Order Granting Conditional Substituted Compliance in Connection With Certain Requirements Applicable to Non-U.S. Security-Based Swap Dealers and Major Security-Based Swap Participants Subject to Regulation in the Kingdom of Spain
| Published date | 28 October 2021 |
| Citation | 86 FR 59776 |
| Record Number | 2021-23444 |
| Section | Notices |
| Court | Securities And Exchange Commission |
Federal Register, Volume 86 Issue 206 (Thursday, October 28, 2021)
[Federal Register Volume 86, Number 206 (Thursday, October 28, 2021)]
[Notices]
[Pages 59776-59797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23444]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93412; File No. S7-09-21]
Order Granting Conditional Substituted Compliance in Connection
With Certain Requirements Applicable to Non-U.S. Security-Based Swap
Dealers and Major Security-Based Swap Participants Subject to
Regulation in the Kingdom of Spain
October 22, 2021.
I. Overview
The Spanish Comisi[oacute]n Nacional del Mercado de Valores
(``CNMV'') has submitted a ``substituted compliance'' application
requesting that the Securities and Exchange Commission (``Commission'')
determine, pursuant to the Securities Exchange Act of 1934 (``Exchange
Act'') rule 3a71-6,\1\ that security-based swap dealers and major
security-based swap participants (``SBS Entities'') subject to
regulation in the Kingdom of Spain (``Spain'') conditionally may
satisfy requirements under the Exchange Act by complying with
comparable Spanish and European Union (``EU'') requirements.\2\ The
CNMV sought substituted compliance in connection with certain Exchange
Act requirements related to risk control, internal supervision, chief
compliance officer, antitrust, counterparty protection, recordkeeping,
reporting, and notification.\3\ The CNMV Application incorporated
comparability analyses between the relevant requirements in Exchange
Act section 15F \4\ and the rules and regulations thereunder and
applicable Spanish and EU law, as well as information regarding Spanish
and EU supervisory and enforcement frameworks.
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\1\ 17 CFR 240.3a71-6.
\2\ See Letter from Rodrigo Buenaventura, Chair, CNMV, dated
August 20, 2021 (``CNMV Application''). The CNMV Application is
available on the Commission's website at: https://www.sec.gov/page/exchange-act-substituted-compliance-and-listed-jurisidction-applications-security-based-swap.
\3\ Risk control requirements include requirements related to
internal risk management, trade acknowledgement and verification,
portfolio reconciliation and dispute resolution, portfolio
compression, and trading relationship documentation; internal
supervision, chief compliance officer, and antittrust requirements
include requirements related to diligent supervision, conflicts of
interest, information gathering, chief compliance officers, and
antitrust considerations; counterparty protection requirements
include requirements related to disclosure of material risks and
characteristics, disclosure of material incentives or conflicts of
interest, ``know your counterparty,'' suitability of
recommendations, fair and balanced communications, disclosure of
daily marks, and disclosure of clearing rights; and recordkeeping,
reporting, and notification requirements include requirements
related to making and keeping current certain prescribed records,
preservation of records, reporting, and notificiation.
\4\ 15 U.S.C. 78o-10.
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On August 20, 2021, the Commission issued a notice of the CNMV
Application, accompanied by a proposed order to grant substituted
compliance with conditions in connection with the CNMV Application
(``proposed Order'').\5\ The proposed Order incorporated a number of
conditions to tailor the scope of substituted compliance consistent
with the prerequisite that relevant Spanish and EU requirements produce
regulatory outcomes that are comparable to relevant requirements under
the Exchange Act.
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\5\ See Exchange Act Release No. 92716 (Aug. 20, 2021), 86 FR
47668 (Aug. 26, 2021) (``Spanish Substituted Compliance Notice and
Proposed Order'').
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As discussed below, the Commission is adopting a final order
(``Order'') that has been modified from the proposal in certain
respects to address commenter concerns and to make clarifying changes.
II. Substituted Compliance Framework and Prerequisites
A. Substituted Compliance Framework and Purpose
As the Commission has discussed previously,\6\ Exchange Act rule
3a71-6 provides a framework whereby non-U.S. SBS Entities may satisfy
certain requirements under Exchange Act section 15F by complying with
comparable regulatory requirements of a foreign jurisdiction.\7\
Because substituted compliance does not constitute exemptive relief,
but instead provides an alternative method by which non-U.S. SBS
Entities may comply with applicable Exchange Act requirements, the non-
U.S. SBS Entities would remain subject to the relevant requirements
under section 15F. The Commission accordingly will retain the authority
to inspect, examine, and supervise those SBS Entities' compliance and
take enforcement action as appropriate. Under the substituted
compliance framework, failure to comply with the applicable foreign
requirements and other conditions to a substituted compliance order
would lead to a violation of the applicable requirements under the
Exchange Act and potential enforcement action by the Commission (as
opposed to automatic revocation of the substituted compliance order).
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\6\ See, e.g., Exchange Act Release No. 90378 (Nov. 9, 2020), 85
FR 72726 (Nov. 13, 2020) (``German Substituted Compliance Notice and
Proposed Order''); Exchange Act Release No. 90765 (Dec. 22, 2020),
85 FR 85686 (Dec. 29, 2020) (``German Substituted Compliance
Order'') Exchange Act Release No. 92647 (Aug. 12, 2021), 86 FR 46500
(Aug. 18, 2021) (``German Substituted Compliance Notice and Proposed
Amended Order''); Exchange Act Release No. 93411 (Oct. 22, 2021)
(``German Amended Substituted Compliance Order''); Exchange Act
Release No. 90766 (Dec. 22, 2020), 85 FR 85720 (Dec. 29, 2020)
(``French Substituted Compliance Notice and Proposed Order'');
Exchange Act Release No. 91477 (Apr. 5, 2021), 86 FR 18341 (Apr. 8,
2021) (``French Substituted Compliance Re-Opening Release'');
Exchange Act Release No. 92484 (July 23, 2021), 86 FR 41612 (Aug. 2,
2021) (``French Substituted Compliance Order''); Exchange Act
Release No. 91476 (Apr. 5, 2021), 86 FR 18378 (Apr. 8, 2021) (``UK
Substituted Compliance Notice and Proposed Order''); Exchange Act
Release No. 92529 (July 30, 2021), 86 FR 43318 (August 6, 2021),
``UK Substituted Compliance Order''); Exchange Act Release No. 92632
(Aug. 10, 2021), 86 FR 45770 (Aug. 16, 2021) (``Swiss Substituted
Compliance Notice and Proposed Order''); Exchange Act Release No.
93284 (Oct. 8, 2021), 86 FR 57455 (Oct. 15, 2021) (``Swiss
Substituted Compliance Order''); Spanish Substituted Compliance
Notice and Proposed Order, 86 FR 47668.
\7\ See Exchange Act Release No. 77617 (Apr. 14, 2016), 81 FR
29960, 30079 (May 13, 2016) (``Business Conduct Adopting Release'').
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Under rule 3a71-6, substituted compliance potentially is available
in connection with certain section 15F requirements,\8\ but is not
available in connection with antifraud prohibitions and certain other
requirements under the Federal securities laws.\9\ SBS
[[Page 59777]]
Entities in Spain accordingly must comply directly with those
requirements notwithstanding the availability of substituted compliance
for other requirements.
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\8\ 17 CFR 240.3a71-6(d).
\9\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47669 n.10 (addressing unavailability under Rule 3a71-6
of substituted compliance for information-related requirements under
Exchange Act section 15F, as well as for provisions related to anti-
fraud, transactions with counterparties that are not eligible
contract participants, segregation of customer assets, required
clearing upon counterparty election, regulatory reporting and public
dissemination, SBS Entity registration, and registration of
offerings).
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The substituted compliance framework reflects the cross-border
nature of the security-based swap market, and is intended to promote
efficiency and competition by helping to address potential duplication
and inconsistency between relevant U.S. and foreign requirements.\10\
In practice, substituted compliance may be expected to help SBS
Entities leverage their existing systems and practices to comply with
relevant Exchange Act requirements in conjunction with their compliance
with relevant foreign requirements. Market participants began to count
security-based swap transactions towards the thresholds for
registration with the Commission as an SBS Entity on August 6, 2021.
Security-based swap dealers and major security-based swap participants
who met or exceeded one of the relevant de minimis thresholds for
registration by the end of August are required to be registered with
the Commission by November 1, 2021, or December 1, 2021,
respectively.\11\ Substituted compliance should assist relevant non-
U.S. security-based swap market participants in preparing for
registration.
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\10\ See generally Business Conduct Adopting Release, 81 FR
30073 (stating that the cross-border nature of the security-based
swap market poses special regulatory challenges, in that relevant
U.S. requirements ``have the potential to lead to requirements that
are duplicative of or in conflict with applicable foreign business
conduct requirements, even when the two sets of requirements
implement similar goals and lead to similar results'').
\11\ See ``Key Dates for Registration of Security-Based Swap
Dealers and Major Security-Based Swap Participants,'' available at
https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants.
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B. Specific Prerequisites
1. Comparability of Regulatory Outcomes
Rule 3a71-6, adopted by the Commission in 2016, describes the
requirements for the Commission to make a substituted compliance
determination. Under the rule, the Commission must determine that the
analogous foreign requirements are comparable to otherwise applicable
requirements under the Exchange Act (i.e., the relevant requirements in
the Exchange Act and the rules and regulations thereunder), after
accounting for factors such as ``the scope and objectives of the
relevant foreign regulatory requirements'' and ``the effectiveness of
the supervisory compliance program administered, and the enforcement
authority exercised'' by the foreign authority.\12\ The comparability
assessments are to be based on a ``holistic approach'' that ``will
focus on the comparability of regulatory outcomes rather than
predicating substituted compliance on requirement-by-requirement
similarity.'' \13\
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\12\ Exchange Act rule 3a71-6(a)(2)(i).
\13\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47670; see also Business Conduct Adopting Release, 81
FR 30078-79 (recognizing that ``different regulatory systems may be
able to achieve some or all of those regulatory outcomes by using
more or fewer specific requirements than the Commission, and that in
assessing comparability the Commission may need to take into account
the manner in which other regulatory systems are informed by
business and market practices in those jurisdictions''). The
Commission's assessment of a foreign authority's supervisory and
enforcement effectiveness--as part of the broader comparability
analysis--would be expected to consider not only overall oversight
activities, but also oversight specifically directed at conduct and
activity relevant to the substituted compliance determination. ``For
example, it would be difficult for the Commission to make a
comparability determination in support of substituted compliance if
oversight is directed solely at the local activities of foreign
security-based swap dealers, as opposed to the cross-border
activities of such dealers.'' Business Conduct Adopting Release, 81
FR 30079 (footnote omitted). In the Spanish Substituted Compliance
Notice and Proposed Order, the Commission preliminarily concluded
that this comparability prerequisite was met in connection with a
number of requirements under the Exchange Act, in some cases with
the addition of conditions to help ensure the comparability of
regulatory outcomes.
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2. Memoranda of Understanding
Exchange Act rule 3a71-6(a)(2)(ii) further predicates the
availability of substituted compliance on the Commission and the
foreign financial regulatory authority or authorities having entered
into a memorandum of understanding and/or other arrangement with the
relevant foreign financial regulatory authority or authorities
``addressing supervisory and enforcement cooperation and other matters
arising under the substituted compliance determination.'' \14\ The CNMV
Application asked the Commission to permit certain entities regulated
and supervised by the CNMV and/or the Bank of Spain to use substituted
compliance. Accordingly, the Commission recently entered into a
memorandum of understanding with the CNMV and the Bank of Spain.\15\
Moreover, because the CNMV, Bank of Spain, and European Central Bank
(``ECB'') share responsibility for supervising compliance with certain
provisions of EU and Spanish law, the Commission and the ECB also have
entered into a memorandum of understanding to address cooperation
matters related to substituted compliance.\16\ Those memoranda of
understanding or other arrangements must be in place before Covered
Entities may use substituted compliance to satisfy obligations under
the Exchange Act.\17\
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\14\ Exchange Act rule 3a71-6(a)(2)(ii).
\15\ The Commission expects to publish a copy of the memorandum
of understanding on its website at www.sec.gov under the
``Substituted Compliance'' tab, which is located on the ``Security-
Based Swap Markets'' page in the Division of Trading and Markets
section of the site.
\16\ The memorandum of understanding sets forth the conditions
under which the Commission nay request, share, use, and protect from
unauthorized disclosure supervisory and enforcement inform ation
that is owned by the ECB. The memorandum of understanding also
serves as a framework for consultation, cooperation, and exchange of
information between the Commission and the ECB in the supervision,
enforcement, and oversight of Spanish firms that are registered with
the Commission as SBS Entities. A copy of the meorandum of
understanding is available on the Commision's website oat https://www.sec.gov/files/8162021-exec7ted-ecb-mou-redacted-annex-secured_0.pdf.
\17\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47669 n.12.
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3. ``Adequate Assurances''
A foreign financial regulatory authority may submit a substituted
compliance application only if the authority provides ``adequate
assurances'' that no law or policy would impede the ability of any
entity that is directly supervised by the authority and that may
register with the Commission ``to provide prompt access to the
Commission to such entity's books and records or to submit to onsite
inspection or examination by the Commission.'' \18\ In the Spanish
Substituted Compliance Notice and Proposed Order, the Commission stated
that the CNMV had satisfied this prerequisite in the Commission's
preliminary view, taking into account information and representations
that the CNMV provided regarding certain Spanish and EU requirements
that are relevant to the Commission's ability to inspect, and access
the books and records of, firms using substituted compliance pursuant
to the Order.\19\ The Commission received no comments on this
preliminary view and has not changed its view.
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\18\ See Exchange Act rule 3a71-6(c)(3).
\19\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47669 n.13.
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Commission rule 0-13 \20\ addresses procedures for filing
substituted compliance applications. The rule provides that the
Commission will publish a notice when a completed
[[Page 59778]]
application has been submitted and that any person may submit to the
Commission ``any information that relates to the Commission action
requested in the application.'' \21\
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\20\ 17 CFR 240.0-13.
\21\ See Commission rule 0-13(h). The Commission may take final
action on a substituted compliance application no earlier than 25
days following publication of the notice in the Federal Register.
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III. Scope of and Conditions to Substituted Compliance Under the Order
A. Comparability Considerations
In considering the CNMV's request for substituted compliance, the
Commission viewed requirements under the Exchange Act and requirements
under Spanish and EU law to maintain similar approaches with respect to
achieving regulatory goals in several respects, though they follow
differing approaches or incorporate disparate elements in certain other
respects. The Commission considered those similarities and differences
when analyzing comparability and developing its views, while
recognizing that differences in approach do not necessarily preclude
substituted compliance in light of the Commission's holistic, outcomes-
oriented framework for assessing comparability. In this context, the
Commission recognized that other regulatory regimes will have
exclusions, exceptions, and exemptions that may not align perfectly
with the corresponding requirements under the Exchange Act. Where the
Commission found that the Spanish regime produces comparable outcomes
notwithstanding those particular differences, the Commission has made a
positive determination on substituted compliance.\22\ Where the
Commission found that those exclusions, exemptions, and exceptions lead
to outcomes that are not comparable, the Commission has not provided
for substituted compliance.\23\ When a Covered Entity seeks to rely on
substituted compliance to satisfy particular requirements under the
Exchange Act, non-compliance with the applicable Spanish requirements
would lead to a violation of those Exchange Act requirements and
potential enforcement action by the Commission (as opposed to automatic
revocation of the Order).
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\22\ See paras. (b) through (e) of the Order (internal risk
management, trade acknowledgment and verification, portfolio
reconciliation and dispute reporting, portfolio compression, trading
relationship documentation, internal supervision, chief compliance
officers, disclosure of material risks and characteristics,
disclosure of material incentives or conflicts of interest, ``know
your counterparty,'' suitability, fair and balanced communications,
daily mark disclosure, recordkeeping, reporting, and notification
requirements).
\23\ See Parts V.B (antitrust requirements), VI.B (clearing
rights disclosure and certain ``know your counterparty''
requirements), and VII.B (certain recordkeeping requirements),
infra.
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B. Covered Entities
1. Proposed Approach
Under the proposed Order, the definition of ``Covered Entity''
specified which entities could make use of substituted compliance.
Consistent with the availability of substituted compliance under
Exchange Act rule 3a71-6, the proposed definition would limit the
availability of substituted compliance to registered SBS Entities that
are not U.S. persons. In addition, to help ensure that firms that rely
on substituted compliance are subject to relevant Spanish and EU
requirements and oversight, the proposed definition would require a
Covered Entity to be an investment firm or credit institution
authorized by the CNMV and the ECB to provide investment services or
perform investment activities in Spain. In addition, the proposed
definition would require a Covered Entity to be a significant
institution supervised by the CNMV and the ECB (with the participation
of the Bank of Spain).\24\
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\24\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47670.
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2. Commenter Views and Final Provisions
Commenters did not address the proposed ``Covered Entity''
definition, and the Commission is issuing the definition as
proposed.\25\ Substituted compliance accordingly is available only to
non-U.S. SBS Entities that have the relevant Spanish and EU regulatory
permission and are subject to Spanish and EU oversight. Because the
Covered Entity definition requires the firm to be ``authorized by the
CNMV. . . to provided investment services and/or perform investment
activities in'' Spain, only firms for whom the CNMV is the competent
authority to grant such permission are able to qualify as Covered
Entities.\26\
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\25\ See para. (f)(1) of the Order.
\26\ Firms authorized as investment firms or credit institutions
by authorities of other EU Member States, whose authorization to
provide investment services and/or perform investment activities in
Spain derives from the single market ``passport'' under EU law, are
not able to qualify as Covered Entities under the Order.
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C. General Conditions to Substituted Compliance
1. Proposed Approach
The proposed Order incorporated a number of additional general
conditions and other prerequisites, to help ensure that the relevant
Spanish and EU requirements that form the basis for substituted
compliance in practice will apply to the Covered Entity's security-
based swap business and activities, and to promote the Commission's
oversight over entities that avail themselves of substituted
compliance:
``Subject to and complies with'' applicability condition--
For each relevant section of the proposed Order, a positive substituted
compliance determination would be predicated on the Covered Entity
being subject to and complying with the applicable Spanish and EU
requirements needed to establish comparability.\27\
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\27\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and n.31. The Commission stated, as an example,
that this proposed condition would not be satisfied when the
comparable Spanish or EU requirements would not apply to the
security-based swap activities of a third-country branch of a
Spanish SBS Entity. In that event, the Covered Entity would not be
``subject to'' those requirements, and the Covered Entity could not
rely on substituted compliance in connection with those activities.
Moreover, an SBS Entity's ``voluntary'' compliance with the relevant
Spanish requirements also would not suffice for these purposes.
Substituted compliance reflects an alternative means by which an SBS
Entity may comply with applicable requirements under the Exchange
Act, and thus mandates that the SBS Entity be subject to the
requirements needed to establish comparability and face consequences
arising from any failure to comply with those requirements. The
comparability assessment takes into account the effectiveness of the
supervisory compliance program administered and the enforcement
authority exercised by the CNMV, the Bank of Spain, and the ECB, and
Spanish and EU requirements would not be expected to promote
comparable outcomes when compliance merely is ``voluntary.''
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Activities as MiFID ``investment services or
activities''--The Covered Entity's security-based swap activities would
have to constitute ``investment services or activities'' for purposes
of applicable provisions under the Markets in Financial Instruments
Directive, Directive 2014/65/EU (``MiFID''), Spanish requirements that
implement MiFID, and/or other EU and/or Spanish requirements adopted
pursuant to those provisions, and must fall within the scope of the
Covered Entity's authorization from the CNMV and the ECB.\28\
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\28\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and n.32. Under this condition, a Covered
Entity's security-based swap activities would have to constitute
``investment services or activities'' only to the extent that the
relevant part of the Order requires the Covered Entity to be subject
to and comply with a provision of MiFID, Spanish requirements that
implement MiFID, and/or related EU and/or Spanish requirements. If
the relevant part of the Order does not require the Covered Entity
to be subject to and comply with one of those provisions, then the
Covered Entity's security-based swap activities would not have to
constitute ``investment services or activities'' to be able to use
substituted compliance under that part of the Order.
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[[Page 59779]]
Counterparties as MiFID ``clients''--The Covered Entity's
counterparty (or potential counterparty) must be a ``client'' (or
potential ``client'') for purposes of applicable provisions under
MiFID, Spanish requirements that implement MiFID, and/or other EU and
Spanish requirements adopted pursuant to those provisions.\29\
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\29\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and n.33.
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Security-based swaps as MiFID ``financial instruments''--
The relevant security-based swap must be a ``financial instrument'' for
purposes of applicable provisions under MiFID, Spanish requirements
that implement MiFID, and/or other EU and Spanish requirements adopted
pursuant to those provisions.\30\
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\30\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and n.34.
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Covered Entity as CRD ``institution''--The Covered Entity
must be an ``institution'' for purposes of applicable provisions under
the Capital Requirements Directive, Directive 2013/36/EU (``CRD''),
Spanish requirements that implement CRD, and/or other EU and Spanish
requirements adopted pursuant to those provisions.\31\
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\31\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and n.35.
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Counterparties as EMIR ``counterparties''--If an
applicable provision under the European Market Infrastructure
Regulation, Regulation (EU) 648/2012 (``EMIR''), Commission Delegated
Regulation (EU) 149/2013 (``EMIR RTS''), Delegated Regulation (EU)
2016/2251 (``EMIR Margin RTS''), and/or other EU requirements adopted
pursuant to those provisions applies only to the Covered Entity's
activities with specified types of counterparties, and if the
counterparty is not any of the specified types of counterparties, the
Covered Entity must comply with the applicable provision as if the
counterparty were the specified type of counterparty. In addition, the
proposed Order would provide that a Covered Entity could not satisfy a
condition requiring compliance with those EMIR-based provisions by
complying with third country requirements that EU authorities may
determine to be equivalent to EMIR.\32\
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\32\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and nn.36-37. The Commission proposed that, if
the Covered Entity reasonably determines that the counterparty would
be a financial counterparty if it were established in the EU and
authorized by appropriate EU authority (including Member State
authorities), it must treat the counterparty as if the counterparty
were a financial counterparty, rather than as another type of
counterparty to which the relevant EMIR-based requirements apply.
EMIR article 2(8) defines a ``financial counterparty'' as including
investment firms, credit institutions, insurers, and certain other
types of businesses that have been authorized in accordance with EU
directives.
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Security-based swap status under EMIR--The relevant
security-based swap must be, for purposes of applicable provisions
under EMIR, EMIR RTS, EMIR Margin RTS, and/or other EU requirements
adopted pursuant to those provisions, either (i) and ``OTC derivative''
or ``OTC derivative contract,'' as defined in EMIR article 2(7), that
has not been cleared by a central counterparty and otherwise is subject
to the provisions of EMIR article 11, EMIR RTS articles 11 through 15,
and EMIR Margin RTS article 2; or (ii) cleared by a central
counterparty that is authorized or recognized to clear derivatives
contracts by a relevant authority in the EU.\33\
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\33\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and n.38.
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Memoranda of understanding--The Commission and the CNMV
and the Bank of Spain must have an applicable memorandum of
understanding or other arrangement addressing cooperation with respect
to the Order at the time the Covered Entity makes use of substituted
compliance. Because the CNMV, Bank of Spain, and ECB share
responsibility for supervising compliance with some of the provisions
of EU and Spanish law addressed by the proposed Order, at the time the
Covered Entity makes use of substituted compliance the Commission and
the ECB also must have a supervisory and enforcement memorandum of
understanding and/or other arrangement addressing cooperation with
respect to the Order as it pertains to information owned by the
ECB.\34\
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\34\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47671 and nn.39-41. The Commission, CNMV and Bank of
Spain have entered into a memorandum of understanding to address
substituted compliance cooperation. The Commission and the ECB also
have entered into a memorandum of understanding to address
substituted compliance cooperation with respect to information owned
by the ECB. See also supra notes 15 through 17 and accompanying
text. The proposed Order would require Covered Entities to ensure
that these memoranda of understanding remain in place at the time
the Covered Entity relies on substituted compliance.
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Notice of reliance on substituted compliance--To assist
the Commission's oversight of firms that avail themselves of
substituted compliance, a Covered Entity would be required to notify
the Commission of its intent to use substituted compliance.\35\ In the
notice, the Covered Entity would need to identify each specific
substituted compliance determination for which the Covered Entity
intends to apply substituted compliance.\36\ If a Covered Entity elects
not to apply substituted compliance with respect to a specific
substituted compliance determination, it must instead comply directly
with the relevant Exchange Act requirements. Further, except in the
case of the counterparty protection requirements and linked
recordkeeping requirements discussed below, the Commission has
determined that the Exchange Act requirements subject to substituted
compliance determinations in the proposed Order are entity-level
requirements. The Commission thus proposed that, if a Covered Entity
elects to apply substituted compliance to these entity-level
requirements, it must do so at the entity level.\37\ The Covered Entity
must promptly update the notice if it intends to modify its reliance on
substituted compliance.\38\
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\35\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47672 and n.42.
\36\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47672 and n.43. The Commission stated that, if the
Covered Entity intends to rely on all the substituted compliance
determinations in a given paragraph of the proposed Order, it can
cite that paragraph in the notice. For example, if the Covered
Entity intends to rely on the substituted compliance determinations
for Exchange Act risk control requirements in paragraph (b) of the
proposed Order, it would indicate in the notice that it is relying
on the determinations in paragraph (b). However, if the Covered
Entity intends to rely on the internal risk management, trade
acknowledgement and verification, and portfolio reconciliation and
dispute resolution determinations, but not the portfolio compression
and trading relationship documentation determinations, it would need
to indicate in the notice that it is relying on paragraphs (b)(1)
through (3) of the proposed Order. In this case, paragraphs (b)(4)
and (b)(5) of the proposed Order (the portfolio compression and
trading relationship documentation determinations, respectively)
would be excluded from the notice and the Covered Entity would need
to comply with Exchange Act portfolio compression and trading
relationship documentation requirements. Further, as discussed below
in Part VII, the recordkeeping, reporting, and notification
determinations in the proposed Order were structured to provide
Covered Entities with a high level of flexibility in selecting
specific requirements within those requirements for which they want
to rely on substituted compliance. For example, paragraph (e)(1)(i)
of the proposed Order set forth the Commission's preliminary
substituted compliance determinations with respect to the
requirements of Exchange Act rule 18a 5, 17 CFR 240.18a-5. These
proposed determinations were set forth in proposed paragraphs
(e)(1)(i)(A) through (M). If a Covered Entity intends to rely on
some but not all of the determinations, it would need to identify in
the notice the specific determinations in this paragraph it intends
to rely on (e.g., paragraphs (e)(1)(i)(A), (B), (C), (D), (G), (H),
(I), and (M)). For any determinations excluded from the notice, the
Covered Entity would need to comply with the Exchange Act rule 18a-5
requirement.
\37\ See Part III.E, infra; Spanish Substituted Compliance
Notice and Proposed Order, 86 FR 47672 and n.44.
\38\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47672 and n.45. A Covered Entity would modify its
reliance on substituted compliance, and thus trigger the requirement
to update its notice, if it adds or subtracts substituted compliance
determinations on which it is relying or completely discontinues its
reliance on substituted compliance.
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[[Page 59780]]
Notification related to changes in capital category--
Covered Entities with a prudential regulator would need to apply
substituted compliance with respect to the requirements of Exchange Act
rule 18a-8(c) and the requirements of Exchange Act rule 18a-8(h) as
applied to Exchange Act rule 18a-8(c).\39\ Exchange Act rule 18a-8(c)
generally requires every security-based swap dealer with a prudential
regulator that files a notice of adjustment of its reported capital
category with the Federal Reserve Board, the Office of the Comptroller
of the Currency, or the Federal Deposit Insurance Corporation to give
notice of this fact to the that same day by transmitting a copy to the
Commission of the notice of adjustment of reported capital category in
accordance with Exchange Act rule 18a-8(h).\40\ Exchange Act rule 18a-
8(h) sets forth the manner in which every notice or report required to
be given or transmitted pursuant to Exchange Act rule 18a-8 must be
made. While Exchange Act rule 18a-8(c) is not linked to an Exchange Act
capital requirement, it is linked to capital requirements in the U.S.
promulgated by the prudential regulators. In its application, the CNMV
cited various Spanish provisions as providing similar outcomes to the
notifications requirements of Exchange Act rule 18a-8.\41\ This general
condition would be designed to clarify that a prudentially regulated
Covered Entity must provide the Commission with copies of any
notifications regarding changes in the Covered Entity's capital
situation required by Spanish law. The intent is to align the
notification requirement with the EU and Spanish capital requirements
applicable to the Covered Entity.
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\39\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47672.
\40\ 17 CFR 240.18a-8(c) and (h).
\41\ See Act on Regulation, Supervision, and Solvency of Credit
Institutions, Law 10/2014, of June 26 (``LOSSEC'') articles 116,
119, 121, and 122; and Spanish Securities Market Act, Royal
Legislative Decree 4/2015, of October 23 (``SSMA'') articles 276bis,
276ter, 276qu[aacute]ter, and 276quinquies.
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2. Commenter Views and Final Provisions
In the proposed Order, the Commission proposed to require Covered
Entities to comply with only EMIR-based trade acknowledgement and
verification and trading relationship documentation requirements, and
not with MiFID-based trade acknowledgement and verification and trading
relationship documentation requirements, in response concerns expressed
by commenters on prior substituted compliance orders.\42\ Commenters on
those prior orders had requested that the Commission delete from those
orders proposed conditions that would require firms using substituted
compliance for trade acknowledgment and verification and trading
relationship documentation requirements to comply with MiFID-based
requirements.\43\ Commenters argued that those MiFID-based conditions
in practice would prevent SBS Entities with branches in other EU
countries from relying on substituted compliance for those
requirements, and that compliance with proposed EMIR conditions would
be sufficient to produce the requisite regulatory outcomes. The
Commission amended the prior orders to address these concerns, but only
with the addition of the EMIR counterparties general condition and a
related condition pertaining to EMIR. By requiring a Covered Entity to
treat its counterparty as a type of counterparty that would trigger the
application of the relevant EMIR-based requirements, the condition will
require the Covered Entity to perform the relevant obligations pursuant
to those EMIR-based requirements and thus act in a way that is
comparable to Exchange Act requirements. Absent the condition, the
Commission would not find comparability with regard to the categories
of counterparties, such as U.S. persons and natural persons, to which
EMIR is not applicable for the entity-level requirements and,
accordingly, would not have been able to make a positive substituted
compliance determination for those entity-level requirements. The EMIR
counterparties general condition was intended to help ensure that, with
the heightened reliance on EMIR-based requirements, there will be no
opportunity for gaps that may prevent the EMIR-based requirements in
practice from producing outcomes consistent with those of the Exchange
Act.\44\
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\42\ See French Substituted Compliance Re-Opening Release, 86 FR
19341-43; German Substituted Compliance Notice and Proposed Amended
Order, 86 FR 46503.
\43\ See Letter from Kyle Brandon, Managing Director, Head of
Derivatives Policy, Securities and Financial Markets Association,
dated Jan. 25, 2021 (``France SIFMA Letter'') at 3-6 (cited in
French Substituted Compliance Re-opening Release, 86 FR 18341-42 and
nn.5-6; German Substituted Compliance Notice and Proposed Amended
Order, 86 FR 46503 and nn.26-27); Letter from Etienne Barel, Deputy
Chief Executive Officer, French Banking Federation, dated Jan. 25,
2021 (``FBF Letter'') at 2 (cited in French Substituted Compliance
Re-opening Release, 86 FR 18341-42 and nn.5-6). These comment
letters are available on the Commission's website at https://www.sec.gov/comments/s7-22-20/s72220.htm.
\44\ See German Substituted Compliance Notice and Proposed
Amended Order, 86 FR 46503.
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The Commission invited commenters on the proposed Order to address
whether the responses to any of the questions that the Commission asked
in connection with proposals to make positive substituted compliance
determinations in respect of regulatory requirements and frameworks in
Germany, France and the United Kingdom would differ if those questions
applied to Spanish regulatory requirements and frameworks. The
Commission also requested comment on any differences between Spanish
regulatory requirements and frameworks and the German, French, or UK
requirements and frameworks that formed the basis for the Commission's
conditional grant of substituted compliance for Germany, France, and
the United Kingdom.\45\
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\45\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47687-90.
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A commenter on the German Substituted Compliance Notice and
Proposed Amended Order \46\ stated that the EMIR counterparties general
condition would override exemptions and exclusions from EMIR for
certain public sector counterparties, such as multilateral development
banks, and would expand the application of EMIR to counterparties who
are not ``undertakings,'' such as natural persons.\47\ That commenter
noted that compliance with the condition would require the Covered
Entity to ``assess whether these counterparties who are not subject to
EMIR would be so subject as if it were the type of counterparty
specified by EMIR as well as, in many cases, enter into documentation
with those counterparties compliant with EMIR.'' \48\ The commenter
noted that these counterparties would be confused why an order of the
Commission ``now deprives them of an exception or exemption under EU
law that has for some time applied to them'' and would be reluctant to
enter into new documentation to enable a Covered Entity to satisfy the
Commission's substituted compliance order.\49\ The Commission did not
intend for the condition to require compliance with
[[Page 59781]]
EMIR-based requirements under circumstances where neither those
requirements nor the Exchange Act would apply. To clarify this intended
scope, the Commission modified the EMIR counterparties general
condition in the German Amended Substituted Compliance Order to clarify
that this condition applies only to the extent that an Exchange Act
section or rule cited in the relevant part of the Order applies to the
security-based swap activities with that counterparty.\50\ The
Commission made conforming changes the UK Substituted Compliance Order
and the French Substituted Compliance Order.\51\
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\46\ See Letter from Kyle Brandon, Managing Director, Head of
Derivatives Policy, Securities Industry and Financial Markets
Association, dated Sept. 13 2021 (``Germany SIFMA Letter''). The
Germany SIFMA Letter is available on the Commission's website at
https://www.sec.gov/comments/s7-08-21/s70821.htm.
\47\ See Germany SIFMA Letter at 2.
\48\ See Germany SIFMA Letter at 3.
\49\ See Germany SIFMA Letter at 3.
\50\ See German Amended Substituted Compliance Order, Exchange
Act Release No. 93411.
\51\ See German Amended Substituted Compliance Order, Exchange
Act Release No. 93411.
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Returning to the Commission's consideration of the same EMIR
regulatory framework in Spain, one commenter stated that proposed Order
``reflects a thoughtful, holistic approach to substituted compliance.''
\52\ The commenter noted in particular that the Commission's
comparability assessments and the conditions and limitations in the
proposed Order were consistent with the UK Substituted Compliance
Order, French Substituted Compliance Order, and the German Substituted
Compliance Notice and Proposed Amended Order, and as a result concluded
that the proposed Order ``would facilitate an orderly implementation of
the Commission's [security-based swap] regulatory regime among market
participants across different jurisdictions without creating undue
complexity or disparity.'' \53\ In the context of the EMIR
counterparties general condition, the Commission agrees that
consistency among substituted compliance orders that require firms to
be subject to and comply with EMIR and laws derived from EMIR, where
feasible, would facilitate orderly implementation of substituted
compliance. The Commission thus is changing the EMIR counterparties
general condition in the Order to reflect the same changes made in the
German Amended Substituted Compliance Order.\54\ The Commission
believes this change will promote consistency among substituted
compliance orders that require firms to be subject to and comply with
EMIR and laws derived from EMIR, consistent with the commenter's
concern and with the Commission's request for comment on differences
between the Spanish, German, French, and UK regulatory requirements and
frameworks.
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\52\ See Letter from Julia Bay[oacute]n, Head of Business Legal
and Vice-Secretary of the Board, Santander, dated Sept. 20, 2021
(``Santander Letter''). The Santander Letter is available on the
Commission's website at https://www.sec.gov/comments/s7-09-21/s70921.htm.
\53\ See Santander Letter at 1.
\54\ See para. (a)(5) of the Order.
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The Commission also is amending the general condition in paragraph
(a)(6) of the Order to clarify that the condition applies only if the
relevant EMIR-based requirement applies to OTC derivatives that have
not been cleared by a central counterparty, as some provisions of EMIR
cited in the Order, such as EMIR articles 39(4) and (5), are not
limited in their application to non-centrally cleared OTC derivatives.
The Commission continues to believe that the remaining general
conditions are structured appropriately to predicate a positive
substituted compliance determination on the applicability of relevant
Spanish and EU requirements needed to establish comparability, as well
as on the continued effectiveness of the requisite memoranda of
understanding, and the provision of appropriate notices to the
Commission. The Commission is issuing these remaining general
conditions as proposed, and substituted compliance accordingly is
available only when the Covered Entity satisfies all applicable general
conditions.\55\
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\55\ See para. (a)(1) through (a)(9), and (a)(11) of the Order.
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D. European Union Cross-Border Matters
1. Proposed Approach
The proposed Order also included general conditions to address the
cross-border application of MiFID, the Markets in Financial Instruments
Regulation, Regulation (EU) 600/2014 (``MiFIR''), and the Market Abuse
Regulation, Regulation (EU) 596/2014 (``MAR''), along with EU and
Spanish requirements adopted pursuant to those laws.\56\ For some
requirements under MiFID and MiFIR (and other EU and Member State
requirements adopted pursuant to MiFID and MiFIR), EU law allocates the
responsibility for supervising and enforcing those requirements to
authorities of the Member State where an entity provides certain
services.\57\ Similarly, for some requirements under MAR (and other EU
and Member State requirements adopted pursuant to MAR), EU law
allocates the responsibility for supervising and enforcing those
requirements to authorities of potentially multiple Member States. To
help ensure that the prerequisites to substituted compliance with
respect to supervision and enforcement are satisfied in fact, when the
proposed Order conditioned substituted compliance on the Covered Entity
being subject to and complying with those MiFID- and MiFIR-related
requirements, the proposed Order would permit substituted compliance
only if the CNMV is the authority responsible for supervision and
enforcement of those MiFID- and MiFIR-related requirements in relation
to the particular service provided by the Covered Entity. When the
proposed Order conditioned substituted compliance on the Covered Entity
being subject to and complying with those MAR-related requirements, the
proposed Order would permit substituted compliance only if one of the
authorities responsible for supervision and enforcement of those
requirements is the CNMV.
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\56\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47672 and nn.48-50.
\57\ See MiFID article 35(8).
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2. Commenter Views and Final Provisions
Commenters did not address the European Union cross-border
conditions. The Commission continues to believe that requiring that the
CNMV have responsibility for applicable MiFID, MiFIR, and MAR
provisions will help ensure that the supervision and enforcement
prerequisites to substituted compliance are satisfied.\58\ In the
Commission's view, these conditions are structured appropriately to
permit the use of substituted compliance only when the CNMV is
responsible for supervising a Covered Entity's compliance with a
relevant provision of MiFID, MiFIR, MAR, or related EU or Spanish
requirements. Additionally, the conditions help ensure that applicable
MiFID, MiFIR, and MAR provisions are interpreted and applied in a
consistent manner by an entity that is party to the memorandum of
understanding and/or other arrangement that are a prerequisite to
substituted compliance. Accordingly, the Commission is issuing the
conditions as proposed.\59\
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\58\ See Business Conduct Adopting Release, 81 FR 30080.
\59\ See para. (a)(10) of the Order.
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E. Substituted Compliance for Entity-Level and Transaction-Level
Requirements
1. Proposed Approach
For entity-level Exchange Act requirements,\60\ the proposed Order
[[Page 59782]]
would require a Covered Entity to choose either to apply substituted
compliance pursuant to the proposed Order with respect to all security-
based swap business subject to the relevant Spanish and EU requirements
or to comply directly with the Exchange Act with respect to all such
business; a Covered Entity would not be able to choose to apply
substituted compliance pursuant to the proposed Order for some of the
business subject to the relevant Spanish or EU requirements and comply
directly with the Exchange Act for another part of the business that is
subject to the relevant Spanish and EU requirements.\61\ Additionally,
for entity-level Exchange Act requirements, if the Covered Entity also
has security-based swap business that is not subject to the relevant
Spanish and/or EU requirements, the proposed Order would require the
Covered Entity either to comply directly with the Exchange Act for that
business or to comply with the terms of another applicable substituted
compliance order.\62\ For transaction-level Exchange Act
requirements,\63\ a Covered Entity may decide to apply substituted
compliance for some of its security-based swap business and to comply
directly with the Exchange Act (or comply with another applicable
substituted compliance order) for other parts of its security-based
swap business.\64\
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\60\ Entity-level requirements relevant to the proposed Order
relate to internal risk management, trade acknowledgment and
verification, portfolio reconciliation and dispute resolution,
portfolio compression, trading relationship documentation, internal
supervision, chief compliance officers, counterparty protection,
recordkeeping (other than requirements linked to counterparty
protection requirements), reporting, and notification. See Exchange
Act Release No. 78011 (June 8, 2016) 81 FR 39808, 39827 (June 17,
2016) (``TAV Adopting Release''); Business Conduct Adopting Release,
81 FR 30064; Exchange Act Release No. 87005 (June 19, 2019) 84 FR
68550, 68596 (Dec. 16, 2019) (``Books and Records Adopting
Release''); Exchange Act Adopting Release No. 87782 (Dec. 18, 2019)
85 FR 6359, 6378 (Feb. 4, 2020) (``Risk Mitigation Adopting
Release'').
\61\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47672-73 and n.51.
\62\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47673 and n.53. In the context of the EMIR
counterparties condition in paragraph (a)(5) of the proposed Order,
a Covered Entity would be required to choose: (1) To apply
substituted compliance pursuant to the proposed Order-including
compliance with paragraph (a)(5) as applicable-for a particular set
of entity-level requirements with respect to all of its business
that would be subject to the relevant EMIR-based requirement if the
counterparty were the relevant type of counterparty; or (2) to
comply directly with the Exchange Act with respect to such business.
\63\ Transaction-level requirements relevant to the proposed
Order are the counterparty protection requirements and the
recordkeeping requirements related to those counterparty protection
requirements. See Business Conduct Adopting Release, 81 FR 30065.
\64\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47673 and n.54.
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2. Commenter Views and Final Provisions
Commenters did not address the proposed approach to substituted
compliance for entity-level and transaction-level requirements. The
Commission continues to believe that the proposed scope of substituted
compliance strikes the right balance between providing Covered Entities
flexibility to tailor the application of substituted compliance to
their business needs and ensuring that substituted compliance is
consistent with the Commission's classification of the relevant
Exchange Act requirements as either entity-level or transaction-level
requirements. The Commission accordingly is issuing the Order with the
proposed approach to substituted compliance for entity-level and
transaction-level requirements.
IV. Substituted Compliance for Risk Control Requirements
A. Proposed Approach
The CNMV Application requested substituted compliance in connection
with risk control requirements under the Exchange Act relating to:
Internal risk management--Internal risk management system
requirements pursuant to Exchange Act section 15F(j)(2) and relevant
aspects of Exchange Act rule 15Fh-3(h)(2)(iii)(I).\65\ Those provisions
address the obligation of SBS Entities to follow policies and
procedures reasonably designed to help manage the risks associated with
their business activities.\66\
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\65\ The CNMV did not request substituted compliance in
connection with Exchange Act rule 18a-1(f) Exchange Act rule 18a-
2(c), which include additional internal risk management system
requirements for non-prudentially regulated SBS Entities subject to
the Commission's capital and margin requirements.
\66\ See Exchange Act Release No. 68071 (Oct. 18, 2012), 77 FR
70214, 70250 (Nov. 23, 2012) (proposing capital and margin
requirements for SBS Entities and discussing certain risk management
requirements); Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47673 and n.56.
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Trade acknowledgment and verification--Trade
acknowledgment and verification requirements pursuant to Exchange Act
section 15F(i) and Exchange Act rule 15Fi-2.\67\ Those provisions help
avoid legal and operational risks by requiring definitive written
records of transactions and for procedures to avoid disagreements
regarding the meaning of transaction terms.\68\
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\67\ 17 CFR 240.15Fi-2.
\68\ See TAV Adopting Release, 81 FR 39808, 39809, 39820;
Spanish Substituted Compliance Notice and Proposed Order, 86 FR
47673 and n.58.
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Portfolio reconciliation and dispute reporting--Portfolio
reconciliation and dispute reporting requirements pursuant to Exchange
Act section 15F(i) and Exchange Act rule 15Fi-3.\69\ Those provisions
require that counterparties engage in portfolio reconciliation and
resolve discrepancies in connection with uncleared security-based swaps
and promptly notify the Commission and applicable prudential regulators
regarding certain valuation disputes.\70\
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\69\ 17 CFR 240.15Fi-3.
\70\ See Risk Mitigation Adopting Release, 85 FR 6359, 6360-61;
Spanish Substituted Compliance Notice and Proposed Order, 86 FR
47673 and n.60.
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Portfolio compression--Portfolio compression requirements
pursuant to Exchange Act section 15F(i) and Exchange Act rule 15Fi-
4.\71\ Those provisions require that SBS Entities have procedures
addressing bilateral offset, bilateral compression and multilateral
compression in connection with uncleared security-based swaps.\72\
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\71\ 17 CFR 240.15Fi-4.
\72\ See Risk Mitigation Adopting Release, 85 FR 6361; Spanish
Substituted Compliance Notice and Proposed Order, 86 FR 47673 and
n.62.
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Trading relationship documentation--Trading relationship
documentation requirements pursuant to Exchange Act section 15F(i) and
Exchange Act rule 15Fi-5.\73\ Those provisions require that SBS
Entities have procedures to execute written security-based swap trading
relationship documentation with their counterparties prior to, or
contemporaneously with, executing certain security-based swaps.\74\
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\73\ 17 CFR 240.15Fi-5.
\74\ See Risk Mitigation Adopting Release, 85 FR 6361; Spanish
Substituted Compliance Notice and Proposed Order, 86 FR 47673 and
n.64.
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Taken as a whole, these risk control requirements help to promote
market stability by mandating that SBS Entities follow practices that
are appropriate to manage the market, credit, counterparty,
operational, and legal risks associated with their security-based swap
businesses. In considering conditional substituted compliance for the
risk control portion of the CNMV Application, the Commission
preliminarily concluded that the relevant Spanish and EU requirements
would produce regulatory outcomes that are comparable to those
associated with the above risk control requirements, by subjecting
Covered Entities to risk mitigation and documentation practices that
are appropriate to the risks associated with their security-based swap
businesses.\75\
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\75\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47674.
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Substituted compliance under the proposed Order was to be subject
to certain additional conditions to help ensure the comparability of
outcomes.
[[Page 59783]]
First, substituted compliance under the proposed Order was to be
conditioned on Covered Entities being subject to the Spanish and EU
provisions that in the aggregate establish a framework that produces
outcomes comparable to those associated with these risk control
requirements under the Exchange Act.\76\ Second, substituted compliance
in connection with trading relationship documentation requirements
would not extend to disclosures regarding legal and bankruptcy status
that are required by Exchange Act rule 15Fi-5(b)(5) when the
counterparty is a U.S. person.\77\ Finally, substituted compliance in
connection with portfolio reconciliation and dispute reporting
requirements would be conditioned on the Covered Entity providing the
Commission with reports regarding disputes between counterparties on
the same basis as the Covered Entity provides those reports to
competent authorities pursuant to EU law.\78\
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\76\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47674 and n.65.
\77\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47674 and nn.66-67.
\78\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47674 and nn.68-70.
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B. Commenter Views and Final Provisions
One commenter supported the Commission's proposal to make the
positive substituted compliance determinations in the proposed
Order,\79\ including positive substituted compliance determinations for
internal risk management, trade acknowledgment and verification,
portfolio reconciliation and dispute reporting, portfolio compression
and trading relationship documentation requirements. The Commission
continues to conclude that, taken as a whole, relevant Spanish and EU
requirements would produce regulatory outcomes that are comparable to
those associated with these risk control requirements, by subjecting
Covered Entities to risk mitigation and documentation practices that
are appropriate to the risks associated with their security-based swap
businesses. While the Commission recognizes certain differences between
Spanish and EU requirements and the applicable risk control
requirements under the Exchange Act, in the Commission's view those
differences on balance should not preclude substituted compliance for
these requirements, as the relevant Spanish and EU requirements taken
as a whole help to produce comparable regulatory outcomes.\80\
Accordingly, the Commission is making positive substituted compliance
determinations in connection with internal risk management, trade
acknowledgment and verification, portfolio reconciliation and dispute
reporting, portfolio compression and trading relationship documentation
requirements and is issuing the risk control section of the Order as
proposed.\81\
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\79\ See Santander Letter at 1.
\80\ The comparability analysis requires consideration of
Exchange Act requirements as a whole against analogous Spanish and
EU requirements as a whole, recognizing that U.S. and non-U.S.
regimes may follow materially different approaches in terms of
specificity and technical content. This ``as a whole'' approach--
which the Commission is following in lieu of requiring requirement-
by-requirement similarity--further means that the conditions to
substituted compliance should encompass all Spanish and EU
requirements that establish comparability with the applicable
regulatory outcome, and helps to avoid ambiguity in the application
of substituted compliance.
\81\ See para. (b) of the Order.
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To help ensure the comparability of outcomes, and consistent with
the proposed Order, substituted compliance for risk control
requirements is subject to certain conditions. Substituted compliance
for internal risk management, trade acknowledgment and verification,
portfolio reconciliation and dispute reporting, portfolio compression
and trading relationship documentation requirements is conditioned on
the Covered Entity being subject to, and complying with, relevant
Spanish and EU requirements.\82\ In addition, substituted compliance
for trading relationship documentation does not extend to disclosures
regarding legal and bankruptcy status that are required by Exchange Act
rule 15Fi-5(b)(5) when the counterparty is a U.S. person.\83\ Finally,
substituted compliance in connection with portfolio reconciliation and
dispute reporting requirements is conditioned on the Covered Entity
providing the Commission with reports regarding disputes between
counterparties on the same basis as the Covered Entity provides those
reports to competent authorities pursuant to EU law.\84\ A Covered
Entity that is unable to comply with an applicable condition--and thus
is not eligible to use substituted compliance for the particular set of
Exchange Act risk control requirements related to that condition--
nevertheless may use substituted compliance for another set of Exchange
Act requirements addressed in the Order if it complies with the
conditions to the relevant parts of the Order.
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\82\ See paras. (b)(1) through (5) of the Order.
\83\ See para. (b)(5) of the Order. The Exchange Act rule 15Fi-
5, 17 CFR 240.15Fi-5, disclosures address information regarding: (1)
The status of the SBS Entity or its counterparty as an insured
depository institution or financial counterparty, and (2) the
possibility that in certain circumstances the SBS Entity or its
counterparty may be subject to the insolvency regime set forth in
Title II of the Dodd-Frank Wall Street Reform and Consumer
Protection Act or the Federal Deposit Insurance Act, which may
affect rights to terminate, liquidate, or net security-based swaps.
See Risk Mitigation Adopting Release, 85 FR 6374. Documentation
requirements under applicable Spanish and EU law do not address the
disclosure of information related to insolvency procedures under
U.S. law. However, the absence of such disclosures would not appear
to preclude a comparable regulatory outcome when the counterparty is
not a U.S. person, as the insolvency-related consequences that are
the subject of the disclosure would not apply to non-U.S.
counterparties in most cases. Moreover, EMIR Margin RTS article 2
requires counterparties to establish, apply, and document risk
management procedures providing for or specifying the terms of
agreements entered into by the counterparties, including applicable
governing law for non-centrally cleared derivatives. When
counterparties enter into a netting or collateral exchange
agreement, they also must perform an independent legal review of the
enforceability of those agreements.
\84\ See para. (b)(3)(ii) of the Order. This condition promotes
comparability with the Exchange Act rule requiring reports to the
Commission regarding significant valuation disputes, while
leveraging Spanish and EU reporting provisions to avoid the need for
Covered Entities to create additional reporting frameworks. When it
proposed the requirement for all SBS Entities to report valuation
disputes, the Commission recognized that valuation inaccuracies may
lead to uncollateralized credit exposure and the potential for loss
in the event of default. See Exchange Act Release No. 84861 (Dec.
19, 2018), 84 FR 4614, 4621 (Feb. 15, 2019). It thus is important
that the Commission be informed regarding valuation disputes
affecting SBS Entities. The principal difference between the
Exchange Act and EU valuation dispute reporting requirements
concerns the timing of notices. Under Exchange Act rule 15Fi-3, SBS
Entities must promptly report to the Commission valuation disputes
in excess of $20 million that have been outstanding for three or
five business days (depending on the counterparty type). Under EMIR
RTS article 15(2), firms must report at least monthly, to competent
authorities, disputes between counterparties in excess of [euro]15
million and outstanding for at least 15 business days. The
Commission is mindful that the EU provision does not provide for
notice as quickly as rule 15Fi-3(c), but in the Commission's view,
on balance this difference would not be inconsistent with the
conclusion that the two sets of risk control requirements-taken as a
whole-produce comparable regulatory outcomes.
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Under the Order, substituted compliance for risk control
requirements (relating to internal risk management, trade
acknowledgment and verification, portfolio reconciliation and dispute
reporting, portfolio compression, and trading relationship
documentation) is not subject to a condition that the Covered Entity
apply substituted compliance for related recordkeeping requirements in
Exchange Act rules 18a-5 and 18a-6. A Covered Entity that applies
substituted compliance for one or more risk control requirements, but
does not apply substituted compliance for the related recordkeeping
requirements in
[[Page 59784]]
Exchange Act rules 18a-5 and 18a-6, will remain subject to the relevant
provisions of Exchange Act rules 18a-5 and 18a-6. Those rules require
the Covered Entity to make and preserve records of its compliance with
Exchange Act risk control requirements and of its security-based swap
activities required or governed by those requirements. A Covered Entity
that applies substituted compliance for a risk control requirement, but
complies directly with related recordkeeping requirements in rules 18a-
5 and 18a-6, therefore must make and preserve records of its compliance
with the relevant conditions of the Order and of its security-based
swap activities required or governed by those conditions and/or
referenced in the relevant parts of rules 18a-5 and 18a-6.
V. Substituted Compliance for Internal Supervision and Compliance
Requirements
A. Proposed Approach
The CNMV Application requested substituted compliance in connection
with requirements under the Exchange Act relating to:
Internal supervision--Diligent supervision is required
pursuant to Exchange Act rule 15Fh-3(h) and Exchange Act section
15F(j)(5) requires conflict of interest systems and procedures. These
provisions generally require that SBS Entities establish, maintain, and
enforce supervisory policies and procedures that reasonably are
designed to prevent violations of applicable law, and implement certain
systems and procedures related to conflicts of interest. Exchange Act
section 15F(j)(4)(A) additionally requires systems and procedures to
obtain necessary information to perform functions required under
section 15F.\85\
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\85\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47674 and n.71.
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Chief compliance officers--Chief compliance officer
requirements are set out in Exchange Act section 15F(k) and Exchange
Act rule 15Fk-1.\86\ These provisions in general require that SBS
Entities designate individuals with the responsibility and authority to
establish, administer, and review compliance policies and procedures;
to resolve conflicts of interest; and to prepare and certify an annual
compliance report to the Commission.\87\
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\86\ 17 CFR 240.15Fk-1.
\87\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47674 and n.73.
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Antitrust requirements--Additional requirements related to
antitrust prohibitions specified by Exchange Act section 15F(j)(6).\88\
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\88\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47674 and n.74. Section 15F(j)(6) prohibits firms from
adopting any process or taking any action that results in any
unreasonable restraint of trade or imposing any material
anticompetitive burden on trading or clearing.
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Taken as a whole, these internal supervision, chief compliance
officer, and additional Exchange Act section 15F(j) requirements help
to promote SBS Entities' use of structures, processes, and responsible
personnel reasonably designed to promote compliance with applicable
law; to identify and cure instances of non-compliance; and to manage
conflicts of interest. In considering conditional substituted
compliance for this portion of the CNMV Application, the Commission
preliminarily concluded that the relevant Spanish and EU requirements
would produce regulatory outcomes that are comparable to those
associated with Exchange Act internal supervision \89\ and chief
compliance officer requirements by providing that Covered Entities have
structures and processes that reasonably are designed to promote
compliance with applicable law and to identify and cure instances of
non-compliance and manage conflicts of interest.\90\
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\89\ The proposed Order would provide for substituted compliance
in connection with internal supervision provisions of Exchange Act
rule 15Fh-3(h), the requirement in Exchange Act section 15F(j)(4)(A)
to have systems and procedures to obtain necessary information to
perform functions required under Exchange Act section 15F; and the
conflict of interest provisions of Exchange Act section 15F(j)(5).
The internal supervision portion of the proposed Order did not
extend to the portions of rule 15Fh-3(h) that mandate supervisory
policies and procedures in connection with: The internal risk
management provisions of Exchange Act section 15F(j)(2) (which were
addressed by paragraph (b)(1) of the proposed Order in connection
with internal risk management); the information-related provisions
of Exchange Act sections 15F(j)(3) and (j)(4)(B) (for which
substituted compliance is not available); or the antitrust
provisions of Exchange Act section 15F(j)(6) (for which the
Commission did not propose to provide substituted compliance). See
Spanish Substituted Compliance Notice and Proposed Order, 86 FR
47675 n.75.
\90\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47675.
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Substituted compliance under the proposed Order was to be subject
to certain conditions to help ensure the comparability of outcomes.
First, substituted compliance for internal supervision and chief
compliance officer requirements under the proposed Order was to be
conditioned on Covered Entities being subject to the Spanish and EU
requirements that in the aggregate establish a framework that produces
outcomes comparable to those associated with these internal
supervision, chief compliance officer, conflict of interest, and
information-related requirements under the Exchange Act.\91\ Second,
substituted compliance in connection with internal supervision
requirements would be conditioned on Covered Entities complying with
applicable Spanish and EU internal supervision requirements as if those
provisions also require the Covered Entity to comply with applicable
requirements under the Exchange Act and the other applicable conditions
of the proposed Order.\92\ This condition was intended to reflect that,
even with substituted compliance, Covered Entities still directly would
be subject to a number of requirements under the Exchange Act and to
conditions of the Order, all of which fall outside the ambit of Spanish
and EU internal supervision requirements.\93\ Finally, for similar
reasons, substituted compliance in connection with chief compliance
officer requirements would be subject to the conditions \94\ that
[[Page 59785]]
compliance reports required pursuant to Commission Delegated Regulation
(EU) 2017/565 (``MiFID Org Reg'') article 22(2)(c) must: (1) Be
provided to the Commission at least annually and in the English
language; (2) include a certification signed by the chief compliance
officer or senior officer of the Covered Entity that, to the best of
the certifier's knowledge and reasonable belief and under penalty of
law, the report is accurate and complete in all material respects; (3)
address the Covered Entity's compliance with applicable requirements
under the Exchange Act and other applicable conditions of the proposed
Order; \95\ (4) be provided to the Commission no later than 15 days
following the earlier of the submission of the report to the Covered
Entity's management body or the time the report is required to be
submitted to the management body; \96\ and (5) together cover the
entire period that the Covered Entity's annual compliance report
referenced in Exchange Act section 15F(k)(3) and Exchange Act rule
15Fk-1(c) would be required to cover.\97\
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\91\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.86.
\92\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47675 and n.77. In other words, the proposed Order
would require that the Covered Entity's supervisory and compliance
program cover applicable requirements under the Exchange Act and
other applicable conditions of the Order.
\93\ While the Spanish and EU regulatory framework in general
reasonably appears to promote Covered Entities' compliance with
applicable Spanish and EU laws, those requirements do not appear to
promote Covered Entities' compliance with requirements under the
Exchange Act that are not subject to substituted compliance, or to
promote Covered Entities' compliance with the applicable conditions
to the proposed Order. These residual Exchange Act requirements
could, for example, relate to requirements for which substituted
compliance is not available, requirements for which the Order does
not make a positive substituted compliance determination, security-
based swap business for which the Covered Entity is unable to
satisfy the conditions of the Order, and/or requirements or
security-based swap business for which the Covered Entity decides
not to use substituted compliance. The condition was designed to
allow Covered Entities to use their existing internal supervision
and compliance frameworks to comply with the relevant Exchange Act
requirements and proposed Order conditions, rather than having to
establish separate special-purpose internal supervision frameworks.
\94\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47675-76 and nn.80-85. Although certain Spanish and EU
requirements address a Covered Entity's use of internal compliance
reports, those requirements do not require it to submit compliance
reports to the Commission. These conditions would allow a Covered
Entity to leverage the compliance reports that it otherwise must
produce, by extending those reports to address compliance with the
conditions of the proposed Order. The Commission stated that, in
practice, a Covered Entity may satisfy these conditions by
identifying relevant Exchange Act requirements and proposed Order
conditions and reporting on the implementation and effectiveness of
its controls with regard to compliance with those requirements and
conditions.
\95\ MiFID Org Reg article 22(2)(c) particularly requires that a
Covered Entity's compliance function ``report to the management
body, on at least an annual basis, on the implementation and
effectiveness of the overall control environment for investment
services and activities, on the risks that have been identified and
on the complaints-handling reporting as well as remedies undertaken
or to be undertaken[.]'' Under the proposed condition, those
reports, as submitted to the Commission and the Covered Entity's
management body, also would address the Covered Entity's compliance
with applicable Exchange Act requirements and other applicable
conditions of the proposed Order (in addition to addressing the
Covered Entity's compliance with applicable Spanish and EU
provisions).
\96\ This deadline was intended to promote timely notice of
compliance matters in a manner comparable to Exchange Act
requirements, while also accounting for the annual deadline required
under MiFID Org Reg article 22(2)(c) as well as the possibility that
the Covered Entity may submit reports ahead of this annual deadline.
\97\ This requirement would prevent a Covered Entity from
notifying the Commission just prior to the due date of its annual
Exchange Act compliance report that it will use substituted
compliance for chief compliance officer requirements and then
providing the Commission a Spanish compliance report that covers
only a part of the year that would have been covered in the Exchange
Act report.
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Finally, the Commission preliminarily concluded that allowing an
alternative means of compliance with Exchange Act antitrust
requirements would not lead to comparable outcomes, and the proposed
Order did not provide for substituted compliance in connection with
those requirements.\98\
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\98\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.86.
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B. Commenter Views and Final Provisions
One commenter supported the Commission's proposal to make the
positive substituted compliance determinations in the proposed
Order,\99\ including positive substituted compliance determinations for
internal supervision and chief compliance officer requirements. The
Commission continues to conclude that, taken as a whole, relevant
Spanish and EU requirements would produce regulatory outcomes that are
comparable to those associated with Exchange Act internal supervision
and chief compliance officer requirements by providing that Covered
Entities have structures and processes that reasonably are designed to
promote compliance with applicable law and to identify and cure
instances of non-compliance and manage conflicts of interest. While the
Commission recognizes certain differences between Spanish and EU
requirements and the applicable internal supervision and chief
compliance officer requirements under the Exchange Act, in the
Commission's view those differences on balance should not preclude
substituted compliance for these requirements, as the relevant Spanish
and EU requirements taken as a whole help to produce comparable
regulatory outcomes by requiring Covered Entities to have structures
and processes reasonably designed to promote compliance with applicable
law, identify and cure instances of non-compliance, and manage
conflicts of interest. Accordingly, the Commission is making positive
substituted compliance determinations in connection with internal
supervision and chief compliance officer requirements and is issuing
the internal supervision and compliance section of the Order as
proposed.\100\
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\99\ See Santander Letter at 1.
\100\ See para. (c) of the Order.
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To help ensure the comparability of outcomes, and consistent with
the proposed Order, substituted compliance for internal supervision and
chief requirements is subject to certain conditions. Substituted
compliance for both sets of requirements is conditioned on the Covered
Entity being subject to, and complying with, relevant Spanish and EU
requirements.\101\ In addition, substituted compliance for internal
supervision requirements (1) is conditioned on the Covered Entity's
compliance with applicable Spanish and EU internal supervision
requirements as if those provisions also require the Covered Entity to
comply with applicable requirements under the Exchange Act and the
other applicable conditions of the proposed Order \102\ and (2) does
not extend to certain specified internal supervision requirements.\103\
Finally, substituted compliance in connection with chief compliance
officer requirements is subject to the conditions that compliance
reports required pursuant to MiFID Org Reg article 22(2)(c) must: (1)
Be provided to the Commission at least annually and in the English
language; (2) include a certification \104\ signed by the chief
compliance officer or senior officer of the Covered Entity that, to the
best of the certifier's knowledge and reasonable belief and under
penalty of law, the report is accurate and complete in all material
respects; (3) address the Covered Entity's compliance with applicable
requirements under the Exchange Act and other applicable conditions of
the proposed Order; (4) be provided to the Commission no later than 15
days \105\ following the earlier of
[[Page 59786]]
the submission of the report to the Covered Entity's management body or
the time the report is required to be submitted to the management body;
and (5) together cover the entire period that the Covered Entity's
annual compliance report referenced in Exchange Act section 15F(k)(3)
and Exchange Act rule 15Fk-1(c) would be required to cover.\106\ A
Covered Entity that is unable to comply with an applicable condition--
and thus is not eligible to use substituted compliance for the
particular set of Exchange Act risk control requirements related to
that condition--nevertheless may use substituted compliance for another
set of Exchange Act requirements addressed in the Order if it complies
with the conditions to the relevant parts of the Order.
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\101\See paras. (c)(1) through (3) of the Order.
\102\ See paras. (c)(1)(ii) and (c)(4) of the Order. The Order
provides that the Covered Entity must comply with relevant Spanish
and EU provisions as if those provisions address applicable
conditions of the Order connected to requirements for which the
Covered Entity is relying on substituted compliance. That part of
the condition does not apply to parts of the Order for which the
Covered Entity does not rely on substituted compliance. In other
words, a Covered Entity's reliance on substituted compliance under
para. (c)(4) requires that the Covered Entity's supervisory and
compliance programs cover applicable provisions under the Exchange
Act and other applicable conditions of the Order.
\103\ See para. (c)(1)(iii) of the Order. In particular, the
Order does not extend to the portions of rule 15Fh-3(h) that mandate
supervisory policies and procedures in connection with: The internal
risk management provisions of Exchange Act section 15F(j)(2) (which
are addressed by paragraph (b)(1) of the Order in connection with
internal risk management); the information-related provisions of
Exchange Act sections 15F(j)(3) and (j)(4)(B) (for which substituted
compliance is not available); or the antitrust provisions of
Exchange Act section 15F(j)(6) (for which the Commission is not
making a positive substituted compliance determination).
\104\ The Commission recognizes that Covered Entities preparing
multiple Spanish compliance reports each year may find it difficult
to submit to those reports to the Commission throughout the year,
each with a chief compliance officer or senior officer certification
and a section addressing the Covered Entity's compliance with U.S.
requirements. However, on balance the Commission continues to
believe that these elements are necessary to achieve a regulatory
outcome comparable to the Exchange Act.
\105\ The Commission continues to believe that it is appropriate
for the Commission to receive compliance reports shortly after their
submission to the management body. Providing these reports to the
Commission near the times that the Covered Entity submits them to
the management body also will better align with the Spanish and EU
regulatory framework, which permits a Covered Entity to prepare and
submit to the management body multiple compliance reports throughout
the year. The Commission views 15 days as providing a reasonable
time to translate reports, if needed, and convey them to the
Commission.
\106\ See para. (c)(2)(ii) of the Order. The Commission
continues to believe that these conditions are necessary to promote
comparable regulatory outcomes, particularly in light of the
granular approach to substituted compliance, and to ensure that the
compliance report covers applicable Exchange Act requirements and
proposed Order conditions if the Covered Entity uses substituted
compliance for chief compliance officer requirements, whether or not
the Covered Entity relies on substituted compliance for internal
supervision.
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Under the Order, substituted compliance for internal supervision
and chief compliance officer requirements is not subject to a condition
that the Covered Entity apply substituted compliance for related
recordkeeping requirements in Exchange Act rules 18a-5 and 18a-6. A
Covered Entity that applies substituted compliance for internal
supervision and/or chief compliance officer requirements, but does not
apply substituted compliance for the related recordkeeping requirements
in Exchange Act rules 18a-5 and 18a-6, will remain subject to the
relevant provisions of Exchange Act rules 18a-5 and 18a-6. Those rules
require the Covered Entity to make and preserve records of its
compliance with Exchange Act internal supervision and chief compliance
officer requirements and of its security-based swap activities required
or governed by those requirements. A Covered Entity that applies
substituted compliance for internal supervision and/or chief compliance
officer requirements, but complies directly with related recordkeeping
requirements in rules 18a-5 and 18a-6, therefore must make and preserve
records of its compliance with the relevant conditions of the Order and
of its security-based swap activities required or governed by those
conditions and/or referenced in the relevant parts of rules 18a-5 and
18a-6.
Finally, for the reasons discussed in the proposed Order,\107\ the
Order does not extend to antitrust provisions under the Exchange Act.
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\107\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.86. The Commission is not taking any
position regarding the applicability of the section 15F(j)(6)
antitrust prohibitions in the cross-border context. Non-U.S. SBS
Entities should assess the applicability of those prohibitions to
their security-based swap businesses.
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VI. Substituted Compliance for Counterparty Protection Requirements
A. Proposed Approach
The CNMV requested substituted compliance in connection with
counterparty protection requirements under the Exchange Act relating
to:
Disclosure of material risks and characteristics and
material incentives or conflicts of interest--Exchange Act rule 15Fh-
3(b) requires that SBS Entities disclose to certain counterparties to a
security-based swap certain information about the material risks and
characteristics of the security-based swap, as well as material
incentives or conflicts of interest that the SBS Entity may have in
connection with the security-based swap. These provisions address the
need for security-based swap market participants to have information
that is sufficient to make informed decisions regarding potential
transactions involving particular counterparties and particular
financial instruments.\108\
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\108\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.87.
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``Know your counterparty''--Exchange Act rule 15Fh-3(e)
requires a security-based swap dealer to establish, maintain, and
enforce written policies and procedures to obtain and retain certain
information regarding a counterparty that is necessary for conducting
business with that counterparty. This provision accounts for the need
that SBS Entities obtain essential counterparty information necessary
to promote effective compliance and risk management.\109\
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\109\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.88.
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Suitability--Exchange Act rule 15Fh-3(f) requires a
security-based swap dealer that recommends to certain counterparties a
security-based swap or trading strategy involving a security-based
swap, to undertake reasonable diligence to understand the potential
risks and rewards associated with the recommendation and to have a
reasonable basis to believe that the recommendation is suitable for the
counterparty. This provision accounts for the need to guard against
security-based swap dealers making unsuitable recommendations.\110\
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\110\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and nn.89-90.
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Fair and balanced communications--Exchange Act rule 15Fh-
3(g) requires that SBS Entities communicate with counterparties in a
fair and balanced manner based on principles of fair dealing and good
faith. These provisions promote complete and honest communications as
part of SBS Entities' security-based swap businesses.\111\
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\111\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.91.
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Daily mark disclosure--Exchange Act rule 15Fh-3(c)
requires that SBS Entities provide daily mark information to certain
counterparties. These provisions address the need for market
participants to have effective access to daily mark information
necessary to manage their security-based swap positions.\112\
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\112\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.92.
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Clearing rights disclosure--Exchange Act rule 15Fh-3(d)
requires that SBS Entities provide certain counterparties with
information regarding clearing rights under the Exchange Act.\113\
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\113\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47676 and n.93. Exchange Act section 3C(g)(5) provides
certain rights for counterparties to select the clearing agency at
which a security-based swap is cleared. For all security-based swaps
that an SBS Entity enters into with certain counterparties, the
counterparty has the sole right to select the clearing agency at
which the security-based swap is cleared. For security-based swaps
that are not subject to mandatory clearing (pursuant to Exchange Act
sections 3C(a) and (b)) and that an SBS Entity enters into with
certain counterparties, the counterparty also may elect to require
clearing of the security-based swap. Substituted compliance is not
available in connection with these provisions.
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Taken as a whole, the counterparty protection requirements under
section 15F of the Exchange Act help to ``bring professional standards
of conduct to, and increase transparency in, the security-based swap
market and to require [SBS Entities] to treat parties to these
transactions fairly.'' \114\ The
[[Page 59787]]
proposed Order provided for conditional substituted compliance in
connection with disclosure of material risks and characteristics,
disclosure of material incentives or conflicts of interest, ``know your
counterparty,'' suitability, fair and balanced communications, and
daily mark disclosure requirements.\115\ In proposing to provide
conditional substituted compliance for these counterparty protection
requirements, the Commission preliminarily concluded that the relevant
Spanish and EU requirements produce regulatory outcomes that are
comparable to these requirements under Exchange Act section 15F(h), by
subjecting Covered Entities to obligations that promote standards of
professional conduct, transparency, and the fair treatment of parties.
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\114\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47677 and n.94; Business Conduct Adopting Release, 81
FR 30065. For non-U.S. SBS Entities, the counterparty protection
requirements under Exchange Act section 15F(h) apply only to the SBS
Entity's transactions with U.S. counterparties (apart from certain
transactions conducted through a foreign branch of the U.S.
counterparty), or to transactions arranged, negotiated, or executed
by personnel located in a U.S. branch or office. See Exchange Act
rule 3a71-3(c), 17 CFR 240.3a71-3(c) (exception from business
conduct requirements for a security-based swap dealer's ``foreign
business''); see also Exchange Act rule 3a71-3(a)(3), (8) and (9)
(definitions of ``transaction conducted through a foreign branch,''
``U.S. business'' and ``foreign business'').
\115\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47677.
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As proposed, substituted compliance for these requirements would be
subject to certain conditions to help ensure the comparability of
outcomes. First, under the proposed Order, substituted compliance for
disclosure of material risks and characteristics, disclosure of
material incentives or conflicts of interest, ``know your
counterparty,'' suitability, and fair and balanced communications
requirements would be conditioned on Covered Entities being subject to,
and complying with, relevant Spanish and EU requirements.\116\ Second,
the proposed Order additionally would condition substituted compliance
for suitability requirements on the counterparty being a ``professional
client'' as defined in MiFID (rather than a ``retail client'' or an
elective ``professional client'' \117\) and not a ``special entity'' as
defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule
15Fh-2(d).\118\ The Commission continues to believe that, absent such a
condition the MiFID-based suitability requirements would not be
expected to produce a counterparty protection outcome that is
comparable with the outcome produced by the suitability requirements
under the Exchange Act.\119\ Finally, in the proposed Order the
Commission preliminarily viewed certain types of EU daily portfolio
reconciliation requirements as comparable to Exchange Act daily mark
disclosure requirements.\120\ These daily portfolio reconciliation
requirements apply to portfolios of a financial counterparty or a non-
financial counterparty subject to the clearing obligation in EMIR in
which counterparties have 500 or more OTC derivatives contracts
outstanding with each other.\121\ The Commission preliminarily viewed
EU portfolio reconciliation requirements for other types of portfolios,
which may be reconciled less frequently than each business day or may
not require disclosure to counterparties, as not comparable to Exchange
Act daily mark requirements.\122\ Accordingly, the proposed Order would
condition substituted compliance for daily mark requirements on the
Covered Entity being required to reconcile, and in fact reconciling,
the portfolio containing the relevant security-based swap on each
business day pursuant to relevant EU requirements.\123\
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\116\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47677 and nn.97-99.
\117\ Annex II of MiFID describes which clients are
``professional clients.'' Section I of Annex II describes the types
of clients considered to be professional clients unless the client
elects non-professional treatment; these clients are per se
professional clients. Section II of Annex II describes the types of
clients who may be treated as professional clients on request; these
clients are elective professional clients. See MiFID Annex II.
Retail clients are those that are not professional clients. See
MiFID article 4(1)(11).
\118\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47677.
\119\ The Commission recognizes that Exchange Act rules permit
security-based swap dealers, when making a recommendation to an
``institutional counterparty,'' to satisfy some elements of the
suitability requirement if the security-based swap dealer reasonably
determines that the counterparty or its agent is capable of
independently evaluating relevant investment risks, the counterparty
or its agent represents in writing that it is exercising independent
judgment in evaluating recommendations, and the security-based swap
dealer discloses to the counterparty that it is acting as
counterparty and is not undertaking to assess the suitability of the
recommendation for the counterparty. See Exchange Act rule 15Fh-
3(f)(2). However, the institutional counterparties to whom this
alternative applies are only a subset of the ``professional
clients'' to whom more narrowly tailored suitability requirements
apply under MiFID. The institutional counterparty alternative under
the Exchange Act remains available, in accordance with its terms,
for recommendations that are not eligible for, or for which a
Covered Entity does not rely on, substituted compliance under the
Order.
\120\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47677-78.
\121\ See EMIR RTS article 13(3)(a)(i); EMIR article 10.
\122\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47677-78.
\123\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47677-78. This approach would avoid reliance on Spanish
and EU trade reporting or mark-to-market (or mark-to-model)
requirements. The Spanish and EU mark-to-market (or mark-to-model)
requirements direct certain types of derivatives counterparties to
mark-to-market (or mark-to-model) uncleared transactions each day
but do not require disclosure of those marks to counterparties.
Moreover, though Spanish and EU trade reporting requirements direct
certain derivatives counterparties to report to a EU trade
repository updated daily valuations for each OTC derivative
contract, in practice U.S. counterparties may encounter challenges
when attempting to access daily marks reported to multiple EU trade
repositories with which they may not otherwise have business
relationships. In addition, the information may be less current,
given the time necessary for reporting and for the trade repository
to make the information available.
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The proposed Order would not provide substituted compliance in
connection with Exchange Act requirements for SBS Entities to disclose
a counterparty's clearing rights under Exchange Act section
3C(g)(5).\124\ The CNMV Application cited certain EU provisions related
to a counterparty's clearing rights in the European Union. However,
those provisions do not require disclosure of Exchange Act section
3C(g)(5) clearing rights, and the Commission preliminarily viewed the
EU clearing provisions as not comparable to Exchange Act clearing
rights disclosure requirements.\125\
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\124\ Though the requirement to disclose a counterparty's
Exchange Act section 3C(g)(5) clearing rights is eligible for
substituted compliance, the section 3C(g)(5) clearing rights
themselves are not.
\125\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47678 and n.102.
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B. Commenter Views and Final Provisions
One commenter supported the Commission's proposal to make the
positive substituted compliance determinations in the proposed
Order,\126\ including positive substituted compliance determinations
for disclosure of material risks and characteristics, disclosure of
material incentives or conflicts of interest, ``know your
counterparty,'' suitability, fair and balanced communications, and
daily mark disclosure requirements. The Commission continues to
conclude that, taken as a whole, relevant Spanish and EU requirements
would produce regulatory outcomes that are comparable to those
associated with these counterparty protection requirements, by
subjecting Covered Entities to obligations that promote standards of
professional conduct, transparency, and the fair treatment of parties.
The Commission recognizes that there are certain differences between
relevant Spanish and EU requirements and Exchange Act disclosure,
``know your counterparty,'' suitability, and communications
requirements, but in the Commission's view those differences, when
coupled with the conditions in the proposed Order, are not so material
as to be inconsistent with substituted compliance within the requisite
outcomes-oriented framework. Accordingly, the Commission is making
[[Page 59788]]
positive substituted compliance determinations in connection with
disclosure of material risks and characteristics, disclosure of
material incentives or conflicts of interest, ``know your
counterparty,'' suitability, fair and balanced communications, and
daily mark disclosure requirements.\127\ The Commission is amending the
substituted compliance determination for ``know your counterparty''
requirements for the reasons discussed below, and is issuing the
remainder of the counterparty protection section of the Order as
proposed.
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\126\ See Santander Letter at 1.
\127\ See para. (d) of the Order.
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The Commission is amending paragraph (d)(3) of the Order to replace
the requirements of Directive (EU) 2015/849 (``MLD'') and the Spanish
Anti-Money Laundering Act, Law 10/2010, of April 28 (``SMLA'') with
provisions of MiFID, MiFID Org Reg, SSMA and Royal Decree 217/2008, of
February 15 (``RD 217/2008'').\128\ Exchange Act rule 15Fh-3(e)(3) is
one of three prongs of the Exchange Act ``know your counterparty
requirements,'' and requires a security-based swap dealer to establish,
maintain, and enforce written policies and procedures to obtain and
retain a record of information regarding the authority of any person
acting for its counterparty. Before making a positive substituted
compliance determination, Exchange Act rule 3a71-6 requires the
Commission to determine that foreign requirements are comparable to the
otherwise applicable Exchange Act requirements, after accounting for
factors such as the effectiveness of the supervisory compliance program
administered, and the enforcement authority exercised, by the foreign
authority in respect of the relevant requirements, as well as to enter
into a memorandum of understanding and/or other arrangement with the
relevant foreign financial regulatory authority or authorities
addressing supervisory and enforcement cooperation and other matters
arising under the substituted compliance determination.\129\ The
customer due diligence provisions in the proposed Order's MLD and SMLA
requirements are relevant to the Exchange Act ``know your
counterparty'' requirements relating to records of the authority of a
person acting on behalf of the counterparty. However, in Spain
supervision and enforcement of these MLD and SMLA requirements are
within the jurisdiction of the Servicio Ejecutivo de la Comisi[oacute]n
de Prevenci[oacute]n del Blanqueo de Capitales e Infracciones
Monetarias (``SEPBLAC'') and the Comisi[oacute]n de Prevenci[oacute]n
del Blanqueo de Capitales e Infracciones Monetarias (``COPBLAC''). The
CNMV and the Bank of Spain do work closely with the SEPBLAC and
COPBLAC, but the substituted compliance memorandum of understanding
between the Commission and the CNMV and the Bank of Spain, finalized
after publication of the Spanish Substituted Compliance Notice and
Proposed Order, does not provide for ongoing sharing of supervisory and
enforcement information regarding these MLD and SMLA requirements, as
neither the SEPBLAC nor the COPBLAC is a party to the memorandum of
understanding. Other requirements based on MiFID, as applied by the
CNMV, are, however, comparable to the Exchange Act requirement to
establish, maintain, and enforce written policies and procedures to
obtain and retain a record of information regarding the authority of
any person acting for its counterparty.\130\ The CNMV, rather than
SEPBLAC or COPBLAC, is responsible for supervision and enforcement of
these MiFID-based requirements and the memorandum of understanding
would provide for ongoing sharing of supervisory and enforcement
information regarding these requirements. Accordingly, the Commission
is replacing the MLD and SMLA requirements listed in paragraph (d)(3)
of the proposed Order with these MiFID-based requirements.
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\128\ See para. (d)(3) of the Order. Paragraph (d)(3) of
proposed Order cited the following MLD-based requirements: MLD
articles 11 and 13; SMLA articles 3(1) and (2), 4, 5, 6, 7(1)
through (4), 7(7), 7(8), and 8; MLD articles 8(3) and 8(4)(a) as
applied to internal policies, controls and procedures regarding
recordkeeping of customer due diligence activities; and SMLA article
26 as applied to policies and procedures regarding recordkeeping of
customer due diligence activities. The Commission is replacing these
requirements with MiFID article 16(6), MiFID Org Reg articles 72,
74, 75, and applicable parts of Annex I, SSMA article 194(1), and RD
217/2008 article 32(1) and (10).
\129\ See Parts II.B.1 and II.B.2, supra.
\130\ MiFID article 16(6), implemented in Spain in SSMA article
194(1) and RD 217/2008 article 32(1) and (10), requires a Covered
Entity to arrange for records to be kept of all services,
activities, and transactions undertaken by it that are sufficient to
enable the CNMV to fulfill its supervisory and enforcement mandates,
and in particular to determine that the Covered Entity has complied
with all obligations including those with respect to clients or
potential clients and to the integrity of the market. MiFID Org Reg
articles 74 and 75 require Covered Entities to record and keep at
the CNMV's disposal certain information about client orders and
decisions to deal. Annex IV of MiFID Org Reg describes that required
client information and includes a requirement to make a record of
the ``name and designation of any relevant person acting on behalf
of the client.'' The CNMV commented that this requirement to make a
record regarding persons acting on behalf of the client ``implies
that the investment firm or credit institution for internal control
reasons, must obtain documentation of the powers/authorization of
the person to be represented which is verifiable y the CNMV.'' See
Memorandum of Correspondence with Santiago Yraola, Deputy Director
of International Affairs, CNMV, dated Sept. 24, 2021 (``CNMV
Memorandum''), at 2. Moreover, the CNMV confirmed that in
supervising compliance with this requirement, it requires Covered
Entities to provide records of the power of attorney or public deed
establishing the authority of client representatives. See CNMV
Memorandum at 2. Finally, MiFID Org Reg article 72 and Annex I
require the Covered Entity to maintain records in the medium, form,
and format that allow the CNMV to access the records readily and to
easily ascertain any amendments, and that make it impossible to
manipulate or alter the records.
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To help ensure the comparability of outcomes, and consistent with
the proposed Order, substituted compliance for these counterparty
protection requirements is subject to certain conditions. First,
substituted compliance for disclosure of material risks and
characteristics,\131\ disclosure of material incentives or conflicts of
interest,\132\ ``know your counterparty,'' \133\ suitability,\134\ and
fair and balanced communications \135\ requirements is conditioned on
Covered Entities being subject to, and complying with, relevant Spanish
and EU requirements. Second, substituted compliance for suitability
requirements is conditioned on the counterparty being a ``professional
client'' as defined in MiFID (rather than a ``retail client'' or an
elective ``professional client'') and not a ``special entity'' as
defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule
15Fh-2(d).\136\ Third, substituted compliance for daily mark disclosure
requirements is conditioned on the Covered Entity being required to
reconcile, and in fact reconciling, the portfolio containing the
relevant security-based swap on each business day pursuant to relevant
EU requirements.\137\ A Covered Entity that is unable to comply with an
applicable condition--and thus is not eligible to use substituted
compliance for the particular set of Exchange Act counterparty
protection requirements related to that condition--nevertheless may use
substituted compliance for another set of Exchange Act requirements
addressed in the Order if
[[Page 59789]]
it complies with the conditions to the relevant parts of the Order.
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\131\ See para. (d)(1) of the Order.
\132\ See para. (d)(2) of the Order.
\133\ See para. (d)(3) of the Order.
\134\ See para. (d)(4)(i) of the Order.
\135\ See para. (d)(5) of the Order.
\136\ See para. (d)(4)(ii) of the Order.
\137\ See para. (d)(6) of the Order. A Covered Entity must be
required to reconcile, and in fact reconcile, the portfolio
containing the security-based swap for which substituted compliance
is used, on each business day pursuant to EMIR articles 11(1)(b) and
11(2) and EMIR RTS article 13. A Covered Entity may not use
substituted compliance for daily mark disclosure requirements if the
relevant security-based swap is in a portfolio that these EU
requirements do not require to be reconciled on each business day.
---------------------------------------------------------------------------
Under the Order, substituted compliance for counterparty protection
requirements (relating to disclosure of information regarding material
risks and characteristics, disclosure of information regarding material
incentives or conflicts of interest, ``know your counterparty,''
suitability, fair and balanced communications and daily mark
disclosure) is not subject to a condition that the Covered Entity apply
substituted compliance for related recordkeeping requirements in
Exchange Act rules 18a-5 and 18a-6. A Covered Entity that applies
substituted compliance for one or more counterparty protection
requirements, but does not apply substituted compliance for the related
recordkeeping requirements in Exchange Act rules 18a-5 and 18a-6, will
remain subject to the relevant provisions of Exchange Act rules 18a-5
and 18a-6. Those rules require the Covered Entity to make and preserve
records of its compliance with Exchange Act counterparty protection
requirements and of its security-based swap activities required or
governed by those requirements. A Covered Entity that applies
substituted compliance for a counterparty protection requirement, but
complies directly with related recordkeeping requirements in rules 18a-
5 and 18a-6, therefore must make and preserve records of its compliance
with the relevant conditions of the Order and of its security-based
swap activities required or governed by those conditions and/or
referenced in the relevant parts of rules 18a-5 and 18a-6.
Finally, for the reasons discussed in the proposed Order, the Order
does not extend to clearing rights disclosure provisions under the
Exchange Act.\138\
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\138\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47678.
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VII. Substituted Compliance for Recordkeeping, Reporting, Notification,
and Securities Count Requirements
A. CNMV Request and Associated Analytic Considerations
The CNMV Application in part requested substituted compliance for
requirements applicable to SBS Entities with a prudential regulator
under the Exchange Act relating to:
Record Making--Exchange Act rule 18a-5 requires prescribed
records to be made and kept current.\139\
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\139\ 17 CFR 240.18a-5. The CNMV Application discusses Spanish
and EU recordmaking requirements. See CNMV Application Appendix B,
Category: Recordkeeping and Reporting Requirements; Subcategory:
Record creation, at 1-27, 55-57.
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Record Preservation--Exchange Act rule 18a-6 requires
preservation of records.\140\
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\140\ 17 CFR 240.18a-6. The CNMV Application discusses Spanish
and EU record preservation requirements. See CNMV Application
Appendix B, Category: Recordkeeping and Reporting; Subcategory:
Record Preservation at 28-58.
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Reporting--Exchange Act rule 18a-7 requires certain
reports.\141\
---------------------------------------------------------------------------
\141\ 17 CFR 240.18a-7. The CNMV Application discusses Spanish
and EU requirements that address firms' obligations to make certain
reports. See CNMV Application Appendix B, Category: Reports and
Notifications at 59-62.
---------------------------------------------------------------------------
Notification--Exchange Act rule 18a-8 requires
notification to the Commission when certain financial or operational
problems occur.\142\
---------------------------------------------------------------------------
\142\ 17 CFR 240.18a-8. The CNMV Application discusses Spanish
and EU requirements that address firms' obligations to make certain
notifications. See CNMV Application Appendix B category 2 at 62-65.
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Daily Trading Records--Exchange Act section 15F(g)
requires SBS Entities to maintain daily trading records.\143\
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\143\ The CNMV Application discusses Spanish and EU requirements
that address firms' record preservation obligations related to
records that firms are required to create, as well as additional
records such as records of communications. See CNMV Application
Appendix B, Category: Recordkeeping and Reporting Requirements;
Subcategory: Record Creation at 2-3.
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Taken as a whole, the recordkeeping, reporting, and notification
requirements that apply to SBS Entities with a prudential regulator are
designed to promote the prudent operation of the firm's security-based
swap activities, assist the Commission in conducting compliance
examinations of those activities, and alert the Commission to potential
financial or operational problems that could impact the firm and its
customers.
B. Commenter Views and Final Provisions
1. General Considerations
In proposing to provide conditional substituted compliance in
connection with this part of the CNMV Application, the Commission
preliminarily concluded that the relevant EU and Spanish requirements,
subject to conditions and limitations, would produce regulatory
outcomes that are comparable to the outcomes associated with the vast
majority of the recordkeeping, reporting, notification, and securities
count requirements under the Exchange Act applicable to SBS Entities
pursuant to Exchange Act rules 18a-5, 18a-6, 18a-7, 18a-8, and Exchange
Act section 15F(g) (collectively, the recordkeeping, reporting, and
notification requirements'').\144\ Substituted compliance for the
recordkeeping, reporting, and notification requirements accordingly is
conditioned on Covered Entities being subject to and complying with the
EU and Spanish provisions that in the aggregate establish a framework
that produces outcomes comparable to those associated with the
analogous recordkeeping, reporting, and notification requirements under
the Exchange Act.\145\
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\144\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47678-85, 47693-95.
\145\ See paras. (e)(1)(i)(A), (e)(1)(i)(B), (e)(1)(i)(C),
(e)(1)(i)(D), (e)(1)(i)(E), (e)(1)(i)(F)(1), (e)(1)(i)(G),
(e)(1)(i)(H), (e)(1)(i)(I)(1), (e)(1)(i)(J)(1), (e)(1)(i)(K)(1),
(e)(2)(i)(A), (e)(2)(i)(B), (e)(2)(i)(C), (e)(2)(i)(D),
(e)(2)(i)(E), (e)(2)(i)(F)(1), (e)(2)(i)(G)(1), (e)(2)(i)(H),
(e)(2)(i)(I), (e)(2)(i)(J), (e)(2)(i)(K)(1), (e)(2)(i)(L),
(e)(2)(i)(M), (e)(3)(i), (e)(4)(i)(A), (e)(4)(i)(B)(1), and (e)(5)
of the Order.
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The proposed structure of the substituted compliance determinations
with respect to the recordkeeping, reporting, and notification
requirements would have provided Covered Entities with greater
flexibility to select distinct requirements within the broader rules
for which they want to apply substituted compliance.\146\ This would
not preclude a Covered Entity from applying substituted compliance for
the entire rule (subject to conditions and limitations). However, it
would permit the Covered Entity to apply substituted compliance with
respect to certain requirements of a given rule and to comply directly
with the remaining requirements. This more granular approach to the
recordkeeping, reporting, and notification rules was intended to permit
Covered Entities to leverage existing recordkeeping and reporting
systems that are designed to comply with the broker-dealer
recordkeeping and reporting requirements on which the recordkeeping,
reporting, and notification requirements applicable to SBS Entities are
based. For example, it may be more efficient for a Covered Entity to
comply with certain Exchange Act requirements within a given
recordkeeping, reporting, or notification rule (rather than apply
substituted compliance) because it can utilize systems that its
affiliated broker-dealer has implemented to comply with them. This
proposed approach was consistent with the approach taken by the
Commission in the French Substituted Compliance Order and UK
Substituted Compliance Order.\147\
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\146\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47678-79, 47693-95.
\147\ See French Substituted Compliance Order, 86 FR 41649; UK
Substituted Compliance Order, 86 FR 43360.
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[[Page 59790]]
As applied to Exchange Act rules 18a-5 and 18a-6, this approach of
providing greater flexibility resulted in preliminary substituted
compliance determinations with respect to the different categories of
records these rules require SBS Entities to make, keep current, and/or
preserve.\148\ The objective of these rules--taken as a whole--is to
assist the Commission in monitoring and examining for compliance with
substantive Exchange Act requirements applicable to SBS Entities (e.g.,
business conduct requirements) as well as to promote the prudent
operation of these firms.\149\ The Commission believes the comparable
Spanish recordkeeping rules achieve these outcomes with respect to
compliance with substantive Spanish requirements for which preliminary
positive substituted compliance determinations were being made in the
proposed Order (e.g., the preliminary positive substituted compliance
determinations with respect to the majority of the Exchange Act
business conduct requirements). At the same time, the recordkeeping
rules address different categories of records through distinct
requirements within the rules. Each requirement with respect to a
specific category of records (e.g., paragraph (b)(1) of Exchange Act
rule 18a-5 addressing trade blotters) can be viewed in isolation as a
distinct recordkeeping rule. Therefore, the Commission made preliminary
substituted compliance determinations at this level of Exchange Act
rules 18a-5 and 18a-6.\150\ The Commission did not receive comment on
this granular approach and is adopting it as proposed.\151\
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\148\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47679.
\149\ See, e.g., Exchange Act Release No. 71958 (Apr. 17, 2014),
79 FR 25194, 25199-200 (May 2, 2014).
\150\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47679.
\151\ See paras. (e)(1)(i) and (e)(2)(ii) of the Order.
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Second, the Commission did not make a preliminary positive
substituted compliance determination with respect to a discrete
provision of the recordkeeping, reporting, and notification
requirements if it was fully or partially linked to a substantive
Exchange Act requirement for which substituted compliance was not
available or for which a preliminary positive substituted compliance
determination was not being made.\152\ In particular, a preliminary
positive substituted compliance determination was not made, in full or
in part, for recordkeeping, reporting, or notification requirements
linked to the following Exchange Act rules for which substituted
compliance is not available or a preliminary positive substituted
compliance determination was not made: (1) Exchange Act rule 15Fh-4;
(2) Exchange Act rule 15Fh-5; (3) Exchange Act rule 15Fh-6; (4)
Exchange Act rule 18a-4; (5) Regulation SBSR; (6) Form SBSE and its
variations; (7) Exchange Act rule 15Fh-1; and (8) Exchange Act rule
15Fh-2. This proposed approach was consistent with the approach taken
by the Commission in the French Substituted Compliance Order and UK
Substituted Compliance Order.\153\ The Commission did not receive
comment on these limitations and the Order includes them.\154\
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\152\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47679 (discussing this limitation).
\153\ See French Substituted Compliance Order, 86 FR 41650; UK
Substituted Compliance Order, 86 FR 45778.
\154\ See para. (e) of the Order.
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Third, the Commission conditioned substituted compliance with
discrete provisions of the recordkeeping, reporting, and notification
requirements that were fully or partially linked to a substantive
Exchange Act requirement for which substituted compliance was available
on the Covered Entity applying substituted compliance with respect to
the linked Exchange Act requirement.\155\ In particular, substituted
compliance for a provision of the recordkeeping, reporting, and
notification requirements that is linked to the following Exchange Act
rules was conditioned on the SBS Entity applying substituted compliance
to the linked substantive Exchange Act rule: (1) Exchange Act rule
15Fh-3, except paragraphs (a) and (d) for which substituted compliance
was not requested; (2) Exchange Act rule 15Fi-2; (3) Exchange Act rule
15Fi-3; (4) Exchange Act rule 15Fi-4; (5) Exchange Act rule 15Fi-5; and
(6) Exchange Act rule 15Fk-1. The Commission did not receive comment on
these conditions and the Order includes them.\156\
---------------------------------------------------------------------------
\155\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47679 (discussing this condition).
\156\ See para. (e) of the Order.
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Fourth, the Commission conditioned substituted compliance with
Exchange Act rule 18a-7 on Covered Entities filing periodic unaudited
financial and operational information with the Commission or its
designee in the manner and format required by Commission rule or
order.\157\ The Commission did not receive comment on this condition
and the Order includes it.\158\
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\157\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47683 (discussing this condition). See also Exchange
Act Release No. 93335 (Oct. 14, 2021) (order specifying the manner
and format of filing unaudited financial and operational information
by Covered Entities relying on substituted compliance determinations
with respect to Exchange Act rule 18a-7).
\158\ See para. (e)(3) of the Order.
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Fifth, the proposed Order conditioned substituted compliance with
Exchange Act rule 18a-8 on Covered entities simultaneously sending a
copy of any notice required to be sent by Spanish or EU law to the
Commission in the manner specified on the Commission's website and
including with the transmission the contact information of an
individual who can provide further information about the matter that is
the subject of the notice.\159\ The Commission did not receive comment
on these conditions and the Order includes them.\160\
---------------------------------------------------------------------------
\159\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47683-84 (discussing this condition).
\160\ See para. (e)(4)(ii)(A) of the Order.
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Sixth, the proposed Order included a condition that Covered
Entities must promptly 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 of this Order.\161\ The Commission did not receive a
comment on this condition and the Order includes it.\162\
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\161\ See Spanish Substituted Compliance Notice and Proposed
Order, 86 FR 47685 (discussing this condition).
\162\ See para. (e)(7) of the Order.
---------------------------------------------------------------------------
2. Citations to EU and Spanish Law
The Commission received a comment recommending changes to the
proposed Order to refine the scope of Spanish law provisions that would
operate as conditions to substituted compliance.\163\ The Commission
reviewed each of the Spanish law citations that the commenter
recommended removing from the proposed Order for relevance to the
comparable Exchange Act requirement while also keeping in mind that
each EU or Spanish law citation was included in the CNMV Application
intentionally. The Commission's conclusion and reasoning with respect
to the commenter's recommendations are discussed in further detail
below.
---------------------------------------------------------------------------
\163\ See Santander Letter at 1-2.
---------------------------------------------------------------------------
The commenter recommended removing references to SSMA articles
276bis, 276ter, 276quater, and 276quinquies from paragraphs
(e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and (C) of the proposed Order.
The commenter stated that SSMA articles 276bis, 276ter, 276quater, and
[[Page 59791]]
276quinquies set out requirements regarding notifications to the CNMV
about certain violations under Spanish law and are unrelated to the
Commission's recordkeeping requirements addressed by paragraphs
(e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and (C). Instead, the commenter
states, SSMA articles 276bis, 276ter, 276quater, and 276quinquies
should be, and are, included in paragraph (e)(4)(i), which addresses
the Commission's notification requirements. The Commission agrees with
the commenter's reasoning and is therefore removing references to SSMA
articles 276bis, 276ter, 276quater, and 276quinquies from paragraphs
(e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and (C) of the Order.\164\
---------------------------------------------------------------------------
\164\ Compare paras. (e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and
(C) of the proposed Order, with paras. (e)(1)(i)(F)(1), and
(e)(2)(i)(A), (B), and (C) of the Order.
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In addition, as discussed in Part VI.B. above, MLD and SMLA are
supervised by SEPBLAC and COPBLAC which are not signatories to the
supervisory and enforcement memorandum of understanding with the
Commission. Accordingly, paragraphs (e)(1)(i)(G), (e)(1)(i)(I), and
(e)(2)(i)(F) of the Order no longer require a Covered Entity to be
subject to and comply with MLD articles 11 and 13 and SMLA articles 3-7
and instead require the Covered Entity to be subject to and comply with
comparable MiFID-based requirements.\165\
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\165\ Compare paras. (e)(1)(i)(G), (e)(1)(i)(I), and
(e)(2)(i)(F) of the proposed Order, with paras. (e)(1)(i)(G),
(e)(1)(i)(I), and (e)(2)(i)(F) of the Order.
---------------------------------------------------------------------------
No other comments were received regarding any other Spanish law
provisions that would operate as conditions to substituted compliance.
Accordingly, the Commission is issuing these remaining conditions as
proposed.
VIII. Supervisory and Enforcement Considerations
A. Proposed Approach
Exchange Act rule 3a71-6(a)(2)(i) provides that the Commission's
assessments regarding the comparability of foreign requirements in part
should take into account ``the effectiveness of the supervisory program
administered, and the enforcement authority exercised'' by the foreign
financial regulatory authority. This provision is intended to help
ensure that substituted compliance is not predicated on rules that
appear high-quality on paper if market participants in practice are
allowed to fall short of their obligations, while also recognizing that
differences among supervisory and enforcement regimes should not be
assumed to reflect flaws in one regime or another.\166\ The CNMV
Application accordingly included information regarding the supervisory
and enforcement framework applicable to derivatives markets and market
participants in Spain.
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\166\ See French Substituted Compliance Notice and Proposed
Order, 85 FR 85734.
---------------------------------------------------------------------------
In proposing to grant substituted compliance in connection with the
CNMV Application, the Commission preliminarily concluded that the
relevant supervisory and enforcement considerations were consistent
with substituted compliance. That preliminary conclusion took into
account information regarding the CNMV and the Bank of Spain (together,
the ``Spanish Authorities'') and the ECB's roles and practices in
supervising investment firms and credit institutions located in Spain,
as well as their enforcement-related authority and practices.\167\
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\167\ Id. at 85734-36.
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B. Commenter Views and Final Provisions
Commenters did not address the Commission's preliminary conclusions
regarding supervisory and enforcement considerations, and the
Commission continues to conclude that the relevant supervisory and
enforcement considerations in Spain are consistent with substituted
compliance. In particular, based on the available information regarding
the Spanish Authorities' and the ECB's authority and practices to
oversee market participants' compliance with applicable requirements
and to take action in the event of violations, the Commission remains
of the view that, consistent with rule 3a71-6, comparability
determinations reflect Spain and EU requirements as they apply in
practice.
To be clear, the supervisory and enforcement considerations
addressed by rule 3a71-6 do not mandate that the Commission make
judgments regarding the comparative merits of U.S. and foreign
supervisory and enforcement frameworks, or to require specific findings
regarding the supervisory and enforcement effectiveness of a foreign
regime. The rule 3a71-6 considerations regarding supervisory and
enforcement effectiveness instead address whether comparability
analyses related to substituted compliance reflect requirements that
market participants must follow, and for which market participants are
subject to enforcement consequences in the event of violations. Those
considerations are satisfied here.
IX. Conclusion
It is hereby determined and ordered, pursuant to rule 3a71-6 under
the Exchange Act, that a Covered Entity (as defined in paragraph (f)(1)
of this Order) may satisfy the requirements under the Exchange Act that
are addressed in paragraphs (b) through (e) of this Order so long as
the Covered Entity is subject to and complies with relevant
requirements of the Kingdom of Spain and the European Union and with
the conditions of this Order, as amended or superseded from time to
time.
(a) General conditions.
This Order is subject to the following general conditions, in
addition to the conditions specified in paragraphs (b) through (e):
(1) Activities as MiFID ``investment services or activities.'' For
each condition in paragraphs (b) through (e) of this Order that
requires the application of, and the Covered Entity's compliance with,
provisions of MiFID; provisions of SSMA and/or RD 217/2008 that
implement MiFID; and/or other EU and Spanish requirements adopted
pursuant to those provisions, the Covered Entity's relevant security-
based swap activities constitute ``investment services'' or
``investment activities,'' as defined in MiFID article 4(1)(2) and in
SSMA article 140, and fall within the scope of the Covered Entity's
authorization from the CNMV and the ECB to provide investment services
and/or perform investment activities in the Kingdom of Spain.
(2) Counterparties as MiFID ``clients.'' For each condition in
paragraphs (b) through (e) of this Order that requires the application
of, and the Covered Entity's compliance with, provisions of MiFID;
provisions of SSMA and/or RD 217/2008 that implement MiFID; and/or
other EU and Spanish requirements adopted pursuant to those provisions,
the relevant counterparty (or potential counterparty) to the Covered
Entity is a ``client'' (or potential ``client''), as defined in MiFID
article 4(1)(9) and in the First Additional Provision of Royal Decree
Law 14/2018, of 28 September.
(3) Security-based swaps as MiFID ``financial instruments.'' For
each condition in paragraphs (b) through (e) of this Order that
requires the application of, and the Covered Entity's compliance with,
provisions of MiFID; provisions of SSMA and/or RD 217/2008 that
implement MiFID; and/or other EU and Spanish requirements adopted
pursuant to those provisions, the relevant security-based swap is a
``financial instrument,'' as defined in MiFID article 4(1)(15) and in
the Annex to SSMA.
[[Page 59792]]
(4) Covered Entity as CRD/CRR ``institution.'' For each condition
in paragraph (b) through (e) of this Order that requires the
application of, and the Covered Entity's compliance with, the
provisions of CRD; provisions of LOSSEC, RD 84/2015, BoS Circular 2/
2016, SSMA, and/or RD 217/2008 that implement CRD; CRR; and/or other EU
and Spanish requirements adopted pursuant to those provisions, the
Covered Entity is an ``institution,'' as defined in CRD article 3(1)(3)
and CRR article 4(1)(3), and either a credit institution, as defined in
LOSSEC article 1 (in the case of a provision of LOSSEC, RD 84/2015,
and/or BoS Circular 2/2016), or an investment firm, as defined in SSMA
article 138 (in the case of a provision of SSMA and/or RD 217/2008 that
implements CRD).
(5) Counterparties as EMIR ``counterparties.'' For each condition
in paragraphs (b) through (e) of this Order that requires the
application of, and the Covered Entity's compliance with, provisions of
EMIR, EMIR RTS, EMIR Margin RTS, and/or other EU requirements adopted
pursuant to those provisions, if the relevant provision applies only to
the Covered Entity's activities with specified types of counterparties,
and if the counterparty to the Covered Entity is not any of the
specified types of counterparty, the Covered Entity complies with the
applicable condition of this Order:
(i) As if the counterparty were the specified type of counterparty;
in this regard, if the Covered Entity reasonably determines that the
counterparty would be a financial counterparty if it were established
in the EU and authorized by an appropriate EU authority, it must treat
the counterparty as if the counterparty were a financial counterparty;
(ii) Without regard to the application of EMIR article 13; and
(iii) Only to the extent that an Exchange Act section or rule cited
in paragraphs (b) through (e) of this Order applies to the security-
based swap activities with that counterparty.
(6) Security-based swap status under EMIR. For each condition in
paragraphs (b) through (e) of this Order that requires the application
of, and the Covered Entity's compliance with, provisions of EMIR, EMIR
RTS, EMIR Margin RTS, and/or other EU requirements adopted pursuant to
those provisions, if the relevant provision applies to the Covered
Entity's OTC derivatives or OTC derivative contracts that have not been
cleared by a central counterparty, then either:
(i) The relevant security-based swap is an ``OTC derivative'' or
``OTC derivative contract,'' as defined in EMIR article 2(7), that has
not been cleared by a central counterparty and otherwise is subject to
the provisions of EMIR article 11, EMIR RTS articles 11 through 15, and
EMIR Margin RTS article 2; or
(ii) The relevant security-based swap has been cleared by a central
counterparty that is authorized or recognized to clear derivatives
contracts by a relevant authority in the EU.
(7) Memorandum of Understanding with the Spanish Authorities. The
Commission and the CNMV and the Bank of Spain have a supervisory and
enforcement memorandum of understanding and/or other arrangement
addressing cooperation with respect to this Order at the time the
Covered Entity complies with the relevant requirements under the
Exchange Act via compliance with one or more provisions of this Order.
(8) Memorandum of Understanding Regarding ECB-Owned Information.
The Commission and the ECB have a supervisory and enforcement
memorandum of understanding and/or other arrangement addressing
cooperation with respect to this Order as it pertains to information
owned by the ECB at the time the Covered Entity complies with the
relevant requirements under the Exchange Act via compliance with one or
more provisions of this Order.
(9) Notice to Commission. A Covered Entity relying on this Order
must provide notice of its intent to rely on this Order by notifying
the Commission in writing. Such notice must be sent to the Commission
in the manner specified on the Commission's website. The notice must
include the contact information of an individual who can provide
further information about the matter that is the subject of the notice.
The notice must also identify each specific substituted compliance
determination within paragraphs (b) through (e) of this Order for which
the Covered Entity intends to apply substituted compliance. A Covered
Entity must promptly provide an amended notice if it modifies its
reliance on the substituted compliance determinations in this Order.
(10) European Union Cross-Border Matters.
(i) If, in relation to a particular service provided by a Covered
Entity, responsibility for ensuring compliance with any provision of
MiFID or MiFIR or any other EU or Spanish requirement adopted pursuant
to MiFID or MiFIR listed in paragraphs (b) through (e) of this Order is
allocated to an authority of the Member State of the European Union in
whose territory a Covered Entity provides the service, the CNMV must be
the authority responsible for supervision and enforcement of that
provision or requirement in relation to the particular service.
(ii) If responsibility for ensuring compliance with any provision
of MAR or any other EU requirement adopted pursuant to MAR listed in
paragraphs (b) through (e) of this Order is allocated to one or more
authorities of a Member State of the European Union, one of such
authorities must be the CNMV.
(11) Notification Requirements Related to Changes in Capital. A
Covered Entity that is prudentially regulated relying on this Order
must apply substituted compliance with respect to the requirements of
Exchange Act rule 18a-8(c) and the requirements of Exchange Act rule
18a-8(h) as applied to Exchange Act rule 18a-8(c).
(b) Substituted compliance in connection with risk control
requirements.
This Order extends to the following provisions related to risk
control:
(1) Internal risk management. The requirements of Exchange Act
section 15F(j)(2) and related aspects of Exchange Act rule 15Fh-
3(h)(2)(iii)(I), provided that
(i) The Covered Entity is subject to and complies with the
requirements of:
(A) MiFID articles 16 and 23; SSMA articles 193, 194, 208bis,
220bis, 221, 222, 223, and 224; and RD 217/2008 articles 30, 30bis,
30ter, 30qu[aacute]ter, 30quinqies, 30sexies, 32, 41, 42, 43, 44, 45,
46, 47, 48, 61, 66, 67, 68, 69, 70, 71, 72, 72bis, 72ter, 73, 74,
74bis, 74ter, 75, 75bis, 76, 76bis, and 79; and, if the Covered Entity
is a credit institution, also BoS Circular 2/2016 article 43 and RD 84/
2015 article 22;
(B) MiFID Org Reg articles 21 through 37, 72 through 76 and Annex
IV;
(C) CRD articles 74, 76, 79 through 87, 88(1), 91(1) and (2), 91(7)
through (9), 92, 94, and 95; SSMA articles 182(1) and (2) and 183(1)
and (2); and RD 217/2008 article 35; and, if the Covered Entity is a
credit institution, also LOSSEC articles 24, 25, 26, 27, 28, 29, 32,
33, 34, 36, 37, and 38; RD 84/2015 articles 29, 30, 31, 32, 33, 34, 35,
36, 37, 39, 41, 42, 43, 44, 46, 47, 48, 49, 50, 51, 52, 53, and 54; and
BoS Circular 2/2016 articles 26, 27, 28, 29, 30, 31, 32, 33(4), 34, 35,
36, 37, 38, 39, 40, 41, 46, 47, 48, 49, 50, 51, 52, and 60; and, if the
Covered Entity is an investment firm, also SSMA articles 183(3), 184,
184bis, 185, 185bis, 186, 188, 189(1) through (3) and (5), 189bis,
189ter, and 192bis; and RD 217/2008 articles 14(1)(f), 20, 20bis, 21,
22, 24, 31, 31bis, 36, 38, 39(1) and (2), 40, 88, 90, 91, 92, 93, 94,
95, 96, 97(1) through (3), and 98;
[[Page 59793]]
(D) CRR articles 286 through 288 and 293; and
(E) EMIR Margin RTS article 2;
(ii) If the Covered Entity is an investment firm, the Covered
Entity is not exempt from certain provisions of RD 217/2008 pursuant to
RD 217/2008 article 87(2) and/or (3) and/or exempt from SSMA article
189 pursuant to SSMA article 189(6) and/or (7); and
(iii) If the Covered Entity is an investment firm, the Covered
Entity establishes, maintains, and implements policies and procedures
for management of residual risk associated with the use of recognized
credit risk mitigation techniques described in RD 217/2008 article
103(1)(c).
(2) Trade acknowledgement and verification. The requirements of
Exchange Act rule 15Fi-2, provided that the Covered Entity is subject
to and complies with the requirements of EMIR article 11(1)(a) and EMIR
RTS article 12.
(3) Portfolio reconciliation and dispute reporting. The
requirements of Exchange Act rule 15Fi-3, provided that:
(i) The Covered Entity is subject to and complies with the
requirements of EMIR article 11(1)(b) and EMIR RTS articles 13 and 15;
and
(ii) The Covered Entity provides the Commission with reports
regarding disputes between counterparties on the same basis as it
provides those reports to competent authorities pursuant to EMIR RTS
article 15(2).
(4) Portfolio compression. The requirements of Exchange Act rule
15Fi-4, provided that the Covered Entity is subject to and complies
with the requirements of EMIR RTS article 14.
(5) Trading relationship documentation. The requirements of
Exchange Act rule 15Fi-5, other than paragraph (b)(5) to that rule when
the counterparty is a U.S. person, provided that the Covered Entity is
subject to and complies with the requirements of EMIR article 11(1)(a),
EMIR RTS article 12, and EMIR Margin RTS article 2.
(c) Substituted compliance in connection with internal supervision
and compliance requirements and certain Exchange Act section 15F(j)
requirements.
This Order extends to the following provisions related to internal
supervision and compliance and Exchange Act section 15F(j)
requirements:
(1) Internal supervision. The requirements of Exchange Act rule
15Fh-3(h) and Exchange Act sections 15F(j)(4)(A) and (j)(5), provided
that:
(i) The Covered Entity is subject to and complies with the
requirements identified in paragraph (c)(3) of this Order and complies
with the other conditions in that paragraph;
(ii) The Covered Entity complies with paragraph (c)(4) of this
Order; and
(iii) This paragraph (c) does not extend to the requirements of
paragraph (h)(2)(iii)(I) to rule 15Fh-3 to the extent those
requirements pertain to compliance with Exchange Act sections
15F(j)(2), (j)(3), (j)(4)(B) and (j)(6), or to the general and
supporting provisions of paragraph (h) to rule 15Fh-3 in connection
with those Exchange Act sections.
(2) Chief compliance officers. The requirements of Exchange Act
section 15F(k) and Exchange Act rule 15Fk-1, provided that:
(i) The Covered Entity is subject to and complies with the
requirements identified in paragraph (c)(3) of this Order and complies
with the other conditions in that paragraph;
(ii) All reports required pursuant to MiFID Org Reg article
22(2)(c) must also:
(A) Be provided to the Commission at least annually, and in the
English language;
(B) Include a certification signed by the chief compliance officer
or senior officer (as defined in Exchange Act rule 15Fk-1(e)(2)) of the
Covered Entity that, to the best of the certifier's knowledge and
reasonable belief and under penalty of law, the report is accurate and
complete in all material respects;
(C) Address the Covered Entity's compliance with:
(i) Applicable requirements under the Exchange Act; and
(ii) The other applicable conditions of this Order in connection
with requirements for which the Covered Entity is relying on this
Order;
(D) Be provided to the Commission no later than 15 days following
the earlier of:
(i) The submission of the report to the Covered Entity's management
body; or
(ii) The time the report is required to be submitted to the
management body; and
(E) Together cover the entire period that the Covered Entity's
annual compliance report referenced in Exchange Act section 15F(k)(3)
and Exchange Act rule 15Fk-1(c) would be required to cover.
(3) Applicable supervisory and compliance requirements. (i)
Paragraphs (c)(1) and (c)(2) are conditioned on the Covered Entity
being subject to and complying with the following requirements:
(A) MiFID articles 16 and 23; SSMA articles 193, 194, 208bis,
220bis, 221, 222, 223, and 224; and RD 217/2008 articles 30, 30bis,
30ter, 30qu[aacute]ter, 30quinqies, 30sexies, 32, 41, 42, 43, 44, 45,
46, 47, 48, 61, 66, 67, 68, 69, 70, 71, 72, 72bis, 72ter, 73, 74,
74bis, 74ter, 75, 75bis, 76, 76bis, and 79; and, if the Covered Entity
is a credit institution, also BoS Circular 2/2016 article 43 and RD 84/
2015 article 22;
(B) MiFID Org Reg articles 21 through 37, 72 through 76 and Annex
IV;
(C) CRD articles 74, 76, 79 through 87, 88(1), 91(1) and (2), 91(7)
through (9), 92, 94, and 95; SSMA articles 182(1) and (2) and 183(1)
and (2); and RD 217/2008 article 35; and, if the Covered Entity is a
credit institution, also LOSSEC articles 24, 25, 26, 27, 28, 29, 32,
33, 34, 36, 37, and 38; RD 84/2015 articles 29, 30, 31, 32, 33, 34, 35,
36, 37, 39, 41, 42, 43, 44, 46, 47, 48, 49, 50, 51, 52, 53, and 54; and
BoS Circular 2/2016 articles 26, 27, 28, 29, 30, 31, 32, 33(4), 34, 35,
36, 37, 38, 39, 40, 41, 46, 47, 48, 49, 50, 51, 52, and 60; and, if the
Covered Entity is an investment firm, also SSMA articles 183(3), 184,
184bis, 185, 185bis, 186, 188, 189(1) through (3) and (5), 189bis,
189ter, and 192bis; and RD 217/2008 articles 14(1)(f), 20, 20bis, 21,
22, 24, 30, 31, 31bis, 36, 38, 39(1) and (2), 40, 88, 90, 91, 92, 93,
94, 95, 96, 97(1) through (3), and 98;
(D) CRR articles 286 through 288 and 293; and
(E) EMIR Margin RTS article 2.
(ii) Paragraphs (c)(1) and (c)(2) also are conditioned on the
Covered Entity's compliance with the following conditions:
(A) If the Covered Entity is an investment firm, the Covered Entity
is not exempt from certain provisions of RD 217/2008 pursuant to RD
217/2008 article 87(2) and/or (3) and/or exempt from SSMA article 189
pursuant to SSMA article 189(6) and/or (7); and
(B) If the Covered Entity is an investment firm, the Covered Entity
establishes, maintains, and implements policies and procedures for
management of residual risk associated with the use of recognized
credit risk mitigation techniques described in RD 217/2008 article
103(1)(c).
(4) Additional condition to paragraph (c)(1). Paragraph (c)(1)
further is conditioned on the requirement that the Covered Entity
complies with the provisions specified in paragraph (c)(3) as if those
provisions also require compliance with:
(i) Applicable requirements under the Exchange Act; and
(ii) The other applicable conditions of this Order in connection
with requirements for which the Covered Entity is relying on this
Order.
[[Page 59794]]
(d) Substituted compliance in connection with counterparty
protection requirements.
This Order extends to the following provisions related to
counterparty protection:
(1) Disclosure of information regarding material risks and
characteristics. The requirements of Exchange Act rule 15Fh-3(b)
relating to disclosure of material risks and characteristics of one or
more security-based swaps subject thereto, provided that the Covered
Entity, in relation to that security-based swap, is subject to and
complies with the requirements of MiFID article 24(4); SSMA articles
209(1) and (3) and 210(1); RD 217/2008 articles 65 and 77(1); and MiFID
Org Reg articles 48-50.
(2) Disclosure of information regarding material incentives or
conflicts of interest. The requirements of Exchange Act rule 15Fh-3(b)
relating to disclosure of material incentives or conflicts of interest
that a Covered Entity may have in connection with one or more security-
based swaps subject thereto, provided that the Covered Entity, in
relation to that security-based swap, is subject to and complies with
the requirements of either:
(i) MiFID article 23(2) and (3); RD 217/2008 article 61(2) and (3);
and MiFID Org Reg articles 33-35;
(ii) MiFID article 24(9); MiFID Delegated Directive article 11(5);
and SSMA articles 220ter, 220qu[aacute]ter, and 220quinquies; RD 217/
2008 articles 62, 63, and 64; or
(iii) MAR article 20(1) and MAR Investment Recommendations
Regulation articles 5 and 6.
(3) ``Know your counterparty.'' The requirements of Exchange Act
rule 15Fh-3(e), as applied to one or more security-based swap
counterparties subject thereto, provided that the Covered Entity, in
relation to the relevant security-based swap counterparty, is subject
to and complies with the requirements of MiFID article 16(2) and (6);
SSMA articles 193(2)(a) and 194(1); RD 217/2008 articles 30 and 32(1)
and (10); MiFID Org Reg articles 21, 22, 25, 26, 72, 74, 75 and
applicable parts of Annexes I and IV; CRD articles 74(1) and 85(1);
SSMA articles 182(1) and 193(3)(b); and RD 217/2008 article 35 and, if
the Covered Entity is a credit institution, also LOSSEC article 29(1);
RD 84/2015 articles 43 and 52(1); BoS Circular 2/2016 article 28; and,
if the Covered Entity is an investment firm, also SSMA article 189bis
and RD 217/2008 article 96(1).
(4) Suitability. The requirements of Exchange Act rule 15Fh-3(f),
as applied to one or more recommendations of a security-based swap or
trading strategy involving a security-based swap subject thereto,
provided that:
(i) The Covered Entity, in relation to the relevant recommendation,
is subject to and complies with the requirements of MiFID articles
24(2) and (3) and 25(1) and (2); SSMA articles 208ter(1) and (2),
209(2), 212, 213, and 220sexies; RD 217/2008 articles 66, 71, 72,
72bis, 72ter, 73, 74, 74bis, 74ter, 75, 75bis, 76bis, and 80; CNMV
Technical Guide 4/2017; and MiFID Org Reg articles 21(1)(b) and (d),
54, and 55; and
(ii) The counterparty to which the Covered Entity makes the
recommendation is a ``professional client'' mentioned in MiFID Annex II
section I and in SSMA article 205 and RD 217/2008 article 58 and is not
a ``special entity'' as defined in Exchange Act section 15F(h)(2)(C)
and Exchange Act rule 15Fh-2(d).
(5) Fair and balanced communications. The requirements of Exchange
Act rule 15Fh-3(g), as applied to one or more communications subject
thereto, provided that the Covered Entity, in relation to the relevant
communication, is subject to and complies with the requirements of:
(i) Either MiFID articles 24(1) and (3) and SSMA articles 208 and
209(2) or MiFID article 30(1) and SSMA article 207(4); and
(ii) MiFID articles 24(4) and (5); SSMA articles 209(1) and (3) and
210(1); RD 217/2008 article 77; MiFID Org Reg articles 46-48; MAR
articles 12(1)(c), 15 and 20(1); and MAR Investment Recommendations
Regulation articles 3 and 4.
(6) Daily mark disclosure. The requirements of Exchange Act rule
15Fh-3(c), as applied to one or more security-based swaps subject
thereto, provided that the Covered Entity is required to reconcile, and
does reconcile, the portfolio containing the relevant security-based
swap on each business day pursuant to EMIR articles 11(1)(b) and 11(2)
and EMIR RTS article 13.
(e) Substituted compliance in connection with recordkeeping,
reporting, and notification requirements.
This Order extends to the following provisions that apply to a
Covered Entity related to recordkeeping, reporting, and notification:
(1)(i) Make and keep current certain records. The requirements of
the following provisions of Exchange Act rule 18a-5, provided that the
Covered Entity complies with the relevant conditions in this paragraph
(e)(1)(i) and with the applicable conditions in paragraph (e)(1)(ii):
(A) The requirements of Exchange Act rule 18a-5(b)(1), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 74, 75, and Annex IV; MiFIR
article 25(1);
(B) The requirements of Exchange Act rule 18a-5(b)(2), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Delegated Directive article 2; MiFID Org Reg
articles 72, 74 and 75; EMIR article 39(4); RD 217/2008 article 41;
(C) The requirements of Exchange Act rule 18a-5(b)(3), provided
that the Covered Entity is subject to and complies with the
requirements of CRR article 103; MiFID articles 16(6), 25(5), and
25(6); MiFID Org Reg articles 59, 74, 75 and Annex IV; MiFIR article
25(1); EMIR articles 9(2) and 11(1)(a); SSMA articles 194(1), 218, and
211; and RD 217/2008 articles 3, 32(1), and 82;
(D) The requirements of Exchange Act rule 18a-5(b)(4), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg article 59; EMIR articles 9(2) and
11(1)(a); MiFID articles 16(6), 25(5), and 25(6); SSMA articles 194(1),
218, and 211; and RD 217/2008 articles 3, 32(1), and 82;
(E) The requirements of Exchange Act rule 18a-5(b)(5), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 74, 75, and Annex IV; and MiFIR
article 25(1);
(F) The requirements of Exchange Act rules 18a-5(b)(6) and (b)(11),
provided that:
(1) The Covered Entity is subject to and complies with the
requirements of CRR articles 103, 105(3), and 105(10); CRD article 73;
MiFID articles 16(6), 25(5), 25(6); MiFID Delegated Directive article
2; MiFID Org Reg articles 59, 74, 75, and Annex IV; MiFIR article
25(1); EMIR articles 9(2), 11(1)(a), and 39(4); SSMA articles 194(1),
218, 211; and RD 217/2008 articles 3, 32(1), 41, and 82; and
(2) The Covered Entity applies substituted compliance for the
requirements of Exchange Act rule 15Fi-2 pursuant to this Order;
(G) The requirements of Exchange Act rule 18a-5(b)(7), provided
that the Covered Entity is subject to and complies with the
requirements of MiFIR article 25(1); MiFID article 25(2); MiFID Org Reg
article 74 and section 1 of Annex 4; and SSMA article 213; (H) The
requirements of Exchange Act rule 18a-5(b)(8), provided that the
Covered Entity is subject to and complies with the requirements of
MiFID Org Reg articles 21(1)(d), 35; CRD articles 88,
[[Page 59795]]
91(1), 91(8); MiFID articles 9(1) and 16(3); SSMA articles 193(2)(b)
and 208bis; LOSSEC articles 24(1) and 29(2); and BoS Circular 2/2016
Rule 32(1);
(I) The requirements of Exchange Act rule 18a-5(b)(13), regarding
one or more provisions of Exchange Act rules 15Fh-3 or 15Fk-1 for which
substituted compliance is available under this Order, provided that:
(1) The Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 72, 73, 74, 75, and Annexes I
and IV; MiFID articles 16(6) and 25(2); EMIR article 39(5); SSMA
articles 194(1) and 213; and RD 217/2008 article 32(1) and (10), in
each case with respect to the relevant security-based swap or activity;
(2) With respect to the portion of Exchange Act rule 18a-5(b)(13)
that relates to one or more provisions of Exchange Act rule 15Fh-3 for
which substituted compliance is available under this Order, the Covered
Entity applies substituted compliance for such business conduct
standard(s) of Exchange Act rule 15Fh-3 pursuant to this Order, as
applicable, with respect to the relevant security-based swap or
activity; and
(3) With respect to the portion of Exchange Act rule 18a-5(b)(13)
that relates to Exchange Act rule 15Fk-1, the Covered Entity applies
substituted compliance for Exchange Act section 15F(k) and Exchange Act
rule 15Fk-1 pursuant to this Order;
(J) The requirements of Exchange Act rule 18a-5(b)(14)(i) and (ii),
provided that:
(1) The Covered Entity is subject to and complies with the
requirements of EMIR article 11(1)(b) and EMIR RTS article 15(1)(a);
and
(2) The Covered Entity applies substituted compliance for Exchange
Act rule 15Fi-3 pursuant to this Order; and
(K) The requirements of Exchange Act rule 18a-5(b)(14)(iii),
provided that:
(1) The Covered Entity is subject to and complies with the
requirements of EMIR article 11(1)(b) and EMIR RTS article 15(1)(a), in
each case with respect to such security-based swap portfolio(s); and
(2) The Covered Entity applies substituted compliance for Exchange
Act rule 15Fi-4 pursuant to this Order.
(ii) Paragraph (e)(1)(i) is subject to the following further
conditions:
(A) Paragraphs (e)(1)(i)(A) through (C) and (G) are subject to the
condition that the Covered Entity preserves all of the data elements
necessary to create the records required by the applicable Exchange Act
rules cited in such paragraphs and upon request furnishes promptly to
representatives of the Commission the records required by those rules;
(B) A Covered Entity may apply the substituted compliance
determination in paragraph (e)(1)(i)(I) to records of compliance with
Exchange Act rule 15Fh-3(b), (c), (e), (f) and (g) in respect of one or
more security-based swaps or activities related to security-based
swaps; and
(C) This Order does not extend to the requirements of Exchange Act
rule 18a-5(b)(9), (b)(10) or (b)(12).
(2)(i) Preserve certain records. The requirements of the following
provisions of Exchange Act rule 18a-6, provided that the Covered Entity
complies with the relevant conditions in this paragraph (e)(2)(i) and
with the applicable conditions in paragraph (e)(2)(ii):
(A) The requirements of Exchange Act rule 18a-6(a)(2), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 72, 74, 75, and Annex IV; CRR
article 103; MiFIR article 25(1); EMIR article 9(2); MiFID articles
16(6) and 69(2); CRD article 73; MiFID Delegated Directive article 2;
SSMA articles 194(1), 234; and RD 217/2008 articles 32(1) and 41;
(B) The requirements of Exchange Act rule 18a-6(b)(2)(i), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 72, 74, 75, and Annex IV; CRR
article 103; MiFIR article 25(1); EMIR article 9(2); MiFID articles
16(6) and 69(2); CRD article 73; MiFID Delegated Directive article 2;
SSMA articles 194(1), 234; and RD 217/2008 articles 32(1) and 41;
(C) The requirements of Exchange Act rule 18a-6(b)(2)(ii), provided
that the Covered Entity is subject to and complies with the
requirements of CRR article 103; MiFID Org Reg articles 72, 73, 74, 75,
76, Annex I and Annex IV; MiFIR article 25(1); EMIR article 9(2); CRD
article 73; MiFID articles 16(6), 16(7); MiFID Delegated Directive
article 2; SSMA articles 194(1) through (3); and RD 217/2008 articles
32(1) through (8) and 41;
(D) The requirements of Exchange Act rule 18a-6(b)(2)(iii),
provided that the Covered Entity is subject to and complies with the
requirements of EMIR article 9(2); MiFID Org Reg articles 72(1) and 73;
MiFID article 16(6); SSMA articles 194(1); and RD 217/2008 article
32(1);
(E) The requirements of Exchange Act rule 18a-6(b)(2)(iv), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 72(1) and 73; MiFIR article
25(1); EMIR article 9(2); MiFID article 16(6); SSMA articles 194(1);
and RD 217/2008 article 32(1);
(F) The requirements of Exchange Act rule 18a-6(b)(2)(vii),
regarding one or more provisions of Exchange Act rules 15Fh-3 or 15Fk-1
for which substituted compliance is available under this Order,
provided that:
(1) The Covered Entity is subject to and complies with the
requirements of EMIR article 9(2); MiFID Org Reg articles 72, 74, and
75 and Annexes I and IV; MiFID article 16(6); SSMA articles 194(1); and
RD 217/2008 article 32(1) and (10), in each case with respect to the
relevant security-based swap or activity;
(2) With respect to the portion of Exchange Act rule 18a-
6(b)(2)(vii) that relates to one or more provisions of Exchange Act
rule 15Fh-3 for which substituted compliance is available under this
Order, the Covered Entity applies substituted compliance for such
business conduct standard(s) of Exchange Act rule 15Fh-3 pursuant to
this Order, as applicable, with respect to the relevant security-based
swap or activity; and
(3) With respect to the portion of Exchange Act rule 18a-
6(b)(2)(vii) that relates to Exchange Act rule 15Fk-1, the Covered
Entity applies substituted compliance for Exchange Act section 15F(k)
and Exchange Act rule 15Fk-1 pursuant to this Order;
(G) The requirements of Exchange Act rule 18a-6(c), provided that:
(1) The Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 21(1)(f) and 72(1); MiFID
article 16(6); SSMA articles 194(1); and RD 217/2008 article 32(1); and
(2) This Order does not extend to the requirements of Exchange act
rule 18a-6(c) relating to Forms SBSE, SBSE-A, SBSE-C, SBSE-W, all
amendments to these forms, and all other licenses or other
documentation showing the registration of the Covered Entity with any
securities regulatory authority or the U.S. Commodity Futures Trading
Commission;
(H) The requirements of Exchange Act rule 18a-6(d)(1), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 35 and 72(1); CRD articles 88,
91(1), 91(8); MiFID article 9(1), 16(3), 16(6); LOSSEC articles 24(1)
and 29(1) and (2); SSMA articles 193(2)(b), 194(1), and 208bis; RD 217/
2008 articles 30, 31, and 32(1); and BoS Circular 2/2016 Rule 32(1);
(I) The requirements of Exchange Act rule 18a-6(d)(2)(ii), provided
that the Covered Entity is subject to and
[[Page 59796]]
complies with the requirements of EMIR article 9(2); MiFID Org Reg
articles 72(1) and 72(3); MiFID article 16(6); SSMA articles 194(1);
and RD 217/2008 article 32(1);
(J) The requirements of Exchange Act rule 18a-6(d)(3)(ii), provided
that the Covered Entity is subject to and complies with the
requirements of MiFID Org Reg articles 21(1)(f), 72, 73, and Annex I;
MiFID article 16(6); SSMA articles 194(1); and RD 217/2008 article
32(1);
(K) The requirements of Exchange Act rule 18a-6(d)(4) and (d)(5),
provided that:
(1) The Covered Entity is subject to and complies with the
requirements of EMIR article 9(2); MiFID Org Reg articles 24, 25(2),
72(1) and 73; MiFID articles 16(2), 16(6), and 25(5); SSMA articles
193(2)(a), 194(1), and 218; and RD 217/2008 articles 30(2), 32(1), and
82; and
(2) The Covered Entity applies substituted compliance for Exchange
Act rules 15Fi-3, 15Fi-4, and 15Fi-5 pursuant to this Order;
(L) The requirements of Exchange Act rule 18a-6(e), provided that
the Covered Entity is subject to and complies with the requirements of
MiFID Org Reg articles 21(2), 58, 72(1) and 72(3); MiFID articles
16(5), 16(6); SSMA articles 193(3) and 194(1); and RD 217/2008 article
32(1); and
(M) The requirements of Exchange Act rule 18a-6(f), provided that
the Covered Entity is subject to and complies with the requirements of
MiFID Org Reg article 31(1); MiFID article 16(5); and SSMA article
193(3).
(ii) Paragraph (e)(2)(i) is subject to the following further
conditions:
(A) A Covered Entity may apply the substituted compliance
determination in paragraph (e)(2)(i)(F) to records related to Exchange
Act rule 15Fh-3(b), (c), (e), (f) and (g) in respect of one or more
security-based swaps or activities related to security-based swaps; and
(B) This Order does not extend to the requirements of Exchange Act
rule 18a-6(b)(2)(v), (b)(2)(vi), or (b)(2)(viii).
(3) File Reports. The requirements of Exchange Act rule 18a-7(a)(2)
and the requirements of Exchange Act rule 18a-7(j) as applied to the
requirements of Exchange Act rule 18a-7(a)(2), provided that:
(i) The Covered Entity is subject to and complies with the
requirements of CRR articles 99, 394, 430 and Part Six: Title II and
Title III; CRR Reporting ITS annexes I, II, III, IV, V, VIII, IX, X,
XI, XII and XIII, as applicable; and
(ii) The Covered Entity files periodic unaudited financial and
operational information with the Commission or its designee in the
manner and format required by Commission rule or order and presents the
financial information in the filing in accordance with generally
accepted accounting principles that the Covered Entity uses to prepare
general purpose publicly available or available to be issued financial
statements in Spain.
(4)(i) Provide Notification. The requirements of the following
provisions of Exchange Act rule 18a-8, provided that the Covered Entity
complies with the relevant conditions in this paragraph (e)(4)(i) and
with the applicable conditions in paragraph (e)(4)(ii):
(A) The requirements of Exchange Act rule 18a-8(c) and the
requirements of Exchange Act rule 18a-8(h) as applied to the
requirements of Exchange Act rule 18a-8(c), provided that the Covered
Entity is subject to and complies with the requirements of LOSSEC
articles 116, 119, 121, and 122; and SSMA articles 276bis, 276ter,
276qu[aacute]ter, and 276quinquies;
(B) The requirements of Exchange Act rule 18a-8(d) and the
requirements of Exchange Act rule 18a-8(h) as applied to the
requirements of Exchange Act rule 18a-8(d), provided that:
(1) The Covered Entity is subject to and complies with the
requirements of LOSSEC articles 116, 119, 121, and 122; and SSMA
articles 276bis, 276ter, 276qu[aacute]ter, and 276quinquies; and
(2) This Order does not extend to the requirements of Exchange Act
rule 18a-8(d) to give notice with respect to books and records required
by Exchange Act rule 18a-5 for which the Covered Entity does not apply
substituted compliance pursuant to this Order;
(ii) Paragraph (e)(4)(i) is subject to the following further
conditions:
(A) The Covered Entity:
(1) Simultaneously sends a copy of any notice required to be sent
by Spanish law cited in this paragraph of the Order to the Commission
in the manner specified on the Commission's website; and
(2) Includes with the transmission the contact information of an
individual who can provide further information about the matter that is
the subject of the notice; and
(B) This Order does not extend to the requirements of paragraph (g)
of rule 18a-8 or to the requirements of Exchange Act rule 18a-8(h) as
applied to such requirements.
(5) Daily Trading Records. The requirements of Exchange Act section
15F(g), provided that the Covered Entity is subject to and complies
with the requirements of SSMA Article 194(1); and RD 217/2008 Article
32(1).
(6) Examination and Production of Records. Notwithstanding the
forgoing provisions of paragraph (e) of this Order, this Order does not
extend to, and Covered Entities remain subject to, the requirement of
Exchange Act section 15F(f) to keep books and records open to
inspection by any representative of the Commission and the requirement
of Exchange Act rule 18a-6(g) to furnish promptly to a representative
of the Commission legible, true, complete, and current copies of those
records of the Covered Entity that are required to be preserved under
Exchange Act rule 18a-6, or any other records of the Covered Entity
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.
(7) English Translations. Notwithstanding the forgoing provisions
of paragraph (e) of this Order, to the extent documents are not
prepared in the English language, Covered Entities must promptly
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 of this Order.
(f) Definitions.
(1) ``Covered Entity'' means an entity that:
(i) Is a security-based swap dealer or major security-based swap
participant registered with the Commission;
(ii) Is not a ``U.S. person,'' as that term is defined in rule
3a71-3(a)(4) under the Exchange Act; and
(iii) Is an investment firm or a credit institution authorized by
the CNMV and the ECB to provide investment services and/or perform
investment activities in the Kingdom of Spain; and
(iv) Is a significant institution supervised by the CNMV and the
ECB (with the participation of the BoS).
(2) ``MiFID'' means the ``Markets in Financial Instruments
Directive,'' Directive 2014/65/EU, as amended from time to time.
(3) ``MiFID Org Reg'' means Commission Delegated Regulation (EU)
2017/565, as amended from time to time.
(4) ``MiFID Delegated Directive'' means Commission Delegated
Directive (EU) 2017/593, as amended from time to time.
(5) ``MiFIR'' means Regulation (EU) 600/2014, as amended from time
to time.
(6) ``EMIR'' means the ``European Market Infrastructure
Regulation,''
[[Page 59797]]
Regulation (EU) 648/2012, as amended from time to time.
(7) ``EMIR RTS'' means Commission Delegated Regulation (EU) 149/
2013, as amended from time to time.
(8) ``EMIR Margin RTS'' means Commission Delegated Regulation (EU)
2016/2251, as amended from time to time.
(9) ``CRD'' means Directive 2013/36/EU, as amended from time to
time.
(10) ``CRR'' means Regulation (EU) 575/2013, as amended from time
to time.
(11) ``CRR Reporting ITS'' means Commission Implementing Regulation
(EU) 680/2014, as amended from time to time.
(12) ``MAR'' means the ``Market Abuse Regulation,'' Regulation (EU)
596/2014, as amended from time to time.
(13) ``MAR Investment Recommendations Regulation'' means Commission
Delegated Regulation (EU) 2016/958, as amended from time to time.
(14) ``CNMV'' means the Spanish Comisi[oacute]n Nacional del
Mercado de Valores.
(15) ``BoS'' means the Spanish Banco de Espa[ntilde]a.
(16) ``ECB'' means the European Central Bank.
(17) ``Accounting Directive'' means Directive 2013/34/EU of the
European Parliament and of the Council of 26 June 2013, as amended from
time to time.
(18) ``BRRD'' means Bank Recovery and Resolution Directive 2014/59/
EU of the European Parliament and of the Council of 15 May 2014, as
amended from time to time.
(19) ``SSMA'' means the Spanish Securities Market Act, Royal
Legislative Decree 4/2015, of October 23, as amended from time to time.
(20) ``RD 217/2008'' means Royal Decree 217/2008, of February 15,
as amended from time to time.
(21) ``LOSSEC'' means the Act on Regulation, Supervision, and
Solvency of Credit Institutions, Law 10/2014, of June 26, as amended
from time to time.
(22) ``RD 84/2015'' means Royal Decree 84/2015, of February 13, as
amended from time to time.
(23) ``BoS Circular 2/2016'' means Circular 2/2016, of February 2,
of the Bank of Spain, as amended from time to time.
(24) ``Prudentially regulated'' means a Covered Entity that has a
``prudential regulator'' as that term is defined in Exchange Act
section 3(a)(74).
By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-23444 Filed 10-27-21; 8:45 am]
BILLING CODE 8011-01-P
