervisory and enforcement practices in the crossborder context.111 After review of this information, the Commission preliminarily believes that the framework is reasonably designed to promote compliance with the laws where substituted compliance has been requested.
In preliminarily concluding that the relevant supervisory and enforcement considerations are consistent with substituted compliance, the Commission particularly has considered the following factors:
B. Supervisory Framework in Switzerland FINMA is the supervisor for the Swiss Firms, and all Covered Entities that will register as security-based swap dealers in the United States. FINMA has the ability to request records needed for supervision from firms through the supervisory process. Every four years, FINMAs Board of Directors publishes strategic goals that serve as guidelines for FINMAs operational management.
Each year, FINMAs Board of Directors uses the strategic goals to define the annual supervisory priorities, which are incorporated into the annual objectives for individual organizational units and employees.
FINMA assigns prudentially supervised banks to five supervisory categories. Category 1 firms receive the most supervisory attention and the staff has been told that the Swiss Firms are Category 1 firms. FINMA has multiple supervisors dedicated to each Category 1 firm who are in constant dialogue with the firms, including weekly contact phone calls, emails and quarterly meetings with senior management.
Supervisors review the various reports filed by the firms, including monthly 110 See generally Business Conduct Adopting Release, 81 FR at 30079.
111 Staff also spoke with FINMA supervisors and reviewed information on FINMAs website.

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reports related to AML and risk as well as daily liquidity reports. The supervisors also work with crossdivisional teams, who add expertise to the supervision team covering specific aspects of the Covered Entity such as risk management, AML, and compliance/conduct.
Audit firms play an important role in FINMAs supervisory activities, primarily by conducting regulatory audits to assess firms compliance with supervisory requirements, and whether they can continue to adhere to these requirements in the future. For Category 1 firms, FINMA defines the audit strategy for each firm and audit firms are engaged by the bank to conduct the regulatory audit annually in line with FINMAs specifications. The audit reports are submitted directly to FINMA, and include a risk analysis of each firm. FINMA can also appoint mandataries mandated auditors appointed to assist in ongoing supervision by conducting audits at supervised institutions to assist it in performing its supervisory duties.
Mandataries, which may be deployed for urgent matters, focus on a specific situation or circumstances at an individual firm.
On an annual basis, FINMA conducts a formal assessment of the Swiss Firms including assigning a risk rating taking into account internal audit reports, external audit reports, annual reports, and FINMAs view of regulatory, economic, and business developments.
FINMA sends the firms an annual assessment letter detailing the risk rating, any weaknesses that have been identified with actions for the firms to take, and the supervisory priorities for the year. Firms are typically required to submit regular progress reports of corrective action for any issues identified and provide evidence of closure.
FINMA conducts multiple onsite reviews of Category 1 firms each year, some of which relate to the derivatives business. FINMA conducts two types of reviews: 1 Supervisory reviews during which FINMA obtains information on conceptual issues but also reviews and assesses implementation; and 2 deep dives, which are narrower in scope.
When FINMA identifies findings during an onsite examination, FINMA provides the firm a summary report or feedback letter that contains key findings. FINMA
may direct the firm to develop a mitigation plan, reviews the plan for adequacy, and tracks the progress of the plan until FINMA is satisfied with the corrective action taken. In general, firms are given a certain period of time within which they have to mitigate the
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