6351-01-P
COMMODITY FUTURES TRADING COMMISSION
17 CFR Chapter I
Order Granting Conditional Substituted Compliance in Connection with Certain
Capital and Financial Reporting Requirements Applicable to Nonbank Swap
Dealers Domiciled in the French Republic and Federal Republic of Germany and
Subject to Regulation in the European Union
AGENCY: Commodity Futures Trading Commission.
ACTION: Order.
SUMMARY: On June 27, 2023, the Commodity Futures Trading Commission
(“Commission” or “CFTC”) issued a notice and request for comment on an application
submitted by the Institute of International Bankers, International Swaps and Derivatives
Association, and Securities Industry and Financial Markets Association requesting that
the Commission determine that registered nonbank swap dealers organized and domiciled
within the European Union may comply with certain capital and financial reporting
requirements under the Commodity Exchange Act and Commission regulations by being
subject to, and complying with, corresponding capital and financial reporting
requirements of the European Union. The Commission also solicited public comment on
a proposed comparability determination and related order providing for the conditional
availability of substituted compliance in connection with the application. The
Commission is adopting the proposed order with certain modifications and clarifications
to address comments. The final order provides that a nonbank swap dealer organized and
domiciled in the French Republic or the Federal Republic of Germany may satisfy the
capital requirements and the financial reporting rules under the applicable provisions of
the Commodity Exchange Act and Commission regulations by complying with certain
specified EU laws and regulations and conditions set forth in the order.

DATES: This determination was made by the Commission on June 24, 2024.
FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, 202-4185283, aolear@cftc.gov; Thomas Smith, Deputy Director, 202-418-5495,
tsmith@cftc.gov; Rafael Martinez, Associate Director, 202-418-5462,
rmartinez@cftc.gov; Warren Gorlick, Associate Director, 202-418-5195,
wgorlick@cftc.gov; Liliya Bozhanova, Special Counsel, 202-418-6232,
lbozhanova@cftc.gov; Joo Hong, Risk Analyst, 202-418-6221, jhong@cftc.gov; Justin
McPhee, Risk Analyst, 202-418-6223; jmchpee@cftc.gov; Anna Semmes, AttorneyAdvisor, 202-418-5673, asemmes@cftc.gov, Market Participants Division; Commodity
Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW,
Washington, DC 20581.
SUPPLEMENTARY INFORMATION: The Commodity Futures Trading
Commission is issuing an order providing that registered nonbank swap dealers (“SDs”)
organized and domiciled in the French Republic (“France”) and Federal Republic of
Germany (“Germany”) and subject to capital and financial reporting requirements of the
European Union (“EU nonbank SDs”) may satisfy certain capital and financial reporting
requirements under the Commodity Exchange Act (“CEA”)1 and Commission
regulations2 by being subject to, and complying with, comparable capital and financial
reporting requirements under the relevant European Union (“EU”) laws and regulations,
subject to certain conditions set forth in the order below. The order is based on the
proposed comparability determination and related proposed order published by the

7 U.S.C. 1 et seq. The CEA may be accessed through the Commission’s website, www.cftc.gov.

17 CFR Chapter I. Commission regulations may be accessed through the Commission’s website,
www.cftc.gov.
Commission on June 27, 2023,3 as modified in certain aspects to address comments and
to clarify its terms.
I.

Introduction
A. Regulatory Background – CFTC Capital, Margin, and Financial Reporting
Requirements for Swap Dealers and Major Swap Participants
Section 4s(e) of the CEA4 directs the Commission and “prudential regulators” 5 to
impose capital requirements on SDs and major swap participants (“MSPs”) registered
with the Commission.6 Section 4s(e) also directs the Commission and prudential
regulators to adopt regulations imposing initial and variation margin requirements on
swaps entered into by SDs and MSPs that are not cleared by a registered derivatives
clearing organization (“uncleared swaps”).
Section 4s(e) applies a bifurcated approach with respect to the above
Congressional directives, requiring each SD and MSP that is subject to the regulation of a
prudential regulator (“bank SD” and “bank MSP,” respectively) to meet the minimum
capital requirements and uncleared swaps margin requirements adopted by the applicable

Notice of Proposed Order and Request for Comment on an Application for Capital Comparability
Determination Submitted on Behalf of Nonbank Swap Dealers Domiciled in the French Republic and
Federal Republic of Germany and Subject to Capital and Financial Reporting Requirements of the
European Union, 88 FR 41774 (June 27, 2023) (“2023 Proposal”).
4

7 U.S.C. 6s(e).

The term “prudential regulators” is defined in the CEA to mean the Board of Governors of the Federal
Reserve System (“Federal Reserve Board”); the Office of the Comptroller of the Currency; the Federal
Deposit Insurance Corporation; the Farm Credit Administration; and the Federal Housing Finance Agency.
7 U.S.C. 1a(39).
Subject to certain exceptions, the term “swap dealer” is generally defined as any person that: (i) holds
itself out as a dealer in swaps; (ii) makes a market in swaps; (iii) regularly enters into swaps with
counterparties as an ordinary course of business for its own account; or (iv) engages in any activity causing
the person to be commonly known in the trade as a dealer or market maker in swaps. 7 U.S.C. 1a(49).
The term “major swap participant” is generally defined as any person who is not an SD, and: (i) subject to
certain exclusions, maintains a substantial position in swaps for any of the major swap categories as
determined by the Commission; (ii) whose outstanding swaps create substantial counterparty exposure that
could have serious adverse effects on the financial stability of the U.S. banking system or financial
markets; or (iii) is a financial entity that: (a) is highly leveraged relative to the amount of capital it holds
and that is not subject to capital requirements established by an appropriate Federal banking agency; and
(b) maintains a substantial position in outstanding swaps in any major swap category as determined by the
Commission. 7 U.S.C. 1a(33).
prudential regulator, and requiring each SD and MSP that is not subject to the regulation
of a prudential regulator (“nonbank SD” and “nonbank MSP,” respectively) to meet the
minimum capital requirements and uncleared swaps margin requirements adopted by the
Commission.7 Therefore, the Commission’s authority to impose capital requirements and
margin requirements for uncleared swap transactions extends to nonbank SDs and
nonbank MSPs, including nonbanking subsidiaries of bank holding companies regulated
by the Federal Reserve Board.8
The prudential regulators implemented section 4s(e) in 2015 by amending
existing capital requirements applicable to bank SDs and bank MSPs to incorporate swap
transactions into their respective bank capital frameworks, and by adopting rules
imposing initial and variation margin requirements on bank SDs and bank MSPs that
engage in uncleared swap transactions.9 The Commission adopted final rules imposing
initial and variation margin obligations on nonbank SDs and nonbank MSPs for
uncleared swap transactions on January 6, 2016.10 The Commission also approved final
capital requirements for nonbank SDs and nonbank MSPs on July 24, 2020, which were
published in the Federal Register on September 15, 2020 with a compliance date of
October 6, 2021 (“CFTC Capital Rules”).11
Section 4s(f) of the CEA addresses SD and MSP financial reporting
requirements.12 Section 4s(f) authorizes the Commission to adopt rules imposing

7 U.S.C. 6s(e)(2).

7 U.S.C. 6s(e)(1) and (2).

Margin and Capital Requirements for Covered Swap Entities, 80 FR 74840 (Nov. 30, 2015).

Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants, 81 FR 636
(Jan. 6, 2016).
Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020). On
April 30, 2024, the Commission amended the capital and financial reporting requirements to revise certain
financial reporting obligations, among other changes. See Capital and Financial Reporting Requirements
for Swap Dealers and Major Swap Participants, 89 FR 45569 (May 23, 2024). The amendments have
limited impact on nonbank SDs covered by this order.

12

7 U.S.C. 6s(f).

financial condition reporting obligations on all SDs and MSPs (i.e., nonbank SDs,
nonbank MSPs, bank SDs, and bank MSPs). Specifically, section 4s(f)(1)(A) provides,
in relevant part, that each registered SD and MSP must make financial condition reports
as required by regulations adopted by the Commission.13 The Commission’s financial
reporting obligations were adopted with the Commission’s nonbank SD and nonbank
MSP capital requirements, and also had a compliance date of October 6, 2021 (“CFTC
Financial Reporting Rules”).14
B. Commission Capital Comparability Determinations for Non-U.S. Nonbank
Swap Dealers and Non-U.S. Nonbank Major Swap Participants
Commission Regulation 23.106 establishes a substituted compliance framework
whereby the Commission may determine that compliance by a non-U.S. domiciled
nonbank SD or non-U.S. domiciled nonbank MSP with its home country’s capital and
financial reporting requirements will satisfy all or parts of the CFTC Capital Rules and all
or parts of the CFTC Financial Reporting Rules (such a determination referred to as a
“Comparability Determination”).15 The Commission’s capital adequacy and financial
reporting requirements are designed to address and manage risks that arise from a firm’s
operation as an SD or MSP. Given their functions, both sets of requirements and rules

7 U.S.C. 6s(f)(1)(A).

85 FR 57462.

17 CFR 23.106. Commission Regulation 23.106(a)(1) provides that a request for a Comparability
Determination may be submitted by a non-U.S. nonbank SD or non-US nonbank MSP, a trade association
or other similar group on behalf of its SD or MSP members, or a foreign regulatory authority that has direct
supervisory authority over one or more non-US nonbank SDs or non-U.S. nonbank MSPs. However,
Commission regulations also provide that any non-U.S. nonbank SD or non-U.S. nonbank MSP that is
dually-registered with the Commission as a futures commission merchant (“FCM”) is subject to the capital
requirements of Commission Regulation 1.17 (17 CFR 1.17) and may not petition the Commission for a
Comparability Determination. 17 CFR 23.101(a)(5) and (b)(4), respectively.
Furthermore, substituted compliance is not available to non-U.S. bank SDs and non-U.S. bank MSPs with
respect to their respective financial reporting requirements under Commission Regulation 23.105(p).
Commission Regulation 23.105(p), however, permits non-U.S. bank SDs and non U.S. bank MSPs that do
not submit financial reports to a U.S. prudential regulator to file with the Commission a statement of
financial condition, certain regulatory capital information, and Schedule 1 of appendix C to Subpart E of
part 23 of the Commission’s regulations prepared and presented in accordance with the accounting
standards permitted by the non-U.S. bank SD’s or non-U.S. bank MSP’s home country regulatory
authorities. 17 CFR 23.105(p)(2).
must be applied on an entity-level basis (meaning that the rules apply on a firm-wide
basis, irrespective of the type of transactions involved) to effectively address risk to the
firm as a whole. The availability of such substituted compliance is conditioned upon the
Commission issuing a Comparability Determination finding that the relevant foreign
jurisdiction’s capital adequacy and financial reporting requirements for non-U.S.
nonbank SDs and/or non-U.S. nonbank MSPs are comparable to the corresponding CFTC
Capital Rules and CFTC Financial Reporting Rules. The Commission would issue a
Comparability Determination in the form of an order (“Comparability Order”).16
The Commission’s approach for conducting a Comparability Determination with
respect to the CFTC Capital Rules and the CFTC Financial Reporting Rules is a
principles-based, holistic approach that focuses on assessing whether the applicable
foreign jurisdiction’s capital and financial reporting requirements have comparable
objectives with, and achieve comparable outcomes to, corresponding CFTC
requirements.17 The Commission’s assessment is not a line-by-line evaluation or
comparison of a foreign jurisdiction’s regulatory requirements with the Commission’s
requirements.18 In performing the analysis, the Commission recognizes that jurisdictions
may adopt differing approaches to achieving regulatory objectives and outcomes, and the
Commission will focus on whether the foreign jurisdiction’s capital and financial
reporting requirements are based on regulatory objectives, and produce regulatory
outcomes, that are comparable to the Commission’s in purpose and effect, and not
whether they are comparable in every aspect or contain identical elements.
A person requesting a Comparability Determination is required to submit an
application to the Commission containing: (i) a description of the objectives of the

17 CFR 23.106(a)(3).

17 CFR 23.106(a)(3)(ii). See also 85 FR 57462 at 57521.

See 85 FR 57462 at 57521.

relevant foreign jurisdiction’s capital adequacy and financial reporting requirements
applicable to entities that are subject to the CFTC Capital Rules and the CFTC Financial
Reporting Rules; (ii) a description (including specific legal and regulatory provisions) of
how the relevant foreign jurisdiction’s capital adequacy and financial reporting
requirements address the elements of the CFTC Capital Rules and CFTC Financial
Reporting Rules, including, at a minimum, the methodologies for establishing and
calculating capital adequacy requirements and whether such methodologies comport with
international standards; and (iii) a description of the ability of the relevant foreign
regulatory authority to supervise and enforce compliance with the relevant foreign
jurisdiction’s capital adequacy and financial reporting requirements. The applicant must
also submit, upon request, such other information and documentation as the Commission
deems necessary to evaluate the comparability of the capital adequacy and financial
reporting requirements of the foreign jurisdiction.19
The Commission will consider an application for a Comparability Determination
to be a representation by the applicant that the laws and regulations of the foreign
jurisdiction that are submitted in support of the application are finalized and in force, that
the description of such laws and regulations is accurate and complete, and that, unless
otherwise noted, the scope of such laws and regulations encompasses the relevant nonU.S. nonbank SDs and/or non-U.S. nonbank MSPs domiciled in the foreign jurisdiction.20
Each non-U.S. nonbank SD or non-U.S. nonbank MSP that seeks to rely on a
Comparability Order is responsible for determining whether it is subject to the foreign
laws and regulations found comparable in the Comparability Order. A non-U.S. nonbank

19
17 CFR 23.106(a)(2).

The Commission provides the applicant with an opportunity to review for accuracy and completeness the
Commission’s description of relevant home country laws and regulations on which a proposed
Comparability Determination and a proposed Comparability Order are based. The Commission relies on
this review, and any corrections or feedback received, as part of the comparability assessment. A
Comparability Determination and Comparability Order based on an inaccurate description of foreign laws
and regulations may not be valid.

SD or non-U.S. nonbank MSP that is not legally required to comply with a foreign
jurisdiction’s laws and/or regulations determined to be comparable in a Comparability
Order may not voluntarily comply with such laws and/or regulations in lieu of
compliance with the CFTC Capital Rules or the CFTC Financial Reporting Rules.
The Commission may consider all relevant factors in making a Comparability
Determination, including: (i) the scope and objectives of the relevant foreign
jurisdiction’s capital and financial reporting requirements; (ii) whether the relevant
foreign jurisdiction’s capital and financial reporting requirements achieve comparable
outcomes to the Commission’s corresponding capital requirements and financial
reporting requirements; (iii) the ability of the relevant foreign regulatory authority or
authorities to supervise and enforce compliance with the relevant foreign jurisdiction’s
capital adequacy and financial reporting requirements; and (iv) any other facts or
circumstances the Commission deems relevant, including whether the Commission and
foreign regulatory authority or authorities have a memorandum of understanding
(“MOU”) or similar arrangement that would facilitate supervisory cooperation.21
In performing the comparability assessment for foreign nonbank SDs, the
Commission’s review will include the extent to which the foreign jurisdiction’s
requirements address: (i) the process of establishing minimum capital requirements for
nonbank SDs and how such process addresses risk, including market risk and credit risk
of the nonbank SD’s on-balance sheet and off-balance sheet exposures; (ii) the types of
equity and debt instruments that qualify as regulatory capital in meeting minimum
requirements; (iii) the financial reports and other financial information submitted by a
nonbank SD to its relevant regulatory authority and whether such information provides
the regulatory authority with the means necessary to effectively monitor the financial

17 CFR 23.106(a)(3) and 85 FR 57462 at 57520-57522.

condition of the nonbank SD; and (iv) the regulatory notices and other communications
between a nonbank SD and its foreign regulatory authority that address potential adverse
financial or operational issues that may impact the firm. With respect to the ability of the
relevant foreign regulatory authority to supervise and enforce compliance with the
foreign jurisdiction’s capital adequacy and financial reporting requirements, the
Commission’s review will include an assessment of the foreign jurisdiction’s surveillance
program for monitoring nonbank SDs’ compliance with such capital adequacy and
financial reporting requirements, and the disciplinary process imposed on firms that fail
to comply with such requirements.22
Commission Regulation 23.106 further provides that the Commission may impose
any terms or conditions that it deems appropriate in issuing a Comparability
Determination.23 Any specific terms or conditions with respect to capital adequacy or
financial reporting requirements will be set forth in the Commission’s Comparability
Order. As a general condition to all Comparability Orders, the Commission will require
notification from the applicants of any material changes to information submitted by the
applicants in support of a comparability finding, including, but not limited to, changes in
the foreign jurisdiction’s relevant laws and regulations, as well as changes to the relevant
supervisory or regulatory regime.
To rely on a Comparability Order, a nonbank SD or nonbank MSP domiciled in
the foreign jurisdiction and subject to supervision by the relevant regulatory authority (or
authorities) in the foreign jurisdiction must file a notice with the Commission of its intent
to comply with the applicable capital adequacy and financial reporting requirements of
the foreign jurisdiction set forth in the Comparability Order in lieu of all or parts of the
The Commission would conduct a similar analysis, adjusted as appropriate to account for regulatory
distinctions, in performing a comparability assessment for foreign nonbank MSPs. Commission Regulation
23.101(b) requires a nonbank MSP to maintain positive tangible net worth. 17 CFR 23.101(b). There are
no MSPs currently registered with the Commission.
23

17 CFR 23.106(a)(5).

CFTC Capital Rules and/or CFTC Financial Reporting Rules.24 Notices must be filed
electronically with the Commission’s Market Participants Division (“MPD”).25 The
filing of a notice by a non-U.S. nonbank SD or non-U.S. nonbank MSP provides MPD
staff with the opportunity to engage with the firm and to obtain representations that it is
subject to, and complies with, the laws and regulations cited in the Comparability Order
and that it will comply with any listed conditions. MPD will issue a letter under
delegated authority from the Commission confirming that the non-U.S. nonbank SD or
non-U.S. nonbank MSP may comply with the foreign laws and regulations cited in the
Comparability Order in lieu of complying with the CFTC Capital Rules and CFTC
Financial Reporting Rules upon MPD’s confirmation through discussions with the nonU.S. nonbank SD or non-U.S. nonbank MSP that the firm is subject to, and complies
with, such foreign laws and regulations, is subject to the jurisdiction of the applicable
foreign regulatory authority (or authorities), and can meet the conditions in the
Comparability Order.26
Each non-U.S. nonbank SD and each non-U.S. nonbank MSP that receives
confirmation from the Commission that it may comply with a foreign jurisdiction’s
capital adequacy and financial reporting requirements will be deemed by the Commission
to be in compliance with the corresponding CFTC Capital Rules and/or CFTC Financial
Reporting Rules. A non-U.S. nonbank SD or non-U.S. nonbank MSP that receives
confirmation of substituted compliance remains subject, however, to the Commission’s
examination and enforcement authority.27 Accordingly, if a nonbank SD or nonbank
MSP fails to comply with the foreign jurisdiction’s capital adequacy and/or financial

17 CFR 23.106(a)(4)(i).

Notices must be filed in electronic form to the following email address:
MPDFinancialRequirements@cftc.gov.
26

17 CFR 23.106(a)(4)(ii) and 17 CFR 140.91(a)(11).

17 CFR 23.106(a)(4)(ii). Confirmation will be issued by MPD under authority delegated by the
Commission. Commission Regulation 140.91(a)(11). 17 CFR 140.91(a)(11).
reporting requirements, the Commission may initiate an action for a violation of the
corresponding CFTC Capital Rules and/or CFTC Financial Reporting Rules.28 In
addition, a finding of a violation by a foreign jurisdiction’s regulatory authority is not a
prerequisite for the exercise of such examination and enforcement authority by the
Commission.
C. Application for a Comparability Determination for EU Nonbank Swap
Dealers
On September 24, 2021, the Institute of International Bankers (“IIB”),
International Swaps and Derivatives Association (“ISDA”), and Securities Industry and
Financial Markets Association (“SIFMA”) (collectively, the “Applicants”) submitted an
application (“EU Application”) requesting that the Commission conduct a Comparability
Determination and issue a Comparability Order finding that compliance by EU nonbank
SDs domiciled in France or Germany with certain designated capital requirements of the
EU and certain designated financial reporting requirements of the EU satisfies
corresponding CFTC Capital Rules and CFTC Financial Reporting Rules applicable to a
nonbank SD under sections 4s(e) and (f) of the CEA and Commission Regulations 23.101
and 23.105.29 There are currently four EU nonbank SDs registered with Commission that
are domiciled in France or Germany.30
The Applicants represented that the capital adequacy and financial reporting
requirements applicable to financial institutions licensed to operate in a member state of
the EU (“EU Member State”) are established by EU regulations and directives.

Id.

Letter from Stephanie Webster, General Counsel, IIB, Steven Kennedy, Global Head of Public Policy,
ISDA, and Kyle Brandon, Managing Director, Head of Derivatives Policy, SIFMA, dated September 24,
2021. The EU Application is available on the Commission’s website at:
https://www.cftc.gov/LawRegulation/DoddFrankAct/CDSCP/index.htm.
BofA Securities Europe SA and Goldman Sachs Paris Inc. et Cie (“Goldman Sachs Paris”) are nonbank
SDs registered with the Commission and domiciled in France. Citigroup Global Markets Europe AG and
Morgan Stanley Europe SE are also registered nonbank SDs and are domiciled in Germany.
Specifically, the Capital Requirements Regulation31 and the Capital Requirements
Directive32 set forth capital and financial reporting requirements applicable to entities
defined as “credit institutions” or “investment firms” within the EU, including EU
nonbank SDs. The term “credit institution” includes an entity engaged in taking deposits
or other repayable funds from the public and granting credits for its own account
(“Banking Activities”).33 An entity engaged in Banking Activities is subject to the
capital and financial reporting requirements of CRR and CRD. The term “credit
institution” also includes an entity engaged in: (i) dealing for its own account; (ii)
underwriting financial instruments; or (iii) placing financial instruments on a firm
commitment basis (collectively, “Investment Activities”), provided that the entity also
meets certain defined financial thresholds set forth in the definition.34 Specifically, an
entity engaged in Investment Activities that maintains a total value of consolidated assets
equal to or in excess of EUR 30 billion is required to be authorized as a “credit
institution” and is subject to the capital and financial reporting requirements of CRR and
CRD.35

Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on
prudential requirements for credit institutions and amending Regulation (EU) No 648/2012, as amended
(“Capital Requirements Regulation” or “CRR”).
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the
activity of credit institutions and the prudential supervision of credit institutions, amending Directive
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC, as amended (“Capital Requirements
Directive” or “CRD”).
33

CRR, Article 4(1)(1) (defining the term “credit institution”).

Id.

Id. and CRD, Articles 8 and 8a (requiring an entity that engages in Investment Activities and meets the
financial thresholds to submit an application for authorization as a “credit institution” under the relevant
provisions of the applicable national law). CRR, Article 4(1)(1) provides that an entity carrying out
Investment Activities meets the financial threshold for authorization as a credit institution if: (i) the total
value of the consolidated assets of the entity is equal to or in excess of EUR 30 billion; (ii) the total value
of the assets of the entity is less than EUR 30 billion, and the entity is part of a group in which the total
value of the consolidated assets of all entities in that group that individually have total assets of less than
EUR 30 billion and that engage in Investment Activities is equal to or in excess of EUR 30 billion; or (iii)
the total value of the assets of the entity is less than EUR 30 billion, and the entity is part of a group in
which the total value of the consolidated assets of all entities in the group that engage in Investment
Activities is equal to or in excess of EUR 30 billion, where the consolidated supervisor, in consultation
with the supervisory college, decides that the entity must be authorized as a credit institution to address
potential risks of circumvention and potential risks for financial stability of the EU.
Credit institutions that qualify as “significant supervised entities” are subject to
the direct prudential supervision of the European Central Bank (“ECB”).36 Credit
institutions that are “less significant supervised entities” are prudentially supervised by
the applicable prudential supervisory authority in the entity’s home EU Member State
(i.e., “national competent authority”).37 The term “competent authority” is used in this
Comparability Determination and Comparability Order to refer to the ECB or the national
competent authority, as appropriate.
The term “investment firm” is defined as an entity authorized under the Markets
in Financial Instruments Directive,38 and whose regular business is the provision of one
or more investment services to third parties and/or the performance of one or more
investment-related activities on a professional basis (including Investment Activities as
defined above).39 An investment firm that engages in Investment Activities and
maintains total consolidated assets of at least EUR 15 billion is also subject to the capital
and financial reporting requirements of CRR and CRD.40 The investment firm, however,

See generally, Council Regulation (EU) 1024/ 2013 of 15 October 2013 Conferring Specific Tasks to the
European Central Bank Concerning Policies Relating to the Prudential Supervision of Credit Institutions
(“SSM Regulation”) and Regulation (EU) No 468/2014 of the European Central Bank of 16 April 2014
Establishing the Framework for Cooperation within the Single Supervisory Mechanism Between the
European Central Bank and the National Competent Authorities and with National Designated Authorities
(“SSM Framework Regulation”).
The criteria for determining whether credit institutions are considered “significant supervised entities”
include size, economic importance for the specific EU Member State or the EU economy, significance of
cross-border activities, and request for or receipt of direct public financial assistance. SSM Regulation,
Article 6 and SSM Framework Regulation, Articles 39–44 and 50–62.
SSM Regulation, Article 6. Less significant entities are supervised by their national competent
authorities in close cooperation with the ECB. With respect to the prudential supervision of less significant
entities, the ECB has the power to issue regulations, guidelines or general instructions to the national
competent authorities. SSM Regulation, Article 6(5)(a). At any time, the ECB can also decide to directly
supervise a less significant entity to ensure that high supervisory standards are applied consistently. SSM
Regulation, Article 6(5)(b).
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in
financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (“Markets in
Financial Instruments Directive” or “MiFID”).
39

CRR, Article 4(1)(2) cross-referencing Article 4(1)(1) of MiFID.

See Regulation (EU) 2019/2033 of the European Parliament and of the Council of 27 November 2019 on
the prudential requirements of investment firms and amending Regulations (EU) No 1093/2010, (EU) No
575/2013, (EU) No 600/2014 and (EU) No 806/ 2014 (“Investment Firms Regulation” or “IFR”), Article
1(1) and (1)(2) (indicating that an investment firm that engages in Investment Activities is subject to CRR
is not required to be authorized as a “credit institution” under the relevant provisions of
the applicable national law in the EU Member State and is prudentially supervised by the
national competent authority.41 Lastly, an entity defined as an “investment firm” that
does not engage in Investment Activities, or that engages in Investment Activities but
does not meet the criteria of either maintaining consolidated assets of at least EUR 15
billion or maintaining consolidated assets of at least EUR 5 billion and meeting certain
criteria of significance and interconnectedness, is not subject to CRR and CRD.42 Such
an investment firm is subject to capital and financial reporting requirements established
by IFR and IFD, which EU Member States were required to adopt and apply by June 26,
2021.43 The new IFR and IFD capital and financial reporting requirements are tailored to
the risks faced and posed by smaller investment firms that operate differently from

(and by cross-reference to CRD) if any of the following applies: (i) the total value of the consolidated
assets of the investment firm is equal to or exceeds EUR 15 billion; (ii) the total value of the consolidated
assets of the investment firm is less than EUR 15 billion, and the investment firm is part of a group in
which the total value of the consolidated assets of all investment firms in the group that individually have
total assets of less than EUR 15 billion and that engage in Investment Activities is equal to or exceeds EUR
15 billion; or (iii) the total value of the consolidated assets of the investment firm is equal to or exceeds
EUR 5 billion, the investment firm engages in Investment Activities, and the competent authority has
determined that the investment firm should be subject to CRR based on criteria set forth in Article 5 of
Directive (EU) 2019/2034). See also, Directive (EU) 2019/2034 of the European Parliament and of the
Council of 27 November 2019 on the prudential supervision of investment firms and amending Directives
2002/87/EC, 2009/65/EC, 2011/61/EU, 2013/36/EU, 2014/59/EU and 2014/65/EU (“Investment Firms
Directive” or “IFD”), Article 5 (providing that the competent authority may decide to apply the
requirements of CRR to an investment firm whose consolidated assets are equal or exceed EUR 5 billion
and that engages in Investment Activities if one or more of the following criteria apply: (i) the investment
firm engages in Investment Activities on a scale that the failure or distress of the investment firm could
lead to systemic risk; (ii) the investment firm is a clearing member; and/or (iii) the competent authority
considers it to be justified in light of the size, nature, scale, and complexity of the activities of the
investment firm considering the importance of the investment firm for the economy of the EU or of the
relevant EU Member State, the significance of the investment firm’s cross-border activities, and the
interconnectedness of the investment firm with the financial system).
Although no EU nonbank SD currently registered with the Commission falls in this category, the analysis
in the Comparability Determination would apply to such an investment firm. To capture investment firms
that are subject to the capital and financial reporting requirements of CRR and CRD but are not required to
be authorized as “credit institutions,” the Commission has removed the requirement in proposed Condition
3 that the EU nonbank SD be “treated for the purposes of the EU capital and financial reporting rules as an
“institution,” as defined in [CRR].”
IFD, Article 5 (setting forth the criteria that may justify a decision by the competent authority to apply
the requirements of CRR to an investment firm that engages in Investment Activities and whose
consolidated assets equal or exceed EUR 5 billion).
43

IFR, Article 66 and IFD, Article 67.

banking entities and larger investment firms. Such smaller investment firms are also
prudentially supervised by the national competent authority.
Three of the four EU nonbank SDs currently registered with the Commission are
subject to CRR and CRD.44 The Application did not include an analysis of the
comparability of the capital and financial reporting rules under the IFR and IFD to the
CFTC Capital Rules and CFTC Financial Reporting Rules. As such, the Commission did
not assess the comparability of the capital and financial reporting requirements imposed
by IFR and IFD on smaller investment firms with the CFTC Capital Rules and CFTC
Financial Reporting Rules. Therefore, an EU nonbank SD, or a future EU nonbank SD
applicant, that is subject to the IFR and IFD frameworks and seeks substituted
compliance for some or all of the CFTC Capital Rules and CFTC Financial Reporting
Rules must submit an application to the Commission in accordance with Commission
Regulation 23.106.45 In addition, as noted above, the three EU nonbank SDs that are
currently subject to CRR and CRD, and registered with the Commission, are domiciled in
the EU Member States of France and Germany. The Commission’s analysis therefore
involved an assessment of how certain EU directives were implemented into the national
laws of France and Germany. The Commission did not review the implementation of the
relevant EU directives in other EU Member States. Therefore, an entity organized and
domiciled in an EU Member State other than France or Germany that seeks to register
with the Commission as an SD and to comply with some or all of the Commission’s

BofA Securities Europe SA, Citigroup Global Markets Europe AG and Morgan Stanley Europe SE have
been authorized as credit institutions. These three EU nonbank SDs also qualify as “significant supervised
entities” subject to the direct supervision of the ECB. At the time the Commission issued the 2023
Proposal, Goldman Sachs Paris had a pending application for authorization as a credit institution. See
Responses to Staff Questions of May 15, 2023. Subsequent to the publication of the 2023 Proposal,
however, Goldman Sachs Paris informed the Commission that following further analysis and discussion
with the relevant authorities, it was determined that on March 31, 2024, the entity had to start complying
with the capital and financial reporting frameworks of IFR and IFD.
17 CFR 23.106. Because the Commission had not assessed the capital and financial reporting
frameworks established by IFR and IFD at the time of issuance of the 2023 Proposal, an application for
substituted compliance by Goldman Sachs Paris, if one is submitted in accordance with Commission
Regulation 23.106, would be addressed separately from this Comparability Determination.
capital and financial reporting rules via substituted compliance must submit an
application under Commission Regulation 23.106. Commission staff expects that it will
engage with such potential entities during the registration process and use the analysis
performed during this assessment in performing a comparability assessment of the
applicant’s home country capital and financial reporting requirements.
As noted above, three of the EU nonbank SDs currently registered with the
Commission are subject to CRR and CRD. CRR, as a regulation, is binding in its entirety
and directly applicable in all EU Member States.46 CRD, as a directive, was required to
be transposed into EU Member States’ national law.47 France implemented CRD in
various provisions of its Monetary and Financial Code (“MFC”)48 and through several
ministerial orders, including Ministerial Order on Capital Buffers49 and Ministerial Order
on Internal Control.50 France also adopted Ministerial Order on Distribution
Restrictions51 and amended relevant national law provisions, including the abovereferenced ministerial orders, to implement CRD V.52 Germany implemented CRD via

Consolidated Version of the Treaty on the Functioning of the European Union, OJ (C 326) 171, Oct. 26,
2012 (“TFEU”), Article 288. Accordingly, CRR is directly applicable and binding law in France and
Germany, the two EU Member States where EU nonbank SDs are currently organized and operating.
TFEU, Article 288 (stating that a directive is binding as to the result to be achieved upon each EU
Member State to which the directive is addressed, and further provides, however, that each EU Member
State elects the form and method of implementing the directive). In this connection, EU Member States
were required to implement and start applying amendments to CRD, introduced by Directive (EU)
2019/878 of the European Parliament and of the Council of 20 May 2019 amending Directive 2013/36/EU
as regards exempted entities, financial holding companies, mixed financial holding companies,
remuneration, supervisory measures and powers and capital conservation measures (“CRD V”) by
December 29, 2020.
In particular, MFC, Articles L.511–41 to L.511– 50–1 contain provisions relating to prudential
requirements applicable to credit institutions. In addition, MFC, Articles L.612–1 to L.612–50 relate to the
role, functioning, and powers of the national competent authority.
Arrêté of 3 November 2014 Relating to Capital Buffers of Banking Services Providers and Investment
Firms Other Than Portfolio Management Companies (“Ministerial Order on Capital Buffers”).
Arrêté of 3 November 2014 on Internal Control of Companies in the Banking, Payment Services and
Investment Services Sector Subject to the Control of Autorité de Contrôle Prudentiel et de Résolution
(“Ministerial Order on Internal Control”).
Arrêté of 25 February 2021 Relating to Distribution Restrictions Applicable to Credit Institutions,
Financial Companies and Certain Investment Firms.
Specifically, to implement CRD V, France amended the MFC via Ordinance No. 2020–1635 of
December 21, 2020 and Decree No. 2020–1637 of December 22, 2020, with most of the relevant changes
amendments to the Banking Act (Kreditwesengesetz, “KWG”) and its subordinate
statutory instruments.53 In addition, Germany adopted and published the Risk Reduction
Act (Risikoreduzierungsgesetz, “RiG”) on December 14, 2020 to implement CRD V,
with most of the relevant changes becoming effective on December 28, 2020. CRR and
CRD as implemented in French and German law are collectively referred to hereafter as
the “EU Capital Rules” in this Comparability Determination and Comparability Order.
The Applicants also represented that in addition to CRR and CRD, the Bank
Recovery and Resolution Directive (“BRRD”) includes relevant EU capital
requirements.54 BRRD establishes a framework for recovery and resolution of credit
institutions and investment firms, and mandates that EU Member States require such
institutions to satisfy “a minimum requirement for own funds and eligible liabilities”
(“MREL”) if they meet certain requirements.55 France implemented BRRD primarily via

becoming effective on December 29, 2020. France also introduced consecutive amendments to Ministerial
Order on Capital Buffers and Ministerial Order on Internal Control, with the latest changes effective as of
August 1, 2021.
Specifically, the KWG includes, among other things, provisions related to capital adequacy requirements,
including provisions granting power the Federal Ministry of Finance to issue statutory instruments to
provide details on capital adequacy requirements (section 10(1)), provisions specifying the basis for
imposing higher capital requirements (section 10(3)), provisions setting forth requirements related to
capital buffers (sections 10c to 10i) and provisions describing the powers of the competent authority
(sections 6b, 56, 60b).
Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a
framework for the recovery and resolution of credit institutions and investment firms and amending
Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/ EC, 2005/56/EC,
2007/36/EC, 2011/35/EU, 2012/30/ EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU)
No 648/2012, of the European Parliament and of the Council (“Bank Recovery and Resolution Directive”
or “BRRD”). EU Application, p. 5.
EU Member States were required to transpose BRRD into national law and start applying the
implementing measures from January 1, 2015. BRRD, Article 130. BRRD was amended by Directive
(EU) 2019/879 of the European Parliament and of the Council of 20 May 2019 amending Directive
2014/59/EU as regards loss-absorbing and recapitalization capacity of credit institutions and investment
firms and Directive 98/26/EC (“Bank Recovery and Resolution Directive II” or “BRRD II”) and EU
Member States were required to start applying national law measures implementing BRRD II by December
28, 2020. BRRD II, Article 3. BRRD as amended by BRRD II will be referred to as ‘‘BRRD’’ in this
document, unless otherwise stated.
amendments to the MFC.56 Germany transposed BRRD into national law by the
Recovery and Resolution Act (Sanierungs und Abwicklungsgesetz, “SAG”).57
The Applicants further represent that with respect to supervisory financial
reporting, Commission Implementing Regulation (EU) 2021/451 supplements CRR with
implementing technical standards (“CRR Reporting ITS”)58 specifying, among other
things, uniform formats and frequencies for the financial reporting required under CRR.59
In addition, the ECB has adopted a regulation setting forth a common minimum set of
financial information that should be reported by credit institutions subject to CRR,
including EU nonbank SDs, on the basis of the CRR Reporting ITS (“ECB FINREP
Regulation”).60 The Applicants also represent that Directive 2013/34/EU61 contains
provisions related to financial reporting, including a mandate that entities of a certain size
be required to prepare annual audited financial statements and a management report.62
CRR, CRR Reporting ITS, ECB FINREP Regulation, relevant provisions of CRD
regarding certain notice requirements as implemented in French and German law, and the
relevant provisions of the Accounting Directive as implemented in French and German
law are collectively referred to hereafter as the “EU Financial Reporting Rules” in this
Comparability Determination and Comparability Order.

Among other provisions, MFC Article L.613–44 relates in particular to the MREL requirement and
Article R.613–46–1 defines the conditions that items and instruments need to meet to qualify as “eligible
liabilities.”
57

In particular, SAG, section 49(1) and (2) relate to the MREL requirement.

Commission Implementing Regulation (EU) 2021/451 of 17 December 2020 laying down implementing
technical standards for the application of Regulation (EU) No 575/2013 of the European Parliament and of
the Council with regard to supervisory reporting of institutions and repealing Implementing Regulation
(EU) No 680/2014.
59

EU Application, p. 21 and Responses to Staff Questions of May 15, 2023.

Regulation (EU) 2015/534 of the European Central Bank of 17 March 2015 on reporting of supervisory
financial information.
Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual
financial statements, consolidated financial statements and related reports of certain types of undertakings,
amending Directive 2006/43/ EC of the European Parliament and of the Council and repealing Council
Directives 78/660/EEC and 83/394/EEC (“Accounting Directive”).
62

EU Application, p. 5. Accounting Directive, Articles 4, 19 and 34.

D. Proposed Comparability Determination and Proposed Comparability Order
for EU Nonbank Swap Dealers
On June 27, 2023, the Commission published the 2023 Proposal, seeking
comment on the EU Application and the Commission’s proposed Comparability
Determination and Comparability Order.63 The 2023 Proposal set forth the
Commission’s preliminary Comparability Determination and proposed Comparability
Order providing for the conditional availability of substituted compliance with the CFTC
Capital Rules and CFTC Financial Reporting Rules for EU nonbank SDs regulated under
CRR and CRD and domiciled in either Germany or France, subject to EU nonbank SDs’
compliance with EU laws and regulations, as well as conditions specified in the proposed
Comparability Order.64
Based on its review of the EU Application and applicable EU laws and
regulations, the Commission preliminarily found that the EU Capital Rules and the EU
Financial Reporting Rules, subject to the conditions set forth in the proposed
Comparability Order, achieve comparable outcomes and are comparable in purpose and
effect to the CFTC Capital Rules and CFTC Financial Reporting Rules. The
Commission, however, noted that there were certain differences between the EU Capital
Rules and CFTC Capital Rules and certain differences between the EU Financial
Reporting Rules and the CFTC Financial Reporting Rules. As such, the Commission
proposed certain conditions to the Comparability Order. The proposed conditions were
designed to promote consistency in regulatory outcomes, to reflect the scope of

2023 Proposal at 41774.

Id. at 41807-41810. Consistent with the process specified in section I.B. above for conducting
Comparability Determinations, the Commission provided the Applicants with an opportunity to review for
factual accuracy and completeness the Commission’s description of relevant EU laws and regulations on
which the proposed Comparability Determination and proposed Comparability Order were based. The
Commission has relied on the Applicants’ review, and has incorporated feedback and corrections received
from the Applicants. As previously noted, a Comparability Determination and Comparability Order based
on an inaccurate description of foreign laws and regulations may not be valid.
substituted compliance that would be available notwithstanding the differences, and to
ensure that the Commission and National Futures Association (“NFA”) receive
information to monitor EU nonbank SDs for ongoing compliance with the Comparability
Order.65 The Commission further stated that, in its preliminary view, the identified
differences would not be inconsistent with providing a substituted compliance framework
for EU nonbank SDs subject to the conditions specified in the proposed Comparability
Order.66
The proposed Comparability Order was limited to the comparison of the EU
Capital Rules to the CFTC Capital Rules’ Bank-Based Capital Approach (“Bank-Based
Approach”) for computing regulatory capital for nonbank SDs, which is based on certain
capital requirements imposed by the Federal Reserve Board for bank holding
companies.67 As noted by the Commission in the 2023 Proposal, the Applicants had not
requested, nor has the Commission performed, a comparison of the EU Capital Rules to
the Commission’s TNW Approach or NLA Approach.68

NFA is a registered futures association (“RFA”) under section 17 of the CEA (7 U.S.C. 21). Each SD
registered with the Commission is required to be an NFA member. 17 CFR 170.16. NFA, as an RFA, is
also required by the CEA to adopt rules imposing minimum capital, segregation, and other financial
requirements, as applicable, to its members, including SDs, that are at least as stringent as the
Commission’s minimum capital, segregation, and other financial requirements for such registrants, and to
implement a program to audit and enforce such requirements. 7 U.S.C. 21(p). Therefore, the
Commission’s proposed Comparability Order required EU nonbank SDs to file certain financial reports and
notices with NFA so that it may perform oversight of such firms as required under section 17 of the CEA.
The Commission will refer to NFA in this Comparability Determination when referring to the requirements
or obligations of an RFA.
66

Id. at 41807.

Id. As described in the 2023 Proposal, the CFTC Capital Rules provide nonbank SDs with three
alternative capital approaches: (i) the Tangible Net Worth Capital Approach (“TNW Approach”); (ii) the
Net Liquid Assets Capital Approach (“NLA Approach”); and (iii) the Bank-Based Approach. See 2023
Proposal at 41780-41782 and 17 CFR 23.101. The Bank-Based Approach is consistent with the Basel
Committee on Banking Supervision’s (“BCBS”) international framework for bank capital requirements
(“BCBS framework” or “Basel standards”). The BCBS is the primary global standard-setter for the
prudential regulation of banks and provides a forum for cooperation on banking supervisory matters.
Institutions represented on the BCBS include the Federal Reserve Board, the ECB, Deutsche Bundesbank,
Bank of England, Bank of France, Bank of Japan, Banco de Mexico, and Bank of Canada. The BCBS
framework is available at https://www.bis.org/basel_framework/index.htm.
68

See 2023 Proposal at 41784.

E. General Comments on the EU Application and the Commission’s Proposed
Finding of Comparability Between the CFTC Capital Rules and CFTC
Financial Reporting Rules and the EU Capital Rules and EU Financial
Reporting Rules
The public comment period on the EU Application and the proposed
Comparability Determination and proposed Comparability Order ended on October 28,
2023. The Commission received three substantive comment letters from interested
parties: Better Markets, Inc.; a joint letter from the Applicants; and William J.
Harrington.69 The Commission received 16 additional non-substantive comments from
one individual that are not addressed in this Comparability Determination.70
The Applicants filed a comment letter generally expressing support for the
proposed Comparability Determination and Comparability Order, agreeing with the
Commission’s overall analysis and determination of comparability of the CFTC Capital
Rules and CFTC Financial Reporting Rules and the EU Capital and EU Financial
Reporting Rules.71 The Applicants also included several technical comments, further
discussed in section II. below, on the proposed conditions requiring EU nonbank SDs to
file a notice with the Commission and the NFA upon the occurrence of certain events.

Letter from Cantrell Dumas, Director of Derivatives Policy, Better Markets Inc. (“Better Markets”)
(August 28, 2023) (“Better Markets Letter”); Letter from Stephanie Webster, General Counsel, IIB; Steven
Kennedy, Global Head of Public Policy, ISDA; Kyle L. Brandon, Managing Director, Head of Derivatives
Policy, SIFMA (August 24, 2023) (“Applicants’ Letter”); Letter from William J. Harrington (“Harrington”)
(August 28, 2023) (“Harrington 08/28/2023 Letter”). The Commission also received a second letter from
the Applicants, dated May 22, 2024, complementing their comments to the 2023 Proposal (“Applicants’
Supplemental Letter”). The comment letters for the 2023 Proposal are available at:
https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7397&ctl00_ctl00_cphContentMain_M
ainContent_gvCommentListChangePage=1.
The non-substantive comments are also available on the Commission’s website at:
https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7397&ctl00_ctl00_cphContentMain_M
ainContent_gvCommentListChangePage=1.
71

Applicants’ Letter at p. 2.

Conversely, two commenters disagreed with the CFTC’s proposed Comparability
Determination and proposed Comparability Order.72 Better Markets asserted that the
principles-based, holistic approach applied by the Commission, which assesses whether
the applicable foreign jurisdiction’s capital and financial requirements achieve
comparable outcomes to the corresponding Commission requirements, “is insufficiently
rigorous, leaving far too much room for inaccurate and unwarranted comparability
determinations.”73
The Commission does not believe that the principles-based, holistic assessment
that it conducted on the comparability of the EU Capital Rules and EU Financial
Reporting Rules with the CFTC Capital Rules and CFTC Financial Reporting Rules was
“insufficiently rigorous,” nor does the Commission believe that it left “room for
inaccurate and unwarranted comparability determinations.” The principles-based,
holistic approach employed in the Comparability Determination was performed in
accordance with the substituted compliance assessment framework adopted by the
Commission for capital and financial reporting requirements for foreign nonbank SDs
and set out in Commission Regulation 23.106. Consistent with this assessment
framework, the Commission focused on whether the EU Capital Rules and EU Financial
Reporting Rules are designed with the objective of ensuring overall safety and soundness
of the EU nonbank SDs in a manner that is comparable with the Commission’s overall
objective of ensuring the safety and soundness of nonbank SDs.
As stated in section I.B. above, when adopting Commission Regulation 23.106,
the Commission stated that its approach to substituted compliance is a principles-based,

Better Markets Letter at p. 2; Harrington 08/28/2023 Letter at pp. 3-4 (referencing a separate submission
to the Commission, dated October 20, 2022, in connection with the Commission’s Notice of Proposed
Order and Request for Comment on an Application for a Capital Comparability Determination From the
Financial Services Agency of Japan, 87 FR 48092, (August 8, 2022), and asserting, as further discussed
below, that the Commission should condition the Comparability Determination on a prohibition against EU
nonbank SDs’ entering into swap contracts with certain specified features).
73

Better Markets Letter at p. 3.

holistic approach that focuses on whether the foreign regulations are designed with the
objectives of ensuring the overall safety and soundness of the non-US nonbank SD in a
manner that is comparable with the Commission’s overall capital and financial reporting
requirements, and is not based on a line-by-line assessment or comparison of a foreign
jurisdiction’s regulatory requirements with the Commission’s requirements.74
As stated in the 2023 Proposal, due to the detailed and complex nature of the
capital frameworks, differences in how jurisdictions approach and implement the
requirements are expected, even among jurisdictions that base their requirements on the
principles and standards set forth in the BCBS framework.75 Furthermore, as discussed
in section I.B. above, the Commission stated when adopting Commission Regulation
23.106 that its approach to substituted compliance is a principles-based, holistic approach
that focuses on whether the foreign regulations are designed with the objectives of
ensuring the overall safety and soundness of the non-US nonbank SD in a manner that is
comparable with the Commission’s overall capital and financial reporting requirements,
and is not based on a line-by-line assessment or comparison of a foreign jurisdiction’s
regulatory requirements with the Commission’s requirements.76
The approach and standards contained in Commission Regulation 23.106, with
the focus on “comparable outcomes,” are also consistent with the Commission’s
precedents of undertaking a principles-based, holistic assessment of the comparability of
foreign regulatory regimes for purposes of substituted compliance for cross-border swap
transactions. The Commission first outlined its approach to substituted compliance with
respect to swaps requirements in 2013, when it issued an Interpretive Guidance and

85 FR 57462 at 57521.

See 2023 Proposal at 41785.

85 FR 57462 at 57521.

Policy Statement Regarding Compliance with Certain Swap Regulations.77 In the
Guidance, the Commission stated that 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.78 The Commission emphasized that in this context,
“comparable does not necessarily mean identical.”79 Rather, the Commission stated that
it would evaluate whether the home jurisdiction’s regulatory requirement is comparable
to, and as comprehensive as, the corresponding U.S. regulatory requirement(s).80 In
conducting comparability determinations based on the policy set forth in the Guidance,
the Commission noted that the “outcome-based” approach recognizes that foreign
regulatory systems differ and their approaches vary and may differ from how the
Commission chose to address an issue, but that the foreign jurisdiction’s regulatory
requirements nonetheless achieve the regulatory outcome sought to be achieved by a
certain provision of the CEA or Commission regulation.81
The Commission further elaborated on the required elements of comparability in
2016, when it issued final rules to address the cross-border application of the
Commission’s margin requirements for uncleared swap transactions. Specifically, the

Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78
FR 45292 (July 26, 2013) (“Guidance”).
78

Guidance at 45343.

Id.

Id.

See e.g., Comparability Determination for the European Union: Certain Entity-Level Requirements, 78
FR 78923 (December 27, 2013) at 78926.
Commission stated that its substituted compliance approach reflects an outcome-based
assessment of the comparability of a foreign jurisdiction’s margin requirements with the
Commission’s corresponding requirements.82 The Commission further stated that it
would evaluate the objectives and outcomes of the foreign margin requirements in light
of foreign regulator(s)’ supervisory and enforcement authority.83 Consistent with its
previously stated position, the Commission recognized that jurisdictions may adopt
different approaches to achieving the same outcome and, therefore, the assessment would
focus on whether the foreign jurisdiction’s margin requirements are comparable to the
Commission’s in purpose and effect, not whether they are comparable in every aspect or
contain identical elements.84 The Commission’s policy thus reflects an understanding
that a line-by-line evaluation of a foreign jurisdiction’s regulatory regime is not the
optimum approach to assessing the comparability of complex structures whose individual
components may differ based on jurisdiction-specific considerations, but which achieve
the objective and outcomes set forth in the Commission’s framework.
With respect to the EU Application, the process leading to the Commission’s
Comparability Determination involved Commission staff reviewing relevant EU laws,
rules, and regulations cited in the EU Application, including relevant French and German
provisions implementing EU laws, rules, and regulations into the national regulatory
frameworks of the two EU Member States. Staff verified the assertions and citations
contained in the EU Application regarding the specific EU Capital Rules and EU
Financial Reporting Rules to the relevant EU laws, rules, and regulations.85 Where
necessary, staff obtained English language translations of French and German

Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants – CrossBorder Application of the Margin Requirements, 81 FR 34817, 34836-34837(May 31, 2016).
83

Id.

Id.

Staff also reviewed various documents relevant to the proposed Comparability Determination and
proposed Comparability Order published by the competent authorities in English and/or French.
implementing provisions to further confirm statements in the EU Application or to
confirm the full implementation of EU directives in the applicable EU Member State’s
laws and regulatory framework.
Commission staff also evaluated the comparability of the EU Capital Rules and
EU Financial Reporting Rules with the CFTC Capital Rules and CFTC Financial
Reporting Rules with respect to the following areas: (i) the process of establishing
minimum capital requirements for EU nonbank SDs and how such process addresses risk,
including market risk and credit risk of the EU nonbank SD’s on-balance sheet and offbalance sheet exposures; (ii) the types of equity and debt instruments that qualify as
regulatory capital in meeting an EU nonbank SD’s minimum capital requirements; (iii)
the financial reports and other financial information submitted by an EU nonbank SD to
its relevant competent authorities, and whether such information provides the competent
authorities with the means necessary to effectively monitor the financial condition of the
EU nonbank SD; and (iv) the regulatory notices and other communications between an
EU nonbank SD and its relevant competent authorities that address potential adverse
financial or operational issues that may impact the firm.86 With respect to the ability of
the relevant competent authorities to supervise and enforce compliance with the EU
Capital Rules and EU Financial Reporting Rules, the Commission’s assessment included
a review of the competent authorities’ surveillance program for monitoring compliance
by EU nonbank SDs with the EU Capital Rules and EU Financial Reporting Rules, and
the disciplinary process imposed on firms that fail to comply with such requirements.87
Contrary to the position articulated by Better Markets regarding the nature of the
comparability assessment, the Commission believes that the principles-based, holistic
assessment of the EU Capital Rules and EU Financial Reporting Rules against the CFTC

2023 Proposal, at 41784-41805.

Id. at 41805-41807.

Capital Rules and CFTC Financial Reporting Rules, as outlined above and discussed in
detail in section II below, was sufficiently rigorous for purposes of determining if the EU
laws and regulations are comparable in purpose and effect to the CEA and Commission
regulations.
Better Markets further asserted that even under a principles-based, holistic
approach, the EU capital and financial reporting requirements for EU nonbank SDs do
not satisfy the test for an order granting substituted compliance because the EU’s
regulatory framework governing capital and financial reporting is not comparable to the
corresponding CFTC requirements.88 Better Markets cited the Commission’s inclusion
of conditions in the proposed Comparability Order as demonstrating the Commission’s
need “to compensate for the acknowledged gaps in the EU framework” and as a “de facto
admission that the regulations are not comparable and that the [EU Application] should
be denied.”89 Better Markets claimed that the Commission proposed 12 filing
requirements that must be met as a condition for the comparability determination, and
stated that the Commission was not conducting a comparability assessment, but was
engaging in a “de facto rewriting” of the EU’s laws and rules in the form of conditions.90
The Commission disagrees that the inclusion of conditions in the Comparability
Order precludes a finding of comparability with respect to the EU Capital Rules and EU
Financial Reporting Rules. The Commission’s comparability assessment process,
consistent with the holistic approach, contemplates the potential need for a Comparability
Order to contain conditions. Specifically, Commission Regulation 23.106(a)(5) states
that the Commission may impose any terms and conditions it deems appropriate in

Better Markets Letter at pp. 3-4.

Id. at pp. 2 and 4.

Id. at p. 2.

issuing a Comparability Order, including conditions with respect to capital adequacy and
financial reporting requirements of non-U.S. nonbank SDs.91
The process employed in this Comparability Determination is consistent with the
Commission’s established approach to conducting comparability assessments. Upon a
finding of comparability, the Commission’s policy generally is that eligible entities may
comply with a substituted compliance regime subject to the conditions the Commission
places on its finding, and subject to the Commission’s retention of its examination
authority and its enforcement authority.92 In this regard, the Commission has stated that
certain conditions included in a Comparability Order may be designed to ensure the
Commission’s direct access to books and records required to be maintained by an SD
registered with the Commission.93 Other conditions may address areas where the foreign
jurisdiction lacks analogous requirements.94 The inclusion of conditions in a
Comparability Order was contemplated as an integral part of the Commission’s holistic,
principles-based approach to conducting comparability assessments and is not
inconsistent with a grant of substituted compliance.
In particular, Commission Regulation 23.106(a)(5) states the Commission’s
authority to impose conditions in issuing a Comparability Determination in connection
with the CFTC Capital Rules and the CFTC Financial Reporting Rules. As further

17 CFR 23.106(a)(5), which provides that in issuing a Capital Comparability Determination, the
Commission may impose any terms and conditions it deems appropriate, including certain capital
adequacy and financial reporting requirements on swap dealers (emphasis added).
Commission Regulation 23.106(a)(3) establishes the Commission’s standard of review for performing a
Comparability Determination and provides that the Commission may consider all relevant factors,
including whether the relevant foreign jurisdiction’s capital adequacy and financial reporting requirements
achieve comparable outcomes to the Commission’s corresponding capital adequacy and financial reporting
requirements for SDs. 17 CFR 23.106(a)(3)(ii).
85 FR 57462 at 57520. See also Guidance at 45342–45344 and Comparability Determination for the
European Union: Certain Transaction Level Requirements, 78 FR 78878 (December 27, 2013) at 78880.
Comparability Determination for the European Union: Certain Transaction Level Requirements, 78 FR
78878 (December 27, 2013) at 78880.
94

Guidance at 45343.

discussed below, the conditions proposed in the 2023 Proposal are clearly of the nature
contemplated by Commission Regulation 23.106(a)(5).
The Commission also does not believe that the inclusion of the conditions in the
Comparability Order reflects a “rewriting” of the EU laws and regulations as asserted by
Better Markets. Consistent with the Commission’s policy described above, a majority of
the conditions contained in the Comparability Order are designed to ensure that: (i) the
EU nonbank SD is eligible for substituted compliance based on the laws and regulations
of the EU and the relevant EU Member States that were reviewed by the Commission in
performing the comparability assessment, and (ii) the Commission and NFA receive
timely financial information and notices to effectively monitor an EU nonbank SD’s
compliance with the Comparability Order and to assess the ongoing safety and soundness
of the EU nonbank SD. Specifically, there are 26 conditions in the final Comparability
Order. Seven conditions set forth criteria that an EU nonbank SD must meet to be
eligible for substituted compliance pursuant to the Comparability Order.95 The seven
conditions ensure that only EU nonbank SDs that are within the scope of, and comply
with, the EU Capital Rules and EU Financial Reporting Rules that were part of the
Commission’s comparability assessment may apply for substituted compliance.
Ten additional conditions require EU nonbank SDs within the scope of the
Comparability Order to provide notice to the Commission and NFA of certain defined

The seven criteria provide that the EU nonbank SD: (i) is not subject to capital rules of a U.S. prudential
regulator (Condition 1); (ii) is organized and domiciled in France or Germany (Condition 2); (iii) is
licensed as a credit institution or an investment firm in an EU Member State (Condition 3); (iv) is subject to
CRR and CRD as implemented in France or Germany, as applicable (Condition 4); (v) satisfies at all times
applicable CRR capital ratios and leverage ratios, satisfies CRD capital conservation buffer ratios, and
maintains a liquidity risk management program as required under CRD (Condition 5); (vi) is subject to and
complies with the EU financial reporting requirements that are part of the Commission’s comparability
assessment (Condition 6); and (vii) is subject to prudential supervision by an EU Member State’s
supervisory authority with jurisdiction to enforce the requirements of the EU Capital Rules and the EU
Financial Reporting Rules (Condition 7).
events,96 and a further two conditions require EU nonbank SDs to file with the
Commission and NFA copies of certain unaudited and audited financial reports that the
firms provide to their respective competent authorities.97 In addition, two additional
conditions reflect administrative matters necessary to implement the substituted
compliance framework.98 Lastly, five conditions impose obligations on EU nonbank SDs
that align with certain of the Commission’s requirements for nonbank SDs. The five
conditions require an EU nonbank SD to: (i) maintain a minimum of $20 million of
common equity tier 1 capital (Condition 8); (ii) prepare and keep current financial books
and records (Condition 10); (iii) file a monthly schedule of the firm’s financial positions
on Schedule 1 of appendix B to Subpart E of part 23 of the Commission’s regulations
(Condition 13); (iv) file a monthly report listing the custodians holding margin posted by,
and collected by, the EU nonbank SD, the amount of margin held by each custodian, and

The ten conditions require an EU nonbank SD to provide notice to the Commission in the event that the
firm: (i) is informed by the relevant competent authority that it failed to comply with any component of the
EU Capital Rules or EU Financial Reporting Rules (Condition 16); (ii) fails to maintain a minimum level of
common equity tier 1 capital equal to or in excess of the equivalent of $20 million (Condition 17); (iii)
breaches its combined capital buffer requirement and is required to file a capital conservation plan with the
relevant competent authority(Condition 18); (iv) is required by a competent authority to maintain additional
capital or additional liquidity (Condition 19); (v) fails to meet the required MREL requirement (Condition
20); (vi) experiences a 30 percent or more decrease in its excess regulatory capital (Condition 21); (vii)
fails to make or keep current financial books and records (Condition 22); (viii) fails to post or collect
margin for uncleared swaps and non-cleared security-based swaps with one or more counterparties in
amounts that exceed defined limits (Condition 23); (ix) changes its fiscal year-end date (Condition 24); and
(x) is subject to material changes to the EU Capital Rules, EU Financial Reporting Rules, or the
supervisory authority of the ECB or relevant Member State competent authority (Condition 25).
The two conditions provide that an EU nonbank SD must file with the Commission and NFA: (i) a copy
of SEC Form X-17A-5 (“FOCUS Report”) that the EU nonbank SD files with the U.S. Securities and
Exchange Commission (“SEC”) or English language copies of certain financial reporting templates that the
EU nonbank SD is required to submit to the relevant competent authorities pursuant to the CRR Reporting
ITS or the ECB FINREP regulation, as applicable (Condition 11); and (ii) English language copies of its
annual audited financial statements and management report that are required to be prepared and published
pursuant to the Accounting Directive as implemented in the national laws of France and Germany
(Condition 12).
One of the administrative conditions provides that an EU nonbank SD must provide a notice to the
Commission of its intent to comply with the Comparability Order and the EU Capital Rules and EU
Financial Reporting Rules in lieu of the CFTC Capital Rules and CFTC Financial Reporting Rules. The
notice must include the EU nonbank SD’s representation that the firm is organized and domiciled in an EU
Member State, is a licensed investment firm or a credit institution, and is subject to, and complies with, the
EU Capital Rules and the EU Financial Reporting Rules (Condition 9). The second administrative
condition provides that an EU nonbank SD must file any documents with the Commission and NFA via
electronic transmission (Condition 26).
the aggregate amount of margin required to be posted and collected by the EU nonbank
SD (Condition 15); and (v) submit, with each filing of financial information, a statement
by an authorized representative that, to the best knowledge and belief of the person
making the representation, the information is true and correct (Condition 14).
As the substance of these conditions demonstrates, the primary objective of a
majority of the conditions is not to compensate for regulatory gaps in the EU capital and
financial reporting framework but rather to ensure that the Commission and NFA receive
information to conduct ongoing monitoring of EU nonbank SDs for compliance with
relevant capital and financial reporting requirements. As discussed above, in issuing the
Comparability Order, the Commission is not ceding its supervisory and enforcement
authorities. The Comparability Order permits EU nonbank SDs to satisfy the
Commission’s capital and financial reporting requirements by complying with certain
laws and/or regulations of the EU that have been found to be comparable to the
Commission’s laws and/or regulations in purpose and effect. The Commission and NFA,
however, have a continuing obligation to conduct ongoing oversight, including potential
examination, of EU nonbank SDs that operate under a Comparability Order to ensure
compliance with the Comparability Order, including its conditions. To that effect, the
notice and financial reporting conditions set forth in the Comparability Order provide the
Commission and NFA with information necessary to monitor for such compliance and to
evaluate the operational condition and ongoing financial condition of EU nonbank SDs.
The Commission may also initiate an enforcement action against an EU nonbank SD that
fails to comply with the conditions of the Comparability Order.99

As the Commission stated in the 2023 Proposal, a non-U.S. nonbank SD that operates under a
Comparability Order issued by the Commission remains subject to the Commission’s examination and
enforcement authority. Specifically, the Commission may initiate an enforcement action against a non-U.S.
nonbank SD that fails to comply with its home-country capital adequacy and/or financial reporting
requirements cited in a Comparability Order. See 2023 Proposal at 41777. See also, 17 CFR
23.106(a)(4)(ii), which provides that the Commission may examine all nonbank SDs, regardless of whether
the nonbank SDs rely on substituted compliance, and that the Commission may initiate an enforcement
Furthermore, to the extent that a condition imposes a new obligation on EU
nonbank SDs, the imposition of such condition is also consistent with Commission
Regulation 23.106 and the Commission’s established policy with regard to comparability
determinations. As discussed above, the Commission contemplated that even in
circumstances where the Commission finds two regulatory regimes comparable, the
Commission may impose requirements on entities relying on substituted compliance
where the Commission determines that the home jurisdiction’s regime lacks comparable
and comprehensive regulation on a specific issue.100 The Commission’s authority to
impose such conditions is set out in Commission Regulation 23.106(a)(5), which states
that the Commission may impose “any terms and conditions it deems appropriate,
including certain capital adequacy and financial reporting requirements [on SDs].”101
Better Markets further stated that, if the Commission grants substituted
compliance with regard to materially different regulatory requirements, it must make a
well-supported, evidence-based determination that those different requirements
nevertheless will, in fact, lead to comparable regulatory outcomes.102 Better Markets
further asserted that “[a] determination that a foreign jurisdiction’s nonbank SDs rules
would produce comparable regulatory outcomes is the beginning, not the end, of the
CFTC’s obligation to ensure that the activities of the foreign nonbank SD entities do not
pose risks to the U.S. financial system. As time goes on, regulatory requirements that, in
theory, are expected to produce one regulatory outcome may, in practice, produce a
different one. And, of course, the regulatory requirements may themselves be changed in
a variety of ways. Finally, the effectiveness of an authority’s supervision and

action under the Commission’s capital and financial reporting regulations against a non-U.S. nonbank SD
that fails to comply with a foreign jurisdiction’s capital adequacy and financial reporting requirements.
Guidance at 45343.

17 CFR 23.106(a)(5).

Better Markets at p. 8.

enforcement program can become weakened for any number of reasons – the CFTC
cannot assume that an enforcement program that is presently effective will continue to be
effective.”103 Better Markets further asserted that to fulfill its obligation to protect the
U.S. financial system, the Commission must ensure, on an ongoing basis, that each grant
of substituted compliance remains appropriate over time by requiring, at a minimum,
each Comparability Order, and each MOU with a foreign regulatory authority, to impose
an obligation on the applicant, as appropriate, to: (i) periodically apprise the Commission
of the activities and results of its supervision and enforcement programs, to ensure that
they remain sufficiently robust to deter and address violations of the law; and (ii)
immediately apprise the Commission of any material changes to the regulatory regime,
including changes to rules or changes to how rules are interpreted, applied, or
enforced.104 Finally, Better Markets stated that if the Commission proceeds to finalize
the Comparability Order, it must, at a minimum, ensure that the conditions are robustly
maintained and enforced.105
Although the Commission disagrees that the EU Capital Rules and the EU
Financial Reporting Rules, as a whole, are materially different or do not achieve
comparable outcomes, the Commission concurs that granting substituted compliance
should be the result of a well-supported comparability assessment. Consistent with that
view, the Commission believes that this final Comparability Determination articulates the
Commission’s analysis in sufficient detail and provides an appropriate explanation of
how the foreign jurisdiction’s requirements are comparable in purpose and effect with the
Commission’s requirements, and lead to comparable regulatory outcomes with the
Commission’s requirements. Specifically, section III of the 2023 Proposal and section II

Id.

Id. at pp. 8-9.

Id. at p. 14.

of the final Comparability Determination reflect, among other observations, the
Commission’s detailed analysis with respect to each of the elements for consideration
listed in Commission Regulation 23.106(a)(3).
The Commission also concurs that the availability of substituted compliance is
conditioned upon a non-US nonbank SD’s ongoing compliance with the terms and
conditions of the final Comparability Order, and the Commission’s ongoing assessment
that the EU Capital Rules and EU Financial Reporting Rules remain comparable in
purpose and effect with the CFTC Capital Rules and CFTC Financial Reporting Rules.
As noted above, and discussed in more detail in sections II.D. and E. below, EU nonbank
SDs are subject to notice and financial reporting requirements under the final
Comparability Order that provide Commission and NFA staff with the ability to monitor
the EU nonbank SDs’ ongoing compliance with the conditions set forth in the final
Comparability Order. In addition, the final Comparability Order requires an EU nonbank
SD, or an entity acting on its behalf, to inform the Commission of changes to the relevant
EU Capital Rules and EU Financial Reporting Rules so that the Commission may assess
the continued effectiveness of the Comparability Order in ensuring that the EU laws and
regulations have the comparable regulatory objectives of the CEA and Commission
regulations of ensuring the safety and soundness of nonbank SDs.106 Commission staff
will also monitor the EU nonbank SDs directly as part of its supervisory program and
will discuss with the firms any proposed or pending revisions to specific laws and rules
cited in the final Comparability Order. Lastly, in addition to assessing the effectiveness
of the Comparability Order as a result of revisions or proposed revisions to the EU laws,

Condition 25 of the final Comparability Order requires an EU nonbank SD, or an entity acting on its
behalf, to notify the Commission of any material changes to the information submitted in its application,
including, but not limited to, proposed and final material changes to the EU Capital Rules or EU Financial
Reporting Rules and proposed and final material changes to the ECB’s or the relevant EU Member State
competent authority’s supervisory authority or supervisory regime over EU nonbank SDs. The
Commission notes that it made certain non-substantive, clarifying changes to the language of final
Condition 25 as compared to proposed Condition 25.
regulations, or supervisory regime, the Commission further notes that future material
changes to the CFTC Capital Rules or CFTC Financial Reporting Rules, or the
Commission’s or NFA’s supervisory programs, may necessitate an amendment to the
Comparability Determination and Comparability Order to reflect those changes.107
Another commenter, Harrington, stated that the Commission must condition the
Comparability Order on an “outright prohibition against regulated entities providing
[swap contracts that include a “flip clause”].”108 Harrington has elsewhere referred to a
description of a “flip clause” as a provision in swap contracts with structured debt issuers
that reverses or “flips” the priority of payment obligations owed to the swap counterparty
on the one hand and the noteholders on the other, following a specified event of
default.109 Based on Harrington’s description, flip clauses present a risk to the SD in
synthetic transactions where payments under a swap contract are secured with the same
collateral that would serve to cover payments under the notes issued by a structured debt
issuer. In such circumstances, an “event of default” by the SD would cause the SD’s
priority of payment from the collateral under a swap to “flip” to a more junior priority
position, including for mark-to-market gains on “in the money” swaps.110 Harrington
argued that each swap contract with a flip clause generates a “gaping credit exposure” for
EU or other non-U.S. SDs.111 Harrington recognized, however, that the CFTC margin
requirements for uncleared swap transactions address his concerns associated with the

2023 Proposal at 41785 (n. 135).

Harrington 08/28/2023 Letter at p. 3. Harrington submitted the Harrington 08/28/2023 Letter as a
supplement to a previously submitted comment letter, dated October 20, 2022 (“Harrington 10/20/2022
Letter”), filed in connection with the Commission’s Notice of Proposed Order and Request for Comment
on an Application for a Capital Comparability Determination From the Financial Services Agency of
Japan, 87 FR 48092, (August 8, 2022)).
William J. Harrington, Submission to the U.S. Securities and Exchange Commission Re: File No. S7-0812 (Nov. 19, 2018) at p. 8.
For additional information on the legal mechanics of a flip clause, see Lehman Brothers Special
Financing Inc v. Bank of America N.A., No. 18-1079 (2nd Cir. 2020).
111

Harrington 08/28/2023 Letter at p. 6.

inclusion of a flip clause.112 Nonetheless, according to Harrington, risks arise in
circumstances when non-U.S. margin rules exempt SDs from margin obligations in
connection with swaps with a structured debt issuer.113
The Commission recognizes that given some definitional differences and
differences in the activity thresholds with respect to the scope of application of the CFTC
margin requirements and non-U.S. margin requirements, some transactions that are
subject to the CFTC margin requirements for uncleared swaps may not be subject to
margin requirements in another jurisdiction. In connection with this Comparability
Determination, however, the Commission notes that both under the CFTC Capital Rules
and the EU Capital Rules, uncollateralized exposures from uncleared swap transactions
would generate a higher counterparty credit risk amount than the exposures resulting
from transactions under which the counterparties have posted collateral.114 Accordingly,
the Commission does not believe that the respective sets of rules adopt a conflicting
approach or lead to a disparate outcome with respect to the capital treatment of
uncollateralized uncleared swap exposures that would warrant a finding of noncomparability of the CFTC Capital Rules and the EU Capital Rules.
With regard to Harrington’s general recommendations, also included in his
comments in connection with the adoption of the CFTC Capital Rules, that the
Commission impose additional capital charges for swap contracts with a flip clause,115

Harrington 10/20/2022 Letter at p. 3 (noting that the requirement for SDs to post and collect variation
margin for swap contracts with a securitization or structured debt issuer “generates the immense benefit of
inducing U.S. securitization and structured debt issuers to forswear all swap contracts, both with and
without a flip clause”).
Harrington 10/20/2022 Letter at p. 3 (arguing that “non-U.S. swap margin rules de facto exempt a swap
provider from collecting or posting variation margin under a new contract with most securitization and
structured debt issuers”).
12 CFR 217.34 and 12 CFR 217.132 (indicating that nonbank SDs may recognize the risk-mitigating
effects of financial collateral for collateralized derivatives contracts) and CRR, Articles 274-275 (similarly
indicating that EU nonbank SDs are allowed to recognize the risk-mitigating effect of collateral by
deducting the amount of collateral from the replacement cost component of the exposure value calculation).
115

Harrington 10/20/2022 Letter at p. 24.

the Commission notes that any change in its approach, if deemed appropriate, would be
addressed separately from the Comparability Determination. As the Commission stated
in adopting the CFTC Capital Rules, over time the Commission may consider adjusting
the capital charges applicable to nonbank SDs that engage in bespoke swap transactions,
including contracts involving flip clauses, as a result of its experience and as market
developments may warrant.116 If the Commission proceeds with adjustments to the
CFTC Capital Rules, the Commission may reconsider the comparability between the
CFTC Capital Rules and the EU Capital Rules in light of these changes.
II.

Final Capital and Financial Reporting Comparability Determination and
Comparability Order
The following section provides the Commission’s comparative analysis of the EU
Capital Rules and the EU Financial Reporting Rules with the corresponding CFTC
Capital Rules and CFTC Financial Reporting Rules, as described in the 2023 Proposal,
further modified to address comments received. As emphasized in the 2023 Proposal, the
capital and financial reporting regimes are complex structures comprised of a number of
interrelated regulatory components.117 Differences in how jurisdictions approach and
implement these regimes are expected, even among jurisdictions that base their
requirements on the principles and standards set forth in the BCBS framework.
The Commission performed the analysis by assessing the comparability of the EU
Capital Rules for EU nonbank SDs as set forth in the EU Application and in the English
language translation of certain applicable EU laws and regulations with the
Commission’s Bank-Based Approach for nonbank SDs. The Commission understands

85 FR 57462 at 57475. As stated in the adopting release to the CFTC Capital Rules, the Commission
considered that its rules were appropriately calibrated to account for a wide variety of possible uncleared
swap transactions, including bespoke transactions involving flip clauses or other unique features. See id.
See 2023 Proposal at 41785. BofA Securities Europe SA, Citigroup Global Markets Europe AG and
Morgan Stanley Europe SE remain subject to the bank-based capital requirements established by CRR and
CRD.
that three of the four EU nonbank SDs addressed by the EU Application, as of the date of
the final Comparability Determination, are subject to a bank-based capital approach
under the EU Capital Rules. A fourth entity, which at the time of issuance of the 2023
Proposal was subject to the regulatory framework applicable to the other three entities,
began applying, as of March 31, 2024, different capital and financial reporting
requirements, applicable to smaller investment firms in the EU.118 The Applicants have
not described, and the Commission has not assessed, the EU or Member State capital and
financial reporting requirements for smaller investment firms. Accordingly, when the
Commission makes its final determination herein about the comparability of the EU
Capital Rules with the CFTC Capital Rules, the determination pertains to the
comparability of the EU Capital Rules with the Bank-Based Approach under the CFTC
Capital Rules.
The Commission notes that any material changes to the information submitted in
the EU Application, including, but not limited to, proposed and final material changes to
the EU Capital Rules or EU Financial Reporting Rules, as well as any proposed and final
material changes to the applicable supervisory authority or supervisory regime, will
require notification to the Commission and NFA pursuant to Condition 25 of the final
Comparability Order.119 Therefore, if there are subsequent material changes to the EU
Capital Rules, EU Financial Reporting Rules, or the supervisory authority or supervisory
regime, the Commission will review and assess the impact of such changes on the final

As noted above, Goldman Sachs Paris was required by its applicable regulatory authority to start
applying the capital and financial reporting requirements established by IFR and IFD as of March 31, 2024.
See Condition 25 of the final Comparability Order. The Commission notes that it made certain nonsubstantive, clarifying changes to the language of final Condition 25 as compared to proposed Condition
25.
Comparability Determination and Comparability Order as they are then in effect, and
may amend or supplement the Comparability Order as appropriate.120
A. Regulatory Objectives of CFTC Capital Rules and CFTC Financial
Reporting Rules and EU Capital Rules and EU Financial Reporting Rules
1. Preliminary Determination
As reflected in the 2023 Proposal and discussed above, the Commission
preliminarily determined that the overall objectives of the EU Capital Rules and the
CFTC Capital Rules are comparable in that both sets of rules are intended to ensure the
safety and soundness of nonbank SDs by establishing regulatory regimes that require
nonbank SDs to maintain a sufficient amount of qualifying regulatory capital to absorb
losses, including losses from swaps and other trading activities, and to absorb decreases
in the value of firm assets and increases in the value of firm liabilities without the
nonbank SDs becoming insolvent.121 The Commission further noted that the EU Capital
Rules and CFTC Capital Rules are based on, and consistent with, the BCBS framework,
which was designed to ensure that banking entities hold sufficient levels of capital to
absorb losses and decreases in the value of firm assets and increases in the value of firm
liabilities without the banks becoming insolvent.122
The Commission also preliminarily found that the EU Capital Rules are
comparable in purpose and effect to the CFTC Capital Rules given that both regulatory

See 2023 Proposal at 41785. As stated in the 2023 Proposal, the Commission may also amend or
supplement the final Comparability Order to address any material changes to the CFTC Capital Rules and
CFTC Financial Reporting Rules, including rule amendments to capital rules of the Federal Reserve Board
that are incorporated into the CFTC Capital Rules’ Bank-Based Approach under Commission Regulation
23.101(a)(1)(i), that are adopted after the final Comparability Order is issued. See id. (n. 135).
The Commission is aware that the EU is in the process of adopting changes to the EU Capital Rules to
implement the final elements of the Basel standards. See European Parliament, Legislative Observatory
https://oeil.secure.europarl.europa.eu/oeil/popups/ficheprocedure.do?reference=2021/0342(COD)&l=en.
The Commission will monitor progress on the regulatory changes and may amend or supplement the
Comparability Order, as appropriate.
121

See 2023 Proposal at 41786.

The BCBS’s mandate is to strengthen the regulation, supervision and practices of banks with the
purpose of enhancing financial stability. See Basel Committee Charter available on the Bank for
International Settlement website: www.bis.org/bcbs/charter.htm. See 2023 Proposal at 41786.
approaches compute the minimum capital requirements based on the level of a nonbank
SD’s on-balance sheet and off-balance sheet exposures, with the objective and purpose of
ensuring that the nonbank SD’s capital is adequate to absorb losses or decreases in the
value of firm assets or increases in the value of firm liabilities resulting from such
exposures. The Commission observed that the EU Capital Rules and CFTC Capital
Rules provide for a comparable approach to the calculation of market risk and credit risk
exposures using standardized or internal model-based approaches.123 In addition, as
discussed in the 2023 Proposal, the EU Capital Rules’ and CFTC Capital Rules’
requirements for identifying and measuring on-balance sheet and off-balance sheet
exposures under standardized or internal model-based approaches are also consistent with
the requirements set forth under the BCBS framework for identifying and measuring onbalance sheet and off-balance sheet exposures.124
Finally, the Commission preliminarily noted that the EU Capital Rules and CFTC
Capital Rules further achieve comparable outcomes and are comparable in purpose and
effect in that both sets of rules limit the types of capital instruments that qualify as
regulatory capital to cover the on-balance sheet and off-balance sheet risk exposures to
high quality equity capital and qualifying subordinated debt instruments that meet
conditions designed to ensure that the holders of the debt have effectively subordinated
their claims to other creditors of the nonbank SD.125 As discussed in the 2023 Proposal
and in section II.B. below, both the EU Capital Rules and the CFTC Capital Rules define
high quality capital by the degree to which the capital represents permanent capital that is
contributed, or readily available to a nonbank SD, on an unrestricted basis to absorb

2023 Proposal at 41794-41795.

Id.

2023 Proposal at 41788.

unexpected losses, including losses from swaps trading and other activities, without the
nonbank SD becoming insolvent.126
The Commission further stated that it preliminarily found the EU Financial
Reporting Rules to be comparable in purpose and effect to the CFTC Financial Reporting
Rules as both the EU and CFTC require nonbank SDs to file periodic financial reports,
including unaudited financial reports and an annual audited financial report, detailing
their financial operations and demonstrating their compliance with minimum capital
requirements.127 As discussed in the 2023 Proposal, in addition to providing the CFTC
and EU competent authorities with information necessary to comprehensively assess the
financial condition of a nonbank SD on an ongoing basis, the financial reports further
provide the CFTC and EU competent authorities with information regarding potential
changes in a nonbank SD’s risk profile by disclosing changes in account balances
reported over a period of time.128 Such changes in account balances may indicate, among
other things, that the nonbank SD has entered into new lines of business, has increased its
activity in an existing line of business relative to other activities, or has terminated a
previous line of business.129
In assessing the comparability between the CFTC Financial Reporting Rules and
the EU Financial Reporting Rules, the Commission noted that the prompt and effective
monitoring of the financial condition of nonbank SDs through the receipt and review of
periodic financial reports supports the Commission and EU competent authorities in
meeting their respective objectives of ensuring the safety and soundness of nonbank SDs.
In this regard, the Commission stated that the early identification of potential financial
issues provides the Commission and EU authorities with an opportunity to address such
Id.

Id. at 48100.

Id.

Id.

issues with the nonbank SD before they develop to a state where the financial condition
of the firm is impaired such that it may no longer hold a sufficient amount of qualifying
regulatory capital to absorb decreases in the value of firm assets, absorb increases in the
value of firm liabilities, or cover losses from its business activities, including the firm’s
swap dealing activities and obligations to swap counterparties.130
2. Comment Analysis and Final Determination
In response to the Commission’s request for comment, Better Markets identified
certain differences between the CFTC Capital Rules and Financial Reporting Rules and
the EU Capital Rules and Financial Reporting Rules and stated that the differences
mandated denial of the request for a comparability determination.131 Better Markets
further stated that the imposition of conditions to achieve comparability between the
regimes implicitly concedes that the regimes are not comparable, and is suboptimal and
undesirable, as it creates a set of capital and reporting requirements that EU nonbank SDs
must abide by and that the CFTC must monitor.132
As described herein and in the 2023 Proposal, Commission staff has engaged in a
detailed, comprehensive study and evaluation of the EU capital and financial reporting
framework and has confirmed that its understanding of the elements and application of
the framework is accurate. The Commission has also concluded, based on its evaluation,
that the EU framework includes a comprehensive oversight program for monitoring EU
nonbank SD’s compliance with relevant EU Capital Rules.
Furthermore, as discussed in section I.E. above, the conditions set forth in the
Comparability Order are generally intended to ensure that: (i) only EU nonbank SDs that
are subject to the laws and regulations assessed under the Comparability Determination

Id.

Better Markets Letter at p. 13.

Id.

are eligible for substituted compliance; (ii) the EU nonbank SDs are subject to
supervision by the relevant competent authority; and (iii) the EU nonbank SDs provide
information to the Commission and NFA that is relevant to the ongoing supervision of
their operations and financial condition. Considering this thorough analysis and the
ongoing requirement for EU nonbank SDs to provide information to the Commission and
NFA demonstrating compliance with the Comparability Order, the Commission is
confident that it is capable of effectively conducting, together with NFA, oversight of the
EU nonbank SDs consistent with the conduct of oversight of U.S.-domiciled nonbank
SDs. In light of the Commission’s ultimate conclusion that the EU capital and financial
reporting requirements are comparable based on the standards articulated in Commission
Regulation 23.106(a)(3), the Commission believes that a failure to issue a Comparability
Determination and Comparability Order would in fact be “suboptimal and undesirable”
as it would impose duplicative requirements that would result in increased costs for
registrants and market participants without a commensurate benefit from an oversight
perspective.
As discussed in sections I.B. and E. above, and detailed herein, the Commission
finds that the CFTC Capital Rules and Financial Reporting Rules and the EU Capital
Rules and Financial Reporting Rules are comparable in purpose and effect, and have
overall comparable objectives, notwithstanding the identified differences. In this regard,
the Commission notes that, as described above, instead of conducting a line-by-line
assessment or comparison of the EU Capital and Financial Reporting Rules and the
CFTC Capital and Financial Reporting Rules, it has applied in the assessment set forth in
the determination and order, a principles-based, holistic approach in assessing the
comparability of both regimes, consistent with the standard of review it adopted in
Commission Regulation 23.106(a)(3). Based on that principles-based, holistic
assessment, the individual elements of which are described in more detail in sections II.B.

through II.F. below, the Commission has determined that both sets of rules are designed
to ensure the safety and soundness of nonbank SDs and achieve comparable outcomes.
As such, the Commission adopts the Comparability Determination and Comparability
Order as proposed with respect to the analysis of the regulatory objectives of the CFTC
Capital Rules and Financial Reporting Rules and the EU Capital and Financial Reporting
Rules.
B. Nonbank Swap Dealer Qualifying Capital
1. Preliminary Determination
As discussed in the 2023 Proposal, the Commission preliminarily determined that
the EU Capital Rules are comparable in purpose and effect to CFTC Capital Rules with
regard to the types and characteristics of a nonbank SD’s equity that qualifies as
regulatory capital in meeting its minimum requirements.133 The Commission explained
that the EU Capital Rules and the CFTC Capital Rules for nonbank SDs both require a
nonbank SD to maintain a quantity of high-quality and permanent capital that, based on
the firm’s activities and on-balance sheet and off-balance sheet exposures, is sufficient to
absorb losses and decreases in the value of firm assets and increases in the value of firm
liabilities without resulting in the firm becoming insolvent.134 The Commission observed
that the EU Capital Rules and the CFTC Capital Rules permit nonbank SDs to recognize
comparable forms of equity capital and qualifying subordinated debt instruments toward
meeting minimum capital requirements, with both the EU Capital Rules and the CFTC
Capital Rules emphasizing high quality capital instruments.135
In support of its preliminary Comparability Determination, the Commission noted
that the CFTC Capital Rules require a nonbank SD electing the Bank-Based Approach to

See 2023 Proposal at 41788.

Id.

Id.

maintain regulatory capital in the form of common equity tier 1 capital, additional tier 1
capital, and tier 2 capital in amounts that meet certain stated minimum requirements set
forth in Commission Regulation 23.101.136 Common equity tier 1 capital is generally
composed of an entity’s common stock instruments, and any related surpluses, retained
earnings, and accumulated other comprehensive income, and is a more conservative or
permanent form of capital that is last in line to receive distributions in the event of the
entity’s insolvency.137 Additional tier 1 capital is generally composed of equity
instruments such as preferred stock and certain hybrid securities that may be converted to
common stock if triggering events occur and may have a preference in distributions over
common equity tier 1 capital in the event of an insolvency.138 Total tier 1 capital is
composed of common equity tier 1 capital and further includes additional tier 1 capital.
Tier 2 capital includes certain types of instruments that include both debt and equity
characteristics such as qualifying subordinated debt.139 Subordinated debt must meet
certain conditions to qualify as tier 2 capital under the CFTC Capital Rules.140
The preliminary Comparability Determination also noted that the EU Capital
Rules require an EU nonbank SD to maintain an amount of regulatory capital (i.e., equity
capital and qualifying subordinated debt) equal to or greater than 8 percent of the EU
nonbank SD’s total risk exposure, which is calculated as the sum of the firm’s: (i) capital
charges for market risk; (ii) risk-weighted exposure amounts for credit risk; (iii) capital

17 CFR 23.101(a)(1)(i) and 2023 Proposal at 41786-41787. The terms “common equity tier 1 capital,”
“additional tier 1 capital,” and “tier 2 capital” are defined in the bank holding company regulations of the
Federal Reserve Board. 12 CFR 217.20.
137

12 CFR 217.20(b).

12 CFR 217.20(c).

12 CFR 217.20(d).

Subordinated debt must meet requirements set forth in SEC Rule 18a-1d. Specifically, subordinated
debt instruments must have a term of at least one year (with the exception of approved revolving
subordinated debt agreements which may have a maturity term that is less than one year), and contain terms
that effectively subordinate the rights of lenders to receive any payments, including accrued interest, to
other creditors of the firm. 17 CFR 23.101(a)(1)(i)(B) and 17 CFR 240.18a-1d.
charges for settlement risk; (iv) credit valuation adjustment (“CVA”) risk of over-thecounter (“OTC”) derivatives instruments; and (v) capital charges for operational risk.
The EU Capital Rules limit the composition of regulatory capital to common equity tier 1
capital, additional tier 1 capital, and tier 2 capital in a manner consistent with the BCBS
framework. Specifically, the EU Capital Rules provide that an EU nonbank SD’s
regulatory capital may be composed of: (i) common equity tier 1 capital instruments,
which generally include the EU nonbank SD’s common equity (stock), retained earnings,
and accumulated other comprehensive income; (ii) additional tier 1 capital instruments,
which includes other forms of capital instruments and certain long-term convertible debt
instruments; and (iii) tier 2 capital instruments, which include other reserves, hybrid
capital instruments, and certain qualifying subordinated term debt.141 Capital instruments
that qualify as common equity tier 1 capital under the EU Capital Rules include
instruments that: (i) are issued directly by the EU nonbank SD; (ii) are paid in full and
not funded directly or indirectly by the EU nonbank SD; and (iii) are perpetual.142 In
addition, the principal amount of the common equity tier 1 capital instruments may not be
reduced or repaid, except in the liquidation of the EU nonbank SD or the repurchase of
shares pursuant to the permission of the appropriate regulatory authority.143 Furthermore,
to qualify as additional tier 1 capital, the capital instruments must meet certain conditions
including: (i) the instruments are issued directly by the EU nonbank SD and paid in full;
(ii) the instruments are not owned by the EU nonbank SD or its subsidiaries; (iii) the
purchase of the instruments is not funded directly or indirectly by the EU nonbank SD;
(iv) the instruments rank below tier 2 instruments in the event of the insolvency of the EU
nonbank SD; (v) the instruments are not secured or guaranteed by the EU nonbank SD or

2023 Proposal at 41787.

Id. and CRR, Articles 26 and 28.

Id.

an affiliate; (vi) the instruments are perpetual and do not include an incentive for the EU
nonbank SD to redeem them; and (vii) distributions under the instruments are pursuant to
defined terms and may be cancelled under the full discretion of the EU nonbank SD.144
Lastly, subordinated debt instruments must meet certain conditions to qualify as tier 2
regulatory capital under the EU Capital Rules, including that the: (i) loans are not
granted by the EU nonbank SD or its subsidiaries; (ii) claims on the principal amount of
the subordinated loans under the provisions governing the subordinated loan agreement
rank below any claim from eligible liabilities instruments (i.e., certain non-capital
instruments), meaning that they are effectively subordinated to claims of all nonsubordinated creditors of the EU nonbank SD; (iii) subordinated loans are not secured, or
subject to a guarantee that enhances the seniority of the claim, by the EU nonbank SD, its
subsidiaries, or affiliates; (iv) loans have an original maturity of at least five years; and
(v) provisions governing the loans do not include any incentive for the principal amount
to be repaid by the EU nonbank SD prior to the loans’ maturity.145
Based on its comparative assessment, the Commission preliminarily found that
the types and characteristics of the equity instruments that qualify as common equity tier
1 capital and additional tier 1 capital under the EU Capital Rules are comparable to the
types and characteristics of equity instruments comprising common equity tier 1 capital
and additional tier 1 capital under the CFTC Capital Rules.146 Specifically, the
Commission noted that the EU Capital Rules’ common equity tier 1 capital and
additional tier 1 capital, and the CFTC Capital Rules’ common equity tier 1 capital and
additional tier 1 capital are comparable in that these forms of equity capital have similar
characteristics (e.g., the equity must be in the form of high-quality, committed, and

Id. and CRR, Article 50-52.

Id. and CRR, Article 63.

See 2023 Proposal at 41788.

permanent capital) and represent contributed equity capital that generally has no priority
to the distribution of firm assets or income with respect to other shareholders or creditors
of the firm, which allows a nonbank SD to use this equity to absorb decreases in the value
of firm assets, absorb increases in the value of firm liabilities, and cover losses from
business activities, including the firm’s swap dealing activities.147
The Commission also found subordinated debt under the EU Capital Rules
comparable to tier 2 capital under the CFTC Capital Rules.148 Specifically, the
Commission noted that the qualifying conditions imposed on subordinated debt
instruments are comparable under the EU Capital Rules and the CFTC Capital Rules in
that they are designed to ensure that the debt has qualities supporting its recognition by a
nonbank SD as equity for capital purposes, including by effectively subordinating the
debt lenders’ claims for repayment on the debt to other creditors of the nonbank SD and
by limiting or restricting repayment of the subordinated loans if such repayments result in
the nonbank SD’s equity falling below certain defined thresholds.149 The Commission
preliminarily concluded that these terms and conditions provided assurances that the
subordinated debt is appropriate to be recognized as regulatory capital available to a
nonbank SD to meet its obligations and to absorb business losses and decreases in the
value of firm assets and increases in the value of firm liabilities.150
2. Comment Analysis and Final Determination
The Commission did not receive comments regarding its preliminary
determination that the EU Capital Rules are comparable in purpose and effect to the
CFTC Capital Rules with regard to the types and characteristics of a nonbank SD’s equity
and subordinated debt that qualifies as regulatory capital in meeting its minimum
Id.

Id.

Id.

Id.

requirements. In conclusion, the Commission finds that the EU Capital Rules and the
CFTC Capital Rules, are comparable in purpose and effect, and achieve comparable
regulatory outcomes, with respect to the types of capital instruments that qualify as
regulatory capital. Both the EU Capital Rules and the CFTC Capital Rules limit
regulatory capital to permanent and conservative forms of capital, including common
equity, capital surpluses, retained earnings, and subordinate debt where debt holders
effectively subordinate their claims to repayment to all other creditors of the nonbank SD
in the event of the firm’s insolvency. Limiting regulatory capital to the above categories
of equity and debt instruments promotes the safety and soundness of the nonbank SD by
helping to ensure that the regulatory capital is not withdrawn or converted to other equity
instruments that may have rights or priority with respect to payments, such as dividends
or distributions in insolvency, over other creditors, including swap counterparties. The
Commission, therefore, is adopting the Comparability Order as proposed with respect to
the types and characteristics of equity and subordinated debt that qualifies as regulatory
capital to meet minimum capital requirements under the EU Capital Rules.
C. Nonbank Swap Dealer Minimum Capital Requirement
1. Introduction to Nonbank Swap Dealer Minimum Capital Requirements
As reflected in the 2023 Proposal, the CFTC Capital Rules require a nonbank SD
electing the Bank-Based Approach to maintain regulatory capital that satisfies each of the
following criteria: (i) an amount of common equity tier 1 capital of at least $20 million;
(ii) an aggregate amount of common equity tier 1 capital, additional tier 1 capital, and tier
2 capital equal to or greater than 8 percent of the nonbank SD’s total risk-weighted assets,
provided that common equity tier 1 capital comprises at least 6.5 percent of the 8 percent;
(iii) an aggregate of common equity tier 1 capital, additional tier 1 capital, and tier 2

capital in an amount equal to or in excess of 8 percent of the nonbank SD’s uncleared
swap margin amount;151 and (iv) the amount of capital required by NFA.152
In comparison, the EU Capital Rules require an EU nonbank SD to maintain a
fixed amount of minimum initial capital of EUR 5 million of common equity tier 1
capital.153 The EU Capital Rules, consistent with the BCBS framework, further require
each EU nonbank SD to maintain sufficient levels of capital to satisfy the following,
expressed as a percentage of the EU nonbank SD’s “total risk exposure amount” (i.e., the
sum of the EU nonbank SD’s risk-weighted assets and exposures): (i) a common equity
tier 1 capital ratio of 4.5 percent; (ii) a tier 1 capital ratio of 6 percent; and (iii) a total
capital ratio of 8 percent. Furthermore, EU nonbank SDs must maintain a capital
conservation buffer composed of common equity tier 1 capital in an amount equal to 2.5
percent of the firm’s total risk exposure. The common equity tier 1 capital used to meet
the capital conservation buffer must be separate and in addition to the 4.5 percent of
common equity tier 1 capital required to meet its core 8 percent capital requirement.154
As explained in the 2023 Proposal, the “total risk exposure amount” is calculated as the
sum of the EU nonbank SD’s: (i) capital requirements for market risk; (ii) risk-weighted
exposure amounts for credit risk; (iii) capital requirements for CVA risk of OTC

17 CFR 23.101(a)(1)(i). See also, 2023 Proposal at 41781. The term “uncleared swap margin” is
defined in Commission Regulation 23.100 to generally mean the amount of initial margin that a nonbank
SD would be required to collect from each counterparty for each outstanding swap position of the nonbank
SD. 17 CFR 23.100. A nonbank SD must include all swap positions in the calculation of the uncleared
swap margin amount, including swaps that are exempt or excluded from the scope of the Commission’s
uncleared swap margin regulations. A nonbank SD must compute the uncleared swap margin amount in
accordance with the Commission’s margin rules for uncleared swaps. 17 CFR 23.154.
17 CFR 23.101(a)(1)(i)(D). See also 2023 Proposal at 41781. Commission Regulation
23.101(a)(1)(i)(D) sets forth one of the minimum thresholds that a nonbank SD must meet as the “the
amount of capital required by a registered futures association.” As previously noted, NFA is currently the
only entity that is registered with the Commission as a futures association. NFA has adopted the
Commission’s capital requirements as its own requirements, and has not adopted any additional or stricter
minimum capital requirements. See, NFA rulebook, Financial Requirements section 18 Swap Dealer and
Major Swap Participant Financial Requirements, available at nfa.futures.org.
153

2023 Proposal at 41793-41794.

See 2023 Proposal at 41782.

derivatives; and (iv) capital requirements for operational risk.155 Capital charges for
market risk and credit risk are computed based on an EU nonbank SD’s on-balance sheet
and off-balance sheet exposures, weighted according to risk.156
2. Preliminary Determination and Comment Analysis
While noting certain differences in the minimum capital requirements and
calculation of regulatory capital between the EU Capital Rules and the CFTC Capital
Rules, the Commission preliminarily found that the EU Capital Rules and CFTC Capital
Rules achieve, subject to the conditions in the proposed Comparability Determination and
proposed Comparability Order, comparable outcomes by requiring a nonbank SD to
maintain a minimum level of qualifying regulatory capital and subordinated debt to
absorb losses from the firm’s business activities, including its swap dealing activities, and
decreases in the value of the firm’s assets and increases in the firm’s liabilities without
the nonbank SD becoming insolvent.157 As further discussed below, the Commission’s
preliminary finding of comparability was based on a principles-based, holistic
comparative analysis of the three minimum capital requirement thresholds of the CFTC
Capital Rules’ Bank-Based Approach referenced above and the respective elements of
the EU Capital Rules’ requirements.
a. Fixed Amount Minimum Capital Requirement
As noted above, prong (i) of the CFTC Capital Rules requires each nonbank SD
electing the Bank-Based Approach to maintain a minimum of $20 million of common
equity tier 1 capital. The CFTC’s $20 million fixed-dollar minimum capital requirement
is intended to ensure that each nonbank SD maintains a level of regulatory capital,
without regard to the level of the firm’s dealing and other activities, sufficient to meet its

Id. at 41790.

Id.

Id. at 41795.

obligations to swap market participants given the firm’s status as a CFTC-registered
nonbank SD and to help ensure the safety and soundness of the nonbank SD.158 Also as
noted above, the EU Capital Rules contain a requirement that an EU nonbank SD
maintain a fixed amount of minimum initial capital of EUR 5 million of common equity
tier 1 capital.159
The Commission, in the 2023 Proposal, recognized that the $20 million fixeddollar minimum capital required under the CFTC Capital Rules is substantially higher
than the EUR 5 million. Therefore, the Commission preliminarily proposed a condition
to require each EU nonbank SD to maintain, at all times, an amount of common equity
tier 1 capital in EUR, as defined in Article 26 of CRR, that is equivalent to $20 million.160
One commenter, Better Markets, argued that the establishment in the EU Capital
Rules of a base level requirement that is substantially lower than the CFTC Capital
Rules’ fixed amount minimum requirement “demonstrates a fatal lack of
comparability.”161 Better Markets further asserted that the proposed condition requiring
that EU nonbank SDs maintain a minimum level common equity tier 1 capital equivalent
to $20 million is evidence, in and of itself, that the EU Capital Rules are not comparable
to the CFTC Capital Rules.162
As noted above, the Commission recognized the material difference in the
requirement under the EU Capital Rules and the CFTC Capital Rules with respect to the
$20 million minimum dollar amount of regulatory capital a nonbank SD is required to
maintain. The Commission’s proposed condition, however, effectively addresses this

85 FR 57462 at 57492.

2023 Proposal at 41793-41794.

Id. The Commission also noted that the three current EU nonbank SDs subject to the EU Capital Rules
maintain common equity tier 1 capital denominated in EUR in amounts substantially in excess of the
equivalent of $20 million based on financial filings made with the Commission. Id. (note 261.)
161

Better Markets Letter at p. 11.

Id.

difference by providing that an EU nonbank SD may not avail itself of substituted
compliance unless it maintains a minimum amount of common equity tier 1 capital
denominated in EUR that is equivalent to $20 million. Furthermore, the imposition of
conditions in a Comparability Order, as discussed in section I.E. above, is authorized by
Commission Regulation 23.106(a)(5), which provides that the Commission may issue
terms and conditions as it deems appropriate. In addition, as further noted in section I.E.
above, the Guidance also provides that the Commission may impose conditions as part of
the substituted compliance process to address a lack of comparable and comprehensive
regulation in a home jurisdiction.163 In this connection, the Commission concludes that
requiring EU nonbank SDs to maintain an amount of regulatory capital in the form of
common equity tier 1 items, as defined in Article 26 of CRR, equal to or in excess of the
equivalent of $20 million will impose an equally stringent standard to the analogue
requirement under the CFTC Capital Rules and will appropriately address the
substantially lower minimum fixed amount capital requirement under the EU Capital
Rules.
In conclusion, the Commission finds that the EU Capital Rules and the CFTC
Capital Rules, with the imposition of the condition for EU nonbank SDs to maintain a
minimum level of common equity tier 1 capital in an amount equivalent to at least $20
million, are comparable in purpose and effect and achieve comparable outcomes with
respect to capital requirements based on a minimum dollar amount. The requirement for
a nonbank SD with limited swap dealing or other business activities to maintain a
minimum level of regulatory capital equivalent to $20 million helps to ensure the firm’s
safety and soundness by allowing it to absorb decreases in firm assets, absorb increases in

Guidance at 45343.

firm liabilities, and meet obligations to swap counterparties, other creditors, and market
participants, without the firm becoming insolvent.
b. Minimum Capital Requirement Based on Risk-Weighted Assets
Prong (ii) of the CFTC Capital Rules’ minimum capital requirements described
above requires each nonbank SD electing the Bank-Based Approach to maintain an
aggregate of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital in an
amount equal to or greater than 8 percent of the nonbank SD’s total risk-weighted assets,
with common equity tier 1 capital comprising at least 6.5 percent of the 8 percent.164
Risk-weighted assets are a nonbank SD’s on-balance sheet and off-balance sheet market
risk and credit risk exposures, including exposures associated with proprietary swap,
security-based swap, equity, and futures positions, weighted according to risk. The
requirements and capital ratios set forth in prong (ii) are based on the Federal Reserve
Board’s capital requirements for bank holding companies and are consistent with the
BCBS framework. The requirement for each nonbank SD to maintain regulatory capital
in an amount that equals or exceeds 8 percent of the firm’s total risk-weighted assets is
intended to help ensure that the nonbank SD’s level of capital is sufficient to absorb
decreases in the value of the firm’s assets and increases in the value of the firm’s
liabilities, and to cover unexpected losses resulting from the firm’s business activities,
including losses resulting from uncollateralized defaults from swap counterparties,
without the nonbank SD becoming insolvent.165
The EU Capital Rules contain capital requirements for EU nonbank SDs that the
Commission preliminarily found comparable in purpose and effect to the requirements in
prong (ii) of the CFTC Capital Requirements.166 Specifically, the EU Capital Rules

17 CFR 23.101(a)(1)(i)(B).

See generally 85 FR 57462 at 57530.

See 2023 Proposal at 41794-41795.

require an EU nonbank SD to maintain: (i) common equity tier 1 capital equal to at least
4.5 percent of the EU nonbank SD’s total risk exposure amount; (ii) total tier 1 capital
(i.e., common equity tier 1 capital plus additional tier 1 capital) equal to at least 6 percent
of the EU nonbank SD’s total risk exposure amount; and (iii) total capital (i.e., an
aggregate amount of common equity tier 1 capital, additional tier 1 capital, and tier 2
capital) equal to at least 8 percent of the EU nonbank SD’s total risk exposure amount.
The EU Capital Rules further require each EU nonbank SD to maintain an additional
capital conservation buffer equal to 2.5 percent of the EU nonbank SD’s total risk
exposure amount, which must be met with common equity tier 1 capital. Thus, an EU
nonbank SD is effectively required to maintain total qualifying regulatory capital in an
amount equal to or in excess of 10.5 percent of the market risk, credit risk, CVA risk,
settlement risk, and operational risk of the firm (i.e., total capital requirement of 8 percent
of risk-weighted assets and an additional 2.5 percent of risk-weighted assets as a capital
conservation buffer), which is a higher capital ratio than the 8 percent required of
nonbank SDs under prong (ii) of the CFTC Capital Rules.167
The Commission also preliminarily found that the EU Capital Rules and the
CFTC Capital Rules are comparable with respect to the approaches used in the
calculation of risk-weighted amounts for market risk and credit risk in determining the
nonbank SD’s risk-weighted assets.168 In that regard, the Commission noted that both
regimes require a nonbank SD to use standardized approaches to compute market risk
and credit risk amounts, unless the firm is approved to use internal models.169
As the Commission observed, the standardized approaches to calculating riskweighted asset amounts for market risk and credit risk under both the EU Capital Rules

Id. at 41782-41783. See, also, CRR Articles 26, 28, 50-52, 61-63 and 92, and CRD, Article 129.

See 2023 Proposal at 41794.

Id.

and the CFTC Capital Rules follow the same structure that is now the common global
standard: (i) allocating assets to categories according to risk and assigning each a risk
weight; (ii) allocating counterparties according to risk assessments and assigning each a
risk factor; (iii) calculating gross exposures based on valuation of assets; (iv) calculating
a net exposure allowing offsets following well defined procedures and subject to clear
limitations; (v) adjusting the net exposure by the market risk weights; and finally, (vi) for
credit risk exposures, multiplying the sum of net exposures to each counterparty by their
corresponding risk factor.170
More specifically, with respect to the calculation of standardized risk-weighted
asset amounts for market risk, the Commission explained that the CFTC Capital Rules
incorporate by reference the standardized market risk charges set forth in Commission
Regulation 1.17 for FCMs and SEC Rule 18a-1 for nonbank security-based swap dealers
(“SBSDs”).171 The standardized market risk charges under Commission Regulation 1.17
and SEC Rule 18a-1 are calculated as a standardized or table-based percentage of the
market value or notional value of the nonbank SD’s marketable securities and derivatives
positions, with the percentages applied to the market value or notional value increasing as
the expected or anticipated risk of the positions increases.172 For example, CFTC Capital
Rules require nonbank SDs to calculate standardized market risk-weighted asset amounts
for uncleared swaps based on notional values of the swap positions multiplied by
percentages set forth in the applicable rules.173 In addition, market risk-weighted asset
amounts for readily marketable equity securities are calculated by multiplying the fair
market value of the securities by 15 percent.174
Id.

Id. at 41789 and paragraph (3) of the definition of the term BHC equivalent risk-weighted assets in 17
CFR 23.100.
172

See 2023 Proposal at 41789, 17 CFR 1.17(c)(5), and 17 CFR 240.18a-1(c)(1).

17 CFR 1.17(c)(5)(iii).

17 CFR 1.17(c)(5)(v), referencing SEC Rule 15c3-1(c)(2)(vi) (17 CFR 240.15c3-1(c)(2)(vi)).

Under the CFTC Capital Rules, the resulting total market risk-weighted asset
amount is multiplied by a factor of 12.5 to cancel the effect of the 8 percent
multiplication factor applied to all of the nonbank SD’s risk-weighted assets under prong
(ii) of the rules’ minimum capital requirements described above. As a result, a nonbank
SD is effectively required to hold qualifying regulatory capital equal to or greater than
100 percent of the amount of its market risk exposure amount.175
Comparable to the CFTC Capital Rules, the EU Capital Rules require an EU
nonbank SD to calculate its standardized risk-weighted asset amounts for market risk by
multiplying the notional or carrying amount of net positions by risk-weighting factors,
which are based on the underlying market risk of each asset or exposure and increase as
the expected risk of the positions increases.176 The Commission further explained that an
EU nonbank SD is required to calculate market risk requirements for debt instruments
and equity instruments separately, by computing each category as the sum of specific risk
and general risk of the positions.177 As further discussed in the 2023 Proposal, the EU
Capital Rules also require EU nonbank SDs to include in their risk-weighted assets
market risk exposures to certain foreign currency and gold positions. Specifically, an EU
nonbank SD with net positions in foreign exchange and gold that exceed 2 percent of the
firm’s total capital must calculate capital requirements for foreign exchange risk. 178 The
17 CFR 23.100 (definition of BHC equivalent risk-weighted assets). As noted, a nonbank SD is
required to maintain qualifying capital (i.e., an aggregate of common equity tier 1 capital, additional tier 1
capital, and tier 2 capital) in an amount that equals or exceeds 8 percent of its risk-weighted assets. The
regulations, however, require the nonbank SD to effectively maintain qualifying capital equal to or in
excess of 100 percent of its market risk-weighted assets by requiring the nonbank SD to multiply its
market-risk weighted assets by a factor of 12.5. For example, the market risk exposure amount for
marketable equity securities with a current fair market value of $250,000 is $37,500 (market value of
$250,000 x .15 standardized market risk factor). The nonbank SD is required to maintain regulatory capital
equal to or in excess of full market risk exposure amount of $37,500 (risk exposure amount of $37,500 x 8
percent regulatory capital requirement equals $3,000; the regulatory capital requirement is then multiplied
by a factor of 12.5, which effectively requires the nonbank SD to hold regulatory capital in an amount
equal to at least 100 percent of the market risk exposure amount ($3,000 x 12.5 factor equals $37,500)).
176

See 2023 Proposal at 41791.

Id. and CRR, Article 326. As indicated in Article 326 of CRR, securitizations are treated as debt
instruments for market risk requirements.
178

See 2023 Proposal at 41791 and CRR, Article 351.

capital requirement for foreign exchange risk under the standardized approach is 8
percent of the EU nonbank SD’s net positions in foreign exchange and gold.179 The EU
Capital Rules further require EU nonbank SDs to include exposures to commodity
positions in calculating the firm’s risk-weighted assets. The standardized calculation of
commodity risk exposures may follow one of three approaches depending on type of
position or exposure. The first is the sum of a flat percentage rate for net positions, with
netting allowed among tightly defined sets, plus another flat percentage rate for the gross
position.180 The other two standardized approaches are based on maturity-ladders, where
unmatched portions of each maturity band (i.e., portions that do not net out to zero) are
charged at a step-up rate in comparison to the base charges for matched portions.181
With respect to standardized risk-weighted asset amounts for credit risk, the
Commission explained that under the CFTC Capital Rules, a nonbank SD must compute
its on-balance sheet and off-balance sheet exposures in accordance with the standardized
risk-weighting requirements adopted by the Federal Reserve Board and set forth in
subpart D of 12 CFR 217 as if the SD itself were a bank holding company subject to
subpart D.182 Standardized risk-weighted asset amounts for credit risk are computed by
multiplying the amount of the exposure by defined counterparty credit risk factors that
range from 0 percent to 150 percent.183 A nonbank SD with off-balance sheet exposures
is required to calculate a risk-weighted amount for credit risk by multiplying each

Id.

2023 Proposal at 41791 and CRR, Article 360.

2023 Proposal at 41791 and CRR, Article 359-361.

17 CFR 23.101(a)(1)(i)(B) and paragraph (1) of the definition of the term BHC equivalent risk-weighted
assets in 17 CFR 23.100. See also 2023 Proposal at 41789.
12 CFR 217.32. Lower credit risk factors are assigned to entities with lower credit risk and higher credit
risk factors are assigned to entities with higher credit risk. For example, a credit risk factor of 0 percent is
applied to exposures to the U.S. government, the Federal Reserve Bank, and U.S. government agencies (12
CFR 217.32(a)(1)), and a credit risk factor of 100 percent is assigned to an exposure to foreign sovereigns
that are not members of the Organization of Economic Co-operation and Development (12 CFR
217.32(a)(2)). See also discussion in 2023 Proposal at 41789.
exposure by a credit conversion factor that ranges from 0 percent to 100 percent,
depending on the type of exposure.184
In comparison, the Commission noted that the EU Capital Rules require an EU
nonbank SD to calculate its standardized risk-weighted asset amounts for credit risk in a
manner aligned with the Commission’s Bank-Based Approach and the BCBS framework
by taking the carrying value or notional value of each of the EU nonbank SD’s onbalance sheet and off-balance sheet exposures, making certain additional credit risk
adjustments, and then applying specific risk weights based on the type of counterparty
and the asset’s credit quality.185 For instance, high quality credit exposures, such as
exposures to EU Member States’ central banks, carry a zero percent risk weight.
Exposures to EU banks, other investment firms, or other businesses, however, may carry
risk weights between 20 percent and 150 percent depending on the credit ratings
available for the entity or, for exposures to banks and investment firms, for its central
government.186 If no credit rating is available, the EU nonbank SD must generally apply
a 100 percent risk weight, meaning the total accounting value of the exposure is used.187
With respect to counterparty credit risk for derivatives positions, the Commission
explained that under the CFTC Capital Rules, a nonbank SD may compute standardized
credit risk exposures, using either the current exposure method (“CEM”) or the
standardized approach for measuring counterparty credit risk (“SA-CCR”).188 Both CEM
and SA-CCR are non-model, rules-based approaches to calculating counterparty credit

12 CFR 217.33. See also discussion in 2023 Proposal at 41789.

See 2023 Proposal at 41791 and CRR, Articles 111 and 113(1).

See 2023 Proposal at 41791 and CRR, Articles 114-122.

See 2023 Proposal at 41791 and CRR, Articles 121(2) and 122(2).

17 CFR 217.34 and 17 CFR 23.100 (defining the term BHC risk-weighted assets and providing that a
nonbank SD that does not have model approval may use either CEM or SA-CCR to compute its exposures
for OTC derivative contracts without regard to the status of its affiliate with respect to the use of a
calculation approach under the Federal Reserve Board’s capital rules). See also discussion in 2023
Proposal at 41789.
risk exposures for derivatives positions. Credit risk exposure under CEM is the sum of:
(i) the current exposure (i.e., the positive mark-to-market) of the derivatives contract; and
(ii) the potential future exposure, which is calculated as the product of the notional
principal amount of the derivatives contract multiplied by a standard credit risk
conversion factor set forth in the rules of the Federal Reserve Board.189 Credit risk
exposure under SA-CCR is defined as the exposure at default amount of a derivatives
contract, which is computed by multiplying a factor of 1.4 by the sum of: (i) the
replacement costs of the contract (i.e., the positive mark-to market); and (ii) the potential
future exposure of the contract.190 In comparison, the EU Capital Rules require an EU
nonbank SD that is not approved to use credit risk models to calculate its exposure using
the SA-CCR.191 The exposure amount under the SA-CCR is computed, under both the
EU Capital Rules and the Commission’s Bank-Based Approach, as the sum of the
replacement cost of the contract and the potential future exposure of the contract,
multiplied by a factor of 1.4.192
EU Capital Rules also require an EU nonbank SD to include its exposures to
settlement risk in its calculation of its risk-weighted assets.193 Consistent with the BCBS
framework, the risk-weighted asset amount for settlement risk for transactions settled on
a delivery-versus-payment basis is computed by multiplying the price difference to which

12 CFR 217.34.

12 CFR 217.132(c).

See 2023 Proposal at 41791 and CRR, Articles 92(3)(f) and 273-280e. As noted in the 2023 Proposal,
EU nonbank SDs with smaller-sized derivatives business may also use a “simplified standardized approach
to counterparty credit risk” (CRR, Article 281) or an “original exposure method” (CRR, Article 282) as
simpler methods for calculating exposure values. To use either of these alternative methods, an entity’s onand off-balance sheet derivatives business must be equal to or less than 10 percent of the entity’s total
assets and EUR 300 million or 5 percent of the entity’s total assets and EUR 100 million, respectively.
CRR, Article 273a.
192

CRR, Article 274(2) and 12 CFR 217.132(c). See also discussion in 2023 Proposal at 41791.

2023 Proposal at 41791 and CRR, Article 378 (indicating that if transactions in which debt instruments,
equities, foreign currencies and commodities excluding repurchase transactions and securities or
commodities lending and securities or commodities borrowing are unsettled after their delivery due dates,
an EU nonbank SD must calculate the price difference to which it is exposed).
an EU nonbank SD is exposed as a result of an unsettled transaction by a percentage
factor that varies from 8 percent to 100 percent based on the number of working days
after the settlement due date during which the transaction remains unsettled.194 The
CFTC’s Bank-Based Approach provides for a similar calculation methodology for riskweighted asset amounts for unsettled transactions involving securities, foreign exchange
instruments, and commodities.195
Consistent with the BCBS framework, an EU nonbank SD is also required to
calculate a CVA risk-weighted asset amount for OTC derivative instruments to reflect the
current market value of the credit risk of the counterparty to the EU nonbank SD.196
Risk-weighted asset amounts for CVA risk can be calculated following similar
methodologies as those described in Subpart E of the Federal Reserve Board’s Part 217
regulations.197
As discussed in the 2023 Proposal, both the CFTC Capital Rules and the EU
Capital Rules also provide that, if approved by NFA or the relevant competent authority,
respectively, nonbank SDs may also use internal models to calculate market and/or credit
risk exposures.198 The Commission noted that the internal market and credit risk models
under the EU Capital Rules and the CFTC Capital Rules are based on the BCBS

Id. The price difference to which an EU nonbank SD is exposed is the difference between the agreed
settlement price for an instrument (i.e., a debt instrument, equity, foreign currency or commodity) and the
instrument's current market value, where the difference could involve a loss for the firm. CRR, Article 378.
17 CFR 23.100 (definition of BHC equivalent risk-weighted assets), 12 CFR 217.38 and 12 CFR
217.136.
196

2023 Proposal at 41792 and CRR, Articles 381 and 382(1).

CRR, Articles 383–384 and 12 CFR 217.132(e)(5) and (6). Under the CFTC’s Bank-Based Approach,
nonbank SDs calculating their credit risk-weighted assets using the regulations in Subpart D of the Federal
Reserve Board’s Part 217 regulations do not calculate CVA of OTC derivatives instruments.
2023 Proposal at 41789 and 41791, respectively, for discussions of NFA and competent authority model
approvals. In discussing approval requirements for credit risk models as part of the general overview of the
EU Capital Rules, the Commission referred generally to counterparty credit risk exposures for “OTC
derivatives transactions.” See 2023 Proposal at 41783 (n. 119). For clarity, the Commission notes that the
Internal Model Methodology for counterparty credit risk set out in CRR, Articles 283-294, can be used for
the derivatives listed in Annex II of CRR, securities financing transactions, and long settlement
transactions. CRR, Article 273.
framework and preliminarily found that such models must meet comparable quantitative
and qualitative requirements covering the same risks, though with slightly different
categorization, and including comparable model risk management requirements.199 In
this regard, the Commission observed that both rule sets address the same types of risk,
with similar allowed methodologies and under similar controls.200 The Commission also
preliminarily determined that the EU Capital Rules and the CFTC Capital Rules are
comparable with respect to the requirement that nonbank SDs account for operational risk
in computing their minimum capital requirements.201 In this connection, the Commission
noted that the EU Capital Rules require an EU nonbank SD to calculate an operational
risk exposure as a component of the firm’s total risk exposure amount.202 EU nonbank
SDs may use either a standardized approach or, if the EU nonbank has obtained
regulatory permission, an internal approach based on the firm’s own measurement
systems, to calculate their risk-weighted asset amounts for operational risk. The CFTC
Capital Rules address operational risk both as a stand-alone, separate minimum capital
requirement that a nonbank SD is required to meet under prong (iii) of the Bank-Based
Approach and as a component of the calculation of risk-weighted assets for nonbank SDs
that use subpart E of the Federal Reserve Board’s part 217 regulations to calculate their
credit risk-weighted assets via internal models.203
The Commission did not receive comments specifically addressing the
Commission’s comparative analysis of the minimum capital requirement based on riskweighted assets. In conclusion, the Commission finds that the EU Capital Rules and the

Proposal at 41794-41795. For a discussion of the qualitative and quantitative requirements that
models must meet under the CFTC Capital Rules and the EU Capital Rules, see 2023 Proposal at 4178941790 and 41792-41793, respectively.
See 2023 Proposal at 41794.

Id. at 41795.

Id. and CRR, Article 92(3).

Id. and 17 CFR 23.101(a)(1)(i) and 17 CFR 23.100 (definition of BHC equivalent risk-weighted assets).

CFTC Capital Rules are comparable in purpose and effect with respect to the
computation of minimum capital requirements based on a nonbank SD’s risk-weighted
assets. In this regard, the Commission finds that the EU Capital Rules and the CFTC
Capital rules have a comparable approach to the computation of market risk exposure
amounts and credit risk exposure amounts for on-balance sheet and off-balance sheet
exposures, which are intended to ensure that a nonbank SD maintains a sufficient level of
regulatory capital to absorb decreases in firm assets, absorb increases in firm liabilities,
and meet obligations to counterparties and creditors, without the firm becoming
insolvent.
c. Minimum Capital Requirement Based on the Uncleared Swap Margin Amount
As noted above, prong (iii) of the CFTC Capital Rules’ Bank-Based Approach
requires a nonbank SD to maintain regulatory capital in an amount equal to or greater
than 8 percent of the firm’s total uncleared swap margin amount associated with its
uncleared swap transactions to address potential operational, legal, and liquidity risks.204
The EU Capital Rules differ from the CFTC Capital Rules in that they do not
impose a capital requirement on EU nonbank SDs based on a percentage of the margin
for uncleared swap transactions.205 In the 2023 Proposal, the Commission described,
however, how certain EU capital and liquidity requirements may compensate for the lack
of direct analogue to the 8 percent uncleared swap margin amount requirement.206
Specifically, the Commission noted that under the EU Capital Rules the total risk
exposure amount is computed as the sum of the EU nonbank SD’s risk-weighted asset

More specifically, in establishing the requirement that a nonbank SD must maintain a level of regulatory
capital in excess of 8 percent of the uncleared swap margin amount associated with the firm’s swap
transactions, the Commission stated that the intent of the uncleared swap margin amount was to establish a
method of developing a minimum amount of capital for a nonbank SD to meet all of its obligations as an
SD to market participants, and to cover potential operational risk, legal risk and liquidity risk, and not just
the risks of its trading portfolio. 85 FR 57462 at 57485.
205

See 2023 Proposal at 41795.

Id.

amounts for market risk, credit risk, settlement risk, CVA risk of OTC derivatives
instruments, and operational risk.207 Notably, the EU Capital Rules require that EU
nonbank SDs, including firms that do not use internal models, calculate capital charges
for operational risk as a separate component of the total risk exposure amount. The EU
Capital Rules also impose separate liquidity requirements designed to ensure that the EU
nonbank SDs can meet both short- and long-term obligations, in addition to the general
requirement to maintain processes and systems for the identification of liquidity risk.208
In comparison, the Commission requires nonbank SDs to maintain a risk management
program covering liquidity risk, among other risk categories, but does not have a distinct
liquidity requirement.209
Addressing the Commission’s request for comment on the comparability between
the CFTC’s capital requirement based on a percentage of the margin for uncleared swap
transactions and the EU Capital Rules’ requirements with respect to operational risk and
liquidity risk, Better Markets asserted that the requirement for EU nonbank SDs to hold
qualifying regulatory capital to cover operational risk is not comparable to the CFTC’s
requirement for nonbank SDs to hold qualifying capital in an amount equal to at least 8
percent of the nonbank SD’s uncleared swap margin amount.210 Better Markets further
asserted that the Commission failed to provide an exhaustive analysis substantiating that
Id. and CRR, Article 92(3).

Id. More specifically, the EU Capital Rules impose separate liquidity buffers and “stable funding”
requirements designed to ensure that EU nonbank SDs can cover both long-term obligations and short-term
payment obligations under stressed conditions for 30 days. CRR, Article 412–413. In addition, EU
nonbank SDs are required to maintain robust strategies, policies, processes, and systems for the
identification of liquidity risk over an appropriate set of time horizons, including intra-day. CRD, Article
86.
See 2023 Proposal at 41795. Specifically, Commission Regulation 23.600(b) requires each SD to
establish, document, maintain, and enforce a system of risk management policies and procedures designed
to monitor and manage the risks related to swaps, and any products used to hedge swaps, including futures,
options, swaps, security-based swaps, debt or equity securities, foreign currency, physical commodities,
and other derivatives. The elements of the SD’s risk management program are required to include the
identification of risks and risk tolerance limits with respect to applicable risks, including operational,
liquidity, and legal risk, together with a description of the risk tolerance limits set by the SD and the
underlying methodology in written policies and procedures. 17 CFR 23.600.
210

Better Markets Letter at p. 10.

the incorporation of an operational risk charge and the existence of separate liquidity
requirements would genuinely yield an equivalent result.211 Furthermore, Better Markets
argued that the Commission should have undertaken “an examination to ascertain
whether the EU nonbank SD’s operational risk charge and liquidity requirements capital
would adequately cover [its] cumulative amounts of uncleared swaps margin.”212
The Applicants offered a contrasting view, stating that, although the EU Capital
Rules do not “have a direct analogue to the 8 percent uncleared swap margin
requirement” under the CFTC Capital Rules, they have “various other measures that
achieve the same regulatory objective of ensuring that a nonbank SD maintains an
amount of capital that is sufficient to cover the full range of risks an EU nonbank SD may
face.”213 In support of the statement, the Applicants discussed, among other measures,
the various categories of risk charges that an EU nonbank SD is required to include in its
total risk exposure amount, as well as the capital conservation buffer, leverage ratio floor,
and liquidity requirements that the EU Capital Rules impose on EU nonbank SDs.214
The Commission finds that the additional categories of risk-weighted asset
amounts that EU nonbank SDs are required to include in the total risk-weighted assets
amount, as well as the various regulatory measures seeking to ensure that EU nonbank
SDs hold sufficient capital to cover the full range of risks that they may face, support the
comparability of the EU Capital Rules and the CFTC Capital Rules even in the absence
of a separate capital requirement in the EU Capital Rules requiring EU nonbank SDs to

Id. at p. 11.

Id.

Applicants’ Letter at p. 3.

Id. at pp. 2-3. As discussed in the 2023 Proposal, the EU Capital Rules impose a 3 percent leverage
ratio floor on EU nonbank SDs as an additional element of the capital requirements. Specifically, each EU
nonbank SD is required to maintain tier 1 capital (i.e., an aggregate of common equity tier 1 capital and
additional tier 1 capital) equal to or in excess of 3 percent of the firm’s total on-balance sheet and offbalance sheet exposures, including exposures on uncleared swaps, without regard to any risk-weighting.
See 2023 Proposal at 41783 and CRR, Articles 92(1) and 429.
have qualified capital equal to or greater than 8 percent of the amount of uncleared swap
margin. The Commission notes that the minimum capital requirement based on a
percentage of the nonbank SD’s uncleared swap margin amount was conceived as a
proxy, not an exact measure, for inherent risk in the SD’s positions and operations,
including operational risk, legal risk, and liquidity risk.215 As the Commission noted in
adopting the CFTC Capital Rules, although the amount of capital required of a nonbank
SD under the uncleared swap margin calculation is directly related to the volume, size,
complexity, and risk of the covered SD’s positions, the minimum capital requirement is
intended to cover a multitude of potential risks faced by the SD.216 The Commission
understands that other jurisdictions may adopt alternative measures to cover the same
risks. As such, a strict comparison between the amounts that an EU nonbank SD holds to
account for operational risk and liquidity risk pursuant to the EU Capital Rules and the
amount of uncleared swap margin that an EU nonbank SD would have been required to
hold pursuant to the CFTC Capital Rules is not warranted. As discussed in section I.E.
above, consistent with the approach adopted by the Commission in Commission
Regulation 23.106, the Commission’s analysis in ascertaining the comparability of a
foreign jurisdiction’s capital rules to the CFTC Capital Rules is focused on determining
whether the foreign jurisdiction’s rules have comparable regulatory objectives and
achieve comparable outcomes. Following this standard of review, the Commission
concludes that the various measures that the EU Capital Rules have established to help
ensure that EU nonbank SDs hold sufficient capital to cover the full range of risks that
they face have comparable objectives and achieve comparable outcomes as the CFTC
Capital Rules.

85 FR 57462 at 57497.

85 FR 57462 at 57485 and 57497.

In conclusion, the Commission finds that the EU Capital Rules and the CFTC
Capital Rules are comparable in purpose and effect with respect to the requirement that a
nonbank SD’s minimum level of regulatory capital reflects potential operational risk
exposures in addition to market risk and credit risk exposures. The Commission
emphasizes that the intent of the minimum capital requirement based on a percentage of
the nonbank SD’s uncleared swap margin is to establish a minimum capital requirement
that would help ensure that the nonbank SD meets its obligations as an SD to market
participants, and to cover potential operational risk, legal risk, and liquidity risk in
addition to the risks associated with its trading portfolio.217 The EU Capital Rules
address comparable risks albeit not through a requirement based on a EU nonbank SD’s
uncleared swap margin amount. In this regard, EU nonbank SDs are required to maintain
a minimum level of regulatory capital based on an aggregate of the firm’s total riskweighted asset amounts for market risk, credit risk, and operational risk. Accordingly,
the Commission has determined that, notwithstanding the differences in approaches, the
EU Capital Rules and CFTC Capital Rules are comparable in purpose and effect in
requiring nonbank SDs to maintain a minimum level of regulatory capital that addresses
potential market risk, credit risk, and operational risk to help ensure the safety and
soundness of the firm, and to ensure that the firm has sufficient capital to absorb
decreases in firm assets, absorb increases in firm liabilities, and meet obligations to
counterparties and creditors, without the firm becoming insolvent.
3. Final Determination
Based on its analysis of comments and its holistic assessment of the respective
requirements discussed in sections II.C.2.a., b., and c. above, the Commission adopts the
Comparability Determination and Comparability Order as proposed with respect to the

See 2023 Proposal at 41788 (referencing 85 FR 57462).

minimum capital requirements and calculation of regulatory capital, subject to the
condition that EU nonbank SDs must maintain a minimum level of regulatory capital in
the form of common equity tier 1 capital denominated in EUR that equals or exceeds the
equivalent of $20 million U.S. dollars.218
D. Nonbank Swap Dealer Financial Reporting Requirements
1. Proposed Determination
The Commission detailed the requirements of the CFTC Financial Reporting
Rules in the 2023 Proposal.219 Specifically, the 2023 Proposal noted that the CFTC
Financial Reporting Rules require nonbank SDs to file with the Commission and NFA
periodic unaudited and annual audited financial reports.220 The unaudited financial
reports must include: (i) a statement of financial condition; (ii) a statement of
income/loss; (iii) a statement demonstrating compliance with, and calculation of, the
applicable regulatory minimum capital requirement; (iv) a statement of changes in
ownership equity; (v) a statement of changes in liabilities subordinated to claims of
general creditors; and (vi) such further material information necessary to make the
required statements not misleading.221 The annual audited financial reports must include
the same financial statements that are required to be included in the unaudited financial
reports, and must further include: (i) a statement of cash flows; (ii) appropriate footnote
disclosures; and (iii) a reconciliation of any material differences between the financial
statements contained in the annual audited financial reports and the financial statements

The Commission also notes that, pursuant to Article 7 of CRR, the competent authority may exempt an
entity subject to CRR from the applicable capital requirements, provided certain conditions are met. In
such case, the relevant requirements would apply to the entity’s parent entity, on a consolidated basis. As
discussed in the 2023 Proposal, the Commission’s assessment does not cover the application of Article 7 of
CRR and therefore an entity that benefits from an exemption under Article 7 of CRR will not qualify for
substituted compliance under the final Comparability Order. 2023 Proposal at 41793 (n. 257).
219

2023 Proposal at 41796-41797.

Id. and 17 CFR 23.105(d) and (e).

Id. and 17 CFR 23.105(d)(2).

contained in the unaudited financial reports prepared as of the nonbank SD’s year-end
date.222 In addition, a nonbank SD must attach to each unaudited and audited financial
report an oath or affirmation that to the best knowledge and belief of the individual
making the affirmation the information contained in the financial report is true and
correct.223 The individual making the oath or affirmation must be a duly authorized
officer if the nonbank SD is a corporation, or one of the persons specified in the
regulation for business organizations that are not corporations.224
The CFTC Financial Reporting Rules also require a nonbank SD to file the
following financial information with the Commission and NFA on a monthly basis: (i) a
schedule listing the nonbank SD’s financial positions reported at fair market value;225 (ii)
schedules showing the nonbank SD’s counterparty credit concentration for the 15 largest
exposures in derivatives, a summary of its derivatives exposures by internal credit
ratings, and the geographic distribution of derivatives exposures for the 10 largest
countries;226 and (iii) for nonbank SDs approved to use internal capital models, certain
model metrics, such as aggregate value-at-risk (“VaR”), a graph reflecting the daily intramonth VaR for each business line, and counterparty credit risk information.227
The CFTC Financial Reporting Rules further require a nonbank SD to provide the
Commission and NFA with information regarding the custodianship of margin for
uncleared swap transactions (“Margin Report”).228 The Margin Report must contain: (i)

Id. and 17 CFR 23.105(e)(4).

Id. and 17 CFR 23.105(f).

Id.

2023 Proposal at 41800, Regulation 23.105(l), and Schedule 1 of appendix B to subpart E of part 23
(“Schedule 1”). 17 CFR 23.105(l) and 17 CFR appendix B to subpart E of part 23. Schedule 1 includes a
nonbank SD’s holding of U.S Treasury securities, U.S. government agency debt securities, foreign debt and
equity securities, money market instruments, corporate obligations, spot commodities, and cleared and
uncleared swaps, security-based swaps, and mixed swaps in addition to other position information.
226

2023 Proposal 41801 and schedules 2, 3 and 4, respectively, of appendix B to subpart E of part 23.

Id. and 17 CFR 23.105(k) and (l), and schedules 2, 3 and 4 of appendix B to subpart E of part 23.

Id. and 17 CFR 23.105(m).

the name and address of each custodian holding initial margin or variation margin on
behalf of the nonbank SD or its swap counterparties; (ii) the amount of initial and
variation margin required by the uncleared margin rules held by each custodian on behalf
of the nonbank SD and on behalf its swap counterparties; and (iii) the aggregate amount
of initial margin that the nonbank SD is required to collect from, or post with, swap
counterparties for uncleared swap transactions subject to the uncleared margin rules.229
A nonbank SD electing the Bank-Based Capital Approach is required to file the
unaudited financial report, Schedule 1, schedules of counterparty credit exposures, and
the Margin Report with the Commission and NFA no later than 17 business days after the
applicable month-end reporting date.230 A nonbank SD must file its annual report with
the Commission and NFA no later than 60 calendar days after the end of its fiscal year.231
The 2023 Proposal also detailed relevant financial reporting requirements of the
EU Financial Reporting Rules.232 The EU Financial Reporting Rules require an EU
nonbank SD to report information to the relevant competent authorities concerning its
capital and financial condition sufficient to provide a comprehensive view of the firm’s
risk profile, including information on the firm’s capital requirements, leverage ratio, large
exposures, and liquidity requirements.233 The relevant competent authorities are tasked
with prescribing the specific individual financial statements that EU nonbank SDs are
required to submit. To ensure a level of consistency, the European Banking Authority
(“EBA”)234 has developed implementing technical standards to specify uniform reporting

Id.

Id.

Id.

2023 Proposal at 41797-41798.

Id. and CRR Article 430(1).

Id. The EBA is a regulatory agency of the EU that is tasked with establishing a single regulatory and
supervisory framework for the banking sector in EU Member States. CRR, Article 430(7) provides that the
EBA shall develop draft implementing technical standards to specify the uniform reporting formats and
templates, the instructions and methodology on how to use the templates, the frequency and dates of
reporting, and the definitions.
templates and to determine the frequency of reporting by EU nonbank SDs (“CRR
Reporting ITS”).235
The implementing technical standards under the CRR Reporting ITS require an
EU nonbank SD to prepare and deliver to its competent authorities common reporting
(“COREP”) on a quarterly basis.236 COREP requires, among other things, calculations in
relation to the EU nonbank SD’s capital and capital requirements,237 capital ratios and
capital levels,238 and market risk (collectively, “COREP Reports”).239 CRR Reporting
ITS also specify the contents of the required financial reports (“FINREP”) for certain EU
nonbank SDs that report financial information on a consolidated basis. Additionally, the
ECB has adopted a regulation setting forth a common minimum set of financial
information that must be reported by credit institutions subject to CRR to their relevant
competent authorities on the basis of the CRR Reporting ITS (“ECB FINREP
Regulation”).240 Furthermore, each competent authority has discretion to require
institutions subject to CRR to report additional supervisory information on the basis of
the CRR and the CRR Reporting ITS, or pursuant to relevant national law.241
Under CRR Reporting ITS as complemented by the ECB FINREP Regulation, an
EU nonbank SD is required to provide, among other items, the following to its relevant
competent authorities: (i) on a quarterly basis, a balance sheet statement (or statement of

See Commission Implementing Regulation (EU) 2021/451 of 17 December 2020 laying down
implementing technical standards for the application of Regulation (EU) No 575/2013 of the European
Parliament and of the Council with regard to supervisory reporting of institutions and repealing
Implementing Regulation (EU) No 680/ 2014. See also, 2023 Proposal at 41797.
236

Id.

CRR, Article 430; Annex I, Template Numbers 1 and 2, CRR Reporting ITS.

CRR, Article 430; Annex I, Template Number 3, CRR Reporting ITS.

CRR, Article 430; Annex I, Template Numbers 18–25 (as applicable) CRR Reporting ITS.

See Regulation (EU) 2015/534 of the European Central Bank of March 17, 2015 on reporting of
supervisory financial information. The ECB FINREP Regulation complements the CRR Reporting ITS by
imposing financial reporting requirements applying on an individual basis to entities subject to CRR,
including EU nonbank SDs, whereas CRR, Article 430 and the CRR Reporting ITS impose financial
reporting requirements on a consolidated basis. See 2023 Proposal at 41797.
241

2023 Proposal at 41797-41802.

financial position) that reflects the EU nonbank SD’s financial condition;242 (ii) on a
quarterly basis, a statement of profit or loss;243 (iii) on a quarterly basis, a breakdown of
financial liabilities by product and by counterparty sector;244 (iv) on a quarterly basis, a
listing of subordinated financial liabilities;245 and, (v) on an annual basis, a statement of
changes in equity.246 FINREP also requires an EU nonbank SD subject to the CRR
Reporting ITS to provide its competent authorities with additional financial information,
including a breakdown of its loans and advances by product and type of counterparty,247
as well as detailed information regarding its derivatives trading activities,248 collateral,
and guarantees.249

CRR, Article 430; Annex III, Template Numbers 1.1, 1.2, and 1.3 (for reporting according to
International Financial Reporting Standards (“IFRS”) and Annex IV, Template Numbers 1.1., 1.2, and 1.3
(for reporting according to national accounting frameworks), CRR Reporting ITS; and ECB FINREP
Regulation, Articles 6, 7 and 13 (referring to Annex III and Annex IV of the CRR Reporting ITS, as
applicable).
CRR, Article 430; Annex III, Template Number 2 (for reporting according to IFRS) and Annex IV,
Template Number 2 (for reporting according to national accounting frameworks), CRR Reporting ITS; and
ECB FINREP Regulation, Articles 6, 7 and 13 (referring to Annex III and Annex IV of the CRR Reporting
ITS, as applicable).
CRR, Article 430; Annex III, Template Number 8.1 (for reporting according to IFRS) and Annex IV,
Template Number 8.1(for reporting according to national accounting frameworks), CRR Reporting ITS;
and ECB FINREP Regulation, Articles 6, 7 and 13 (referring to Annex III and Annex IV of the CRR
Reporting ITS, as applicable).
CRR, Article 430, Annex III, Template Number 8.2 (for reporting according to IFRS) and Annex IV,
Template Number 8.3 (for reporting according to national accounting frameworks), CRR Reporting ITS;
and ECB FINREP Regulation, Articles 6, 7 and 13 (referring to Annex III and Annex IV of the CRR
Reporting ITS, as applicable).
CRR, Article 430; Annex III, Template Number 46 (for reporting according to IFRS) and Annex IV,
Template Number 46 (for reporting according to national accounting frameworks), CRR Reporting ITS;
and ECB FINREP Regulation, Articles 6, 7 and 13 (referring to Annex III and Annex IV of the CRR
Reporting ITS, as applicable).
CRR, Article 430; Annex III, Template Numbers 5.1 and 6.1 (for reporting according to IFRS) and
Annex IV, Template Numbers 5.1 and 6.1, CRR Reporting ITS; and ECB FINREP Regulation, Articles 6,
7 and 13 (referring to Annex III and Annex IV of the CRR Reporting ITS, as applicable).
CRR, Article 430; Annex III, Template Number 10 (for reporting according to IFRS) and Annex IV,
Template Number 10 (for reporting according to national accounting frameworks), CRR Reporting ITS;
and ECB FINREP Regulation, Articles 6, 7 and 13 (referring to Annex III and Annex IV of the CRR
Reporting ITS, as applicable).
CRR, Article 430; Annex III, Template Number 13 (for reporting according to IFRS) and Annex IV,
Template Number 13 (for reporting according to national accounting frameworks), CRR Reporting ITS;
and ECB FINREP Regulation, Articles 6, 7 and 13 (referring to Annex III and Annex IV of the CRR
Reporting ITS, as applicable).
Furthermore, with the exception of certain “small” entities, EU nonbank SDs are
required to prepare annual audited financial statements and a management report
(together, “annual audited financial report”) pursuant to Article 430 of CRR and the
Accounting Directive.250 The annual audited financial statements must comprise, at a
minimum, a balance sheet, a profit and loss statement, and notes to the financial
statements.251 The auditor’s audit report must include: (i) a specification of the financial
statements subject to the audit and the financial reporting framework that was applied in
their preparation; (ii) a description of the scope of the audit, which must specify the
auditing standards used to conduct the audit; (iii) an audit opinion stating whether the
financial statements give a true and fair view in accordance with the relevant financial
reporting framework; and (iv) a reference to any matters emphasized by the auditor that
did not qualify the audit opinion.252
Furthermore, as noted in the 2023 Proposal, the SEC has issued orders permitting
an SEC-registered nonbank security-based swap dealer domiciled in France or Germany
(“EU nonbank SBSD”) to satisfy SEC Capital requirements via substituted compliance
with applicable French and German capital and financial reporting.253 The French Order

Accounting Directive, Articles 4, 19 and 34; French MFC, Articles L.511–35 to L.511–38; German
Commercial Code (Handelsgesetzbuch, ‘‘HGB’’), section 316 et seq. The Accounting Directive provides
that the audit requirement is not applicable to “small” entities defined as firms meeting the following
requirements: (1) the firm’s balance sheet is not more than EUR 4 million; (2) the firm’s net turnover does
not exceed more than EUR 8 million; or (3) the firm did not employ more than 50 employees during the
financial year. See Article 3(2) and Article 34 of the Accounting Directive. The Applicants represented
that the four EU nonbank SDs currently registered with the Commission do not meet the criteria to be
classified as ‘‘small’’ entities and, therefore, are required to prepare audited annual financial reports. EU
Application, p. 5.
Accounting Directive, Article 4(1). The audit of the financial statements and management report is
required to be performed by one or more statutory auditors or auditors approved by EU Member States to
conduct audits of EU nonbank SDs. Id., Article 34(1). The annual audited financial report, together with
the opinion and statements of the auditor, must be published. Id., Article 30.
252

Id. Article 35.

See Amended and Restated 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 Federal Republic of Germany; Amended Orders Addressing
Non-U.S. Security-Based Swap Entities Subject to Regulation in the French Republic or the United
Kingdom; and Order Extending the Time to Meet Certain Conditions Relating to Capital and Margin, 86
FR 59797 (Oct. 28, 2021) (“German Order”); Order Granting Conditional Substituted Compliance in
and German Order conditioned substituted compliance for capital requirements on an EU
nonbank SBSD complying with specified laws and regulations, including CRR, CRD,
and BRRD, and also maintaining total liquid assets in an amount that exceeds the EU
nonbank SBSD’s total liabilities by at least $100 million and by at least $20 million after
applying certain deductions to the value of the liquid assets to reflect market, credit, and
other potential risks to the value of the assets.254 The SEC’s French Order and German
Order granting substituted compliance for financial reporting to EU nonbank SBSDs, as
supplemented by the SEC Order on Manner and Format of Filing Unaudited Financial
and Operational Information, also require an EU nonbank SBSD to file an unaudited
FOCUS Report with the SEC on a monthly basis.255 The FOCUS Report is required to
include, among other statements and schedules: (i) a statement of financial condition; (ii)
a statement of the EU nonbank SBSD’s capital computation in accordance with home
country Basel-based requirements; (iii) a statement of income/loss; and (iv) a statement
of capital withdrawals.256 An EU nonbank SBSD is required to file its FOCUS Report
with the SEC within 35 calendar days of the month end.257
Based on its review of the EU Application and the relevant EU laws and
regulations, the Commission preliminarily determined that, subject to the conditions
specified in the 2023 Proposal and discussed below, the EU Financial Reporting Rules

Connection with Certain Requirements Applicable to Non-U.S. Security-Based Swap Dealers and Major
Security-Based Swap Participants Subject to Regulation in the French Republic, 86 FR 41612 (Aug. 8,
2021) (“French Order”); and Order Specifying the Manner and Format of Filing Unaudited Financial and
Operational Information by Security-Based Swap Dealers and Major Security-Based Swap Participants
that are not U.S. Persons and are Relying on Substituted Compliance with Respect to Rule 18a–7, 86 FR
59208 (Oct. 26, 2021) (“SEC Order on Manner and Format of Filing Unaudited Financial and Operational
Information”).
The conditioning of the German Order and French Order on EU nonbank SBSDs maintaining a defined
amount of liquid assets in an amount that exceeds the EU nonbank SBSD’s total liabilities reflects that the
SEC’s capital rule for nonbank SBSDs is a liquidity-based requirement and not based on the Basel
standards. 17 CFR 240.18a–1(a)(1).
See, French Order and German Order. See also, SEC Order on Manner and Format of Filing Unaudited
Financial and Operational Information.
256

See, SEC Order on Manner and Format of Filing Unaudited Financial and Operational Information.

Id.

are comparable to CFTC Financial Reporting Rules in purpose and effect. The
Commission noted that both sets of rules provide the relevant EU competent authorities,
the Commission, and NFA with financial information to monitor a nonbank SD’s
compliance with capital requirements, and to assess a nonbank SD’s overall safety and
soundness.258 Specifically, the Commission preliminarily found that the EU Financial
Reporting Rules impose reporting requirements that are comparable with respect to
overall form and content to the CFTC Financial Reporting Rules.259 In this regard, both
the CFTC Financial Reporting Rules and the EU Financial Reporting Rules require a
nonbank SD to file statements of financial condition, statements of profit and loss, and
statements of regulatory capital that, collectively, provide information for the relevant EU
competent authorities, Commission, and NFA to assess a nonbank SD’s overall ability to
absorb decreases in the value of firm assets, absorb increases in the value of firm
liabilities, and cover losses from business activities, including swap dealing activities,
without the firm becoming insolvent.260
The proposed conditions would ensure that the Commission and NFA receive
appropriate and timely financial information from EU nonbank SDs to monitor the firms’
compliance with EU capital requirements and to assess the firms’ overall safety and
soundness. The proposed conditions would require an EU nonbank SD to provide the
Commission and NFA with copies of the relevant templates of the FINREP reports and
COREP reports that correspond to the EU nonbank SD’s statement of financial condition,
statement of income/loss, and statement of regulatory capital, total risk exposure, and
capital ratios. These templates consist of FINREP templates 1.1 (Balance Sheet
Statement: assets), 1.2 (Balance Sheet Statement: liabilities), 1.3 (Balance Sheet

2023 Proposal at 41798.

Id.

Id.

Statement: equity), 2 (Statement of profit or loss), and 10 (Derivatives—Trading and
economic hedges), and COREP templates 1 (Own Funds), 2 (Own Funds Requirements),
and 3 (Capital Ratios). In addition, the Commission proposed to require EU nonbank
SDs to submit to the Commission and NFA copies of the EU nonbank SD’s annual
audited financial report.261
The proposed conditions would also require the FINREP reports, COREP reports,
and annual audited financial report to be translated into the English language.262 The
FINREP and COREP reports also must have balances converted from euro to U.S.
dollars.263 The Commission further recognized that the requirement to translate balances
denominated in euro to U.S. dollars on the annual audited financial report may have an
unintended impact on the opinion expressed by the statutory auditor. The Commission,
therefore, proposed to accept the annual audited financial report denominated in euro, but
required the report to be translated into the English language.264
The proposed conditions also would require an EU nonbank SD to file with the
Commission and NFA its: (i) FINREP reports and COREP reports within 35 calendar
days of the end of each month; and (ii) annual audited financial report on the earliest of
the date the report is filed with the competent authority, the date the report is published,
or the date the report is required to be filed with the competent authority or the date the
report is required to be published pursuant to the EU Financial Reporting Rules.265

Id. at 41799.

Id.

Id. In the 2023 Proposal, the Commission proposed that the translation of the annual audited financial
report into the English language would not be required to be subject to the audit of the independent auditor.
An EU nonbank SD would be required to report the exchange rate that it used to convert balances from
euro to U.S. dollars to the Commission and NFA as part of the financial reporting.
264

Id. at 41800.

Id. at 41799. The Commission noted that the EU Financial Reporting Rules require EU nonbank SDs to
submit the unaudited FINREP and COREP templates to their competent authorities on a quarterly basis,
whereas the CFTC Financial Reporting Rules contain a more frequent reporting requirement by requiring
nonbank SDs that elect the Bank-Based Approach to file unaudited financial information with the
Commission and NFA on a monthly basis. In emphasizing the importance of financial statement reporting
The Commission also proposed a condition to require EU nonbank SDs to file
with the Commission and NFA, on a monthly basis, Schedule 1 showing the aggregate
securities, commodities, and swap positions of the firm at fair market value as of the
reporting date.266 The Commission explained that Schedule 1 provides the Commission
and NFA with detailed information regarding the financial positions that a nonbank SD
holds as of the end of each month, including the firm’s swaps positions, which allows the
Commission and NFA to monitor the types of investments and other activities that the
firm engages in and would assist the Commission and NFA in monitoring the safety and
soundness of the firm.267 The Commission proposed to require that Schedule 1 be filed
by an EU nonbank SD along with the firm’s monthly submission of selected FINREP and
COREP templates.268 The Commission also proposed to require that Schedule 1 be
prepared in the English language with balances reported in U.S. dollars.
The Commission further proposed that, in lieu of filing FINREP and COREP
reports, EU nonbank SDs that are registered with the SEC as EU nonbank SBSDs could
satisfy this condition by filing with the CFTC and NFA, on a monthly basis, copies of the
unaudited FOCUS Reports that the EU nonbank SDs are required to file with the SEC
pursuant to the SEC French Order or SEC German Order, as supplemented by the SEC
Order on Manner and Format of Filing Unaudited Financial and Operational Information.
The filing of a FOCUS Report was proposed as an elective option for the EU nonbank
SD, as an alternative to the filing of unaudited FINREP templates, COREP templates, and

requirements for the Commission’s and NFA’s oversight and the Commission’s experience in monitoring
the financial conditions of registrants through the receipt of monthly financial statements, the Commission
proposed to condition the Comparability Order on a more frequent reporting submission. See id.
Id. Schedule 1 includes a nonbank SD’s holding of U.S Treasury securities, U.S. government agency
debt securities, foreign debt and equity securities, money market instruments, corporate obligations, spot
commodities, and cleared and uncleared swaps, security-based swaps, and mixed swaps in addition to other
position information.
267

Id. at 41800.

Id.

Schedule 1 that such firms would otherwise be required to file with the Commission and
NFA pursuant to the proposed Comparability Order. In this connection, the Commission
noted that three of the EU nonbank SDs registered with the SEC as EU nonbank SBSDs
would be eligible to file copies of their monthly FOCUS Report with the Commission
and NFA in lieu of the FINREP and COREP templates and Schedule 1. An EU nonbank
SD electing to file copies of its monthly FOCUS Report would be required to submit the
reports to the Commission and NFA within 35 calendar days of the end of each month.
Proposing that EU nonbank SDs that are registered with the SEC as EU nonbank
SBSDs file the FOCUS Report in lieu of the FINREP and COREP templates and
Schedule 1 as an elective option was consistent with Commission Regulation
23.105(d)(3), which at the time the 2023 Proposal was issued, provided that a nonbank
SD or nonbank MSP that is also registered with the SEC as a broker or dealer, an SBSD,
or a major security-based swap participant might elect to file a FOCUS Report in lieu of
the financial reports required by the Commission. On April 30, 2024, the Commission
amended Commission Regulation 23.105(d)(3) to mandate the filing of a FOCUS Report
by such dually-registered entities, including dually-registered non-U.S. nonbank SDs, in
lieu of the Commission’s financial reports.269 As such, the Commission is also adopting
as final a revised Condition 11 to require that EU nonbank SDs registered as EU nonbank
SBSDs comply with the requirement to file periodic financial statements by filing a copy
of the FOCUS Report that the EU nonbank SDs are required to file with the SEC.
The Commission also proposed a condition to require an EU nonbank SD to
submit with each set of selected FINREP and COREP templates, annual audited financial
report, and the applicable Schedule 1, a statement by an authorized representative or
representatives of the EU nonbank SD that, to the best knowledge and belief of the

See Capital and Financial Reporting Requirements of Swap Dealers and Major Swap Participants, 89
FR 45569 (May 23, 2024).
person(s), the information contained within each FINREP and COREP template, annual
audited financial report, and Schedule 1, is true and correct, including as it relates to the
translation of the report into the English language and the conversion of balances in the
reports to U.S. dollars.270 The statement by an authorized representative or
representatives of the EU nonbank SD was intended to be a substitute of the oath or
affirmation required of nonbank SDs under Commission Regulation 23.105(f),271 to
ensure that reports filed with the Commission and NFA are prepared and submitted by
firm personnel with knowledge of the financial reporting of the firm who can attest to the
accuracy of the reporting, translation, and balances conversion.272
The Commission further proposed a condition that would require an EU nonbank
SD to file a Margin Report with the Commission and NFA.273 The Commission noted
that a Margin Report would assist the Commission and NFA in their assessment of the
safety and soundness of the EU nonbank SDs by providing information regarding the
firm’s swap book and the extent to which it has uncollateralized exposures to
counterparties or has not met its financial obligations to counterparties. The Commission
explained that this information, along with the list of custodians holding both the firms’
and counterparties’ collateral for swap transactions, would assist with identifying
potential financial impacts to the nonbank SD resulting from defaults on its swap
transactions. The Commission further proposed to require an EU nonbank SD to file the
Margin Report with the Commission and NFA within 35 calendar days of the end of each
month, which corresponds with the proposed timeframe for the EU nonbank SD to file

2023 Proposal at 41800.

17 CFR 23.105(f). Commission Regulation 23.105(f) requires a nonbank SD to attach to each unaudited
and audited financial report an oath or affirmation that to the best knowledge and belief of the individual
making the affirmation the information contained in the financial report is true and correct. The individual
making the oath or affirmation must be a duly authorized officer if the nonbank SD is a corporation, or one
of the persons specified in the regulation for business organizations that are not corporations.
272

See 2023 Proposal at 41800.

Id.

the selected FINREP and COREP templates or FOCUS Report, as applicable. The
Commission also proposed to require the Margin Report to be prepared in the English
language with balances reported in U.S. dollars.
The Commission’s preliminary determination did not require an EU nonbank SD
to file the model metrics and counterparty credit exposure information required by
Commission Regulations 23.105(k) and (l),274 in recognition that NFA’s current SD risk
monitoring program requires all SDs, including EU nonbank SDs, to file with NFA on a
monthly basis certain risk metrics that are comparable with the risk metrics contained in
Commission Regulation 23.105(k) and (l) and address the market risk and credit risk of
the SD’s positions.275 Specifically, the Commission noted that NFA’s monthly risk
metric information includes: (i) VaR for interest rates, credit, foreign exchange, equities,
commodities, and total VaR; (ii) total stressed VaR; (iii) interest rate, credit spread,
foreign exchange market, and commodity sensitivities; (iv) total swaps current exposure
both before and after offsetting against collateral held by the firm; and (v) a list of the 15
largest swaps counterparty current exposures before collateral and net of collateral.276
Furthermore, the Commission recognized that although the EU Financial
Reporting Rules do not contain an analogue to the CFTC’s requirements for nonbank

Commission Regulation 23.105(k) requires a nonbank SD that has obtained approval from the
Commission or NFA to use internal capital models to submit to the Commission and NFA each month
information regarding its risk exposures, including VaR, and requires certain credit risk exposure
information from model and non-model approved firms. 17 CFR 23.105(k). Commission Regulation
23.105(l) requires each nonbank SD to provide information to the Commission and NFA regarding its
counterparty credit concentration for the 15 largest exposures in derivatives, a summary of its derivatives
exposures by internal credit ratings, and the geographic distribution of derivatives exposures for the 10
largest countries in Schedules 2, 3, and 4, respectively. 17 CFR 23.105(l).
275 2023 Proposal at 41801. As previously noted, however, the current three EU nonbank SDs will be
required to include credit risk information set forth in Schedules 2-4 of appendix B to Subpart E in the
monthly FOCUS Report that the firms will be required to file with the Commission under Condition 11 of
the final Comparability Order. In addition, as previously noted, each EU nonbank SD will be required to
file Schedule 1 under Condition 13 of the final Comparability Determination.
See 2023 Proposal at 41801 and NFA Financial Requirements, section 17 – Swap Dealer and Major
Swap Participant Reporting Requirements (“NFA section 17 Rule”), available here:
https://www.nfa.futures.org/rulebooksql/rules.aspx?RuleID=SECTION%2017&Section=7, and Notice to
Members – Monthly Risk Data Reporting for Swap Dealers (May 30, 2017) (“NFA Notice I-17-10”),
available here: https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4817.
SDs to file monthly model metric information and counterparty exposures information,
the competent authorities have access to comparable information. More specifically, the
Commission noted that, under the EU Financial Reporting Rules, the competent
authorities have broad powers to request any information necessary for the exercise of
their functions.277 As such, the competent authorities would have access to information
allowing them to assess the ongoing performance of risk models and to monitor the EU
nonbank SD’s credit exposures, which may be comprised of credit exposures to primarily
other EU counterparties. In addition, the COREP reports, which EU nonbank SDs are
required to file with the competent authority on a quarterly basis, include information
regarding the EU nonbank SD’s risk exposure amounts, including risk-weighted exposure
amounts for credit risk.278
2. Comment Analysis and Final Determination
The Commission received comments regarding the comparability of financial
reporting and specific comments addressing several of the financial reporting issues on
which the Commission solicited feedback. Better Markets expressed a general
disagreement with the Commission’s preliminary finding of comparability, arguing that
the number and variety of conditions regarding financial reporting are the most
compelling evidence that the requirements are not comparable.279 More generally, Better
Markets asserted that the 2023 Proposal did not provide a sufficient analysis supporting
the Commission’s preliminary conclusion that the EU and the U.S. financial reporting
frameworks would produce comparable outcomes.280

See 2023 Proposal at 41801 and CRD, Article 65(3), French MFC, Article L.612-24, and SSM
Regulation, Article 10 (indicating that competent authorities have broad information gathering powers).
278

See 2023 Proposal at 41801 and CRR Reporting ITS, Annex I.

Better Markets Letter at p. 12.

Id. at p. 9.

Better Markets also noted that the proposed comparability determination was
conditioned on an EU nonbank SD submitting a statement by an authorized
representative that to the best knowledge and belief of the person the information
contained in reports submitted to the Commission is true and correct, in lieu of the oath
or affirmation required by Commission Regulation 23.105(f).281 Better Markets stated
that there are material legal differences between a statement and the oath or affirmation
required by the CFTC Financial Reporting Rules and argued that the Commission failed
“to address, explain, or explore this explicit and significant difference.”282
Better Markets also disagreed with the 2023 Proposal to the extent that the
Commission proposed not to require EU nonbank SDs that have been approved by the
relevant competent authority to use capital models to file the monthly model metric
information required by Commission Regulation 23.105(k) with the Commission or
NFA.283 Commission Regulation 23.105(k) requires nonbank SDs that have been
approved by the Commission or NFA to use models to compute market risk or credit risk
for computing capital requirements to file certain information with the Commission and
NFA on a monthly basis.284 As noted above, the information required to be filed
includes: (i) for nonbank SDs approved to use market risk models, a listing of any
products that the nonbank SD excludes from the approved market risk model and the
amount of the standardized market risk charge taken on such products; (ii) a graph
reflecting, for each business line of the nonbank SD, the daily intra-month VaR; (iii) the
aggregate VaR for the nonbank SD; (iv) certain credit risk information for swaps, mixed
swaps and security-based swaps, including: (a) overall current exposure, (b) current
exposure listed by counterparty for the 15 largest exposures, (c) the 10 largest
Id. at p. 12.

Id.

Id. at p. 12.

17 CFR 23.105(k).

commitments listed by counterparty, (d) maximum potential exposure listed by
counterparty for the 15 largest exposures, (e) aggregate maximum potential exposure, (f)
a summary report reflecting the SD’s current and maximum potential exposures by credit
rating category, and (g) a summary report reflecting current exposure for each of the top
ten countries to which the nonbank SD is exposed.285 Better Markets stated that by not
requiring the information contained in Commission Regulation 23.105(k), the
Commission was proposing to “take a back seat to the EU and blindly accept the
assessments resulting from [the EU nonbank SDs’] use of internal models to calculate
risk.”286
With respect to Better Markets’ statement that the number and variety of
conditions regarding financial reporting are the most compelling evidence that the
requirements are not comparable, the Commission disagrees that the inclusion of
conditions in the Comparability Order demonstrates that the EU Financial Reporting
Requirement are not comparable to CFTC Financial Reporting Requirements in
achieving the overall objective of ensuring the safety and soundness of nonbank SDs. As
discussed in section I.E. above, the conditions impose obligations on EU nonbank SDs to
provide information to the Commission and NFA necessary for the effective oversight of
the EU nonbank SDs on an ongoing basis. As also discussed in section I.E. above,
Commission staff engaged in a thorough analysis of the EU Capital Rules and EU
Financial Reporting Rules, which supports the Commission’s conclusion that the
respective regulatory frameworks would produce comparable outcomes.
The Commission also does not agree that its approach is effectively deferring
model oversight to the EU authorities or that it is otherwise “blindly accept[ing]” the
internal model-based assessments of the EU nonbank SDs. As noted above, pursuant to

17 CFR 23.105(k)(1).

Better Markets Letter at pp. 12-13.

NFA rules, all registered SDs, including EU nonbank SDs, are required to submit to
NFA, on a monthly basis, a list of specified risk metrics related to the SD’s market risk
and credit risk exposures.287 Specifically, as discussed in section II.D.1. above, the risk
metrics include: (i) VaR for interest rates, credit, foreign exchange, equities,
commodities, and total VaR; (ii) total stressed VaR; (iii) interest rate, credit spread,
foreign exchange market, and commodity sensitivities; (iv) total swaps current exposure
both before and after offsetting against collateral held by the firm; and (v) a list of the 15
largest swaps counterparty current exposures.288 As part of its regulatory oversight
program, NFA uses the risk metrics information to identify firms that may pose
heightened risk and to allocate appropriate oversight resources. NFA also may request
additional information from a nonbank SD to the extent it determines that information in
the risk metrics or other financial filings warrants a need for additional follow-up.
Furthermore, Commission staff has access to the collected risks metrics information and
participates in NFA’s risk monitoring function by regularly exchanging information and
discussing potential risks with NFA staff.
As the list of specified risk metrics discussed above indicates, although the
information collected by NFA is not identical to the information required under
Commission Regulation 23.105(k), there is a significant overlap in the data items. The
Commission also notes that NFA, in its role of primary supervisor of nonbank SDs’ risk
management practices, has identified the risk data items listed in NFA Notice I-17-10 as
the most relevant risk metrics to be collected for oversight purposes. As such, the
Commission finds that the information required pursuant to NFA Notice I-17-10 would
provide the Commission and NFA with key data allowing them to monitor nonbank SDs’

NFA section 17 Rule, available here:
https://www.nfa.futures.org/rulebooksql/rules.aspx?RuleID=SECTION%2017&Section=7, and NFA
Notice I-17-10, available here: https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4817.
288

See 2023 Proposal at 41801, NFA section 17 Rule, and NFA Notice I-17-10.

risk exposures. In addition, the Commission has the ability to request additional
information from its registrants, including EU nonbank SDs, at any time. Finally, the
Commission notes that the relevant competent authorities, which will be conducting the
initial approval and ongoing assessment of the performance of the EU nonbank SDs’
internal models, under a regulatory framework that the Commission finds comparable to
the CFTC Capital Rules, will have access to additional information that the competent
authorities deem relevant in the conduct of such approval and assessment. The
Commission, therefore, concludes that it is not necessary to require EU nonbank SDs
relying on the final Comparability Order to submit the model metric information and
credit risk information mandated by Commission Regulations 23.105(k) and (l).
The Commission also disagrees with Better Markets’ assertion that there is a
significant difference between the proposed condition that an EU nonbank SD provides a
“statement” from an authorized representative and the CFTC’s requirement for nonbank
SDs to provide an “oath or affirmation” from an authorized representative with regard to
the accuracy of the financial reporting’s content. For completeness, the Commission
notes that the proposed condition requires that an authorized representative of the EU
nonbank SD provide a statement that, to the best of the knowledge and belief of the
representative, the information contained in the financial reports filed with the
Commission and NFA is true and correct, including the applicable translation of the
reports to the English language and the conversion of balances to U.S. dollars. The
proposed condition was based on current Commission Regulation 23.105(f), which
provides that a nonbank SD must attach to each unaudited and annual audited financial
report filed with the Commission and NFA an oath or affirmation that to the best
knowledge and belief of the individual making the oath or affirmation the information in
the financial reports is true and correct. Similar to the intent of Commission Regulation
23.105(f), the purpose of the proposed condition is to obtain a formal attestation from a

representative with the appropriate knowledge and authority that the information
provided in the requisite financial reports is accurate and properly translated. The
Commission’s choice of language in using the term “statement” was not intended to
make a legal distinction between this term and the terms “oath” or “affirmation,” but
rather, to select a generic term that is universally understood across jurisdictions to reflect
the above-referenced purpose. In practice, the Commission does not believe that there is
a material legal difference between the language of the proposed condition and the
required oath or affirmation required under Commission Regulation 23.105(f). Instead,
the Commission is of the view that the proposed condition would have the same legal
effect as Commission Regulation 23.105(f) of providing the Commission with a stronger
basis to take legal action if an EU nonbank SD files erroneous information.
Finally, the Applicants addressed the Commission’s request for comment on the
compliance dates for the reporting conditions that the proposed Comparability Order
would impose on EU nonbank SDs.289 The Applicants requested that the Commission set
the compliance date at least six months following the issue date of the final
Comparability Order to allow EU nonbank SDs to adequately prepare for compliance
with the reporting conditions imposed by the Comparability Order.290
The Commission believes that granting an additional period of time to allow EU
nonbank SDs to develop and implement the necessary systems and processes for
compliance with the Comparability Order is appropriate with respect to the new reporting
obligations imposed on EU nonbank SDs under the final Order. For other reporting
obligations, for which a process already exists, such as the reports that EU nonbank SDs
currently submit to the Commission and NFA pursuant to CFTC Staff Letter 22-10,291
Applicants’ Letter at p. 6.

Id.

CFTC Staff Letter No. 22-10, Extension of Time-Limited No-Action Position for Foreign Based
Nonbank Swap Dealers domiciled in Japan, Mexico, the United Kingdom, and the European Union, issued
prepare pursuant to the EU Financial Reporting Rules, and/or submit to the SEC (i.e.,
FOCUS Reports), additional time for compliance does not appear necessary.
Accordingly, the Commission is setting a compliance date of 180 calendar days from the
date of publication of the final Comparability Order in the Federal Register for EU
nonbank SDs to comply with final Condition 15, which requires the firms to file monthly
Margin Reports with the Commission and NFA.
For purposes of clarity, the Commission also notes that EU nonbank SDs may
present the financial information required to be provided to the Commission and NFA
under the final Comparability Order in accordance with generally accepted accounting
principles that the EU nonbank SD uses to prepare general purpose financial statements
in its EU Member State. This clarification is consistent with proposed Condition 10,
which the Commission adopts subject to a minor modification in the final Comparability
Order, requiring an EU nonbank SD to prepare and keep current ledgers and other similar
records “in accordance with accounting principles permitted by the relevant competent
authority.”292 In taking the position that EU nonbank SDs may provide financial
reporting prepared in accordance with the accounting standards applicable in their home
jurisdiction, the Commission considered the nature of the financial reporting information
required from nonbank SDs for purposes of monitoring their overall financial condition
and compliance with capital requirements. Specifically, the Commission notes that the

by MPD on August 17, 2022. CFTC Staff Letter No. 22-10, which extended the expiration of CFTC Letter
21-20, provides that MPD would not recommend an enforcement action to the Commission if a non-U.S.
nonbank SD covered by the letter, subject to certain conditions, complied with their respective homecountry capital and financial reporting requirements in lieu of the Commission’s capital and financial
reporting requirements set forth in Commission Regulations 23.100 through 23.106, pending the
Commission’s determination of whether the capital and financial reporting requirements of certain foreign
jurisdictions are comparable to the Commission’s corresponding requirements.
2023 Proposal at 48808. Proposed Condition 10 stated that EU nonbank SDs must prepare and keep
current ledgers and other similar records “in accordance with accounting principles required by the relevant
competent authority”. To promote consistency across the Comparability Determinations the Commission is
adopting with respect to several other jurisdictions and to reflect the fact that certain jurisdictions may not
issue a formal approval of the accounting standards used by nonbank SDs, the Commission is replacing the
adjective “required” with the adjective “permitted” in the reference to the accounting standards to be used
by EU nonbank SDs.
requirements for how nonbank SDs calculate their risk-weighted assets and capital ratio,
in both the EU and the U.S., follow a rules-based approach consistent with the Basel
standards, and, consequently, the Commission does not anticipate that a variation in the
applicable accounting standards would materially impact this calculation.293 In this
regard, the Commission notes that EU nonbank SDs currently submit financial reports,
including a statement of financial condition and a statement of regulatory capital,
pursuant to CFTC Staff Letter 22-10.294 The reports provide the Commission with
appropriate information to assess the financial and operational condition of EU nonbank
SDs, as well as the firms’ compliance with the capital ratios imposed on EU nonbank
SDs under the EU Capital Rules.
In summary, the Commission adopts the final Comparability Order and conditions
substantially as proposed with respect to the comparability of the CFTC Financial
Reporting Rules and EU Financial Reporting Requirements, subject to the amendment in
Condition 10 to use the word “permitted” in reference to the applicable accounting
standards and the amendment in Condition 11 to mandate the filing by EU nonbank SDs
registered as EU nonbank SBSDs of a copy of the FOCUS Report that such duallyregistered EU nonbank SDs are required to file with the SEC. The Commission also

Furthermore, the Commission’s approach to permitting EU nonbank SDs to maintain financial books
and records, and to file financial reports and other financial information, prepared in accordance with local
accounting standards is consistent with the SEC’s final comparability determinations for non-U.S. SBSDs.
German Order at 59812 and SEC Order on Manner and Format of Filing Unaudited Financial and
Operational Information at 59219. Specifically, the SEC stated that the use of local reporting requirements
will avoid non-U.S. SBSDs “having to perform and present two Basel capital calculations (one pursuant to
local requirements and one pursuant to U.S. requirements).” SEC Order on Manner and Format of Filing
Unaudited Financial and Operational Information at 59219. The SEC noted, in this regard, that the Basel
standards are international standards that have been adopted in the U.S. and in jurisdictions where
substituted compliance is available for capital under the SEC comparability determinations and that,
therefore, requirements for how firms calculate capital pursuant to the Basel standards generally should be
similar. Id. The Commission’s approach to permitting EU nonbank SDs to maintain financial books and
records, and file financial information, prepared in accordance with local accounting standards will also
facilitate financial reporting by dually-registered EU nonbank SDs-EU nonbank SBSDs. In such case,
dually-registered entities would not have to perform multiple calculations under different accounting
standards or submit two different FOCUS Reports.
CFTC Staff Letter No. 22-10, Extension of Time-Limited No-Action Position for Foreign Based
Nonbank Swap Dealers domiciled in Japan, Mexico, the United Kingdom, and the European Union,
August 17, 2022.
specifies, in final Conditions 11, 13, and 15, that the conversion of balances to U.S.
dollars must be done using a commercially reasonable and observable euro/U.S. dollar
spot rate as of the date of the respective report. Finally, the Commission also grants an
additional compliance period for the new reporting obligations imposed on EU nonbank
SDs under the final Order set forth below.
E. Notice Requirements
1. Proposed Determination
The Commission noted in the 2023 Proposal that the CFTC Financial Reporting
Rules require nonbank SDs to provide the Commission and NFA with written notice of
certain defined events.295 Commission Regulation 23.105(c) requires a nonbank SD to
file written notice with the Commission and NFA of the following events: (i) the
nonbank SD’s regulatory capital is less than the minimum amount required; (ii) the
nonbank SD’s regulatory capital is less than 120 percent of the minimum amount
required; (iii) the nonbank SD fails to make or to keep current required financial books
and records; (iv) the nonbank SD experiences a reduction in the level of its excess
regulatory capital of 30 percent or more from the amount last reported in a financial
report filed with the Commission; (v) the nonbank SD plans to distribute capital to equity
holders in an amount in excess of 30 percent of the firm’s excess regulatory capital; (vi)
the nonbank SD fails to post to, or collect from, a counterparty (or group of
counterparties under common ownership or control) required initial and variation margin,
and the aggregate amount of such margin equals or exceeds 25 percent of the nonbank
SD’s minimum capital requirement; (vii) the nonbank SD fails to post to, or collect from,
swap counterparties required initial and variation margin, and the aggregate amount of
such margin equals or exceeds 50 percent of the nonbank SD’s minimum capital

2023 Proposal at 41802 and 17 CFR 23.105(c).

requirement; and (viii) the nonbank SD is registered with the SEC as an SBSD and files a
notice with the SEC under applicable SEC Rules.296
The notices are part of the Commission’s overall program of helping to ensure the
safety and soundness of nonbank SDs and the swaps markets in general.297 Notices
provide the Commission and NFA with an opportunity to assess whether the occurrence
of a notice event indicates the existence of actual or potential financial and/or operational
issues at a nonbank SD, and, when necessary, allows the Commission and NFA to engage
with the nonbank SD in an effort to minimize potential adverse impacts on swap
counterparties and the larger swaps market.298
The EU capital and resolution framework, in turn, requires EU nonbank SDs to
provide certain notices to their respective competent authorities concerning the firm’s
compliance with relevant laws and regulations.299 Specifically, the Commission noted
that the EU Financial Reporting Rules require an EU nonbank SD to provide notice
within five business days to its relevant competent authority300 if the firm fails to meet its
combined capital buffer requirement, which at a minimum consists of a capital
conservation buffer of 2.5 percent of the EU nonbank SD’s total risk exposure amount.301
To meet its capital buffer requirements, an EU nonbank SDs must hold common equity

17 CFR 23.105(c).

Id.

See 2023 Proposal at 41802.

Id.

See 2023 Proposal at 41802. As further discussed in section II.F.1. below, the relevant prudential
competent authority may either be the national competent authority with jurisdiction to oversee compliance
with the EU Capital Rules and the EU Financial Reporting Rules or, for EU nonbank SDs that are
authorized as credit institutions and qualify as “significant supervised entities,” the ECB. See generally
SSM Regulation and SSM Framework Regulation.
2023 Proposal at 41802 and CRD, Article 142; French MFC, Article L.511– 41–1–A; French Ministerial
Order on Capital Buffers, Articles 61 to 64; and German KWG, sections 10i(2) to (9). The combined
capital buffer requirement is the total common equity tier 1 capital required to meet the requirement for the
capital conservation buffer required by Article 129 of CRD, extended to include, as applicable, an
institution-specific countercyclical buffer required by Article 130 of CRD, a G–SII buffer required by
Article 131(4) of CRD, an O–SII buffer required by Article 131(5) of CRD, and a systemic risk buffer
required by Article 133 of CRD. CRD, Article 128.
tier 1 capital in addition to the minimum common equity tier 1 ratio requirement of 4.5
percent of the firm’s core capital requirement of 8 percent of the firm’s total risk
exposure amount.302 The notice to the competent authority must be accompanied by a
capital conservation plan that sets out how the EU nonbank SD will restore its capital
levels.303 The capital conservation plan is required to include: (i) estimates of income
and expenditures and a forecast balance sheet; (ii) measures to increase the capital ratios
of the EU nonbank SD; (iii) a plan and timeframe for the increase in the capital of the EU
nonbank SD with the objective of meeting fully the combined buffer requirement; and
(iv) any other information that the competent authority considers to be necessary to
assess the capital conservation plan.304 The relevant competent authority is required to
assess the capital conservation plan, and may approve the plan only if it considers that the
plan would be reasonably likely to conserve or raise sufficient capital to enable the EU
nonbank SD to meet its combined capital buffer requirement within a timeframe that the
competent authority considers to be appropriate.305 If the relevant competent authority
does not approve the capital conservation plan, the competent authority may impose
requirements for the EU nonbank SD to increase its capital to specified levels within a
specified time or the competent authority may impose more restrictions on
distributions.306 In addition, an EU nonbank SD must immediately notify its relevant

Id. The EU Financial Reporting Rules effectively require an EU nonbank SD to provide notice if the
firm’s capital ratio of common equity tier 1 capital to risk-weighted assets falls below 7 percent (assuming
that the only capital buffer the EU nonbank SD is subject to is the capital conservation buffer of 2.5
percent).
2023 Proposal at 41802 and CRD, Article 142(1); French Ministerial Order on Capital Buffers, Article
61; German KWG, section 10i(6). The competent authority may extend the filing deadline, and require the
EU nonbank SD to file the capital conservation plan within 10 days of the firm identifying that it failed to
meet the applicable capital buffer requirements.
2023 Proposal at 41802 and CRD, Article 142(2); French Ministerial Order on Capital Buffers, Article
62; German KWG, section 10i(6).
2023 Proposal at 41802 and CRD, Article 142(3); French MFC, Article L.511– 41–1–1; French
Ministerial Order on Capital Buffers, Article 63; German KWG, section 10i(7).
2023 Proposal at 41802 and CRD, Article 142(4); French MFC, Article L.511– 41–1–A; French
Ministerial Order on Capital Buffers, Article 64 and French Ministerial Order on Distribution Restrictions,
Articles 2 to 9; German KWG, section 10i(8).
resolution authority in situations where the firm meets the combined capital buffer
requirement, but fails to meet the combined buffer requirement when considered in
addition to the applicable MREL requirements.307 The EU nonbank SD must also notify
the relevant resolution authority if it considers the firm to be failing or likely to fail.308
Furthermore, if an EU nonbank SD breaches its liquidity or MREL requirements,
the EU authorities possess wide-ranging tools to deal with the firm’s financial
deterioration. Specifically, the competent authority may impose administrative penalties
or other administrative measures, including prudential capital charges, if an EU nonbank
SD’s liquidity position repeatedly or persistently falls below the liquidity and stable
funding requirements established at the national or EU level.
Emphasizing that the requirement for a nonbank SD to file notice with the
Commission and NFA if the firm becomes undercapitalized or if the firm experiences a
decrease of excess regulatory capital below defined levels is a central component of the
Commission’s and NFA’s oversight program for nonbank SDs, the Commission
proposed a condition to require EU nonbank SDs to file with the Commission and NFA
copies of notices filed under Article 142 of CRD by EU nonbank SDs alerting competent
authorities of a breach of the EU nonbank SD’s combined capital buffer.309 The
Commission proposed to require that the notice be filed by the EU nonbank SD within 24
hours of the filing of the notice with the relevant competent authority.
The Commission, however, preliminarily determined that the requirement for an
EU nonbank SD to provide notice of a breach of its capital buffer requirements to its
competent authority is not sufficiently comparable in purpose and effect to the CFTC

2023 Proposal at 41802-41803 and BRRD, Article 16a; French MFC, Article L.613–56 III and French
Ministerial Order on Distribution Restrictions, Articles 7 and 8; German SAG, Article 58a.
2023 Proposal at 41803 and BRRD, Article 81(1); French MFC, Article L.613–49; German SAG,
section 138(1).
309

See 2023 Proposal at 41803.

notice provisions contained in Commission Regulation 23.105(c)(1) and (2),310 which
require a nonbank SD to provide notice to the Commission and to NFA if the firm fails to
meet its minimum capital requirement or if the firm’s regulatory capital falls below 120
percent of its minimum capital requirement (“Early Warning Level”).311 The
Commission noted that, in its preliminary view, the requirement for an EU nonbank SD
to provide notice of a breach of its capital buffer requirements does not achieve a
comparable outcome to the CFTC’s Early Warning Level requirement due to the
difference in the thresholds triggering a notice requirement in the respective rule sets.312
Therefore, the Commission proposed a condition to require an EU nonbank SD to file a
notice with the Commission and NFA if the firm’s capital ratio does not equal or exceed
12.6 percent.313 The proposed condition would further require the EU nonbank SD to file
the notice with the Commission and NFA within 24 hours of when the firm knows or
should have known that its regulatory capital was below 120 percent of its minimum
capital requirement.314
The Commission also noted that the EU Financial Reporting Rules also do not
contain an explicit requirement for an EU nonbank SD to notify its competent authority if
the firm fails to maintain current books and records, experiences a decrease in regulatory
capital over levels previously reported, or fails to collect or post initial margin with
uncleared swap counterparties that exceed certain threshold levels.315 The EU Financial
Reporting Rules also do not require an EU nonbank SD to provide the competent

17 CFR 23.105(c)(1) and (2).

See 2023 Proposal at 41803.

Id.

Id. at 41803-41804.

Id. at 41804.

Id.

authority with advance notice of capital withdrawals initiated by equity holders that
exceed defined amounts or percentages of the firm’s excess regulatory capital.316
To ensure that the Commission and NFA receive prompt information concerning
potential operational or financial issues that may adversely impact the safety and
soundness of an EU nonbank SD, the Commission proposed to condition the
Comparability Order to require EU nonbank SDs to file certain notices mandated by
Commission Regulation 23.105(c) with the Commission and NFA as discussed below.
Pursuant to the proposed conditions, an EU nonbank SD would be required to file a
notice with the Commission and NFA if the firm fails to maintain current books and
records with respect to its financial condition and financial reporting requirements.317
The Commission stated that, in this context, books and records would include current
ledgers or other similar records which show or summarize, with appropriate references to
supporting documents, each transaction affecting the EU nonbank SD’s asset, liability,
income, expense, and capital accounts in accordance with the accounting principles
accepted by the relevant competent authorities.318 The Commission further stated that it
preliminarily believed that the maintenance of current books and records is a fundamental
and essential component of operating as a registered nonbank SD and that the failure to
comply with such a requirement may indicate an inability of the firm to promptly and
accurately record transactions and to ensure compliance with regulatory requirements,
including regulatory capital requirements. As such, the Commission proposed to
condition the proposed Order on an EU nonbank SD providing the Commission and NFA
with a written notice within 24 hours if the firm fails to maintain books and records on a
current basis.319
Id.

Id.

Id.

Id.

The Commission further proposed to condition the Comparability Order on an EU
nonbank SD filing a notice with the Commission and NFA if: (i) a single counterparty,
or group of counterparties under common ownership or control, fails to post required
initial margin or pay required variation margin on uncleared swap and security-based
swap positions that, in the aggregate, exceeds 25 percent of the EU nonbank SD’s
minimum capital requirement; (ii) counterparties fail to post required initial margin or
pay required variation margin to the EU nonbank SD for uncleared swap and securitybased swap positions that, in the aggregate, exceeds 50 percent of the EU nonbank SD’s
minimum capital requirement; (iii) an EU nonbank SD fails to post required initial
margin or pay required variation margin for uncleared swap and security-based swap
positions to a single counterparty or group of counterparties under common ownership
and control that, in the aggregate, exceeds 25 percent of the EU nonbank SD’s minimum
capital requirement; and (iv) an EU nonbank SD fails to post required initial margin or
pay required variation margin to counterparties for uncleared swap and security-based
swap positions that, in the aggregate, exceeds 50 percent of the EU nonbank SD’s
minimum capital requirement. The Commission proposed to require this notice so that,
in the event that such a notice is filed, the Commission and NFA may commence
communication with the EU nonbank SD and the relevant competent authority to obtain
an understanding of the facts that have led to the failure to exchange material amounts of
initial margin and variation margin in accordance with the applicable margin rules, and to
assess whether there is a concern regarding the financial condition of the firm that may
impair its ability to meet its financial obligations to customers, counterparties, creditors,
and general market participants, or otherwise adversely impact the firm’s safety and
soundness.320

Id. at 41804-41805.

The Commission also proposed to require that an EU nonbank SD file any notices
required under the Order with the Commission and NFA in English and, where
applicable, with any balances reported in U.S. dollars. The Commission stated that each
notice required by the proposed Comparability Order had to be filed in accordance with
instructions issued by the Commission or NFA.321
The Commission did not propose to require an EU nonbank SD to file notices
with the Commission concerning withdrawals of capital or changes in capital levels as
such information would be reflected in the financial statement reporting filed with the
Commission and NFA as conditions of the order, and because the EU nonbank SD’s
capital levels are monitored by the relevant competent authority. As such, the
Commission preliminarily considered that the separate reporting of the information to the
Commission would be superfluous.322
2. Comments and Final Determination
With respect to the proposed requirements in Condition 21 that an EU nonbank
SD file a notice with the Commission and NFA within 24 hours of when the firm knew or
should have known that its regulatory capital fell below 120 percent of its minimum
capital requirement, the Applicants asserted that the wording of the proposed condition
raises practical challenges as it would require notification prior to the discovery of the
relevant event.323 The Applicants recommended that the Commission amend the
proposed condition to require notice within 24 hours of when the firm “knew” that its
regulatory capital fell below 120 percent of the minimum capital requirement.324
Similarly, with respect to proposed Condition 22, which would require an EU nonbank
SD to file a notice with the Commission and NFA within 24 hours if the firm fails to
Id.

Id. at 41805.

Applicants’ Letter at p. 5.

Id.

make or keep current the financial books and records, the Applicants recommended that
the Commission amend the condition to require that an EU nonbank SD file a notice
within 24 hours “of when it knows it has failed to make or keep current the financial
books and records.”325 In addition, with respect to proposed Condition 21, the Applicants
asserted that, pursuant to the condition, an EU nonbank SD would calculate the Early
Warning Level by applying a buffer of 20 percent in excess capital, in the form of
common equity tier 1 capital, on top of the firm’s capital conservation buffer, which, at a
minimum, equals 2.5 percent of the firm’s total risk exposure amount and must be met in
the form of common equity tier 1 capital. In the Applicants’ view, an aggregate
notification trigger of 12.6 percent of total risk exposure amount would be too high. The
Applicants recommended that the Commission set the notification trigger at 120 percent
of the minimum total capital requirement.326
The Early Warning Level notice requirement is a central component of the
Commission’s and NFA’s oversight programs. The Commission, however, recognizes
that by requiring an EU nonbank SD to provide notice if its capital ratio falls below 120
percent of the firm’s minimum capital requirement, as defined to comprise the applicable
capital buffers, the Commission would be imposing a higher threshold level for the notice
trigger than is currently applicable to nonbank SDs under the CFTC Capital Rules. To
achieve the condition’s goal of providing the Commission and NFA with information on
decreases in capital that may indicate financial or operational challenges at the firm, the
Commission is revising proposed Condition 21 to require instead that an EU nonbank SD
provide notice to the Commission if it experiences a 30 percent or more decrease in its
excess regulatory capital as compared to the last reported.327 The condition is consistent
Id.

Applicants’ Supplemental Letter at p. 2.

For clarity, by “excess regulatory capital,” the Commission refers to the capital ratio by which the firm’s
capital exceeds the core capital ratio requirement of 8 percent of the firm’s risk-weighted assets. For
with the requirement applicable to nonbank SDs under Commission Regulation
23.105(c)(4).328 The Commission believes that this condition, combined with the
condition requiring an EU nonbank SD to file with the Commission and NFA copies of
notices filed with relevant competent authorities of a breach of the EU nonbank SD’s
combined capital buffer, will provide a timely opportunity to the Commission and NFA
to initiate conversations and fact finding with an EU nonbank SD that may be
experiencing operational or financial issues that may adversely impact the firm’s ability
to meet its obligations to market participants, including customers or swap counterparties.
In connection with the Applicants’ general request that the Commission set the
compliance date of the Comparability Order at least six months following the issuance of
the final Order, the Commission believes, as stated above, that granting an additional
period of time to allow EU nonbank SDs to establish and implement the necessary
processes to comply with the notice reporting obligations imposed by the Comparability
Order is appropriate with respect to certain notice obligations. Specifically, the
Commission understands that establishing a system and process for monitoring material
decreases in excess regulatory capital as required by final Condition 21 or for monitoring
failures to collect or post initial margin or variation margin for uncleared swap
transactions that exceed specified thresholds for purposes of complying with final
Condition 23 may take time.329 Conversely, the Commission does not believe that
additional time is necessary for implementing a system and process of providing a notice

instance, if a firm maintains a capital ratio of 20 percent, its excess regulatory capital would be 12 percent.
In this example, 30 percent of the excess regulatory capital would equal 3.6 percent.
17 CFR 23.105(c)(4).

With regard to Condition 23, the Commission also notes, for clarity that, in proposing a notice condition
based on thresholds of “required” margin, the Commission’s intent was to set the notice trigger by
reference to margin amounts that are legally required to be exchanged under the applicable margin
requirements. To determine the applicable margin requirements, the Commission will consider the
framework set forth in Commission Regulation 23.160. To the extent EU nonbank SDs intending to rely
on the Comparability Order have inquiries regarding the scope of uncleared swap margin transactions to be
monitored for purposes of complying with final Condition 23, MPD will discuss such inquiries with the EU
nonbank SD during the confirmation process referenced in final Condition 9 of the Comparability Order.
to the Commission and NFA in connection with the occurrence of events that EU
nonbank SDs currently monitor and/or report to the relevant competent authority. The
Commission is also of the view that, given the nature of the notice obligation, EU
nonbank SDs should be in a position to comply with all other notice obligations,
including those requiring EU nonbanks SDs to provide notice to the Commission and
NFA if they fail to make or keep current financial books and records or if they fail to
maintain regulatory capital in the form of common equity tier 1 equal or in excess of the
U.S. dollar equivalent of $20 million, immediately upon effectiveness of the
Comparability Order. Specifically, with respect to the requirement in Condition 22 that
an EU nonbank SD notify the Commission and NFA if the firm fails to make or keep
current the financial books and records, the Commission notes that maintaining current
books and records of all financial transactions is a fundamental recordkeeping
requirement for a registered nonbank SD, and is essential to provide management with
the information necessary to ensure that transactions are timely and accurately reported
and that the firm complies with capital and other regulatory requirements. The
Commission finds that it is necessary for a nonbank SD to maintain internal controls and
procedures to affirmatively monitor that financial books and records are being maintained
on a current basis. The Commission also notes that the language of Condition 22 is
consistent with the timing standard of Commission Regulation 23.105(c)(3), while also
granting additional time for the notice to be translated into English.330 As such, the
Commission is adopting Condition 22 as proposed. The Commission, however, is setting
a compliance date of 180 calendar days after the publication of the final Comparability
Order in the Federal Register with respect to the notice reporting obligations under final
Conditions 21 and 23 of the Comparability Order.

17 CFR 23.105(c)(3).

With respect to the notice requirement in final Condition 23, the Applicants also
recommended that the Commission clarify the term “minimum capital requirement,” used
in connection with the thresholds triggering a notice requirement.331 In response, the
Commission will amend the condition to indicate that, in the context of final Condition
23, the EU nonbank SD’s “minimum capital requirement” is the core capital requirement
under the EU Capital Rules, excluding capital buffers.
Finally, the Applicants recommended that the Commission amend proposed
Condition 25 to require that an EU nonbank SDs, or an entity acting on its behalf, notify
the Commission and NFA of “material changes” to the EU Capital Rules or EU Financial
Reporting Rules instead of “proposed or final material changes” to the EU Capital Rules
or EU Financial Reporting Rules.332 Separately, the Applicants noted that the language
of proposed Condition 25 is confusing in that it differentiates between rules that are
“imposed on” and those that “apply to” EU nonbank SDs.333 The Commission did not
intend to distinguish between rules that are “imposed on” and rules that “apply to” EU
nonbank SDs and will use instead the defined terms “EU Capital Rules” and “EU
Financial Reporting Rules” to address the potential for confusion. The Commission,
however, believes that it is necessary that the Commission and NFA receive an advance
notice of potential material changes to the foreign jurisdiction’s rules to allow the
Commission a sufficient time to assess the potential impact of the proposed amendments
and to address potential changes to the Comparability Determination and Comparability
Order. As such, the Commission is adopting Condition 25 as proposed with regard to the

Applicants’ Supplemental Letter at p. 2. The Applicants indicated that, in the context of proposed
Condition 23, they understand the term “minimum capital requirement” to mean an amount equal to 8
percent of the EU nonbank SD’s total risk exposure amount.
332

Applicants’ Letter at p. 5.

Applicants’ Supplemental Letter at p. 3.

required notice of “proposed and final material changes” to the EU Capital Rules and EU
Financial Reporting Rules.
The Commission did not receive any comments with respect to the following
proposed notice conditions: (i) the EU nonbank SD files notice with the Commission and
NFA within 24 hours of being informed by the competent authority that the firm is not in
compliance with any component of the EU Capital Rules or EU Financial Reporting
Rules (proposed Condition 16); (ii) the EU nonbank SD files notice with the Commission
and NFA within 24 hours if the firm fails to maintain regulatory capital in the form of
common equity tier 1 capital, as defined in Article 26 of CRR, equal to or in excess of the
U.S. dollar equivalent of $20 million (proposed Condition 17); (iii) the EU nonbank SD
provides the Commission and NFA with notice within 24 hours of filing a capital
conservation plan (proposed Condition 18); (iv) the EU nonbank SD files notice with the
Commission and NFA within 24 hours of being required by its competent authority to
maintain additional capital or additional liquidity requirements, or to restrict its business
operations, or to comply with certain other additional requirements that the competent
authority may impose pursuant to the EU Capital Rules and the EU Financial Reporting
Rules (proposed Condition 19); (v) the EU nonbank SD files a notice with the
Commission and NFA within 24 hours if it fails to maintain its MREL (proposed
Condition 20); or (vi) the EU nonbank SD files notice of the competent authority
approving a change in the firm’s fiscal year-end date, which must be filed with the
Commission and NFA at least 15 business days prior to the effective date of the change
(proposed Condition 24).
With regard to the proposed condition requiring that the EU nonbank SD file a
notice with the Commission and NFA within 24 hours of filing a capital conservation
plan, the Commission will revise the condition to require that the notice be filed within
24 hours of when the EU nonbank SD breaches its combined capital buffer requirement

and is required to file a capital conservation plan. Thus, the Commission will help ensure
that the EU nonbank SD provides a timely notice within 24 hours of breaching its
combined capital buffer requirement instead of 24 hours of filing the capital conservation
plan, which may occur up to five business days after the breach of the combined buffer
requirement.334
In conclusion, the Commission finds that the regulatory notice provisions of the
EU Financial Reporting Rules and the CFTC Financial Reporting Rules, after
consideration of the conditions imposed in the final Comparability Order, are comparable
in purpose and effect, and achieve comparable outcomes, by providing timely notice to
the relevant competent authority, and to the Commission and NFA, of specified events at
a nonbank SD that may potentially indicate an ongoing issue with the safety and
soundness of the firm and/or its ability to meet its obligations to swap counterparties,
creditors, or other market participants without the firm becoming insolvent. As such, the
Commission adopts the final Comparability Order and conditions as proposed with
respect to the Commission’s analysis of comparability of the EU and Commission’s
nonbank SD notice reporting requirements, subject to the revisions in final Conditions 18
and 21, and the clarifying changes to final Condition 25 discussed above. The
Commission is also adopting a compliance date for certain notice reporting requirements
as discussed above in the final Comparability Order.
F. Supervision and Enforcement
1. Preliminary Determination
In the 2023 Proposal, the Commission discussed the oversight of nonbank SDs,
noting that the Commission and NFA conduct ongoing supervision of nonbank SDs to

The competent authority may also extend the filing deadline, and require the EU nonbank SD to file the
capital conservation plan within 10 days of the firm identifying that it failed to meet the applicable capital
buffer requirements. 2023 Proposal at 41802 and CRD, Article 142(1); French Ministerial Order on
Capital Buffers, Article 61; German KWG, section 10i(6).
assess their compliance with the CEA, Commission regulations, and NFA rules by
reviewing financial reports, notices, risk exposure reports, and other filings that nonbank
SDs are required to file with the Commission and NFA.335 The 2023 Proposal also noted
that the Commission and NFA also conduct periodic examinations as part of the
supervision of nonbank SDs, including routine onsite examinations of nonbank SDs’
books, records, and operations to ensure compliance with CFTC and NFA
requirements.336 In this regard, as noted in section I.E. above, section 17(p) of the CEA
requires NFA, as a registered futures association, to establish minimum capital and
financial requirements for nonbank SDs and to implement a program to audit and enforce
compliance with such requirements.337
The Commission also discussed the financial reports and notices required under
the CFTC Financial Reporting Rules, noting that the reports and notices provide the
Commission and NFA with information necessary to: ensure the nonbank SD’s
compliance with minimum capital requirements; assess the firm’s overall safety and
soundness by being able to meet its financial obligations to customers, counterparties,
creditors, and general market participants; and identify potential issues at a nonbank SD
that may impact the firm’s ability to maintain compliance with the CEA and Commission
regulations.338 As discussed in the 2023 Proposal, the Commission and NFA also have
the authority to require a nonbank SD to provide any additional financial and/or
operational information as the Commission or NFA may specify to monitor the safety
and soundness of the firm.339

2023 Proposal at 41805.

Id.

7 U.S.C. 21(p).

Id.

Commission Regulation 23.105(h) (17 CFR 23.105(h)). See also, 2023 Proposal at 41805.

The Commission further noted that it has authority to take disciplinary actions
against a nonbank SD for failing to comply with the CEA and Commission regulations.
In this regard, section 4b-1(a) of the CEA provides the Commission with exclusive
authority to enforce the capital requirements imposed on nonbank SDs adopted under
section 4s(e) of the CEA.340
With respect to EU nonbank SDs, the Commission noted in the 2023 Proposal
that oversight of the firm’s compliance with the EU Capital Rules and the EU Financial
Reporting Rules is conducted by the ECB and the relevant national competent authorities
in EU Member States.341 EU nonbank SDs that are registered as credit institutions and
that qualify as “significant supervised entities” fall under the direct authority of the ECB
and are supervised within the Single Supervisory Mechanism, or SSM.342 Within the
SSM, the ECB supervises firms for compliance with the EU Capital Rules and the EU
Financial Reporting Rules through joint supervisory teams (“JSTs”), comprised of ECB
staff and staff of the relevant national competent authorities.343 EU nonbank SDs that are
registered as credit institutions and that qualify as “less significant supervised entities,”344
or EU nonbank SDs registered as investment firms that remain subject to the CRR/CRD
framework regime, fall under the direct authority of the applicable national competent
authorities. The ECB and the French Autorité de Contrôle Prudentiel et de Resolution

7 U.S.C. 6s(e).

2023 Proposal at 41805-41807.

See generally SSM Regulation and SSM Framework Regulation. The criteria for determining whether
credit institutions are considered “significant supervised entities” include size, economic importance for the
specific EU Member State or the EU economy, significance of cross-border activities, and request for or
receipt of direct public financial assistance. SSM Regulation, Article 6 and SSM Framework Regulation,
Articles 39–44 and 50–62, and discussion of the SSM in section II.C. above.
343

SSM Framework Regulation, Article 3.

SSM Regulation, Article 6. Entities that qualify as “less significant supervised entities” are supervised
by their national competent authorities in close cooperation with the ECB. With respect to the prudential
supervision of these entities, the ECB has the power to issue regulations, guidelines or general instructions
to the national competent authorities. SSM Regulation, Article 6(5)(a). At any time, the ECB can also
decide to directly supervise any one of these less significant supervised entities to ensure that high
supervisory standards are applied consistently. SSM Regulation, Article 6(5)(b).
(“ACPR”) have supervision, audit, and investigation powers with respect to four EU
nonbank SDs currently registered with the Commission.345 The ECB’s and ACPR’s
authorities include the power to require EU nonbank SDs to: (i) provide necessary
information for the authorities to carry out their supervisory tasks;346 (ii) examine the
books and records of EU nonbank SDs; (iii) obtain written and oral explanations from the
EU nonbank SD’s management, staff, and other persons;347 and (iv) conduct necessary
inspections at the business premises of EU nonbank SDs and other group entities.348 The
competent authorities also monitor the capital adequacy of EU nonbank SDs through
supervisory measures on an ongoing basis. The monitoring includes assessing the notices
and the capital conservation plan discussed in section II.E.1. above.
In addition to the tools described in section II.E.1., the relevant competent
authorities are also empowered with a variety of measures to address an EU nonbank
SD’s financial deterioration. Specifically, if an EU nonbank SD fails to meet its capital
or liquidity thresholds, or if the competent authority has evidence that the EU nonbank

Three of the four EU nonbank SDs currently registered with the Commission (BofA Securities Europe
S.A.; Citigroup Global Markets Europe AG; and Morgan Stanley Europe SE) are registered as credit
institutions and qualify as “significant supervised entities” subject to the direct supervision of the ECB.
One entity (Goldman Sachs Paris) is registered as an investment firm and subject to direct supervision by
the French ACPR. Anticipating that Goldman Sachs Paris would continue to apply the CRR/CRD capital
and financial reporting framework regime but become categorized as a “less significant supervised entity”
that would remain under ACPR oversight, Commission staff reviewed the French law provisions granting
supervisory and enforcement powers to the ACPR. As noted above, on March 31, 2024, Goldman Sachs
Paris became subject to a different capital and financial reporting framework. Although the analysis
included in this Comparability Determination no longer applies to Goldman Sachs Paris, the Commission is
retaining the description of the ACPR’s supervisory regime and powers in the final Comparability
Determination to facilitate the analysis of potential future applications for substituted compliance that may
involve entities subject to direct supervision by the ACPR. Accordingly, this section describes the
supervisory powers of the ECB and the French ACPR and refers to provisions establishing those powers.
For the avoidance of doubt, if a future EU nonbank SD applicant that is subject to supervision by a national
competent authority in an EU Member State other than France, seeks substituted compliance for some or all
of the CFTC Capital Rules and CFTC Financial Reporting Rules, the EU nonbank SD applicant must
submit an application to the Commission in accordance with Commission Regulation 23.106 (17 CFR
23.106) and provide, among other information, a description of the ability of the relevant EU Member State
regulatory authority to supervise and enforce compliance with the relevant EU Member State’s capital
adequacy and financial reporting requirements.
346

CRD, Article 65(3)(a); French MFC, Article L.612–24; and SSM Regulation, Article 10.

CRD, Article 65(3)(b); French MFC, Article L.612–24; and SSM Regulation, Article 11.

CRD, Article 65(3)(c); French MFC, Articles L.612–23 and L.612–26; and SSM Regulation, Article 12.

SD is likely to breach its capital or liquidity thresholds in the next 12 months, the
competent authority may order an EU nonbank SD to comply with additional
requirements, including: (i) maintaining additional capital in excess of the minimum
requirements, if certain conditions are met; (ii) requiring that the EU nonbank SD submit
a plan to restore compliance with applicable capital or liquidity thresholds; (iii) imposing
restrictions on the business or operations of the EU nonbank SD; (iv) imposing
restrictions or prohibitions on distributions or interest payments to shareholders or
holders of additional tier 1 capital instruments; (v) requiring additional or more frequent
reporting requirements; and (vi) imposing additional specific liquidity requirements.349
The competent authority may also withdraw an EU nonbank SD’s authorization if the
firm no longer meets its minimum capital requirements.350 Although the relevant
competent authorities generally have broad discretion as to what powers they may
exercise, the EU Capital Rules and the EU Financial Reporting Rules specifically
mandate that the competent authorities require EU nonbank SDs to hold increased capital
when: (i) risks or elements of risks are not covered by the capital requirements imposed
by the EU Capital Rules; (ii) the EU nonbank SD lacks robust governance arrangements,
appropriate resolution and recovery plans, processes to manage large exposures or
effective processes to maintain on an ongoing basis the amounts, types, and distribution
of capital needed to cover the nature and level of risks to which it might be exposed and it
is unlikely that other supervisory measures would be sufficient to ensure that those
requirements can be met within an appropriate timeframe; (iii) the EU nonbank SD
repeatedly fails to establish or maintain an adequate level of additional capital to cover
the guidance communicated by the relevant competent authorities; or (iv) other entity-

CRD, Articles 102(1) and 104(1); French MFC, Articles L.511–41–3 and L.612–31 to L.612–33; SSM
Regulation, Article 16.
CRD Article 18; MiFID, Article 8c; French MFC, Articles L.532–6 and L.612–40; SSM Regulation,
Article 14.
specific situations deemed by the relevant competent authority to raise material
supervisory concerns.351
The national competent authorities can also issue administrative penalties and
other administrative measures if an EU nonbank SD (or its management) does not fully
comply with its reporting requirements.352 These penalties and measures include: (i)
public statements identifying a firm or one or more of its managers as responsible for the
breach; (ii) cease-and-desist orders; (iii) temporary bans against a member of the firm’s
management body or other manager; (iv) administrative monetary penalties against the
firm of up to 10 percent of the total annual net turnover of the preceding year; (v)
administrative monetary penalties of up to twice the amount of the profits gained or
losses avoided because of the breach; or (vi) withdrawal of the firm’s authorization.353
The ECB has the same powers to impose administrative monetary penalties for
breaches of directly applicable EU laws and regulations.354 In addition, the ECB can
instruct the national competent authorities to open proceedings that may lead to the
imposition of non-monetary penalties for breaches of directly applicable EU law and
regulations, monetary and non-monetary penalties for breaches of EU Member State laws
implementing relevant directives, and monetary and non-monetary penalties against
natural persons for breaches of relevant EU laws and regulations.355

CRD, Article 104 and 104a; French MFC, Article L.511–41–3; German KWG, section 6c(1); and SSM
Regulation, Articles 9 (indicating that the ECB shall have all the powers and obligations that national
authorities have under EU law, unless otherwise provided in the SSM Regulation, and that the ECB may
require, by way of instructions, that national competent authorities make use of their powers, where the
SSM Regulation does not confer such powers to the ECB) and 16 (describing ECB’s supervisory powers,
including the power to require entities subject to its authority to hold capital in excess of the capital
requirements imposed by relevant EU law).
352 CRD, Articles 65, 67(1)(e) to (i) and 67(2); French MFC, Article L.612–39 and L.612–40; German
KWG, sections 56(6) and (7), 60b(1) and (3).
353

Id.

SSM Regulation, Article 18.

SSM Regulation, Article 9.

Based on its review of the Application and its analysis of the relevant laws and
regulations, the Commission preliminarily found that the competent authorities have the
necessary powers to supervise, investigate, and discipline EU nonbank SDs for
compliance with the applicable capital and financial reporting requirements, and to detect
and deter violations of, and ensure compliance with, the applicable capital and financial
reporting requirements in the EU.356 Furthermore, the Commission noted that it retains
supervision, examination, and enforcement authority over EU nonbank SDs that are
covered by the Comparability Order.357 Specifically, the Commission noted that a nonU.S. nonbank SD that operates under substituted compliance remains subject to the
Commission’s examination authority and may be subject to a Commission enforcement
action if the firm fails to comply with a foreign jurisdiction’s capital adequacy or
financial reporting requirements.358 The ability of the Commission to exercise its
enforcement authority over an EU nonbank SD is not conditioned upon a finding by the
competent authority of a violation of the EU Capital Rules or EU Financial Reporting
Rules. In addition, as each EU nonbank SD is a member of NFA, the firm is subject to
NFA membership rules, examination authority, and disciplinary process.359
2. Comment Analysis and Final Determination
The Commission did not receive comments directly related to its analysis set forth
in the proposed Comparability Determination and Comparability Order, or on its
preliminary determination that the EU competent authorities have the necessary powers
to supervise, investigate, and discipline EU nonbank SDs for non-compliance with the
applicable EU capital and financial reporting requirements. The Commission has

2023 Proposal at 41807.

2023 Proposal at 41777.

Id. See also, 17 CFR 23.106(a)(4)(ii), which provides that all nonbank SDs, regardless of whether they
rely on a Comparability Order or Comparability Determination, remain subject to the Commission’s
examination and enforcement authority.
359

7 U.S.C. 21(p).

reviewed its preliminary Comparability Determination and finds that the EU nonbank
SDs are subject to a supervisory and enforcement framework that is comparable to the
Commission’s supervisory and enforcement framework for nonbank SDs. Specifically,
the supervisory program of the EU is comparable in purpose and effect to Commission’s
supervisory program in that both programs are designed to monitor the safety and
soundness of nonbank SDs through a combination of periodic financial reporting, notice
reporting, and examination.
As detailed in section II.F.1. above, EU nonbank SDs are subject to direct
supervision by a prudential regulator.360 For EU nonbank SDs subject to ECB
supervision as “significant supervised entities,” the examination is conducted by JSTs
comprised of staff of the ECB and staff of the relevant national competent authority. For
EU nonbank SDs that are “less significant supervised entities,” the examination is
conducted by the relevant national competent authority.
The Commission’s assessment of the competent authorities’ supervisory programs
included an evaluation of the authorities’ ability to supervise EU nonbank SDs based on
applicable EU laws and regulations, as discussed in section II.F.1. above. This evaluation
included an assessment of the financial reporting that EU nonbank SDs are required to
provide to the competent authority, the competent authority’s ability to conduct
examinations, including onsite inspections of EU nonbank SDs, and the competent
authority’s ability to impose sanctions or take other action to address noncompliance with
applicable laws and regulations. Based upon its evaluation, the Commission
preliminarily determined that the relevant EU laws and regulations are comparable in
As noted above, the three current EU nonbank SDs qualify as “significant supervised entities” subject to
the direct supervision of the ECB. The 2023 Proposal included an analysis of the supervisory regime and
powers of the ACPR, in its capacity as a national competent authority with jurisdiction over Goldman
Sachs Paris. Although, the final Comparability Determination and Comparability Order do not cover
Goldman Sachs Paris, given the change in regulatory regime applicable to the firm, the Commission is
retaining the description of the ACPR’s supervisory regime and powers in the final Comparability
Determination to facilitate the analysis of potential future applications for substituted compliance that may
involve entities subject to direct supervision by the ACPR. See supra note 347.
purpose and effect to the CEA and Commission regulations, and that the competent
authorities have appropriate power to supervise EU nonbank SDs for compliance with
applicable EU Capital Rules and EU Financial Reporting Rules.
The Commission further determined, based on applicable EU laws and
regulations, that the competent authorities have the ability to sanction EU nonbank SDs
for failing to comply with regulatory requirements. Specifically, as discussed in section
II.F.1. above, the competent authorities have the power to impose penalties and other
administrative measures,361 and may order EU nonbank SD to hold increased capital in
situations that raise supervisory concerns.362 The competent authority may also withdraw
an EU nonbank SD’s authorization to operate if the firm no longer meets its minimum
capital requirements.363
Furthermore, as discussed in this Comparability Determination, by issuing a
Comparability Order, the Commission is not ceding its supervisory and enforcement
authorities. EU nonbank SDs that are subject to a Comparability Order are registered
with the Commission as SDs and are members of NFA, and, as such, are subject to the
CEA, Commission regulations, and NFA membership rules and requirements. In this
regard, EU nonbank SDs covered by a Comparability Order are required to directly
provide the Commission with additional information upon the Commission’s request to
facilitate the ongoing supervision of such firms.364 Further, section 17 of NFA’s SD

CRD, Articles 65, 67(1)(e) to (i) and 67(2); French MFC, Article L.612–39 and L.612–40; German
KWG, sections 56(6) and (7), 60b(1) and (3); SSM Regulation, Articles 9 and 18.
CRD, Article 104 and 104a; French MFC, Article L.511–41–3; German KWG, section 6c(1); and SSM
Regulation, Articles 9 (indicating that the ECB shall have all the powers and obligations that national
authorities have under EU law, unless otherwise provided in the SSM Regulation, and that the ECB may
require, by way of instructions, that national competent authorities make use of their powers, where the
SSM Regulation does not confer such powers to the ECB) and 16 (describing ECB’s supervisory powers,
including the power to require entities subject to its authority to hold capital in excess of the capital
requirements imposed by relevant EU law).
CRD Article 18; MiFID, Article 8c; French MFC, Articles L.532–6 and L.612–40; SSM Regulation,
Article 14.
364

17 CFR 23.105(h).

Financial Requirements rule provides that each SD member of NFA must file the
financial, operational, risk management and other information required by NFA in the
form and manner prescribed by NFA.365 The ability to obtain information directly from
EU nonbank SDs ensures that the Commission and NFA have access to the information
necessary to monitor the financial condition of such firms and to assess the firms’
compliance with applicable capital and financial reporting requirements. EU nonbank
SDs covered by a Comparability Order remain subject to the Commission’s examination
and enforcement authority with respect to all elements of the CEA and Commission
regulations, including capital and financial reporting.366
In addition, as detailed in section I.E. above, the conditions set forth in the
Comparability Order reflect the fact that the Commission and NFA have a continuing
obligation to conduct ongoing oversight, including potential examination, of EU nonbank
SDs to ensure compliance with the Comparability Order and with relevant CEA
requirements and Commission regulations. Specifically, the conditions require EU
nonbank SDs to file directly with the Commission and NFA financial reports and notices
that are comparable to the financial reports and notices filed by nonbank SDs domiciled
in the U.S. In addition to requiring EU nonbank SDs to maintain current books and
records reflecting all transactions,367 the conditions further require each EU nonbank SD
covered by the Comparability Order to file directly with the Commission and NFA: (i)
monthly and annual financial reports;368 (ii) notice that the firm was informed by the
competent authority that it is not in compliance with the EU Capital Rules and/or EU
Financial Reporting Rules;369 (iii) notice that the firm has experienced a decrease of 30

NFA section 17 Rule, available at NFA’s website: https://www.nfa.futures.org/rulebooksql/index.aspx.

17 CFR 23.106(a)(4)(ii).

Condition 10 of the final Comparability Order.

Conditions 11 and 12 of the final Comparability Order.

Condition 16 of the final Comparability Order.

percent or more in its excess regulatory capital as compared to the last excess regulatory
capital reported in filings with the Commission and NFA;370 (iv) notice that the firm has
breached its combined capital buffer requirement and is required to file a capital
conservation plan with the relevant competent authority, indicating that the firm has
breached its combined capital buffer requirement;371 (v) notice that the firm has failed to
maintain regulatory capital in the form of common equity tier 1 capital equal to or in
excess of the U.S. dollar equivalent of $20 million;372 and (vi) notice that the firm has
failed to maintain current financial books and records.373 The Comparability Order
further requires the Applicants to provide notice to the Commission of any material
changes to the information submitted in the application, including, but not limited to,
proposed and final material changes to the EU Capital Rules or EU Financial Reporting
Rules and proposed and final material changes to the competent authority’s supervisory
authority or supervisory regime over EU nonbank SDs.374 The financial information and
notices required to be filed directly with the Commission and NFA under the
Comparability Order, and through the Commission’s and NFA’s direct authority to obtain
additional information from EU nonbank SDs, will allow the Commission and NFA to
conduct ongoing oversight of such firms to assess their overall safety and soundness.
Although Commission Regulation 23.106 does not condition the issuance of a
Comparability Order on the Commission and the authority or authorities in the relevant
foreign jurisdiction having entered into a formal MOU or similar arrangement, the
Commission recognizes the benefit that such an arrangement may provide.375

Condition 21 of the final Comparability Order.

Condition 18 of the final Comparability Order.

Condition 17 of the final Comparability Order.

Condition 22 of the final Comparability Order.

Condition 25 of the final Comparability Order.

In an enforcement-related context, the Commission is a signatory to the International Organization of
Securities Commission’s Multilateral Memorandum of Understanding Concerning Consultation and
Specifically, although Commission staff may engage directly with EU nonbank SDs to
obtain information regarding their financial and operational condition, it may not be able
to exchange and discuss such firm-specific information376 with the relevant competent
authority or reach shared expectations on procedures for conducting on-site examinations
in France or Germany.377 Therefore, Commission staff will continue its engagement with
ECB staff to negotiate and finalize an MOU or similar arrangement to facilitate the joint
supervision of EU nonbank SDs.
III.

Final Capital Comparability Determination and Comparability Order
A. Commission’s Final Comparability Determination
Based on the EU Application and the Commission’s review of applicable EU laws

and regulations, as well as the review of comments submitted in response to the
Commission’s request for comment on the EU Application and the proposed
Comparability Determination and Comparability Order, the Commission finds that the
EU Capital Rules and the EU Financial Reporting Rules, subject to the conditions set
forth in the Comparability Order, achieve comparable outcomes and are comparable in
purpose and effect to the CFTC Capital Rules and CFTC Financial Reporting Rules. In
reaching this conclusion, the Commission recognizes that there are certain differences
between the EU Capital Rules and CFTC Capital Rules and certain differences between
the EU Financial Reporting Rules and the CFTC Financial Reporting Rules. The
Comparability Order below is subject to conditions that are necessary to promote

Cooperation and the Exchange of Information (“MMOU”, revised May 2012). The French Autorité des
Marchés Financiers (“AMF”) (the French market conduct regulatory authority with which the ACPR shares
supervision authority over French financial firms, including EU nonbank SDs domiciled in France, as it
regards business conduct matters), and the German Bundesanstalt für Finanzdienstleistungsaufsicht (the
German financial sector regulatory authority whose staff participates in the SSM’s JSTs that conduct
prudential supervision of the two EU nonbank SDs domiciled in Germany) are signatories to the MMOU.
The sharing of non-public information by CFTC staff would require assurances related to the use and
treatment of such information in a manner consistent with section 8(e) of the CEA, 7 U.S.C. 12(e).
For French SDs, the Commission and the French AMF are signatories to a supervisory MOU that covers
information sharing and examinations. Memorandum of Understanding Concerning Cooperation and the
Exchange of Information Related to the Supervision of Covered Firms (October 26, 2023).
consistency in regulatory outcomes, or to reflect the scope of substituted compliance that
would be available notwithstanding certain differences. In the Commission’s view, the
differences between the two rules sets are not inconsistent with providing a substituted
compliance framework for certain EU nonbank SDs subject to the conditions specified in
the Order below.
Furthermore, the Comparability Determination and Comparability Order are
limited to the comparison of the EU Capital Rules to the Bank-Based Approach
contained within the CFTC Capital Rules. As noted previously, the Applicants have not
requested, and the Commission has not performed, a comparison of the EU Capital Rules
to the Commission’s NLA Approach or TNW Approach.
B. Order Providing Conditional Capital Comparability Determination for
Certain EU Nonbank Swap Dealers
IT IS HEREBY DETERMINED AND ORDERED, pursuant to Commodity
Futures Trading Commission (“CFTC” or “Commission”) Regulation 23.106 (17 CFR
23.106) under the Commodity Exchange Act (“CEA”) (7 U.S.C. 1 et seq.) that a swap
dealer (“SD”) organized and domiciled in the French Republic (“France”) or the Federal
Republic of Germany (“Germany” and collectively with France the “EU Member
States”) and subject to the Commission’s capital and financial reporting requirements
under sections 4s(e) and (f) of the CEA (7 U.S.C. 6s(e) and (f)) may satisfy the capital
requirements under section 4s(e) of the CEA and Commission Regulation 23.101(a)(1)(i)
(17 CFR 23.101(a)(1)(i)) (“CFTC Capital Rules”), and the financial reporting rules under
section 4s(f) of the CEA and Commission Regulation 23.105 (17 CFR 23.105) (“CFTC
Financial Reporting Rules”), by complying with certain specified requirements of the
European Union (“EU”) laws and regulations cited below and otherwise complying with
the following conditions, as amended or superseded from time to time:

(1)

The SD is not subject to regulation by a prudential regulator defined in
section 1a(39) of the CEA (7 U.S.C. 1a(39));

(2)

The SD is organized under the laws of France or Germany (“EU Member
State”) and is domiciled in France or Germany, respectively (“EU
nonbank SD”);

(3)

The EU nonbank SD is licensed as a “credit institution” or “investment
firm” in an EU Member State;

(4)

The EU nonbank SD is subject to and complies with: Regulation (EU) No
575/2013 of the European Parliament and of the Council of 26 June 2013
on prudential requirements for credit institutions and amending
Regulation (EU) No 648/2012 (“Capital Requirements Regulation” or
“CRR”) and Directive 2013/36/EU of the European Parliament and of the
Council of 26 June 2013 on access to the activity of credit institutions and
the prudential supervision of credit institutions, amending Directive
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC
(“Capital Requirements Directive” or “CRD”) as implemented in the
national laws of France and Germany (collectively, “EU Capital Rules”);

(5)

The EU nonbank SD satisfies at all times applicable capital ratio and
leverage ratio requirements set forth in Article 92 of CRR, the capital
conservation buffer requirements set forth in Article 129 of CRD, and
applicable liquidity requirements set forth in Articles 412 and 413 of CRR,
and otherwise complies with the requirements to maintain a liquidity risk
management program as required under Article 86 of CRD;

(6)

The EU nonbank SD is subject to and complies with: Commission
Implementing Regulation (EU) 2021/451 of 17 December 2020 laying
down implementing technical standards for the application of Regulation

(EU) No 575/2013 of the European Parliament and of the Council with
regard to supervisory reporting of institutions and repealing Implementing
Regulation (EU) No 680/2014 (“CRR Reporting ITS”); Regulation (EU)
2015/534 of the European Central Bank of 17 March 2015 on reporting of
supervisory financial information (“ECB FINREP Regulation”); and
Directive 2013/34/EU of the European Parliament and of the Council of
26 June 2013 on the annual financial statements, consolidated financial
statements and related reports of certain types of undertakings, amending
Directive 2006/43/EC of the European Parliament and of the Council and
repealing Council Directives 78/660/EEC and 83/349/EEC (“Accounting
Directive”) as implemented in the national laws of France and Germany
(collectively and together with CRR and CRD as implemented in the
national laws of France and Germany, “EU Financial Reporting Rules”);
(7)

The EU nonbank SD is subject to prudential supervision by an EU
Member State supervisory authority with jurisdiction to enforce the
requirements set forth by the EU Capital Rules and the EU Financial
Reporting Rules or the European Central Bank (“ECB”), as applicable
(“competent authority”);

(8)

The EU nonbank SD maintains at all times an amount of regulatory capital
in the form of common equity tier 1 capital as defined in Article 26 of
CRR, equal to or in excess of the equivalent of $20 million in United
States dollars (“U.S. dollars”). The EU nonbank SD shall use a
commercially reasonable and observable euro/U.S. dollar exchange rate to
convert the value of the euro-denominated common equity tier 1 capital to
U.S. dollars;

(9)

The EU nonbank SD has filed with the Commission a notice stating its
intention to comply with the EU Capital Rules and the EU Financial
Reporting Rules in lieu of the CFTC Capital Rules and the CFTC
Financial Reporting Rules. The notice of intent must include the EU
nonbank SD’s representation that the firm is organized and domiciled in
an EU Member State, is a licensed investment firm or a credit institution
in an EU Member State, and is subject to, and complies with, the EU
Capital Rules and EU Financial Reporting Rules. An EU nonbank SD
may not rely on this Comparability Order until it receives confirmation
from Commission staff, acting pursuant to authority delegated by the
Commission under Commission Regulation 140.91(a)(11) (17 CFR
140.91(a)(11)), that the EU nonbank SD may comply with the applicable
EU Capital Rules and EU Financial Reporting Rules in lieu of the CFTC
Capital Rules and CFTC Reporting Rules. Each notice filed pursuant to
this condition must be prepared in the English language and submitted to
the Commission via email to the following address:
MPDFinancialRequirements@cftc.gov;

(10)

The EU nonbank SD prepares and keeps current ledgers and other similar
records in accordance with accounting principles permitted by the relevant
competent authority;

(11)

The EU nonbank SD files with the Commission and with the National
Futures Association (“NFA”) a copy of templates 1.1 (Balance Sheet
Statement: assets), 1.2 (Balance Sheet Statement: liabilities), 1.3 (Balance
Sheet Statement: equity), 2 (Statement of profit or loss), and 10
(Derivatives—Trading and economic hedges) of the financial reports
(“FINREP”) that EU nonbank SDs are required to submit pursuant to CRR

Reporting ITS, Annex III or IV, or the ECB FINREP Regulation, as
applicable, and templates 1 (Own Funds), 2 (Own Funds Requirements)
and 3 (Capital Ratios) of the common reports (“COREP”) that EU
nonbank SDs are required to submit pursuant to CRR Reporting ITS,
Annex I. The FINREP and COREP templates must be translated into the
English language and balances must be converted to U.S. dollars, using a
commercially reasonable and observable euro/U.S. dollar spot rate as of
the date of the report. The FINREP and COREP templates must be filed
with the Commission and NFA within 35 calendar days of the end of each
month. EU nonbank SDs that are registered as security-based swap
dealers (“SBSDs”) with the U.S. Securities and Exchange Commission
(“SEC”) must comply with this condition by filing with the Commission
and NFA a copy of Form X–17A–5 (“FOCUS Report”) that the EU
nonbank SD is required to file with the SEC, or its designee, pursuant to
an order granting conditional substituted compliance with respect to
Securities Exchange Act of 1934 Rule 18a–7. The copy of the FOCUS
Report must be filed with the Commission and NFA within 35 calendar
days after the end of each month in the manner, format and conditions
specified by the SEC in Order Specifying the Manner and Format of
Filing Unaudited Financial and Operational Information by SecurityBased Swap Dealers and Major Security-Based Swap Participants that
are not U.S. Persons and are Relying on Substituted Compliance with
Respect to Rule 18a-7, 86 FR 59208 (Oct. 26, 2021);
(12)

The EU nonbank SD files with the Commission and with NFA a copy of
its annual audited financial statements and management report (together,
“annual audited financial report”) that are required to be prepared and

published pursuant to Articles 4, 19, 30 and 34 of the Accounting
Directive as implemented in the national laws of France and Germany.
The annual audited financial report must be translated into the English
language and balances may be reported in euro. The annual audited
financial report must be filed with the Commission and NFA on the
earliest of the date the report is filed with the competent authority, the date
the report is published, or the date the report is required to be filed with
the competent authority or the date the report is required to be published
pursuant to the EU Financial Reporting Rules.
(13)

The EU nonbank SD files Schedule 1 of appendix B to subpart E of part
23 of the Commission’s regulations (17 CFR 23 subpart E – appendix B)
with the Commission and NFA on a monthly basis. Schedule 1 must be
prepared in the English language with balances reported in U.S. dollars,
using a commercially reasonable and observable euro/U.S. dollar spot rate
as of the date of the report, and must be filed with the Commission and
NFA within 35 calendar days of the end of each month. EU nonbank SDs
that are registered as SBSDs must comply with this condition by filing
with the Commission and NFA a copy of the FOCUS Report that they file
with the SEC or its designee as set forth in Condition 11;

(14)

The EU nonbank SD submits with each set of FINREP and COREP
templates, annual audited financial report, and Schedule 1 of appendix B
to subpart E of part 23 of the Commission’s regulations a statement by an
authorized representative or representatives of the EU nonbank SD that to
the best knowledge and belief of the representative or representatives the
information contained in the reports, including the translation of the
reports into English and conversion of balances in the reports to U.S.

dollars, is true and correct. The statement must be prepared in the English
language;
(15)

The EU nonbank SD files a margin report containing the information
specified in Commission Regulation 23.105(m) (17 CFR 23.105(m))
(“Margin Report”) with the Commission and with NFA within 35 calendar
days of the end of each month. The Margin Report must be in the English
language with balances reported in U.S. dollars, using a commercially
reasonable and observable euro/U.S. dollar spot rate as of the date of the
report;

(16)

The EU nonbank SD files a notice with the Commission and NFA within
24 hours of being informed by the competent authority that the firm is not
in compliance with any component of the EU Capital Rules or EU
Financial Reporting Rules. The notice must be prepared in the English
language;

(17)

The EU nonbank SD files a notice within 24 hours with the Commission
and NFA if it fails to maintain regulatory capital in the form of common
equity tier 1 capital as defined in Article 26 of CRR, equal to or in excess
of the U.S. dollar equivalent of $20 million using a commercially
reasonable and observable euro/U.S. dollar exchange rate. The notice
must be prepared in the English language;

(18)

The EU nonbank SD provides the Commission and NFA with notice
within 24 hours of breaching its combined capital buffer requirement and
being required to file a capital conservation plan with the relevant
competent authority pursuant to the relevant EU Member State’s
provisions implementing Article 143 of CRD. The notice filed with the
Commission and NFA must be prepared in the English language;

(19)

The EU nonbank SD provides the Commission and NFA with notice
within 24 hours if it is required by its competent authority to maintain
additional capital or additional liquidity requirements, or to restrict its
business operations, or to comply with other requirements pursuant to
Articles 102(1) and 104(1) of CRD as implemented in the national laws of
France or to Article 16 of Council Regulation (EU) No 1024/2013 of 15
October 2013 conferring specific tasks on the European Central Bank
concerning policies relating to the prudential supervision of credit
institutions. The notice filed with the Commission and NFA must be
prepared in the English language;

(20)

The EU nonbank SD files a notice with the Commission and NFA within
24 hours if it fails to maintain its minimum requirement for own funds and
eligible liabilities (“MREL”), if such requirement is applicable to the EU
nonbank SD pursuant to Directive 2014/59/EU of the European
Parliament and of the Council of 15 May 2014 establishing a framework
for the recovery and resolution of credit institutions and investment firms
and amending Council Directive 82/891/EEC, and Directives 2001/24/EC,
2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU,
2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and
(EU) No 648/2012, of the European Parliament and of the Council as
implemented in the national laws of France and Germany. The notice
filed with the Commission and NFA must be prepared in the English
language;

(21)

The EU nonbank SD files a notice with the Commission and NFA if it
experiences a 30 percent or more decrease in its excess regulatory capital
as compared to that last reported in the financial information filed

pursuant to Condition 11. The notice must be prepared in the English
language and filed within two business days of the firm experiencing the
30 percent or more decrease in excess regulatory capital;
(22)

The EU nonbank SD files a notice with the Commission and NFA within
24 hours if it fails to make or keep current the financial books and records.
The notice must be prepared in the English language;

(23)

The EU nonbank SD files a notice with the Commission and NFA within
24 hours of the occurrence of any of the following: (i) a single
counterparty, or group of counterparties under common ownership or
control, fails to post required initial margin or pay required variation
margin to the EU nonbank SD on uncleared swap and non-cleared
security-based swap positions that, in the aggregate, exceeds 25 percent of
the EU nonbank SD’s minimum capital requirement; (ii) counterparties
fail to post required initial margin or pay required variation margin to the
EU nonbank SD for uncleared swap and non-cleared security-based swap
positions that, in the aggregate, exceeds 50 percent of the EU nonbank
SD’s minimum capital requirement; (iii) the EU nonbank SD fails to post
required initial margin or pay required variation margin for uncleared
swap and non-cleared security-based swap positions to a single
counterparty or group of counterparties under common ownership and
control that, in the aggregate, exceeds 25 percent of the EU nonbank SD’s
minimum capital requirement; or (iv) the EU nonbank SD fails to post
required initial margin or pay required variation margin to counterparties
for uncleared swap and non-cleared security-based swap positions that, in
the aggregate, exceeds 50 percent of the EU nonbank SD’s minimum
capital requirement. For purposes of the calculation, the EU nonbank

SD’s minimum capital requirement is the core capital requirement under
the EU Capital Rules, excluding capital buffers. The notice must be
prepared in the English language;
(24)

The EU nonbank SD files a notice with the Commission and NFA of a
change in its fiscal year-end approved or permitted to go into effect by the
relevant competent authority. The notice required by this paragraph will
satisfy the requirement for a nonbank SD to obtain the approval of NFA
for a change in fiscal year-end under Commission Regulation 23.105(g)
(17 CFR 23.105(g)). The notice of change in fiscal year-end must be
prepared in the English language and filed with the Commission and NFA
at least 15 business days prior to the effective date of the EU nonbank
SD’s change in fiscal year-end;

(25)

The EU nonbank SD or an entity acting on its behalf notifies the
Commission of any material changes to the information submitted in the
application for Comparability Determination, including, but not limited to,
proposed and final material changes to the EU Capital Rules or EU
Financial Reporting Rules and proposed and final material changes to the
ECB or the relevant EU Member State authority’s supervisory authority or
supervisory regime over EU nonbank SDs. The notice must be prepared
in the English language; and

(26)

Unless otherwise noted in the conditions above, the reports, notices, and
other statements required to be filed by the EU nonbank SD with the
Commission and NFA pursuant to the conditions of this Comparability
Order must be submitted electronically to the Commission and NFA in
accordance with instructions provided by the Commission or NFA.

IT IS ALSO HEREBY DETERMINED AND ORDERED that this Comparability
Order becomes effective upon its publication in the Federal Register, with the
exception of Conditions 15, 21, and 23, which will become effective 180 calendar
days after publication of the Comparability Order in the Federal Register.
Issued in Washington, DC, on July 3, 2024, by the Commission.

Christopher Kirkpatrick,
Secretary of the Commission.
NOTE: The following appendices will not appear in the Code of Federal Regulations.
Appendices to Order Granting Conditional Substituted Compliance in Connection
with Certain Capital and Financial Reporting Requirements Applicable to Nonbank
Swap Dealers Domiciled in the French Republic and Federal Republic of Germany
and Subject to Regulation in the European Union – Commission Voting Summary,
Chairman’s Statement, and Commissioners’ Statements
Appendix 1 – Commission Voting Summary
On this matter, Chairman Behnam and Commissioners Johnson, Goldsmith
Romero, Mersinger, and Pham voted in the affirmative. No Commissioner voted in the
negative.
Appendix 2 – Statement of Support of Chairman Rostin Behnam
I support the Commission’s approval of four comparability determinations and
related orders finding that the capital and financial reporting requirements in Japan,
Mexico, the European Union (France and Germany), and the United Kingdom (for swap
dealers (SDs) designated for prudential supervision by the UK Prudential Regulation
Authority (PRA)) are comparable to the Commission’s capital and financial reporting
requirements applicable to nonbank SDs. These are the first comparability determinations
that the Commission has finalized for applications filed following the July 2020 adoption

of its regulatory framework for substituted compliance for non-U.S. domiciled nonbank
SDs.1 There are currently 15 non-U.S. nonbank SDs that are eligible to comply with these
conditional orders: three in Japan; three in Mexico; two in Germany and one in France
for the EU; and six in the UK that are PRA-designated.
As part of the process leading to the Commission’s final comparability
determinations and orders, Commission staff engaged in a thorough analysis of each
foreign jurisdictions’ capital and financial reporting frameworks and considered the
public comments received on the proposed determinations and orders. Based on those
reviews, the Commission has determined that the respective foreign jurisdictions’ rules
are comparable in purpose and effect, and achieve comparable outcomes, to the CFTC’s
capital and financial reporting rules. Specifically, the Commission considered the scope
and objectives of the foreign regulators’ capital adequacy and financial reporting
requirements; the ability of those regulators to supervise and enforce compliance with
their respective capital and financial reporting requirements; and other facts or
circumstances the Commission deemed relevant for each of the applications.
In certain instances, the Commission found that a foreign jurisdiction’s rules
impose stricter standards. In limited circumstances, where the Commission concluded
that a foreign jurisdiction lacks comparable and comprehensive requirements on a
specific issue, the Commission included a targeted condition designed to impose an
equally stringent standard. The Commission has issued the final orders consistent with its
authority to issue a comparability determination with the conditions it deems appropriate.
These conditions aim to ensure that the orders only apply to nonbank SDs that are
eligible for substituted compliance in these respective jurisdictions and that those nonU.S. nonbank SDs comply with the foreign country’s capital and financial reporting

Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020). The
Commission issued the final rule on July 24, 2020.
requirements as well as certain additional capital, financial reporting, recordkeeping, and
regulatory notice requirements. This approach acknowledges that jurisdictions may adopt
unique approaches to achieving comparable outcomes. As a result, the Commission has
focused on whether the applicable foreign jurisdiction’s capital and financial reporting
requirements achieve comparable outcomes to the corresponding Commission
requirements for nonbank SDs, not whether they are comparable in every aspect or
contain identical elements.
With these comparability determinations, the Commission fully retains its
enforcement and examination authority as well as its ability to obtain financial and event
specific reporting to maintain direct oversight of nonbank SDs located in these four
jurisdictions. The avoidance of duplicative requirements without a commensurate benefit
to the Commission’s oversight function reflects the Commission’s approach to
recognizing the global nature of the swap markets with dually-registered SDs that operate
in multiple jurisdictions, which mandate prudent capital and financial reporting
requirements. This is, however, an added benefit and not the Commission’s sole
justification for issuing these comparability determinations.
The comparability orders will become effective upon their publication in the
Federal Register. For several order conditions, the Commission is granting an additional
compliance period of 180 calendar days. To rely on a comparability order, an eligible
non-U.S. nonbank SD must notify the Commission of its intention to satisfy the
Commission’s capital and financial requirements by substituted compliance and receive a
Commission confirmation before relying on a determination.
I appreciate the hard work and dedication of the staff in the Market Participants
Division over the past several years to propose and finalize these four determinations. I
also thank the staff in the Office of the General Counsel and the Office of International
Affairs for their support on these matters.

Appendix 3 – Statement of Commissioner Kristin N. Johnson
I support the Commodity Futures Trading Commission’s (Commission or CFTC)
issuance of four final capital and financial reporting comparability determinations and
related orders (together, Final Comparability Determinations) for non-U.S. nonbank swap
dealers (foreign nonbank SDs) and non-U.S. nonbank major swap participants (foreign
nonbank MSPs) organized and domiciled in the United Kingdom (UK), the European
Union (specifically, France and Germany), Mexico, and Japan.1
The Final Comparability Determinations allow eligible foreign nonbank SDs to
satisfy certain capital and financial reporting requirements under the Commodity
Exchange Act (CEA) and Commission regulations if they: (1) are subject to, and comply
with, comparable capital and financial reporting requirements under the laws and
regulations applicable in their home countries and (2) comply with the conditions
enumerated in the applicable Final Comparability Determination. Under this conditional
substituted compliance framework, foreign nonbank SDs in the relevant jurisdictions that
comply with these conditions are deemed to be in compliance with the Commission’s
capital and financial reporting requirements.
Well-calibrated capital requirements create a cushion to absorb unexpected losses
in times of market stress, and well-calibrated financial reporting requirements provide the
Commission with information to monitor the business operations and financial condition
of registered SDs. These tools are critical to managing systemic risk and fostering the
stability of U.S. derivatives markets and the U.S. financial system. The Commission’s
substituted compliance framework addresses the need to promote sound global
derivatives regulation while mitigating potentially duplicative cross-border regulatory
requirements for non-U.S. market participants operating in our markets. Where the

Though the Final Comparability Determinations will apply to foreign nonbank MSPs in the relevant
jurisdictions, there are no such MSPs currently registered with the Commission at this time. I will refer
only to SDs herein.
Commission permits substituted compliance, it must retain sufficient oversight,
examination, and enforcement authority to ensure compliance with the foreign
jurisdiction’s laws and the conditions to substituted compliance.
Crucially, while these Final Comparability Determinations permit foreign
nonbank SDs to comply with home country regulations in lieu of compliance with
Commission regulations, the Commission is also imposing important guardrails to ensure
continuous supervision of the operations and financial condition of the foreign SD.
Background
For an example of the detrimental consequences of failing to adequately capitalize
nonbank swap market participants, one need look no further than the 2008 global
financial crisis. According to the U.S. Government Accountability Office, the crisis,
which threatened the stability of the U.S. financial system and the health of the U.S.
economy, may have led to $10 trillion in losses, including large declines in employment
and household wealth, reduced tax revenues from lower economic activity, and lost
economic output.2 In response to the crisis, in 2010, the U.S. Congress passed the DoddFrank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which
amended the CEA to create a new regulatory framework for swaps.
As amended, section 4s(e) of the CEA directs the Commission and prudential
regulators to impose minimum capital requirements on SDs registered with the
Commission. Section 4s(e) adopts separate approaches for the imposition of minimum
capital requirements on bank and nonbank SDs. For bank SDs, prudential regulators are
authorized to set the minimum capital requirements. For nonbank SDs, the Commission
is authorized to set those requirements. The amended CEA also sets out financial
reporting requirements for SDs. Under section 4s(f) of the CEA, registered SDs are

United States Government Accountability Office, Financial Regulatory Reform: Financial Crisis Losses
and Potential Impacts of the Dodd-Frank Act (Jan. 2013), https://fraser.stlouisfed.org/title/gao-reportstestimonies-6136/financial-regulatory-reform-622249.
required to make financial condition reports and other reports regarding transactions and
positions as mandated by Commission regulations.
In 2020, the Commission adopted regulations implementing both the capital and
financial reporting requirements for SDs, which were amended in 2024 (the Capital and
Financial Reporting Rules).3 The Capital and Financial Reporting Rules set minimum
capital levels that nonbank SDs must maintain and financial reporting requirements that
nonbank SDs must comply with, including filing periodic unaudited financial statements
and an annual audited financial report.4
Like the U.S., many other nations adopted their own regulatory regimes to govern
swaps markets in the aftermath of the financial crisis. Since then, regulators from around
the world have endeavored to improve the resilience of swaps markets and establish a
global set of standards on critical risk management issues, such as capital and financial
reporting requirements. These efforts led to the development of the Principles for
Financial Market Infrastructures, to which many jurisdictions, including our own, look
for guidance.5
The Dodd-Frank Act amendments specifically address the cross-border
application of the CFTC’s swaps regime. Section 2(i) of the CEA establishes that the
CEA’s swaps provisions apply to foreign swaps activities that have a “direct and
significant” connection to, or effect on, U.S. markets. In line with section 2(i) of the
CEA, the Capital and Financial Reporting Rules set out a substituted compliance

Capital Requirements of Swap Dealers and Major Swap Participants, 85 FR 57462 (Sept. 15, 2020).

The reporting requirements imposed on bank SD and bank MSPs were “more limited” “as the financial
condition of these entities will be predominantly supervised by the applicable prudential regulator and
subject to its capital and financial reporting requirements.” Id. at 57513. In May 2024, the Commission
adopted amendments to the Capital and Financial Reporting Rules that codified two previously-issued staff
letters providing interpretive guidance and no-action relief and made other technical amendments. 89 FR
45569 (May 23, 2024).
Principles for Financial Market Infrastructures, Bank for International Settlements and International
Organization of Securities Commissions (Apr. 2012), https://www.bis.org/cpmi/publ/d101a.pdf.
framework in Commission Regulation 23.106 for foreign nonbank SDs seeking to
comply with the Commission’s capital and financial reporting requirements.
The substituted compliance framework consists of comparability determinations
that afford “due consideration [to] international comity principles” while being
“consistent with … the Commission’s interest in focusing its authority on potential
significant risks to the U.S. financial system.”6 The determinations involve an assessment
of the home-country requirements that is a principles-based, holistic approach, focusing
on whether the applicable home-country requirements have comparable objectives and
achieve comparable outcomes to the Commission’s Capital and Financial Reporting
Rules.
Today’s Final Comparability Determinations
The Final Comparability Determinations will apply to 15 foreign nonbank SDs
currently registered with the Commission and subject to oversight by the UK Prudential
Regulation Authority, the European Central Bank, the Mexican Comisión Nacional
Bancaria y de Valores, and the Financial Services Agency of Japan. I commend staff for
their hard work on the Final Comparability Determinations, including their work to
thoroughly and thoughtfully analyze and address comments.
Importantly, while the Final Comparability Determinations permit foreign
nonbank SDs in the relevant jurisdictions to comply with home country regulations in
lieu of compliance with Commission regulations, there are numerous protections in place
to ensure the Commission’s ability to supervise on an ongoing basis the adequacy of the
foreign nonbank SDs’ compliance. The Final Comparability Determinations all include
key conditions with which the foreign nonbank SDs must comply. For example, each of
the Final Comparability Determinations requires that the foreign nonbank SDs provide

Cross-Border Application of the Registration Thresholds and Certain Requirements Applicable to Swap
Dealers and Major Swap Participants, 85 FR 56924, 56924 (Sept. 14, 2020).
monthly and annual financial reports to the Commission—and the Commission can
request additional information as required to facilitate ongoing supervision. Each Final
Comparability Determination also requires the foreign nonbank SDs to notify the
Commission if adverse events occur, such as a significant decrease in excess regulatory
capital, a significant failure of a counterparty to post required margin, or non-compliance
with certain capital or financial reporting requirements. Finally, in recognition of the fact
that a country’s capital standards and financial reporting requirements may change over
time, the Final Comparability Determinations require the foreign nonbank SDs to provide
notice of material changes to the home country capital or financial reporting frameworks.
Moreover, the foreign nonbank SDs subject to these determinations are registered
with the Commission and are members of the National Futures Association (NFA).
Therefore, these entities are subject to the CEA, Commission regulations, and NFA
membership rules, and each entity remains subject to Commission supervisory,
examination and enforcement authority. As noted in the Final Comparability
Determinations, if a foreign SD fails to comply with its home country’s capital and
financial reporting requirements, the Commission may initiate an action for a violation of
the Commission’s Capital and Financial Reporting Rules.
As I have previously noted,7 it is important to recognize foreign market
participants’ compliance with the laws and regulations of their regulators when the
requirements lead to an outcome that is comparable to the outcome of complying with the

Kristin N. Johnson, Commissioner, CFTC, Combatting Systemic Risk and Fostering Integrity of the
Global Financial System Through Rigorous Standards and International Comity (Jan. 24, 2024),
https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement012424; Kristin N. Johnson,
Commissioner, CFTC, Statement in Support of Notice and Order on EU Capital Comparability
Determination (June 7, 2023),
https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement060723c; Kristin N. Johnson,
Commissioner, CFTC, Statement in Support of Proposed Order and Request for Comment on Mexican
Capital Comparability Determination (Nov. 10, 2022),
https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement111022c; Kristin N. Johnson,
Commissioner, CFTC, Statement in Support of Proposed Order on Japanese Capital Comparability
Determination (July 27, 2022),
https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement072722c.
CFTC’s corresponding requirements. Respect for partner regulators in foreign
jurisdictions advances the Commission as a global standard setter for sound derivatives
regulation and enhances market stability.
I thank the staff in the Market Participants Division for their hard work on these
matters, particularly Amanda Olear, Tom Smith, and Lily Bozhanova.
Appendix 4 – Statement of Commissioner Caroline D. Pham
I am pleased to support the order granting conditional substituted compliance in
connection with certain capital and financial reporting requirements applicable to
nonbank swap dealers domiciled in the French Republic and Federal Republic of
Germany and subject to regulation in the European Union (EU) (EU Final Order). The
EU Final Order, on balance, reflects an appropriate approach by the CFTC to
collaboration with non-U.S. regulators that is consistent with IOSCO’s 2020 report on
Good Practices on Processes for Deference.1
I would like to thank Amanda Olear, Thomas Smith, Rafael Martinez, Liliya
Bozhanova, Joo Hong, and Justin McPhee from the CFTC’s Market Participants Division
for their truly hard work on the EU Final Order and for addressing my concerns regarding
the conditions for notice requirements.2 I also thank the European Central Bank (ECB)
and Autorité de contrôle prudentiel et de resolution (ACPR) for their assistance and
support.
The CFTC’s capital comparability determinations are the result of tireless efforts
spanning over a decade since the global financial crisis. I commend the staff for working

1 IOSCO

Report, “Good Practices on Processes for Deference” (June 2020),
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD659.pdf.
2 Statement

of Commissioner Caroline D. Pham in Support of Proposed Order and Request for Comment
on Comparability Determination for EU Nonbank Swap Dealer Capital and Financial Reporting
Requirements (June 7, 2023),
https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement060723b.

together with our regulatory counterparts around the world to promote regulatory
cohesion and financial stability, and mitigate market fragmentation and systemic risk.
[FR Doc. 2024-15095 Filed: 7/17/2024 8:45 am; Publication Date: 7/18/2024]