Comparability Determination for Switzerland: Certain Entity-Level Requirements

SUMMARY: The following is the analysis and determination of the Commodity Futures Trading Commission ("Commission") regarding certain parts of a request by UBS AG ("UBS") that the Commission determine that laws and regulations applicable in Switzerland provide a sufficient basis for an affirmative finding of comparability with respect to the following regulatory obligations applicable to swap dealers ("SDs") and major swap participants ("MSPs") registered with the Commission: (i) Chief compliance officer; (ii) risk management; and (iii) swap data recordkeeping (collectively, the "Internal Business Conduct Requirements").

DATES: Effective Date: This determination will become effective immediately upon publication in the Federal Register .

FOR FURTHER INFORMATION CONTACT: Gary Barnett, Director, 202-418-5977, [email protected], Frank Fisanich, Chief Counsel, 202-418-5949, [email protected], and Scott Lee, Special Counsel, 202-418-5090, [email protected], Division of Swap Dealer and Intermediary Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Introduction

On July 26, 2013, the Commission published in the Federal Register its "Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations" (the "Guidance"). /1/ In the Guidance, the Commission set forth its interpretation of the manner in which it believes that section 2(i) of the Commodity Exchange Act ("CEA") applies Title VII's swap provisions to activities outside the U.S. and informed the public of some of the policies that it expects to follow, generally speaking, in applying Title VII and certain Commission regulations in contexts covered by section 2(i). Among other matters, the Guidance generally described the policy and procedural framework under which the Commission would consider a substituted compliance program with respect to Commission regulations applicable to entities located outside the U.S. Specifically, the Commission addressed a recognition program where compliance with a comparable regulatory requirement of a foreign jurisdiction would serve as a reasonable substitute for compliance with the attendant requirements of the CEA and the Commission's regulations promulgated thereunder.

FOOTNOTE 1 78 FR 45292 (July 26, 2013). The Commission originally published proposed and further proposed guidance on July 12, 2012 and January 7, 2013, respectively. See Cross-Border Application of Certain Swaps Provisions of the Commodity Exchange Act, 77 FR 41214 (July 12, 2012) and Further Proposed Guidance Regarding Compliance with Certain Swap Regulations, 78 FR 909 (Jan. 7, 2013). END FOOTNOTE

In addition to the Guidance, on July 22, 2013, the Commission issued the Exemptive Order Regarding Compliance with Certain Swap Regulations (the "Exemptive Order"). /2/ Among other things, the Exemptive Order provided time for the Commission to consider substituted compliance with respect to six jurisdictions where non-U.S. SDs are currently organized. In this regard, the Exemptive Order generally provided non-U.S. SDs and MSPs in the six jurisdictions with conditional relief from certain requirements of Commission regulations (those referred to as "Entity-Level Requirements" in the Guidance) until the earlier of December 21, 2013, or 30 days following the issuance of a substituted compliance determination. /3/

FOOTNOTE 2 78 FR 43785 (July 22, 2013). END FOOTNOTE

FOOTNOTE 3 The Entity-Level Requirements under the Exemptive Order consist of 17 CFR 1.31, 3.3, 23.201, 23.203, 23.600, 23.601, 23.602, 23.603, 23.605, 23.606, 23.608, 23.609, and parts 45 and 46 of the Commission's regulations. END FOOTNOTE

On July 11, 2013, UBS ("applicant") submitted a request that the Commission determine that laws and regulations applicable in Switzerland provide a sufficient basis for an affirmative finding of comparability with respect to certain Entity-Level Requirements, including the Internal Business Conduct Requirements. /4/ On November 13, 2013, the application was supplemented with corrections and additional materials. The following is the Commission's analysis and determination regarding the Internal Business Conduct Requirements, as detailed below. /5/

FOOTNOTE 4 For purposes of this notice, the Internal Business Conduct Requirements consist of 17 CFR 3.3, 23.201, 23.203, 23.600, 23.601, 23.602, 23.603, 23.605, and 23.606. END FOOTNOTE

FOOTNOTE 5 This notice does not address SDR Reporting. The Commission may provide a comparability determination with respect to the SDR Reporting requirement in a separate notice. END FOOTNOTE

II. Background

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act /6/ ("Dodd-Frank Act" or "Dodd-Frank"), which, in Title VII, established a new regulatory framework for swaps.

FOOTNOTE 6 Public Law 111-203, 124 Stat. 1376 (2010). END FOOTNOTE

Section 722(d) of the Dodd-Frank Act amended the CEA by adding section 2(i), which provides that the swap provisions of the CEA (including any CEA rules or regulations) apply to cross-border activities when certain conditions are met, namely, when such activities have a "direct and significant connection with activities in, or effect on, commerce of the United States" or when they contravene Commission rules or regulations as are necessary or appropriate to prevent evasion of the swap provisions of the CEA enacted under Title VII of the Dodd-Frank Act. /7/

FOOTNOTE 7 7 U.S.C. 2(i). END FOOTNOTE

In the three years since its enactment, the Commission has finalized 68 rules and orders to implement Title VII of the Dodd-Frank Act. The finalized rules include those promulgated under section 4s of the CEA, which address registration of SDs and MSPs and other substantive requirements applicable to SDs and MSPs. With few exceptions, the delayed compliance dates for the Commission's regulations implementing such section 4s requirements applicable to SDs and MSPs have passed and new SDs and MSPs are now required to be in full compliance with such regulations upon registration with the Commission. /8/ Notably, the requirements under Title VII of the Dodd-Frank Act related to SDs and MSPs by their terms apply to all registered SDs and MSPs, irrespective of where they are located, albeit subject to the limitations of CEA section 2(i).

FOOTNOTE 8 The compliance dates are summarized on the Compliance Dates page of the Commission's Web site available at: http://www.cftc.gov/LawRegulation/DoddFrankAct/ComplianceDates/index.htm. END FOOTNOTE

To provide guidance as to the Commission's views regarding the scope of the cross-border application of Title VII of the Dodd-Frank Act, the Commission set forth in the Guidance its interpretation of the manner in which it believes that Title VII's swap provisions apply to activities outside the U.S. pursuant to section 2(i) of the CEA. Among other matters, the Guidance generally described the policy and procedural framework under which the Commission would consider a substituted compliance program with respect to Commission regulations applicable to entities located outside the U.S. Specifically, the Commission addressed a recognition program where compliance with a comparable regulatory requirement of a foreign jurisdiction would serve as a reasonable substitute for compliance with the attendant requirements of the CEA and the Commission's regulations. With respect to the standards forming the basis for any determination of comparability ("comparability determination" or "comparability finding"), the Commission stated:

In evaluating whether a particular category of foreign regulatory requirement(s) is comparable and comprehensive to the applicable requirement(s) under the CEA and Commission regulations, the Commission will take into consideration all relevant factors, including but not limited to, the comprehensiveness of those requirement(s), the scope and objectives of the relevant regulatory requirement(s), the comprehensiveness of the foreign regulator's supervisory compliance program, as well as the home jurisdiction's authority to support and enforce its oversight of the registrant. In this context, comparable does not necessarily mean identical. Rather, the Commission would evaluate whether the home jurisdiction's regulatory requirement is comparable to and as comprehensive as the corresponding U.S. regulatory requirement(s). /9/

FOOTNOTE 9 78 FR 45342-45. END FOOTNOTE

Upon a comparability finding, consistent with CEA section 2(i) and comity principles, the Commission's policy generally is that eligible entities may comply with a substituted compliance regime, subject to any conditions the Commission places on its finding, and subject to the Commission's retention of its examination authority and its enforcement authority. /10/

FOOTNOTE 10 See the Guidance, 78 FR 45342-44. END FOOTNOTE

In this regard, the Commission notes that a comparability determination cannot be premised on whether an SD or MSP must disclose comprehensive information to its regulator in its home jurisdiction, but rather on whether information relevant to the Commission's oversight of an SD or MSP would be directly available to the Commission and any U.S. prudential regulator of the SD or MSP. /11/ The Commission's direct access to the books and records required to be maintained by an SD or MSP registered with the Commission is a core requirement of the CEA /12/ and the Commission's regulations, /13/ and is a condition to registration. /14/

FOOTNOTE 11 Under SUBSEC 23.203 and 23.606, all records required by the CEA and the Commission's regulations to be maintained by a registered SD or MSP shall be maintained in accordance with Commission regulation 1.31 and shall be open for inspection by representatives of the Commission, the United States Department of Justice, or any applicable prudential regulator.

--This is a summary of a Federal Register article originally published on the page number listed below--

Notice of Comparability Determination for Certain Requirements under Swiss Financial Market Regulation.

Citation: "78 FR 78899"

Federal Register Page Number: "78899"

"Notices"