The SEC published a proposed substituted compliance determination for security-based swap dealers ("SBSDs") regulated in Spain.

The SEC proposed order for Spanish firms comes in response to an application submitted by the Spanish Comisión Nacional del Mercado de Valores ("CNMV") pursuant to SEA Rule 3a71-6 ("Substituted compliance for security-based swap dealers and major security-based swap participants"). The proposed order would provide conditional substituted compliance for Spanish entities that (i) are SEC-registered SBSDs or major security-based swap ("SBS") participants, (ii) are not "U.S. Persons"; (iii) are CNMV-authorized investment firms or European Central Bank ("ECB")-authorized credit institutions for investment services and activities in Spain and (iv) are CNMV and ECB-supervised "significant institutions."

The CNMV requested substituted compliance for requirements under Exchange Act Section 15F ("Registration and Regulation of Security-Based Swap Dealers and Major Security-Based Swap Participants") regarding (i) risk control, (ii) internal supervision, chief compliance officers and antitrust, (iii) counterparty protection and (iv) recordkeeping.

Under the proposed order, substituted compliance would be granted to eligible entities that satisfy, among others, the following requirements:

  • the entity is "subject to and compl[iant] with" Spanish and EU requirements that demonstrate comparability with SEC requirements;
  • the entity's SBS activities are, for Markets in Financial Instruments Directive ("MiFID") purposes, "investment services or activities";
  • the entity's counterparty, or potential counterparty, is, for MiFID purposes, a "client" or potential "client";
  • the entity's relevant SBS is, for MiFID purposes, a "financial instrument";
  • the entity is, for EU Capital Requirements Directive purposes, an "institution";
  • the entity provides notification to the SEC of its intent to rely on the substituted compliance; and
  • the entity, if prudentially regulated, provides notification to the SEC of changes in the status of its capital as required under Spanish law.

In addition, the proposed order would require the SEC, the CNMV and the Bank of Spain to enter into a memorandum of understanding or a similar arrangement regarding the regulatory cooperation that will take place once an eligible entity relies on the substituted compliance.

Comments on the proposed order must be submitted by September 20, 2021.

Commentary

Unlike recent determinations for the United Kingdom and France, but similar to the proposed order for Switzerland, Spain did not request substituted compliance as to SEC capital and margin requirements.

Primary Sources

  1. Federal Register: Notice of Substituted Compliance Application Submitted by the Spanish Financial Conduct Authority in Connection With Certain Requirements Applicable to Security-Based Swap Dealers and Major Security-Based Swap Participants . . .

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