Order Granting Conditional Substituted Compliance in Connection With Certain Capital and Financial Reporting Requirements Applicable to a Nonbank Swap Dealer Domiciled in the French Republic and Subject to the European Union's Investment Firms Regulation and Investment Firms Directive

Federal RegisterMay 14, 2026

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Chapter I

Order Granting Conditional Substituted Compliance in Connection With Certain Capital and Financial Reporting Requirements Applicable to a Nonbank Swap Dealer Domiciled in the French Republic and Subject to the European Union's Investment Firms Regulation and Investment Firms Directive

AGENCY:

Commodity Futures Trading Commission.

ACTION:

Order.

SUMMARY:

The Commodity Futures Trading Commission (“Commission” or “CFTC”) is issuing an order regarding an application submitted by Goldman Sachs Paris Inc. et Cie requesting that the Commission determine that the capital and financial reporting laws and regulations of the European Union applicable to a CFTC-registered swap dealer, which is organized and domiciled in the French Republic and subject to the Investment Firms Regulation (EU) 2019/2033 (“IFR”) and Investment Firms Directive (EU) 2019/2034 (“IFD”) legislative package, provide sufficient bases for an affirmative finding of comparability with respect to the Commission's swap dealer capital and financial reporting requirements adopted under the Commodity Exchange Act. The order provides that a nonbank swap dealer organized and domiciled in the French Republic and subject to the IFR and IFD legislative package 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 European Union laws and regulations and conditions set forth in the order.

DATES:

This determination was made and issued by the Commission on May 12, 2026.

FOR FURTHER INFORMATION CONTACT:

Thomas Smith, Acting Director, 202-418-5495,

tsmith@cftc.gov;

Liliya Bozhanova, Associate Director, 202-418-6232,

lbozhanova@cftc.gov;

Christine McKeveny, Attorney-Advisor, 646-746-3923,

cmckeveny@cftc.gov;

Jennifer M. Narvaez, Attorney-Advisor, 202-418-5742,

jnarvaez@cftc.gov;

Rafael Martinez, Associate Director, 202-418-5462,

rmartinez@cftc.gov;

Thomas Littlefield, Senior Financial Risk Analyst, 202-418-5405,

tlittlefield@cftc.gov;

Lihong McPhail, Research Economist, 202-418-5722,

lmcphail@cftc.gov,

Market Participants Division; Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Sections 4s(e)

and 4s(f)

of the Commodity Exchange Act (“CEA”) direct the Commodity Futures Trading Commission (“Commission” or “CFTC”) to impose capital requirements and financial reporting obligations on each swap dealer and major swap participant that is not subject to regulation by a prudential regulator (“nonbank SD” and “nonbank MSP”, respectively). Commission Regulation 23.106

establishes a substituted compliance framework whereby the Commission may determine that compliance by a foreign nonbank SD or foreign nonbank MSP with its home country's capital and financial reporting requirements will satisfy all or parts of the Commission's capital and financial reporting requirements.

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

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

17 CFR 23.106. Commission regulations referred to in this release are found at 17 CFR chapter I, and are accessible on the Commission's website:

https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.

On July 18, 2024, the Commission issued four comparability determinations and related comparability orders granting substituted compliance in connection with the CFTC's capital and financial reporting requirements to CFTC-registered nonbank SDs organized and domiciled in Japan, Mexico, the European Union (France and Germany), and the United Kingdom, subject to certain conditions set forth in each order.

In preparing each of the comparability determinations and related comparability orders, the Commission reviewed, analyzed, and assessed the regulatory requirements of each relevant foreign jurisdiction. Additionally, each of the comparability determinations and related comparability orders, including the 2024 EU Comparability Order, was issued after discussions with market participants and foreign regulators, and after reviewing and incorporating relevant comments received from the public. The Commission, therefore, has gained an understanding of the capital and financial reporting requirements of each relevant jurisdiction, including the European Union (“EU”).

See

Order Granting Conditional Substituted Compliance in Connection With Certain Capital and Financial Reporting Requirements Applicable to Nonbank Swap Dealers Subject to Regulation by the Financial Services Agency of Japan, 89 FR 58470 (July 18, 2024); Order Granting Conditional Substituted Compliance in Connection With Certain Capital and Financial Reporting Requirements Applicable to Nonbank Swap Dealer Subject to Regulation by the Mexican Comision Nacional Bancaria y de Valores and Banco de Mexico, 89 FR 58505 (July 18, 2024); 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, 89 FR 58572 (July 18, 2024) (the “2024 EU Comparability Order”); and Order Granting Conditional Substituted Compliance in Connection With Certain Capital and Financial Reporting Requirements Applicable to Nonbank Swap Dealers Subject to Regulation by the United Kingdom Prudential Regulation Authority, 89 FR 58535 (July 18, 2024).

On September 3, 2024, Goldman Sachs Paris Inc. et Cie (“Goldman Sachs Paris” or “Applicant”) submitted an application (the “EU IFR/IFD Application”),

requesting that the Commission determine that a registered nonbank swap dealer (“nonbank SD”)

organized and domiciled within the EU (specifically, the French Republic (“France”)) may satisfy certain capital and financial reporting requirements under the CEA

by being subject to, and complying with, comparable capital and financial reporting requirements established under the EU Investment Firms Regulation (“IFR”)

and Investment Firms Directive (“IFD”).

Although the Applicant is subject to a similar regulatory regime and is domiciled in the same jurisdiction as some of the nonbank SDs included in the 2024 EU Comparability Order, it cannot rely on the 2024 EU Comparability Order because of the scope of the order.

The Commission is

issuing an order under which such nonbank SD (“EU IFR/IFD nonbank SD”) organized and domiciled in France will be able, subject to defined conditions, to comply with certain CFTC nonbank SD capital and financial reporting requirements in the manner set forth in the order discussed below.

See

Letter dated September 3, 2024, submitted on behalf of Goldman Sachs Paris. The EU IFR/IFD Application is available on the Commission's website at

https://www.cftc.gov/LawRegulation/DoddFrankAct/CDSCP/index.htm.

As discussed in Section I.A. immediately below, the Commission has the authority to impose capital requirements on registered swap dealers that are not subject to regulation by a U.S. prudential regulator (

i.e.,

nonbank SDs).

7 U.S.C. 1

et seq.

The CEA may be accessed through the Commission's website at

https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm.

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”).

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”).

The 2024 EU Comparability Order only conducted an analysis on nonbank SDs that are subject to the capital and financial reporting requirements established under the Capital Requirements Regulation and the Capital Requirements Directive and, therefore, does not

encompass nonbank SDs that are subject to IFR and IFD.

As further discussed below, Goldman Sachs Paris is currently the only CFTC-registered nonbank SD organized and domiciled in France that is subject to the capital and financial reporting requirements established under IFR and IFD.

I. Introduction

A. Regulatory Background—Swap Dealer and Major Swap Participant Capital and Financial Reporting Requirements

Section 4s(e) of the CEA

directs the Commission and “prudential regulators”

to impose capital requirements on all swap dealers (“SDs”) and major swap participants (“MSPs”) registered with the Commission.

Sections 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 CFTC-registered derivatives clearing organization (“uncleared swaps”).

7 U.S.C. 6s(e). The CEA may be found at 7 U.S.C. 1

et seq.,

and may be accessed through the Commission's website,

https://www.cftc.gov.

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.

See

7 U.S.C. 1a(39).

Subject to certain exceptions, the term “swap dealer” is generally defined in the CEA 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 in the CEA 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).

Section 4s(e) applies a bifurcated approach with respect to the above Congressional directives, requiring each SD and MSP that is subject to regulation by a prudential regulator (“bank SDs” and “bank MSPs,” respectively) to meet the minimum capital requirements and uncleared swaps margin requirements adopted by the applicable prudential regulator, and requiring each SD and MSP that is not subject to regulation by a prudential regulator (“nonbank SD” and “nonbank MSP,” respectively) to meet the minimum capital requirements and uncleared swaps margin requirements adopted by the Commission.

Therefore, the Commission's authority to impose capital and margin requirements extends to nonbank SDs and nonbank MSPs, including nonbanking subsidiaries of bank holding companies regulated by the Federal Reserve Board.

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

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

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.

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.

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”).

See Margin and Capital Requirements for Covered Swap Entities,

80 FR 74840 (Nov. 30, 2015).

See Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants,

81 FR 636 (Jan. 6, 2016).

See Capital Requirements of Swap Dealers and Major Swap Participants,

85 FR 57462 (Sept. 15, 2020).

Section 4s(f) of the CEA addresses SD and MSP financial reporting requirements.

Section 4s(f) of the CEA authorizes the Commission to adopt rules imposing 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) of the CEA provides, in relevant part, that each registered SD and MSP must make financial condition reports as required by regulations adopted by the Commission.

The Commission's financial reporting obligations were adopted with the Commission's nonbank SD and nonbank MSP capital requirements, and have a compliance date of October 6, 2021 (“CFTC Financial Reporting Rules”).

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

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

See

85 FR 57462.

B. Commission 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”).

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 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 determination 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 will issue a Comparability Determination in the form of an order (“Comparability Order”).

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 a non-U.S. nonbank MSP, a trade association or other similar group on behalf of its nonbank SD or nonbank MSP members, or a foreign regulatory authority that has direct supervisory authority over one or more non-U.S. nonbank SDs or non-U.S. nonbank MSPs. However, Commission regulations 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)(3), 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).

17 CFR 23.106(a)(3).

See also

85 FR 57462 at 57521.

17 CFR 23.106(a)(3).

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. It is not a line-by-line evaluation or comparison of a foreign jurisdiction's regulatory requirements with the Commission's requirements,

but focuses on whether the applicable foreign jurisdiction's capital and financial reporting requirements achieve comparable outcomes to the corresponding CFTC requirements.

In performing the analysis, the Commission recognizes that jurisdictions may adopt differing approaches to achieving regulatory objectives and comparable 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.

85 FR 57462 at 57521.

Id.

The approach and standards set forth 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. In 2013, the Commission issued an Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, establishing that it would assess foreign regulatory systems holistically.

In the Guidance, the Commission stated that, when evaluating foreign regimes, it will take into consideration all relevant factors, including: (i) the scope and objectives of the foreign rules; (ii) the comprehensiveness of requirements; and (iii) the strength of supervisory and enforcement programs.

A foreign regime, therefore, does not need to be identical to the CFTC requirements to be deemed comparable.

Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations,

78 FR 45292 (July 26, 2013) (“Guidance”).

Guidance at 45343.

In 2016, the Commission issued final rules to address the cross-border application of the Commission's margin requirements for uncleared swap transactions, which reaffirmed its outcome based method when assessing comparability of foreign margin rules.

The Commission recognized that jurisdictions may adopt different approaches to achieving the same outcome and, therefore, focused 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.

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.

Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants—Cross-Border Application of the Margin Requirements,

81 FR 34817, 34836-34837 (May 31, 2016).

Id.

A person requesting a Comparability Determination is required to submit an application to the Commission containing: (i) a description of the objectives of the 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 any 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 that the Commission deems necessary to evaluate the comparability of the capital adequacy and financial reporting requirements of the foreign jurisdiction.

17 CFR 23.106(a)(2).

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 non-U.S. nonbank SDs and/or non-U.S. nonbank MSPs domiciled in the foreign jurisdiction.

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 SD or non-U.S. nonbank MSP that is not legally required to comply with a foreign jurisdiction's laws 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 and the CFTC Financial Reporting Rules.

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.

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 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.

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

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 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 assessment will include a review 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.

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. There are no MSPs currently registered with the Commission. 17 CFR 23.101(b).

Commission Regulation 23.106 further provides that the Commission may impose terms and conditions it deems appropriate in issuing a Comparability Determination.

Any specific terms or conditions with respect to capital adequacy or financial reporting requirements will be set forth in the Commission's Comparability Order. Consistent with the Commission's holistic, principles-based approach to conducting comparability assessments, 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 a nonbank SD registered with the Commission, whereas other conditions may address areas where the foreign jurisdiction lacks analogous requirements to those set forth in Commission regulations.

As a general condition to all Comparability Orders, the Commission will require notification from 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 relevant foreign jurisdiction's supervisory or regulatory regime.

17 CFR 23.106(a)(5).

See e.g.,

Guidance at 45343 and

Comparability Determination for the European Union: Certain Transaction Level Requirements,

78 FR 78878 (December 27, 2013) at 78880.

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 in lieu of all or parts of the CFTC Capital Rules and/or CFTC Financial Reporting Rules.

Notices must be filed electronically with the Commission's Market Participants Division (“MPD”).

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 the CFTC Capital Rules and the CFTC Financial Reporting Rules upon MPD's confirmation through discussions with the non-U.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.

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

Notices must be filed in electronic form to the following email address:

MPDFinancialRequirements@cftc.gov.

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

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 in compliance with the Commission's 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.

Accordingly, if a nonbank SD or nonbank MSP fails to comply with the foreign jurisdiction's capital adequacy and/or financial reporting requirements, the Commission may initiate an action for a violation of the corresponding CFTC Capital Rules and/or CFTC Financial Reporting Rules.

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

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

Id.

C. Application for a Comparability Determination for an EU IFR/IFD Nonbank Swap Dealer Organized and Domiciled in France

The Applicant 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. In this regard, the Capital Requirements Regulation

and the Capital Requirements Directive

set forth capital and financial reporting requirements applicable to entities defined as “credit institutions” or “investment firms” within the EU. The term “credit institution” includes an entity engaged in taking deposits or other repayable funds from the public and lending its own funds and taking on the full financial risk of such lending activity (“Banking Activities”).

An entity engaged in Banking Activities is subject to the capital and financial reporting requirements of CRR and CRD.

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”).

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

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.

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.

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”).

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”).

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).

The term “investment firm” is defined as an entity authorized under the Markets in Financial Instruments Directive,

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).

An investment firm that engages in Investment Activities and maintains total consolidated assets of at least EUR 15 billion is subject to the capital and financial reporting requirements of CRR and CRD.

The investment firm, however, 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.

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 2”).

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

(“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 (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).

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.

Such an investment firm is subject to capital and financial reporting requirements established by IFR and IFD (“IFR/IFD Framework”) and is subject to prudential supervision by the national competent authority.

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).

IFR Article 1 and IFD Article 2. The national competent authority may exempt firms that qualify as “small and non-interconnected” as set forth in Article 12(1) of IFR from some of the requirements of the IFR/IFD Framework. IFR Article 6. This Comparability Determination does not address small and non-interconnected firms as none of the EU-domiciled, CFTC-registered nonbank SDs falls into this category.

The IFR/IFD Framework was developed to replace bank-centric CRR and CRD rules that did not address the diverse business models of smaller investment firms. The IFR/IFD Framework is designed to better reflect the nature, size and complexity of investment firms' activities compared to the CRR and CRD framework.

The IFR/IFD Framework also provides simpler and more bespoke capital requirements for investment firms (“EU Investment Firms Capital Rules”)

and proportionate corresponding regulatory reporting requirements.

Prudential rules for investment firms

issued by the European Commission and available at

https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/financial-markets/prudential-rules-investment-firms_en#framework.

IFR Recital (10) (stating that the specific prudential regime for investment firms which, by virtue of their size and interconnectedness with other financial and economic actors, are not considered to be systemic should address the specific business practices of different types of investment firms), IFD Recital 2 (stating that the existing prudential regimes under the CRR and CRD are largely based on successive iterations of the international regulatory standards set for large banking groups that only partially address the specific risks inherent to the diverse activities of a large number of investment firms).

IFR, Recital (29) (stating that a proportionate regulatory reporting framework should be developed in conjunction with the new prudential regime and should be carefully tailored to the business of investment firms and the requirements of the prudential framework).

IFR, as a regulation, is binding in its entirety and directly applicable in all

EU Member States.

IFD, as a directive, was required to be transposed into EU Member States' national law.

EU Member States were required to adopt and apply IFR and IFD by June 26, 2021.

France implemented IFD by Ordinance No. 2021-796 of 23 June 2021 and Decree No. 2021-941 of 15 July 2021.

Consolidated Version of the Treaty on the Functioning of the European Union,

OJ (C 326) 171, Oct. 26, 2012 (“TFEU”), Article 288. Accordingly, IFR is directly applicable and binding law in France, the EU Member State where the EU IFR/IFD nonbank SD is 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 providing, 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 IFD by June 26, 2021, with limited exceptions.

IFR Article 66 and IFD Article 67.

Ordinance No. 2021-796 of 23 June 2021 transposing Directive (EU) 2021 of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms

and

Decree No. 2021-941 of 15 July 2021 transposing Directive (EU) 2021 of the European Parliament and of the Council of 27 November 2019 on the prudential supervision of investment firms.

With respect to financial reporting, IFR and IFD are complemented by implementing technical standards for supervisory reporting under IFR.

In addition, Directive 2013/34/EU

also contains relevant provisions, including a mandate that entities of a certain size be required to prepare annual audited financial statements and a management report.

The relevant provisions of the Accounting Directive are implemented in Articles L.511-35, L.511-37, and L.511-38 of the French Monetary and Financial Code (“French MFC”) and, together with the financial reporting requirements established by the IFR/IFD Framework and the Reporting ITS, are referred to in this Comparability Determination as the “EU Investment Firms Financial Reporting Rules.”

Commission Implementing Regulation (EU) 2021/2284 laying down implementing technical standards for the application of Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to supervisory reporting and disclosures of investment firms, December 10, 2021

(“Reporting ITS”), available here:

https://eur-lex.europa.eu/eli/reg_impl/2021/2284/oj/eng

(Implementing regulation—2021/2284-EN-EUR-Lex).

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”).

Accounting Directive, Article 4 (providing the minimum requirements and schedules to be included in the annual financial statements: the balance sheet, the statement of profit and loss, and notes to the financial statements), Article 34 (stating that Member States must ensure that the financial statements of firms are, when required, audited by approved auditors), and Article 19 (stating that the management report must include a fair review of the development and performance of the firm's business and of its positions, together with a description of the principal risks).

On September 3, 2024, the Applicant submitted the EU IFR/IFD Application requesting that the Commission conduct a Comparability Determination and issue a Comparability Order finding that compliance by Goldman Sachs Paris with the EU capital and the EU financial reporting requirements established pursuant to the IFR/IFD Framework and applicable to CFTC-registered nonbank SDs licensed as investment firms in France are comparable in purpose and effect with corresponding CFTC Capital Rules and CFTC Financial Reporting Rules applicable to a registered nonbank SD under Sections 4s(e) and 4s(f) of the CEA and Commission Regulations 23.101 and 23.105.

Goldman Sachs Paris is currently the only CFTC-registered nonbank SD organized and domiciled in France that is a licensed investment firm subject to the requirements established under the IFR/IFD Framework.

The EU IFR/IFD Application.

The Commission previously issued a Comparability Order on June 24, 2024 to nonbank SDs organized and domiciled in France that are licensed as credit institutions or investment firms and subject to, among other conditions, the capital and financial reporting requirements of CRR and CRD.

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,

89 FR 58572 (July 18, 2024). There are currently no MSPs registered with the Commission and the Applicant has not requested that the Commission issue a Comparability Order with respect to EU nonbank MSPs. Accordingly, the Commission's Comparability Determination and Comparability Order do not address EU nonbank MSPs.

Given that Goldman Sachs Paris is the only EU IFR/IFD nonbank SD that is currently registered with the Commission and subject to the IFR/IFD Framework, the Commission's analysis involved an assessment of how the relevant IFD framework was implemented into the national laws of France.

The Commission did not review how other EU Member States adopted and implemented the relevant IFD framework into their respective national laws. The Commission's review of the applicable supervisory framework was also limited to the supervisory authority and practices of the

Autorité de contrôle prudentiel et de resolution

(“ACPR”), the French authority responsible for the prudential supervision of Goldman Sachs Paris.

Therefore, an entity organized and domiciled in an EU Member State other than France that seeks to register with the Commission as a nonbank SD and to comply with the Commission's capital and financial reporting rules via substituted compliance with the IFR/IFD Framework must submit an application under Commission Regulation 23.106.

Goldman Sachs Paris was initially subject to the capital and financial reporting requirements of the CRR and CRD, however, at the direction of its national competent authority, the firm was informed that it would be subject to the IFR/IFD Framework effective March 31, 2024.

The ACPR (referred to in this Comparability Determination as the “competent authority” or the “relevant regulatory authority”) is an independent “administrative authority” responsible for the oversight of the banking and insurance sectors in France, which includes the prudential supervision of investment firms.

See The ACPR at a Glance,

available at the ACPR's website here:

https://acpr.banque-france.fr/en/lacpr/about-us.

II. General Overview of Commission and EU IFR/IFD Nonbank Swap Dealer Capital Rules

A. General Overview of the CFTC Nonbank Swap Dealer Capital Rules

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 Capital Approach (“Bank-Based Approach”).

17 CFR 23.101.

(i) Tangible Net Worth Approach

Nonbank SDs that are “predominantly engaged in non-financial activities” may elect the TNW Approach.

The TNW Approach requires a nonbank SD to maintain a level of “tangible net worth”

equal to or greater than the higher of: (i) $20 million plus the amount of the nonbank SD's “market risk exposure requirement”

and

“credit risk exposure requirement”

associated with the nonbank SD's swap and related hedge positions that are part of the nonbank SD's swap dealing activities; (ii) 8 percent of the nonbank SD's “uncleared swap margin” amount;

or (iii) the amount of capital required by a registered futures association of which the nonbank SD is a member.

The TNW Approach is intended to ensure the safety and soundness of a qualifying nonbank SD by requiring the firm to maintain a minimum level of tangible net worth that is based on the nonbank SD's swap dealing activities to provide a sufficient level of capital to absorb losses resulting from its swap dealing and other business activities.

17 CFR 23.101(a)(2). The term “predominantly engaged in non-financial activities” is defined in Commission Regulation 23.100 and generally provides that: (i) the nonbank SD's, or its parent entity's, annual gross financial revenues for either of the previous two completed fiscal years represents less than 15 percent of the nonbank SD's, or the nonbank SD's parent's, annual gross revenues for all operations (

i.e.,

commercial and financial) for such years, and (ii) the nonbank SD's, or its parent entity's, total financial assets at the end of its two most recently completed fiscal years represents less than 15 percent of the nonbank SD's, or its parent's, total consolidated financial and nonfinancial assets as of the end of such years. 17 CFR 23.100.

The term “tangible net worth” is defined in Commission Regulation 23.100 and generally means the net worth (

i.e.,

assets less liabilities) of a nonbank SD, computed in accordance with applicable accounting principles, with assets further reduced by a nonbank SD's recorded goodwill and other intangible assets. 17 CFR 23.100.

The terms “market risk exposure” and “market risk exposure requirement” are defined in Commission Regulation 23.100 and generally mean

the risk of loss in a financial position or portfolio of financial positions resulting from movements in market prices and other factors. 17 CFR 23.100. Market risk exposure is the sum of: (i) general market risks including changes in the market value of a particular asset that results from broad market movements, which may include an additive for changes in market value under stressed conditions; (ii) specific risk, which includes risks that affect the market value of a specific instrument but do not materially alter broad market conditions; (iii) incremental risk, which means the risk of loss on a position that could result from the failure of an obligor to make timely payments of principal and interest; and (iv) comprehensive risk, which is the measure of all material price risks of one or more portfolios of correlation trading positions.

The term “credit risk exposure requirement” is defined in Commission Regulation 23.100 and generally reflects the amount at risk if a counterparty defaults before the final settlement of a swap transaction's cash flows. 17 CFR 23.100.

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.

See

17 CFR 23.154.

The National Futures Association (“NFA”) is currently the only entity that is a registered futures association. The Commission will refer to NFA in this document when referring to the requirements or obligations of a registered futures association.

The TNW approach requires a nonbank SD to compute its market risk exposure requirement and credit risk exposure requirement using standardized capital charges contained in Securities and Exchange Commission (“SEC”) Rule 18a-1

that are applicable to entities registered with the SEC as security-based swap dealers (“SBSDs”) or standardized capital charges set forth in Commission Regulation 1.17 applicable to entities registered as FCMs or entities dually registered as an FCM and nonbank SD.

Nonbank SDs that have received Commission or NFA approval pursuant to Commission Regulation 23.102 may use internal models to compute market risk and/or credit risk exposures in calculating their capital requirements in lieu of applying the SEC and CFTC standardized capital charges.

17 CFR 240.18a-1.

17 CFR 23.101(a)(2)(ii)(A).

Id.

(ii) Net Liquid Asset Approach

A nonbank SD that elects the NLA Approach is required to maintain “net capital” in an amount that equals or exceeds the greater of: (i) $20 million; (ii) 2 percent of the nonbank SD's uncleared swap margin amount; or (iii) the amount of capital required by NFA.

The NLA Approach is intended to ensure the safety and soundness of a nonbank SD by requiring the firm to maintain at all times at least one dollar of highly liquid assets to cover each dollar of the nonbank SD's liabilities.

17 CFR 23.101(a)(1)(ii)(A). “Net capital” consists of a nonbank SD's highly liquid assets (subject to haircuts) less the firm's liabilities, excluding certain qualified subordinated debt. 17 CFR 240.18a-1 (calculation of “net capital.”)

A nonbank SD is required to reduce the value of its highly liquid assets by the market risk exposure requirement and/or the credit risk exposure requirement in computing its net capital.

A nonbank SD that does not have Commission or NFA approval to use internal models must compute its market risk exposure requirement and/or credit risk exposure requirement using standardized capital charges contained in SEC Rule 18a-1 as modified by the Commission's rule.

17 CFR 240.18a-1(c) and (d).

17 CFR 23.101(a)(1)(ii). Commission modifications, for example, provide that a nonbank SD may recognize initial margin posted by a counterparty with a third-party custodian for its swap transactions with the nonbank SD in accordance with Commission Regulation 23.157(b) as funds held by the nonbank SD in computing any undermargined capital charges when computing its adjusted net capital notwithstanding SEC Rule 18a-1(c)(ix)(C) which requires a security-based swap dealer to exclude initial margin posted by its counterparty with third-party custodians in computing undermargined capital charges unless certain conditions are met, including that the dealer, custodian, and counterparty have executed a legally binding agreement that provides the dealer with the right to access the collateral in the event of the default of the counterparty. 17 CFR 23.101(a)(1)(ii)(C).

A nonbank SD that has obtained Commission or NFA approval may use internal market risk and/or credit risk models to compute its market risk exposure requirement and/or credit risk exposure requirement in lieu of applying the standardized capital charges.

A nonbank SD that is approved to use models to compute its market risk exposure requirement or credit risk exposure requirement is further required to maintain a minimum of $100 million of “tentative net capital.”

The Commission's NLA Approach is consistent with the SEC's capital rule for SBSDs and is based on the Commission's capital rule for FCMs and the SEC's capital rule for securities broker-dealers (“BDs”). The quantitative and qualitative requirements for NLA Approach internal market and credit risk models are also consistent with the quantitative and qualitative requirements under the Commission's Bank-Based Approach as described below.

17 CFR 23.102.

17 CFR 23.101(a)(1)(ii)(A)(

). The term “tentative net capital” is defined in Commission Regulation 23.101(a)(1)(ii)(A)(

by reference to SEC Rule 18a-1 and generally means a nonbank SD's net capital prior to deducting market risk and credit risk capital charges.

(iii) Bank-Based Approach

The Commission's Bank-Based Approach for computing regulatory capital for nonbank SDs is based on certain capital requirements imposed by the Federal Reserve Board for bank holding companies.

The Bank-Based Approach also is consistent with the Basel Committee on Banking Supervision's (“BCBS”) international framework for bank capital requirements (“BCBS framework” or “Basel standards”).

The Bank-Based Approach requires a nonbank SD to maintain regulatory capital equal to or in excess of each of the following requirements: (i) $20 million of common equity tier 1 capital; (ii) an aggregate of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital (including qualifying subordinated debt) equal to or greater than 8 percent of the nonbank SD's risk-weighted assets (provided that common equity tier 1 capital comprises at least 6.5 percent of the 8 percent minimum requirement); (iii) an aggregate 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 uncleared swap margin amount; and (iv) an amount of capital required by NFA.

The Bank-Based Approach is intended to ensure the safety and soundness of a nonbank SD by requiring the firm to maintain at all times qualifying capital

in an amount sufficient to absorb decreases in firm assets, absorb increases in firm liabilities, and meet obligations to swap counterparties, other creditors, and market participants, without the firm becoming insolvent.

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

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 European Central Bank, 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/.

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

The terms used in the Commission's Bank-Based Approach are defined by reference to regulations of the Federal Reserve Board.

The term “common equity tier 1 capital” is defined for purposes of the CFTC Capital Rules to generally mean the sum of a nonbank SD's common stock instruments and any related surpluses, retained earnings, and accumulated other comprehensive income.

The term “additional tier 1 capital” is defined to include equity instruments that are subordinated to claims of general creditors and subordinated debt holders, but contain certain provisions that are not available to common stock, such as the right of nonbank SD to call the instruments for redemption or to convert the instruments to other forms of equity.

The term “tier 2 capital” is defined to include certain types of instruments that include both debt and equity characteristics (

e.g.,

certain perpetual preferred stock instruments and subordinated term debt instruments).

Subordinated debt also must meet certain requirements to qualify as tier 2 capital, including that the term of the subordinated debt instrument is 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 the debt instrument is an effective subordination of the rights of the lender to receive any payment, including accrued interest, to other creditors.

Common equity tier 1 capital, additional tier 1 capital, and tier 2 capital are unencumbered and generally long-term or permanent forms of capital that help ensure that a nonbank SD will be able to absorb losses resulting from its operations and maintain confidence in the nonbank SD as a going concern. In addition, in setting an equity ratio requirement, this limits the amount of asset growth and leverage a nonbank SD can incur, as a nonbank SD must fund its asset growth with a certain percentage of regulatory capital.

Id.

Commission Regulation 23.101(a)(1)(i) references Federal Reserve Board Rule 217.20 for purposes of defining the terms used in establishing the minimum capital requirements under the Bank-Based Approach. 17 CFR 23.101(a)(1)(i) and 12 CFR 217.20.

12 CFR 217.20(b).

12 CFR 217.20(c).

12 CFR 217.20(d).

The subordinated debt must meet the requirements set forth in SEC Rule 18a-1d (17 CFR 240.18a-1d). 17 CFR 23.101(a)(1)(i)(B) provides that the subordinated debt used by a nonbank SD to meet its minimum capital requirement under the Bank-Based Approach must satisfy the conditions for subordinated debt under SEC Rule 18a-1d.

A nonbank SD must also compute its risk-weighted assets using standardized charges or, if approved, internal models. The process of risk-weighting assets involves adjusting the notional or carrying value of each asset based on the inherent risk of the asset. Less risky assets are adjusted to lower values (

i.e.,

they have less risk weight) than more risky assets. As a result, nonbank SDs are required to hold lower levels of regulatory capital for less risky assets and higher levels of regulatory capital for riskier assets.

Nonbank SDs not approved to use internal models to risk-weight their assets must compute market risk capital charges using the standardized charges contained in Commission Regulation 1.17 and SEC Rule 18a-1, and must compute their credit risk charges using the standardized capital charges set forth in regulations of the Federal Reserve Board for bank holding companies in Subpart D of 12 CFR part 217.

17 CFR 23.101(a)(1)(i)(B), 17 CFR 23.100 (providing the definition of the term BHC risk-weighted assets).

Standardized market risk charges are computed under Commission Regulation 1.17 and SEC Rule 18a-1 by multiplying, as appropriate to the specific asset schedule, the notional value or market value of the nonbank SD's proprietary financial positions (such as swaps, security-based swaps, futures, equities, and U.S. Treasuries) by fixed percentages set forth in the Regulation or Rule.

Standardized credit risk charges require the nonbank SD to multiply on-balance sheet and off-balance sheet exposures (such as receivables from counterparties, debt instruments, and exposures from derivatives) by predefined percentages set forth in the applicable Federal Reserve Board regulations contained in Subpart D of 12 CFR part 217.

17 CFR 1.17(c)(5) and 17 CFR 240.15c3-1(c)(2).

A nonbank SD also may apply to the Commission or NFA for approval to use internal models to compute market risk exposure and/or credit risk exposure for purposes of determining its total risk-weighted assets.

Nonbank SDs approved to use models for the calculation of credit risk or market risk, or both, must follow the model requirements set forth in Federal Reserve Board regulations for bank holding companies (Subpart E and F, respectively, of 12 CFR part 217). Credit risk and market risk capital charges computed with internal models require the estimation of potential losses, with a certain degree of likelihood, within a specified time period, of a portfolio of assets. Internal models allow for consideration of potential co-movement of prices across assets in the portfolio, leading to offsets of gains and losses. Internal credit risk models can also further include an estimation of the likelihood of default of counterparties.

17 CFR 23.102.

B. General Overview of Capital Rules for EU IFR/IFD Nonbank Swap Dealers

The Applicant stated that the aim of IFR and IFD is to apply tailored prudential requirements and supervisory measures to the risk profile and business model of investment firms to ensure that such investment firms operate on a sound financial basis and are managed in an orderly manner, including in the best interest of their clients, while ensuring financial stability.

The Applicant further stated that the EU Investment Firms Capital Rules require each EU IFR/IFD nonbank SD to hold a sufficient amount of equity capital and qualifying subordinated debt, based on the firm's size, complexity, and activities, to absorb potential losses that the firm may incur if the firm were to experience financial distress.

In that regard, the EU Investment Firms Capital Rules impose capital requirements that are specific to firms which are not systemic by virtue of their size and interconnectedness with other financial and economic actors.

The capital requirements for such firms are intended to be proportionate to the size, activities, and degree of interconnectedness of the firm and are calculated according to certain metrics which have been designed as proxies for the risks associated with the firm, its counterparties, and creditor obligations.

EU IFR/IFD Application at 2. IFR Recital (10) and IFD Recital (4) (stating that the requirements of the CRR and CRD are designed to address risk faced by credit institutions (

i.e.,

banks) through economic cycles and to protect depositors from possible failure, and that the risks faced and posed by most investment firms are substantially different and such differences should be clearly reflected in the prudential framework for investment firms).

EU IFR/IFD Application at 3; IFR Recitals (14)-(16) and (23)-(26) (stating minimum capital requirements for investment firms).

IFR Recitals (9)-(16).

EU IFR/IFD Application at 3; IFR Recitals (14)-(16) and (23)-(26).

The EU Investment Firms Capital Rules require EU IFR/IFD nonbank SDs to maintain regulatory capital in the form of common equity tier 1 capital, additional tier 1 capital, and tier 2

capital

100

in an amount that equals or exceeds the highest of the EU IFR/IFD nonbank SD's “permanent minimum requirement” (“PMR”), “fixed overheads requirement” (“FOR”), and the sum of the firm's “K-factor requirements” (“KFR”).

101

The resulting total minimum capital requirement (“total own funds requirement” or “TOFR”) may also be supplemented with additional requirements imposed by the EU IFR/IFD nonbank SD's relevant regulatory authority.

102

Common equity tier 1 capital must comprise at least 56 percent of the EU IFR/IFD nonbank SD's TOFR and tier 1 capital must comprise at least 75 percent of TOFR.

103

100

IFR Articles 9 and 11. As further discussed below, the EU Investment Firms Capital Rules incorporate the CRR for definitions of the categories of instruments that qualify as regulatory capital.

101

IFR Article 11(1).

102

IFR Article 11(3); IFD Articles 40-41.

103

IFR Article 9.

Under the EU Investment Firms Capital Rules, common equity tier 1 capital is composed of common equity capital instruments, retained earnings, accumulated other comprehensive income, and other unrestricted reserves of the EU IFR/IFD nonbank SD.

104

Additional tier 1 capital is composed of capital instruments other than common equity and retained earnings (

i.e.,

common equity tier 1 capital), and includes certain convertible debt securities and preferred stock.

105

Tier 2 capital instruments, which provide an additional layer of supplementary capital, includes other reserves, hybrid capital instruments, and certain subordinated debt.

106

104

IFR Article 9. Common Equity Tier 1 capital is defined in accordance with Chapter 2 of Title I of Part Two of CRR.

105

IFR Article 9. Additional Tier 1 capital is defined in accordance with Chapter 3 of Title I of Part Two of CRR.

106

IFR Article 9. Tier 2 capital is defined in accordance with Chapter 4 of Title I of Part Two of CRR.

To qualify as tier 2 regulatory capital, capital instruments and subordinated debt must meet certain conditions including that: (i) the capital instruments are issued by the EU IFR/IFD nonbank SD and are fully paid-up; (ii) the capital instruments are not purchased by the EU IFR/IFD nonbank SD or its subsidiaries; (iii) the claims on the principal amount of the capital instruments rank below any claim from instruments that are “eligible liabilities,”

107

meaning that they are effectively subordinated to claims of all non-subordinated creditors of the EU IFR/IFD nonbank SD; (iii) the capital instruments have an original maturity of at least five years; and (iv) the provisions governing the capital instruments do not include any incentive for the principal amount to be repaid by the EU IFR/IFD nonbank SD prior to the capital instruments' respective maturity.

108

107

“Eligible liabilities” are non-capital instruments, including instruments that are directly issued by the EU IFR/IFD nonbank SD and fully paid up with remaining maturities of at least a year. CRR, Articles 72a and 72b. In addition, the liabilities cannot be owned, secured, or guaranteed, by the EU IFR/IFD nonbank SD itself, and the EU IFR/IFD nonbank SD cannot have either directly or indirectly funded their purchase. CRR, Article 72b.

108

IFR Article 9 and CRR Article 63.

As noted above, the amount of regulatory capital that an EU IFR/IFD nonbank SD is required to hold is the highest of the firm's PMR, FOR, or KFR. The PMR for an EU IFR/IFD nonbank SD is 750,000 euros (“EUR”).

109

The FOR is an amount equal to one quarter of the firm's relevant expenditures (calculated by taking the firm's total expenditures before distribution of profits and deducting certain expenses) in the previous year.

110

As described in more detail below, the KFR is a mixture of activity-based and exposure-based capital requirements, including capital charges related to net position risk in trading positions (“K-NPR”), the value of the firm's daily trading flow (“K-DTF”), and the risk of trading counterparty default (including counterparties to over the counter (“OTC”) derivatives) (“K-TCD”).

111

109

IFD Article 9.

110

IFR Article 13. Expenses that may be deducted include staff bonuses and other compensation, to the extent the expenses depend on the net profit of the investment firm in the respective year.

111

IFR Article 15.

The Applicant represented that while the PMR, which is effectively the floor of an investment firm's minimum capital requirements, is relatively modest at EUR 750,000, in practice, an EU IFR/IFD nonbank SD's minimum capital requirement is likely to be greater—either the FOR or, more likely, the KFR.

112

The EU Investment Firms Capital Rules set forth three broad risk categories of “K-factors” that, as applicable and relevant to an individual EU IFR/IFD, are to be included in the calculation of total KFR:

113

112

EU IFR/IFD Application at 6.

113

IFR Article 15.

(1) “Risk-to-client” K-factors, which covers risks carried by an investment firm during its services, actions, or responsibilities, which could negatively impact clients. These relate to assets under management (“K-AUM”),

114

client money held (“K-CMH”),

115

assets safeguarded and administered (“K-ASA”),

116

and client orders handled (“K-COH”);

117

114

K-AUM is calculated on the first business day of each month as the rolling average of the value of the monthly assets under management measured on the last business day of each of the previous 15 months converted into the entities' functional currency at that time, excluding the three most recent monthly values. IFR Article 17(1).

115

K-CMH is calculated on the first business day of each month as the rolling average of the value of total daily money held measured at the end of each business day for the previous nine months, excluding the three most recent months. IFR Article 18(1).

116

K-ASA is calculated on the first business day of each month as the rolling average of the value of the total daily assets safeguarded and administered measured at the end of each business day for the previous nine months, excluding the three most recent months. IFR Article 19(1).

117

K-COH is calculated on the first business day of each month as the rolling average of the value of the total daily client orders handled, measured throughout each business day over the previous six months, excluding the three most recent months. IFR Article 20(1).

(2) “Risk-to-market” K-factors, which apply capital requirements against the impact an investment firm could have on the markets in which it operates, and on the counterparties with which it trades. This relates to net position risk (“K-NPR”)

118

or, where permitted by the relevant regulatory authority for specific types of investment firms that deal on own account through clearing members, to the total margins required by an investment firm's clearing member (“K-CMG”);

119

and

118

K-NPR is calculated by using one of the permitted approaches to calculating market risk under CRR. IFR Article 22 (cross-referencing CRR with respect to the calculation methodologies for K-NPR) and Article 57 (setting out transitional provisions regarding the calculation methodologies applicable under CRR to market risk in the period before the methodologies referred to in IFR Article 22 become effective).

119

K-CMG is calculated as the third highest amount of total margin required on a daily basis by a clearing member carrying the account and clearing the positions of the EU IFR/IFD nonbank SD at a qualified central counterparty (“QCCP”) over the preceding three months, multiplied by a factor of 1.3. IFR Article 23(2). A “QCCP” is defined as a central counterparty that has been authorized or recognized by an appropriate regulatory authority.

(3) “Risk-to-firm” K-factors, which are intended to capture an investment firm's exposure to the default of its trading counterparties (“K-TCD”),

120

concentration risk in an investment firm's large exposures to specific

counterparties (“K-CON”),

121

and operational risks from an investment firm's daily trading flow (“K-DTF”).

122

120

K-TCD is calculated by multiplying the exposure value, a risk factor ranging from 1.6 percent to 8 percent depending on the counterparty type, the credit valuation adjustment (“CVA”), and a factor of 1.2. IFR, Article 26. The exposure value equals the replacement cost plus the potential future exposure (for derivatives contracts) minus the value of eligible collateral, as determined in accordance with IFR Articles 28-30. IFR Article 27. The CVA is an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty to reflect the current market value of the credit risk of the counterparty and is determined in accordance with IFR Article 32.

121

K-CON is calculated as an aggregate amount of a capital add-on requirement computed for each client or group of connected clients to whom the EU IFR/IFD nonbank SD has exposures exceeding certain thresholds specified in IFR Article 39. Article 39 of IFR sets out the circumstances that trigger a client-level add-on and the scope of exposures to be assessed; the add-ons for all affected clients/connected groups are then aggregated to produce the firms' K-CON amount.

122

K-DTF is calculated on the first business day of each month as the rolling average of the value of the total daily trading flow for the investment firm's trades, executed for its own account or on behalf of clients, measured each business day over the previous nine months, excluding the three most recent months. The DTF is measured as the sum of the absolute value of buy and sell for both cash trades and derivatives transactions. For cash trades, the value is the amount paid or received on each trade. For derivatives, the value of the trade is the notional amount of the contract. IFR Article 33.

In computing its TOFR based on K-factors, an EU IFR/IFD nonbank SD would apply a K-factor coefficient calibration to the K-factors as follows: (i) K-AUM 0.02%; (ii) K-CMH (on segregated accounts) 0.4%; (iii) K-CMH (non-segregated accounts) 0.5%; (iv) K-ASA 0.04%; (v) K-COH cash trades 0.1%; (vi) K-COH derivatives 0.01%; (vii) K-DTF cash trades 0.1%; and (viii) K-DTF derivatives 0.01%.

123

There is no coefficient calibration applied to the K-factor for K-NPR and K-CON.

124

The coefficients set forth in IFR were designed to reflect the inherent risk of each metric, based on historical data and benchmarking. In addition, the European Banking Authority (“EBA”)

125

developed regulatory technical standards, adopted by the European Commission in the form of delegated regulations, to further specify certain elements of the K-factors calculation, including adjustments to K-DTF coefficients in stressed market conditions.

126

123

For example, if an EU IFR/IFD nonbank SD held customer funds on behalf of its clients that are required to be segregated as part of its Investment Activities, the firm would calculate its K-CMH as the rolling average of the value of total daily money held for customers at the end of each business day for the previous nine months (excluding the most recent three months) multiplied by a coefficient factor of .4%. Assuming that the EU IFR/IFD nonbank SD was holding 500 million EUR of customer funds, the K-CMH would be 2,000,000 EUR (500,000,000 × .004).

124

IFR Article 15.

125

The EBA is an independent EU authority that contributes to the stability and effectiveness of the European financial system through clear, consistent, transparent and fair regulation.

126

Commission Delegated Regulation (EU) 2022/76 of 22 September 2021 supplementing Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to regulatory technical standards specifying adjustments to the K-factor “daily trading flow” (K-DTF) coefficients

(September 22, 2021). See also

Commission Delegated Regulation (EU); Commission Delegated Regulation (EU) 2022/25 of 22 September 2021 supplementing Regulation (EU) 2019/2033 of the European Parliament and of the Council with regard to regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of that Regulation

(September 22, 2021) and

Commission Delegated Regulation (EU) 2022/244 of 24 September 2021 supplementing Regulation (EU) 2019/2033 of the European Parliament and the Council with regard to regulatory technical standards specifying the amount of total margin for calculation of the K-factor “clear margin given” (K-CMG)

(September 24, 2021). A list of implementing and delegated acts for IFR is available at the European Commission's website:

https://finance.ec.europa.eu/regulation-and-supervision/financial-services-legislation/implementing-and-delegated-acts/investment-firms-regulation_en.

The K-factor requirements that are potentially most relevant to investment firms, including EU IFR/IFD nonbank SDs, engaging in swap dealing activities include K-NPR, K-CMG, and K-TCD. The K-factor requirement for net position risk, K-NPR, is intended to capture market risk in an EU IFR/IFD nonbank SD's trading book, including positions in debt instruments, equity instruments, and collective investment undertakings.

127

K-NPR also applies to positions that are not in the trading book but create foreign exchange or commodities risk.

128

127

IFR Article 21(3). In addition, the term “trading book” is defined as all positions in financial instruments and commodities held by an institution either with trading intent or to hedge positions held with trading intent. IFR Article 4(54). The term “positions held with trading intent” is, in turn, defined as: (i) proprietary positions and positions arising from client servicing and market making; (ii) positions held to be resold in the short term; or (iii) positions intended to benefit from actual or expected short-term price differences between buying and selling prices or from other price or interest rate variations. IFR Article 4(55).

128

IFR Article 21(4).

The K-NPR is calculated using the methodologies for determining risk-based capital amounts for market risk under the CRR.

129

For the purpose of calculating K-NPR, an EU IFR/IFD nonbank SD can either apply a standardized approach to market risk, or, if approved by the relevant regulatory authority, use an internal model.

130

Following the effective date of certain amendments to CRR, planned for January 1, 2027, the current model approach will be replaced by an alternative standardized approach and an alternative internal model approach, further discussed below.

131

129

IFR Articles 22 and 57. As noted, the CRR sets forth the calculating methodologies for the risk-based capital requirements for market risk applicable to larger and interconnected nonbank SDs that are considered as “credit institutions” (

i.e.,

treated as banks) for prudential requirements purposes. For reference, the Commission has considered the capital requirements for market risk under CRR in connection with its assessment of the capital requirements applicable to larger and interconnected nonbank SDs domiciled in the EU and subject to the CRR/CRD framework. The Commission has found the capital requirements applicable to nonbank SDs under CRR/CRD comparable to the capital requirements under the CFTC Capital Rules.

See 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,

89 FR 58572 (July 18, 2024).

130

IFR Articles 22 and 57 and CRR (as amended by Regulation (EU) 2019/630), Part Three, Title IV.

131

IFR Articles 22 and 57. The standardized approach for market risk is set out in Chapters 2, 3 and 4 of Title IV of Part Three of CRR. The alternative standardized approach and the alternative internal model approach for market risk are set out in Chapter 1a and Chapter 1b, respectively, of Title IV of Part Three of CRR. The effective date of the provisions setting forth the alternative standardized approach and alternative internal model approach was postponed from June 26, 2026 (originally planned as set forth in IFR Article 57) to January 1, 2027.

See

European Commission's announcement of June 12, 2025, available here:

https://finance.ec.europa.eu/news/commission-proposes-postpone-one-additional-year-market-risk-prudential-requirements-under-basel-iii-2025-06-12_en.

Standardized market risk charges are generally calculated by multiplying the notional or carrying amount of net positions or of adjusted net positions by risk-weighting factors, which are based on the underlying market risk of each asset or exposure. The sum of the calculated amounts comprises the portion of the risk exposure amount attributable to market risk.

132

CRR, Part Three, Title IV, Chapter 2.

Standardized calculation of market risk exposures under the EU Investment Firms Capital Rules may follow one of three approaches. 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.

133

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.

134

133

CRR, Part Three, Title IV, Chapter 4, Article 360.

134

CRR, Part Three, Title IV, Chapter 4, Articles 359 and 361.

The EU Investment Firms Capital Rules address the risk of derivatives positions by generally treating them as exposures on their underlying assets,

135

with options being delta-adjusted.

136

Positions in gold are subject to the same treatment as foreign exchange risk.

137

The standardized schedules of the EU Investment Firms Capital Rules provide a narrowly defined asset classification

to assign risk-weighting factors, trading off more generous offsets within narrower sets of positions to which they apply. For instance, the maturity-based method for calculating market risk charges on debt instruments required by EU Investment Firms Capital Rules permits netting across maturity bands at increased capital charges.

138

EU IFR/IFD nonbank SDs may also apply to the relevant regulatory authority for permission to use an internal model to compute their market risk exposure (K-NPR).

139

The EU IFR/IFD Capital Rules set forth quantitative and qualitative requirements that models must meet to receive approval.

140

Quantitative and qualitative requirements address, among other issues, governance, validation, monitoring, and review. Modeled market risk charges generally require the estimation of potential losses, with a certain degree of likelihood, within a specified period, of a portfolio of assets. Models allow for consideration of potential co-movement of prices across assets in the portfolio, leading to offsets of gains and losses.

141

135

CRR, Part Three, Title II, Chapter 6, Section 5, Articles 276-278.

136

CRR, Part Three, Title IV, Chapter 2, Section 1, Articles 328-330.

137

CRR, Part Three, Title IV, Chapter 4, Articles 357-358.

138

CRR, Part Three, Title IV, Chapter 2, Section 2, Subsection 2.

139

For EU IFR/IFD nonbank SDs domiciled in France, such as Goldman Sachs Paris, the relevant regulatory authority is the ACPR.

140

IFR Article 22 and CRR, Articles 365-367 (as amended by Regulation (EU) 2019/630).

141

The EU IFR/IFD Capital Rules require EU IFR/IFD nonbank SDs with internal model approval for market risk to use a VaR model with a 99 percent, one-tailed confidence interval with: (i) price change equivalent to 10 business-day movement in rates and prices; (ii) effective historical observation periods of at least one year; and (iii) at least monthly data set updates. CRR, Article 365(1).

As noted above, following the effective date of certain amendments to CRR, planned for January 1, 2027, the current market risk model approach will be replaced. In addition to the existing standardized approach, the calculation methodologies for capital requirement for market risk will include an alternative standardized approach and an alternative model approach. The alternative standardized approach uses a sensitivities-based method that includes a residual risk add-on and a default risk charge.

142

The sensitivities-based method aggregates shocked factor losses across calibrated risk weights, buckets, and three correlation scenarios, and takes the most conservative result.

143

The alternative models approach incorporates an aggregate modellable risk charge, an expected-shortfall component, a stressed expected shortfall charge for non-modellable risk factors, a default risk charge, and a profit and loss (P&L) attribution add-on, but derives these charges from validated internal models subject to P&L attribution and back-testing and therefore depends on firm-specific model estimation subject to supervisory approval.

144

142

IFR Article 22(b) (cross-referencing CRR, Part III, Title IV, Chapter 1a, Article 325c-325ay).

143

Id.

CRR Articles 325d-325h.

144

IFR Article 22(b) (cross-referencing CRR, Part III, Title IV, Chapter 1b, Articles 325az-325bp).

The EU IFR/IFD nonbank SD may also apply to the relevant regulatory authority for permission to use K-CMG, instead of K-NPR, to calculate its market risk requirement for specified positions, where clearing and settlement take place under the responsibility of a clearing member of a central clearing counterparty (“CCP”).

145

To calculate K-CMG, an EU IFR/IFD nonbank SD needs to record its total margin required, as calculated by applying the margin model of the relevant clearing member or CCP, as applicable, on a daily basis for the previous three months, and using the third highest amount (the “total margin”). The total margin amount is then multiplied by a coefficient calibration factor of 1.3 to determine the firm's minimum total own funds requirement under K-CMG.

146

145

IFR Article 23.

146

Id.

EU IFR/IFD nonbank SDs' positions are also subject to charges for credit risk. More specifically, the trading counterparty default K-factor requirement, K-TCD, is designed to capture the risk of EU IFR/IFD nonbank SD's exposure to the default of its trading counterparties in respect to certain types of transactions that are recorded in the trading book of the EU IFR/IFD nonbank SD that trades in its own name, including OTC derivative contracts.

147

The capital requirements for K-TCD are calculated by using a formula that takes into account the transaction's exposure value, the risk factor that applies to the counterparty type, and the CVA.

148

The exposure value is determined by using replacement cost and potential future exposure, and takes into consideration collateral held against the exposure.

149

The risk factor is either 1.6 percent for counterparties that are central governments, central banks, public sector entities, credit institutions or investment firms, or 8 percent for other counterparties.

150

The CVA, which is 1 or 1.5 depending on the transaction, makes an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty to reflect the current market value of the credit risk of the counterparty to the EU IFR/IFD nonbank SD.

151

As reflected in the calculation formula, the capital requirements for K-TCD are determined using a simplified application of the requirements for counterparty credit risk under CRR.

152

An EU IFR/IFD nonbank SD may also ask permission from the relevant competent authority to apply the standardized approach for measuring counterparty credit risk (“SA-CCR”) to calculate the capital requirements for credit risk.

153

147

But excluding derivative contracts directly or indirectly cleared through a CCP (provided various conditions are met), exchange-traded derivative contracts and derivatives contracts held for hedging a position of the firm resulting from an activity outside of the trading book. Furthermore, transactions with central government and central banks, where the underlying exposures receive a 0 percent risk weight under Article 114 of CRR, multilateral development banks listed in Article 117(2) of CRR and international organizations listed in Article 118 of CRR need not to be included when calculating K-TCD.

148

IFR Article 26.

149

IFR Articles 26 and 27.

150

IFR Article 26.

151

IFR Articles 26 and 32.

152

European Commission,

Proposal for a Regulation of the European Parliament and of the Council on the prudential requirements of investment firms and amending Regulations (EU) No 575/2013, (EU) No 600/2014 and (EU)_No 1093/2010,

(Dec. 20, 2017) at p. 5 (“IFR Proposal”) at 13. For reference, the Commission has considered the capital requirements for counterparty risk under CRR in connection with its assessment of the capital requirements applicable to larger and interconnected nonbank SDs domiciled in the EU and subject to the CRR/CRD framework. The Commission has found the capital requirements applicable to nonbank SDs under CRR/CRD comparable to the capital requirements under the CFTC Capital Rules.

89 FR 58572 (July 18, 2024).

153

IFR Article 25(4) (cross-referencing CRR, Part Three, Title II (Capital Requirements for Credit Risk), Chapter 6 (Counterparty Credit Risk), Sections 3 (Standardised Approach for Counterparty Credit risk), 4 (Simplified Standardised Approach for Counterparty Credit Risk), or 5 (Original Exposure Method)). Of the three methods cross-referenced in IFR Article 25(4), only SA-CCR is available to the EU IFR/IFD nonbank SD discussed in this Comparability Determination. CRR Article 237a (setting forth conditions for using simplified methods for calculating the exposure value depending on whether the size of the firm's on- and off-balance sheet derivatives business exceeds certain thresholds). As further discussed below, SA-CCR is a non-model, rule-based approach to calculating counterparty credit risk established by the BCBS framework and available under both the CFTC Capital Rules and CRR.

Furthermore, in addition to the minimum capital requirement established by the PMR, FOR, or K-factors, the EU Investment Firms Capital Rules also impose separate liquidity requirements on EU IFR/IFD nonbank SDs to address liquidity risk. Specifically, under the EU Investment Firms Capital Rules' “minimum liquidity requirement,” an EU IFR/IFD

nonbank SD is required to hold a minimum amount of high quality liquid assets generally equivalent to at least one third of the firm's fixed overheads requirement or FOR after applying appropriate haircuts to account for market risk.

154

The EU IFR/IFD Capital Rules' liquidity requirements are intended to help ensure that EU IFR/IFD nonbank SDs can fund the initial stages of a wind-down process, if wind-down becomes necessary. The objective of the “minimum liquidity requirement” is to ensure that investment firms can function in an orderly manner over time, without the need to set aside liquidity specifically for times of stress.

155

154

IFR Article 43 and IFR Recital 28.

155

IFR Recital 28. IFR Recital 28 provides that investment firms should have internal procedures to monitor and manage liquidity requirements. IFR Recital 28 further provides that investment firms should hold a minimum of one third of their FOR in high quality, liquid assets at all times.

In addition, under the internal capital adequacy and risk assessment (“ICARA”) process requirements, an EU IFR/IFD nonbank SD is required to implement sound, effective, and comprehensive arrangements, strategies, and processes to assess and maintain on an ongoing basis the amounts, types, and distribution of capital and liquid assets that it considers adequate to cover the nature and level of risk which the firm may pose to others and to which the firm itself is or might be exposed.

156

The arrangements, strategies, and processes must be appropriate to the nature, scale and complexity of the activities of the EU IFR/IFD nonbank SD and subject to regular internal review.

157

An EU IFR/IFD nonbank SD determines through the ICARA process any additional capital and liquidity requirements it meet in addition to the minimum requirements.

156

IFD Article 24; French MFC Article L. 533-2-2 and Order of November 3, 2014, on the prudential supervision and risk assessment process for banking service providers and investment firms other than portfolio management companies.

157

IFD Article 24.

III. Commission Analysis of the Comparability of the EU Investment Firms Capital and the EU Investment Firms Financial Reporting Rules With the CFTC Capital Rules and CFTC Financial Reporting Rules

The following section provides a comparison and analysis of the regulatory requirements of the EU Investment Firms Capital Rules and EU Investment Firms Financial Reporting Rules with the CFTC Capital Rules and CFTC Financial Reporting Rules. Immediately following a description of the requirement(s) of the CFTC Capital Rules and CFTC Financial Reporting Rules for which a comparability determination was requested by the Applicant, the Commission provides a description of the EU's comparable laws, regulations, and rules. The Commission then provides a discussion of the comparability of, or differences between, the EU Investment Firms Capital Rules and the EU Investment Firms Reporting Rules with the corresponding CFTC Capital Rules and CFTC Financial Reporting Rules, including any material differences between the respective rules.

The Commission understands that EU IFR/IFD nonbank SDs, as of the date of this determination, are subject to risk-based capital requirements, which contain elements of the BCBS international framework for banking institutions while aiming to better align the applicable requirements to the EU IFR/IFD nonbank SDs' business model. As such, the Commission performed this Comparability Determination by primarily assessing the comparability of the EU Investment Firms Capital Rules with the Commission's Bank-Based Approach. For clarity, the Commission did not assess the comparability of the EU Investment Firms Capital Rules to the Commission's TNW Approach or NLA Approach.

The capital and financial reporting regimes are complex structures comprised of interrelated regulatory components. Differences in how jurisdictions approach and implement these regimes are expected, even among jurisdictions that base their requirements on international principles and standards such as the those set forth in the BCBS international framework. Therefore, the Commission's comparability determination involves an assessment of the relevant requirements of the foreign jurisdiction and how those requirements, viewed in the aggregate, lead to an outcome that is comparable to the CFTC's corresponding requirements. Consistent with this approach, the Commission has grouped the CFTC's capital and financial reporting rules into key categories that help focus the analysis on whether the foreign jurisdiction's capital and financial reporting requirements are comparable to the Commission's in purpose and effect, and not whether the foreign jurisdiction's requirements meet every aspect or contain identical elements.

The key categories of the EU Investment Firms Capital Rules and EU Investment Firms Reporting Rules reviewed by the Commission and discussed below include: (i) the quality of the equity and debt instruments that qualify as regulatory capital, and the extent to which the regulatory capital represents committed and permanent capital that would be available to absorb unexpected losses or counterparty defaults; (ii) the process of establishing minimum capital requirements for an EU IFR/IFD nonbank SD and how such process addresses market risk and credit risk of the firm's on-balance sheet and off-balance sheet exposures; (iii) the financial reports and other financial information submitted by an EU IFR/IFD nonbank SD to its regulatory authority to effectively monitor the financial condition of the firm; and (iv) the regulatory notices and other communications between an EU IFR/IFD nonbank SD and the relevant regulatory authority that detail potential adverse financial or operational issues that may impact the firm.

A. Regulatory Objectives of CFTC Capital Rules and CFTC Financial Reporting Rules and EU Investment Firms Capital Rules and the EU Financial Reporting Rules

1. Regulatory Objectives of CFTC Capital Rules and CFTC Financial Reporting Rules

The regulatory objectives of the CFTC Capital Rules and the CFTC Financial Reporting Rules are to further the Congressional mandate to ensure the safety and soundness of nonbank SDs to mitigate the greater risk to nonbank SDs and the financial system arising from the use of swaps that are not cleared.

158

A primary function of the nonbank SD's capital is to protect the solvency of the firm from decreases in the value of firm assets, increases in the value of firm liabilities, and firm losses, including losses resulting from counterparty defaults and margin collateral failures, by requiring the firm to maintain an appropriate level of quality capital, including qualifying subordinated debt, to absorb such losses without becoming insolvent. With respect to swap positions, capital and margin perform complementary risk mitigation functions by protecting nonbank SDs, containing the amount of risk in the financial system as a whole, and reducing the potential for contagion arising from uncleared swaps.

158

7 U.S.C. 6s(e)(3)(A).

The objective of the CFTC Financial Reporting Rules is to provide the Commission with the means to monitor and assess a nonbank SD's financial condition, including the nonbank SD's compliance with minimum capital requirements. The CFTC Financial Reporting Rules are designed to provide

the Commission and NFA, which, along with the Commission, oversees nonbank SDs' compliance with Commission regulations, with a comprehensive view of the financial health and activities of the nonbank SD. The Commission's rules require nonbank SDs to file financial information, including periodic unaudited and annual audited financial statements, specific financial position information, and notices of certain events that may indicate a potential financial or operational issue that may adversely impact the firm's ability to meet its obligations to counterparties and other creditors in the swaps market, or impact the firm's solvency.

159

17 CFR 23.105.

2. Regulatory Objective of the EU Investment Firms Capital Rules and the EU Investment Firms Reporting Rules

The regulatory objective of the EU Investment Firms Capital Rules is to ensure the safety and soundness of EU IFR/IFD nonbank SDs in order to protect counterparties and customers and the derivatives and financial markets more generally.

160

The EU Investment Firms Capital Rules are designed to preserve the financial stability and solvency of an EU IFR/IFD nonbank SD by requiring the firm to maintain sufficient equity and qualifying subordinated debt based on the EU IFR/IFD nonbank SD's activities and specific business practices.

161

The purpose of the EU Investment Firms Capital Rules is to impose prudential requirements that are calibrated in a manner proportionate to the type of investment firm, the best interests of the clients of that type of firm, and the promotion of the smooth and orderly functioning of the markets in which that type of firm operates.

162

The EU Investment Firms Capital Rules are also designed to ensure that EU IFR/IFD nonbank SDs have sufficient liquidity to meet their financial obligations to counterparties and other creditors in a distress scenario by requiring each firm to hold a minimum amount of high quality liquid assets based on the firm's FOR.

163

160

IFR Recital 10, which provides that prudential requirements should be calibrated in a manner proportionate to the type of investment firm, the best interest of the clients of that type of investment firm and the promotion of the smooth and orderly functioning of the markets in which that type of investment firm operates.

See also Prudential Rules for Investment Firms,

Publication of the European Commission,

https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/financial-markets/prudential-rules-investment-firms_en.

161

Id.

162

Id.

163

IFR Recital 28, which provides that investment firms should have internal procedures to monitor and manage liquidity requirements and help ensure that the firms can function in an orderly manner over time, without the need to set aside liquidity specifically for times of stress, and Article 43, which requires an investment firm to hold an amount of liquid assets equivalent to at least one third of its FOR.

With respect to financial reporting, the objective of the EU Investment Firms Reporting Rules is to enable the relevant regulatory authority to assess the financial condition and safety and soundness of EU IFR/IFD nonbank SDs.

164

The EU Investment Firms Reporting Rules aim to achieve this objective by requiring an EU IFR/IFD nonbank SD to provide financial reports and other capital information to its relevant regulatory authority on a regular basis.

165

The financial reporting by an EU IFR/IFD nonbank SD provides the relevant regulatory authority with information necessary to effectively monitor the EU IFR/IFD nonbank SD's overall financial condition and its ability to meet its regulatory obligations as a nonbank SD.

164

IFR Article 54, which requires investment firms to provide appropriate regulatory authorities with quarterly and annual financial reporting regarding the firm's balance sheet, revenue, capital, and liquidity. In France, the ACPR is the French regulatory authority with prudential supervision authority over French financial firms, including Goldman Sachs Paris.

165

Id.

In addition, the Applicant represented that the ACPR has the power to require the EU IFR/IFD nonbank SD to provide all necessary information in order for the authorities to carry out their supervisory tasks;

166

examine the books and records of the EU IFR/IFD nonbank SD; obtain written and oral explanations from the EU IFR/IFD nonbank SD's management, staff, and other persons;

167

conduct all necessary inspections at the business premises of the EU IFR/IFD nonbank SD and other group entities;

168

and the power to impose sanctions on firms that breach their regulatory obligations, including the requirements imposed under the EU Investment Firms Capital and Reporting Framework, such as public censure, financial penalties, and ultimately the cancellation of the EU IFR/IFD nonbank SD's permission to carry on regulated activities in the EU.

169

166

French MFC, Article L.612-24.

167

French MFC, Article L.612-24.

168

French MFC, Articles L.612-23 and L.612-26.

169

IFD Article 18 and seq.

3. Commission Analysis

The Commission has reviewed the EU IFR/IFD Application and the relevant EU laws and regulations, and has determined that the overall objectives of the EU Investment Firms Capital Rules and CFTC Capital Rules are comparable in that both sets of rules are intended to ensure the safety and soundness of nonbank SDs by establishing a regulatory regime that requires 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 firm becoming insolvent. While the EU Investment Firms Capital Rules impose prudential requirements tailored to the risks that investment firms, including EU IFR/IFD nonbank SDs, pose to market participants and the general market, both the EU Investment Firms Capital Rules and the CFTC Capital Rules are consistent with or have elements that are similar to the standards in the international bank capital framework adopted by the BCBS, which is also designed with the objective of requiring banking entities to hold sufficient levels of qualifying regulatory capital to absorb losses and decreases in the value of assets and increases in the value of liabilities without the banks becoming insolvent. The levels of regulatory capital that a nonbank SD is required to hold are based on the risks associated with the nonbank SD's on-balance sheet and off-balance sheet exposures under both the EU Investment Firms Capital Rules and CFTC Capital Rules. The EU Investment Firms Capital Rules and CFTC Capital Rules also provide for the comparable calculation of the market risk exposures using standardized or model-based approaches that are also consistent with the BCBS framework, including provisions requiring a robust model risk management program. Both sets of rules also provide for the calculation of credit risk charges. While the EU Investment Firms Capital Rules differ from the CFTC Capital Rule in that they do not permit the use of credit risk models, both sets of rules provide for the computation of credit risk charges through comparable standardized approaches based on the standardized treatment of counterparty credit risk established by the BCBS Framework.

170

17 CFR 23.103 and IFR Article 26.

In contrast with the CFTC Capital Rules, which do not have a distinct liquidity requirement, the EU Investment Firms Capital Rules impose specific liquidity requirements on EU IFR/IFD nonbank SDs. The EU Investment Firms Capital Rules, therefore, provide an additional layer of protection to help ensure that firms are capable of meeting their obligations to

counterparties, including during periods of stressed market conditions.

171

IFR Recital 28 and Article 43.

The EU Investment Firms Capital Rules and CFTC Capital Rules are also comparable in that both sets of rules limit the capital instruments that may qualify as regulatory capital to high quality equity capital and qualifying subordinated debt that satisfy specified conditions. High quality capital is determined by the degree to which the capital is permanently contributed or readily available on an unrestricted basis to the nonbank SD to absorb unexpected losses, including losses from swaps trading and other activities, without the nonbank SD becoming insolvent.

With respect to financial reporting, both the EU Investment Firms Reporting Rules and the CFTC Financial Reporting Rules require nonbank SDs to file periodic financial reports, including periodic unaudited and annual audited financial reports, with the relevant regulatory authority, and further require nonbank SDs to file regulatory notices if certain defined conditions are met or limits breached. These financial reports and notices provide regulators, including the ACPR, Commission, and NFA with information necessary to comprehensively assess the financial condition and safety and soundness of the nonbank SDs, and to monitor their ongoing compliance with applicable minimum capital requirements. The monitoring of nonbank SDs by the appropriate regulators helps ensure that nonbank SDs do not disrupt the swaps market in general, and the financial markets more broadly, by failing to have capital to absorb losses to prevent the firm from becoming insolvent during a time of market stress.

Having compared the objectives of the EU Investment Firms Capital and Reporting Framework to the objectives of the Commission's capital and financial reporting requirements, and having considered those objectives in the broader context of the prudential oversight of EU IFR/IFD nonbank SDs' capital requirements, the Commission finds that the objectives of the EU Investment Firms Capital Rules and the EU Investment Firms Reporting Rules are comparable to the objectives of the CFTC Capital Rules and CFTC Financial Reporting Rules.

B. Nonbank Swap Dealer Qualifying Capital

1. CFTC Capital Rules: Qualifying Capital Under Bank-Based Approach

The CFTC Capital Rules require a nonbank SD electing the Bank-Based Approach to 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.

172

Common equity tier 1 capital, additional tier 1 capital, and tier 2 capital are composed of certain defined forms of equity of the nonbank SD, including common stock, retained earnings, and qualifying subordinated debt.

173

The Commission's requirement for a nonbank SD to maintain a minimum amount of defined qualifying capital and subordinated debt is intended to ensure that the firm maintains a sufficient amount of regulatory capital to absorb decreases in the value of firm assets and increases in the value of firm liabilities, and to cover losses resulting from the business activities, including the firm's swap dealing activities.

172

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

173

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.

See

12 CFR 217.20.

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. Common equity tier 1 capital is a more conservative or permanent form of capital than additional tier 1 and tier 2 capital and is last in line to receive distributions in the event of the entity's insolvency.

174

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.

175

Total tier 1 capital is composed of common equity tier 1 capital and further includes additional tier 1 capital.

176

Tier 2 capital includes certain types of instruments that include both debt and equity characteristics such as qualifying subordinated debt.

177

174

12 CFR 217.20.

175

Id.

176

Id.

177

Id.

Subordinated debt must meet certain conditions to qualify as tier 2 capital under the CFTC Capital Rules. Specifically, subordinated debt instruments must have a term of at least one year (except for 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.

178

The subordinated debt must meet the requirements set forth in SEC Rule 18a-1d (17 CFR 240.18a-1d). 17 CFR 23.101(a)(1)(i)(B) (providing that the subordinated debt used by a nonbank SD to meet its minimum capital requirement under the Bank-Based Approach must satisfy the conditions for subordinated debt under SEC Rule 18a-1d).

2. EU Investment Firms Capital Rules: Qualifying Capital

The EU Investment Firms Capital Rules require an EU IFR/IFD nonbank SD to maintain regulatory capital in amounts that meet certain stated minimum requirements. An EU IFR/IFD nonbank SD's regulatory capital may be composed of: (i) common equity tier 1 capital, which generally include the EU IFR/IFD nonbank SD's common equity, retained earnings, and other comprehensive income;

179

(ii) additional tier 1 instruments, which include other capital instruments and certain long-term convertible debt instruments;

180

and (iii) tier 2 capital, which includes certain other reserves, hybrid capital instruments, and certain qualifying subordinated debt.

181

179

IFR Article 9. Common equity tier 1 capital is defined in accordance with Chapter 2 of Title I of Part Two of CRR.

180

Id.

Additional tier 1 capital is defined in accordance with Chapter 3 of Title I of Part Two of CRR.

181

Id.

Tier 2 capital is defined in accordance with Chapter 4 of Title I of Part Two of CRR.

Subordinated debt instruments must meet certain conditions to qualify as tier 2 capital under the EU Investment Firms Capital Rules, including that the: (i) loans are not granted by the EU IFR/IFD 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 non-subordinated creditors of the EU IFR/IFD nonbank SD; (iii) subordinated loans are not secured, or subject to a guarantee that enhances the seniority of the claim by the EU IFR/IFD 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 IFR/IFD nonbank SD prior to the loans' maturity.

182

IFR Article 9, CRR Article 63.

The EU Investment Firms Capital Rules also impose different ratios for the various components of regulatory capital that an EU IFR/IFD nonbank SD must hold. Specifically, common equity tier 1 capital must comprise at least 56 percent of the EU IFR/IFD nonbank SD's total minimum capital requirement and tier 1 capital must comprise at least 75 percent of the total minimum capital requirement.

183

IFR Article 9.

Common equity tier 1 capital, additional tier 1 capital, and tier 2 capital are permitted to be included in an EU IFR/IFD nonbank SD's regulatory capital and used to meet the firm's minimum capital requirement due to their characteristics of being permanent forms of capital that are subordinate to the claims of other creditors, which ensures that an EU IFR/IFD nonbank SD will have this regulatory capital to absorb decreases in the value of the firm's assets and increases in the value of the firm's liabilities, and to cover losses from business activities, including swap dealing activities.

3. Commission Analysis

The Commission has reviewed the EU IFR/IFD Application and the relevant EU laws and regulations, and has determined that the EU Investment Firms Capital Rules are comparable in purpose and effect to the CFTC Capital Rule with regard to the type and characteristics of a nonbank SD's equity that qualifies as regulatory capital in meeting its minimum requirements. The EU Investment Firms 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 assets and increases in the value of the firm's liabilities without resulting in the firm becoming insolvent. Equity instruments that qualify as common equity tier 1 capital and additional tier 1 capital under the EU Investment Firms Capital Rules and the CFTC Capital Rules have similar characteristics (

e.g.,

the equity must be in the form of high-quality, committed, and permanent capital) and the equity instruments generally have no priority in distribution of firm assets or income with respect to other shareholders or creditors of the firm, which makes the equity available to a nonbank SD to absorb unexpected losses, including counterparty defaults.

184

Compare

12 CFR 217.20(b) (defining capital instruments that qualify as common equity tier 1 capital under the rules of the Federal Reserve Board) and 12 CFR 217.20(c) (defining capital instruments that qualify as additional tier 1 capital under the rules of the Federal Reserve Board) with IFR Article 9 (referring to definitions of capital instruments in Chapter 2 of Title I of Part Two of CRR), CRR, Articles 26 and 28 (defining items and capital instruments that qualify as common equity tier 1 capital), and CRR, Article 52 (defining capital instruments that qualify as additional tier 1 capital).

In addition, the Commission has determined that the conditions imposed on subordinated debt instruments under the EU Investment Firms Capital Rules and the CFTC Capital Rules are comparable and designed to ensure that the subordinated debt has qualities that support its recognition by a nonbank SD as equity for capital purposes. In both sets of rules, the conditions include a requirement that the debt holders have effectively subordinated their claims for repayment of the debt to the claims of other creditors of the nonbank SD.

185

Compare

17 CFR 240.18a-1d with IFR Article 9 and CRR, Article 63(d).

Having reviewed the EU IFR/IFD Application and the relevant EU laws and regulations, the Commission has determined that the EU Investment Firms Capital Rules and CFTC Capital Rules impose comparable requirements on EU IFR/IFD nonbank SDs with respect to the types and characteristics of equity capital that must be used to meet minimum regulatory capital requirements.

C. Nonbank Swap Dealer Minimum Capital Requirement

1. CFTC Capital Rules: Nonbank Swap Dealer Minimum Capital Requirement

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 of regulatory capital; (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; and (iv) the amount of capital required by NFA.

186

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

Prong (i) above requires each nonbank SD electing the Bank-Based Approach to maintain a minimum of $20 million of common equity tier 1 capital to operate as a nonbank SD. The requirement that each nonbank SD electing the CFTC Bank-Based Approach maintain a minimum of $20 million of common equity tier 1 capital is also consistent with the minimum capital requirement for nonbank SDs electing the NLA Approach and the TNW Approach.

187

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 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.

188

187

Nonbank SDs electing the NLA Approach are subject to a minimum capital requirement that includes a fixed minimum dollar amount of net capital of $20 million. 17 CFR 23.101(a)(1)(ii)(A)(1). Nonbank SDs electing the TNW Approach are required to maintain levels of tangible net worth that equals or exceeds $20 million plus the amount of the nonbank SDs' market risk and credit risk associated with the firms' dealing activities. 17 CFR 23.101(a)(2)(ii)(A).

188

85 FR 57462 at 57492.

Prong (ii) above is a minimum capital requirement that is based on the Federal Reserve Board's capital requirements for bank holding companies and is consistent with the BCBS framework for banking institutions. As noted above, a nonbank SD under prong (ii) must 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. Risk-weighted assets are a nonbank SD's on-balance sheet and off-balance sheet exposures, including proprietary swap, security-based swap, equity, and futures positions, weighted according to risk. The Bank-Based Approach requires each nonbank SD to maintain regulatory capital in an amount that equals or exceeds 8 percent of the firm's total risk-weighted assets 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 business activities, including uncollateralized defaults from swap counterparties, without the nonbank SD becoming insolvent.

A nonbank SD must compute its risk-weighted assets amounts for market and credit risk using a standardized approach, unless the nonbank SD has been approved by the Commission or NFA to use internal models.

189

With respect to the calculation of standardized risk-weighted asset amounts for market risk, the Commission incorporated by reference the standardized market risk charges set forth in Commission Regulation 1.17 for FCMs and SEC Rule 18a-1 for nonbank SBSDs.

190

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 increase.

191

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.

192

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.

193

The resulting total market risk-weighted 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 CFTC Capital 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.

194

189

See

17 CFR 23.101(a)(1)(i)(B) and the definition of the term

BHC equivalent risk-weighted assets

in 17 CFR 23.100.

190

See

paragraph (3) of the definition of the term

BHC equivalent risk-weighted assets

in 17 CFR 23.100.

191

17 CFR 1.17(c)(5) and 17 CFR 240.18a-1(c)(1).

192

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

193

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

194

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 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 × .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 × 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 × 12.5 factor equals $37,500)).

With respect to standardized risk-weighted asset amounts for credit risk, 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.

195

Standardized risk-weighted 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.

196

A nonbank SD with off-balance sheet exposures is required to calculate a risk-weighted amount for credit risk by multiplying each exposure by a credit conversion factor that ranges from 0 percent to 100 percent, depending on the type of exposure.

197

195

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.

196

17 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 for Economic Co-operation and Development (12 CFR 217.32(a)(2)).

197

17 CFR 217.33.

With respect to counterparty credit risk for derivatives positions, 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”).

198

Both CEM and SA-CCR are non-model, rules-based approaches to calculating counterparty credit risk exposures for derivatives positions. Credit risk exposure under the 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 derivative contract multiplied by a standard credit risk conversion factor set forth in the rules of the Federal Reserve Board.

199

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.

200

198

17 CFR 217.34.

See also

Commission Regulation 23.100 (17 CFR 23.100) defining the term

BHC risk-weighted assets,

which provides that a nonbank SD that does not have model approval may use either CEM or SA-CCR to compute its exposures for over-the-counter derivative contracts with regard to the status of its affiliate entities with respect to the use of a calculation approach under the Federal Reserve Board's capital rules.

199

12 CFR 217.34.

200

12 CFR 217.132(c).

A nonbank SD also may obtain the approval of the Commission or NFA to use internal models to compute market risk and/or credit risk exposures. A nonbank SD seeking approval to use a model is required to submit an application to the Commission or NFA.

201

The application is required to include, among other things, a list of the categories of positions that the nonbank SD holds in its proprietary accounts and a brief description of the methods that the nonbank SD will use to calculate market risk and/or credit risk exposures for such positions.

201

17 CFR 23.102(c).

A nonbank SD approved by the Commission or NFA to use models to compute risk-weighted amounts for market risk is required to comply with Subpart F of the Federal Reserve Board's Part 217 regulations (“Subpart F”).

202

Subpart F is based on models that are consistent with the BCBS Basel 2.5 capital framework.

203

The Commission's qualitative and quantitative requirements for capital models also are comparable to the SEC's existing capital model requirements for broker-dealers in securities and SBSDs,

204

which are also broadly based on the BCBS Basel 2.5 capital framework.

202

See

paragraph (4) of the definition of

BHC equivalent risk-weighted assets

in 17 CFR 23.100.

203

Compare 17 CFR 23.100 (providing for a nonbank SD that is approved to use internal models to calculate market and credit risk to calculate its risk-weighted assets using Subparts E and F of 12 CFR part 217), Subpart F of 12 CFR, 17 CFR 23.101(a)(1)(ii) (providing for an SD that elects the NLA Approach to calculate its net capital in accordance with Rule 18a-1), and 17 CFR 23.102(a), with Basel Committee on Banking Supervision, Revisions to the Basel II Market Risk Framework (2011),

https://www.bis.org/publ/bcbs193.pdf

(describing the revised internal model approach under Basel 2.5).

204

The SEC internal model requirements for SBSDs are listed in 17 CFR 240.18a-1(d).

A nonbank SD approved to use internal models to compute risk-weighted amounts for credit risk is required to perform such computation in accordance with Subpart E of the Federal Reserve Board's Part 217 regulations,

205

as if the nonbank SD

were itself a bank holding company subject to Subpart E.

206

The internal credit risk modeling requirements are also based on the Basel 2.5 capital framework and the Basel 3 capital framework. A nonbank SD that computes its credit risk charges using internal models must multiply the resulting capital requirement by a factor of 12.5.

207

205

12 CFR 217 Subpart E.

206

See

85 FR 57462 at 57496.

207

12 CFR 217.131(e)(1)(iii), 217.131(e)(2)(iv), and 217.132(d)(9)(iii).

In adopting the final Bank-Based Approach rules, the Commission also noted that in choosing an alternative calculation, the nonbank SD must adopt the entirety of the alternative. As such, if the nonbank SD is calculating its risk-weighted assets using the regulations in Subpart E of 12 CFR 217, the nonbank SD must include charges reflecting all categories of risk-weighted assets applicable under these regulations, which include among other things, charges for operational risk, CVA of OTC derivatives contracts, and unsettled transactions involving securities, foreign exchange instruments, and commodities that have a risk of delayed settlement or delivery.

208

The capital charge for operational risk and CVA of OTC derivatives contracts calculated in accordance with Subpart E of 12 CFR 217 must also be multiplied by a factor of 12.5.

209

208

Settlement risk for OTC derivatives contracts is addressed as part of the counterparty-credit risk calculation methodology described in 12 CFR 217.132.

209

12 CFR 217.162(c) (operational risk) and 217.132(e)(4) (CVA of OTC derivative contracts).

Under the Basel 2.5 capital framework, nonbank SDs have flexibility in developing their models, but must follow certain minimum standards. Internal market risk and credit risk models must follow a Value at Risk (“VaR”) structure to compute, on a daily basis, a 99th percentile, one-tailed confidence interval for the potential losses resulting from an instantaneous price shock equivalent to a 10-day movement in prices (unless a different timeframe is specifically indicated). The simulation of this price shock must be based on a historical observation period of minimum length of one year, but there is flexibility on the method used to render simulations, such as variance-covariance matrices, historical simulations, or Monte Carlo.

The Commission and the Basel standards for internal models also have requirements on the selection of appropriate risk factors as well as on data quality and update frequency.

210

One specific concern is that models must capture the non-linear price characteristics of options positions, including but not limited to, relevant volatilities at different maturities.

211

In addition, BCBS standards for market risk models include a series of additive components for risks for which the broad VaR is ill-suited or that may need targeted calculation. These include the calculation of a Stressed VaR measure (with the same specifications as the VaR, but calibrated to historical data from a continuous 12-month period of significant financial stress relevant to the firm's portfolio); a Specific Risk measure (which includes the effect of a specific instrument); an Incremental Risk measure (which addresses changes in the credit rating of a specific obligor which may appear as a reference in an asset); and a Comprehensive Risk measure (which addresses risk of correlation trading positions).

210

See

17 CFR Appendix A to Subpart E of Part 23(i)(2)(iii), and Basel Committee on Banking Supervision, Revisions to the Basel II Market Risk Framework (2011), paragraph 718(Lxxvi)(e), available at:

https://www.bis.org/publ/bcbs193.pdf.

211

The Commission's requirement is set forth in paragraph (i)(2)(iv)(A) of Appendix A to Subpart E of 17 CFR part 23.

See also

Basel Committee on Banking Supervision, Revisions to the Basel II Market Risk Framework (2011), paragraph 718(Lxxvi)(h), available at:

https://www.bis.org/publ/bcbs193.pdf.

Finally, prong (iii) of the CFTC Capital Rules' Bank-Based Approach is a minimum capital requirement that is based on the amount of initial margin for uncleared swap transactions entered into by the nonbank SD and is computed on a counterparty-by-counterparty basis. The requirement for a nonbank SD to maintain minimum capital equal to or greater than 8 percent of the firm's uncleared swap margin provides a capital floor based on a measure of the risk and volume of the swap positions, and the number of counterparties and the complexity of operations, of the nonbank SD. The intent of the minimum capital requirement based on a percentage of the nonbank SD's uncleared swap margin was to establish a minimum capital requirement that would help ensure that the nonbank SD meets all of 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.

2. The EU Investment Firms Capital Rules: EU IFR/IFD Nonbank Swap Dealer Minimum Capital Requirements

The EU Investment Firms Capital Rules impose risk-based capital requirements on an EU IFR/IFD nonbank SD that, consistent with the BCBS framework, require the firm to hold sufficient amounts of qualifying equity capital and subordinated debt based on the EU IFR/IFD nonbank SD's activities, to absorb decreases in the value of the firm's assets, increases in the value of the firm's liabilities, and to cover losses resulting from business activities, including possible counterparty defaults without becoming insolvent. The EU Investment Firms Capital Rules require each EU IFR/IFD nonbank SD to maintain sufficient levels of common equity tier 1 capital, additional tier 1 capital, and tier 2 capital to meet its minimum capital requirement, which is the highest of the firm's permanent minimum requirement or PMR, fixed overheads requirement or FOR, or the sum of the firm's K-factor requirements or KFR. The EU IFR/IFD nonbank SD is required to hold sufficient capital to satisfy the following capital ratios, expressed as a percentage of the nonbank SD's minimum capital requirement: (i) common equity tier 1 capital ratio of 56 percent; (ii) common equity tier 1 and additional tier 1 capital ratio of 75 percent; and (iii) total capital ratio of 100 percent.

212

IFR Article 9.

Under the EU Investment Firms Capital Rules, the minimum capital requirement of an EU IFR/IFD nonbank SD is determined as the highest of the firm's PMR, FOR, or KFR. As represented by the Applicant, while the PMR, which is set at EUR 750,000 for EU IFR/IFD nonbank SDs subject to this Comparability Determination such as the Applicant, is relatively modest, in practice, an EU IFR/IFD nonbank SD's minimum capital requirement is likely to be greater—either the FOR or, more likely, the KFR.

213

As noted above, the KFR is a mixture of activity and exposure-based capital requirement that incorporates, among other risk categories, market risk (K-NPR) and credit risk (K-TCD).

213

IFR and IFD provide for different levels of PMR depending on the activities in which the firm engages. For investment firms that engage in swap dealing, the PMR is EUR 750, 000. IFR Article 14 and IFD Article 9.

An EU IFR/IFD nonbank SD's market risk is captured by the K-factor for net position risk, K-NPR. K-NPR applies to positions in the EU IFR/IFD nonbank SD's trading book, as well as to positions not in the trading book that give rise to foreign exchange or commodities risk. An EU IFR/IFD nonbank SD is required to compute market risk amounts using the methodologies set forth in the IFR, which, in turn, refers to CRR for the

calculation approaches.

214

Currently, to calculate market risk charges, an EU IFR/IFD nonbank SD can either apply a standardized approach or, if approved by the relevant regulatory authority, a market risk model.

215

As discussed in Section III.C.3.b below, following the effective date of certain amendments to CRR, planned for January 1, 2027, the current model approach would be replaced by an alternative standardized approach and an alternative market risk model.

216

214

IFR Article 22.

215

IFR Article 57 and CRR (as amended by Regulation (EU) 2019/630), Part Three, Title IV.

216

IFR Articles 22 and 57. The standardized approach is set out in Chapters 2, 3 and 4 of Title IV of Part Three of CRR. The alternative standardized approach and the alternative internal model approach are set out in Chapter 1a and Chapter 1b, respectively, of Title IV of Part Three of CRR. The applicability of the alternative standardized approach and the alternative internal model approach, initially planned for June 26, 2026, was postponed to January 1, 2027.

See

European Commission's announcement of June 12, 2025, available here:

https://finance.ec.europa.eu/news/commission-proposes-postpone-one-additional-year-market-risk-prudential-requirements-under-basel-iii-2025-06-12_en.

EU IFR/IFD nonbank SDs calculate standardized market risk charges generally by multiplying the notional or carrying amount of net positions or of adjusted 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 increase. Market risk requirements for debt instruments and equity instruments are calculated separately under the standardized approach, and are each calculated as the sum of specific risk and general risk of the positions.

217

Securitizations are treated as debt instruments for market risk requirements,

218

whereas derivative positions are generally treated as exposures on their underlying assets,

219

with options being delta-adjusted.

220

217

CRR (as amended by Regulation (EU) 2019/630) Article 326.

See also

CFTC Capital Final Rule Release, 85 FR 57462 at n.332 (citing the BCBS' Revisions to the Basel 2 Market Risk Framework for an explanation of the implementation of the stressed VaR requirement).

To obtain a permission for the use of a market risk model, an EU IFR/IFD nonbank SD must demonstrate to the satisfaction of the relevant regulatory authority that it meets certain conditions.

232

The conditions include specified model elements and controls including risk and stressed risk calculations,

233

back-testing and multiplication factors,

234

risk measurement requirements,

235

governance and qualitative requirements,

236

internal validation,

237

and specific requirements by risk categories.

238

232

CRR (as amended by Regulation (EU) 2019/630) Part Three, Title IV, Chapter 5.

233

CRR (as amended by Regulation (EU) 2019/630) Articles 364-365.

234

Id.,

Article 366.

235

Id.,

Article 367.

236

Id.,

Article 368.

237

Id.,

Article 369.

238

Id.,

Part Three, Title IV, Chapter 5, Section 3.

An EU IFR/IFD nonbank SD may apply to the relevant regulatory authority for permission to use K-CMG, instead of K-NPR, to compute market risk charges for specified positions, where clearing and settlement take place under the responsibility of a clearing member of a CCP.

239

To obtain permission to use K-CMG, the EU IFR/IFD nonbank SD must demonstrate that the margin requirements resulting from the clearing models are sufficient to cover losses that may result from at least 99 percent of the exposures movements over an appropriate time horizon with at least a two-business days' holding period.

240

The K-CMG market risk charge is determined by applying the margin model of the relevant clearing member or CCP, as applicable, to the cleared positions of the EU IFR/IFD nonbank SD for each day of the previous

three months. The K-CMG market risk charge is then set equal to the third highest cleared margin amount over such three-month period, multiplied by a factor of 1.3.

241

239

IFR Recital 21, Article 4(32), and Article 23.

240

Id.

241

IFR Article 23.

As noted in Section III.C.2 above, following the effective date of certain amendments to CRR, planned for January 1, 2027, the current market risk model approach will be replaced. Following the changes, the calculation methodologies for capital requirement for market risk will include an alternative standardized approach and an alternative model approach, in addition to the existing standardized approach discussed above. The alternative standardized approach uses a sensitivities-based method that includes a residual risk add-on and a default risk charge.

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The method aggregates shocked factor losses across calibrated risk weights, buckets, and three correlation scenarios, and takes the most conservative result.

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The alternative models approach incorporates an aggregate modellable risk charge, an expected-shortfall component, a stressed expected shortfall charge for non-modellable risk factors, a default risk charge, and a P&L attribution add-on, but derives these charges from validated internal models subject to P&L attribution and back-testing and therefore depends on bank-specific model estimation subject to supervisory approval.

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IFR Article 22(b) (cross-referencing CRR, Part Three, Title IV, Chapter 1a, Article 325c

et seq.

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Id.

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IFR Article 22(b) (cross-referencing CRR, Part III, Title IV, Chapter 1b).

With respect to credit risk, the trading counterparty default K-factor requirement, K-TCD, is designed to capture the risk of an EU IFR/IFD nonbank SD to the default of its trading counterparty with respect to certain transactions, including OTC derivative contracts.

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K-TCD takes into account the exposure value of the transaction, the risk factor that applies to the counterparty type, and the CVA.

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The exposure value is determined using replacement cost and potential future exposure, and taking into consideration collateral held against the exposure.

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The counterparty risk factor is either 1.6 percent for central governments, central banks, public sector entities, credit institutions and investment firms, or 8 percent for other counterparties.

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The CVA, which is either 1 or 1.5 depending on the transaction, represents an adjustment to the mid-market valuation of the portfolio of transactions with a counterparty to reflect the current market value of the credit risk of the counterparty to the EU IFR/IFD nonbank SD.

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An EU IFR/IFD nonbank SD may also ask permission from the relevant competent authority to apply SA-CCR to calculate the capital requirements for credit risk.

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However, derivative contracts directly or indirectly cleared through a CCP (provided various conditions are met), exchange-traded derivative contracts, and derivative contracts held for hedging a position of the firm resulting from an activity outside the trading book are excluded K-TCD calculation. Furthermore, transactions with central government and central banks, where the underlying exposures receive a 0 percent risk weight under Article 114 of CRR, multilateral development banks listed in Article 117(2) of CRR, and international organizations listed in Article 118 of CRR are not required to be included when calculating K-TCD. IFR Article 25.

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IFR Article 26.

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IFR Article 27.

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IFR Article 26.

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IFR Article 32.

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IFR Article 25(4). SA-CCR is a non-model, rule-based approach to calculating counterparty credit risk established by the BCBS framework and available under both the CFTC Capital Rules and CRR.

The EU IFR/IFD Capital Rules' KFR also incorporates other risk categories, such as operational risk. In particular, the K-factor requirement for daily trading flow, K-DTF, is designed to capture the operational risks relating to the value of trading activity a firm conducts throughout each business day.

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In addition, the capital charges for client money held (K-CMH) and safeguarded assets (K-ASA) seek to capture the operational, legal and other risks associated with holding margin provided by customers (where held as client assets).

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IFR Recitals 22 and 26.

Furthermore, the EU Investment Firms Capital Rules impose separate liquidity requirements on an EU IFR/IFD nonbank SD to address liquidity risk. Specifically, an EU IFR/IFD nonbank SD must meet the IFR's “minimum liquidity requirement,” which requires that the EU IFR/IFD nonbank SD hold a minimum amount of high quality liquid assets based on the firm's FOR.

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The EU Investment Firms Capital Rules' liquidity requirements are intended to help ensure that EU IFR/IFD nonbank SDs can fund the primary stages of a wind-down process, if wind-down becomes necessary. The aim of the “minimum liquidity requirement” is to ensure that investment firms can function in an orderly manner over time, without the need to set aside liquidity specifically for times of stress.

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IFR Article 43.

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IFR Recital 28.

In addition, an EU IFR/IFD nonbank SD is required to have in place sound, effective and comprehensive arrangements, strategies and processes to assess and maintain, on an ongoing basis, the amounts, types and distribution of internal capital and liquid assets that they consider adequate to cover the nature and level of risks which they may pose to others and to which the investment firms themselves are or might be exposed.

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An EU IFR/IFD nonbank SD has to determine, through the internal capital adequacy and risk assessment (ICARA) process, any supplementary capital and liquid assets requirements, in addition to the minimum regulatory capital requirement and the liquid assets requirement, that may be necessary to manage risks that could result in a material harm.

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IFD Article 24, French MFC Article L. 533-2-2 and Order of November 3, 2014, on the prudential supervision and risk assessment process for banking service providers and investment firms other than portfolio management companies.

3. Commission Analysis

The Commission has reviewed the EU IFR/IFD Application and the relevant EU laws and regulations and has determined that the EU Investment Firms Capital Rules are comparable in purpose and effect to the CFTC Capital Rules with regard to the establishment of the nonbank SD's minimum capital requirement and the calculation of the nonbank SD's amount of regulatory capital to meet that requirement.

Although there are differences between the EU Investment Firms Capital Rules and the CFTC Capital Rules, as discussed below, the Commission believes that the EU Investment Firms Capital Rules and the CFTC Capital Rules are aligned in their objectives to ensure the safety

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