SEC Proposes to Modify Substituted Compliance Order Post BaFin Request
The U.S. Securities and Exchange Commission (SEC) is seeking comments on an application of the Federal Financial Supervisory Authority of Germany (BaFin), which requests SEC to amend an existing substituted compliance Order for Germany. The request is to extend the Order to non-bank capital and margin requirements (the Amended Application). SEC is proposing to amend and restate the Order, with the comment period ending on September 13, 2021. In light of the Amended Application, SEC is also proposing to add a new general condition that would predicate substituted compliance on the presence of a supervisory and enforcement memorandum of understanding between SEC and the European Central Bank (ECB) and/or BaFin, pertaining to information owned by ECB. SEC's access to this ECB information will assist in effective oversight of covered Entities that use substituted compliance in connection with capital and margin requirements.
Rule 3a71-6 under the Exchange Act provides a framework under which non-U.S. security-based swap dealers and major security-based swap participants (security-based swap entities) may satisfy certain requirements under Section 15F of Exchange Act by complying with comparable regulatory requirements of a foreign jurisdiction. Pursuant to rule 3a71-6, in December 2020, SEC issued a substituted compliance Order to provide that German security-based swap entities may use substituted compliance with conditions to satisfy certain requirements under the Exchange Act related to risk control, internal supervision and compliance, counterparty protection, and books and records. In the preliminary view of SEC, certain developments warrant modifications to the substituted compliance Order for Germany. Since finalizing the Order, SEC has finalized substituted compliance orders for security-based swap entities subject to regulation in France and UK. Given substantial similarity of the three regimes, SEC believes that modifications to the Order may be necessary for consistency. SEC is, therefore, proposing to amend this Order to align it with the French and UK orders, where appropriate.
Moreover, BaFin's amended application requests that SEC extend the Order to provide for substituted compliance for the capital requirements of Exchange Act Section 15F(e) and Exchange Act rules 18a-1 through 18a-1d, the margin requirements Exchange Act Section 15F(e) and Exchange Act rule 18a-3 and the related recordkeeping, reporting, notification, and securities count requirements. Thus, SEC is proposing to amend the Order to conditionally permit German security-based swap entities to comply with these requirements via substituted compliance. SEC is also proposing to modify the Order's general condition requiring that covered entities provide SEC with written notice of their intent to rely on substituted compliance. To promote clarity in the notice regarding the covered entity's intended use of substituted compliance, SEC is proposing to amend the general condition to require that the notice identify each specific substituted compliance determination for which the covered entity intends to apply substituted compliance.
Related Link: Federal Register Notice
Comment Due Date: September 13, 2021
Keywords: Americas, Europe, Germany, US, Banking, Regulatory Capital, Margin Requirements, Swaps, Substituted Compliance, Derivatives, ECB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Trevor Howes
IFRS 17 technical advisor; AXIS actuarial modeling system expert; extensive experience in life insurance and life reinsurance, with focus on modeling, valuation, and financial reporting
Previous Article
SAMA Issues Key Principles for Governance of Financial InstitutionsRelated Articles
EBA Proposes Standards for IRRBB Reporting Under Basel Framework
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
FED Issues Further Details on Pilot Climate Scenario Analysis Exercise
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
US Agencies Issue Several Regulatory and Reporting Updates
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
ECB Issues Multiple Reports and Regulatory Updates for Banks
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
CBIRC Revises Measures on Corporate Governance Supervision
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
HKMA Publications Address Sustainability Issues in Financial Sector
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
EBA Updates Address Basel and NPL Requirements for Banks
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
