On October 31, 2018, the Securities and Exchange Commission issued a non-enforcement position providing market participants, for a five-year period, with alternative means of compliance with certain business conduct standards for security-based swap dealers and major security-based swap participants (SBS Entities).
Although the SEC has adopted a set of business conduct standards for SBS Entities, compliance with those rules is not yet required, pending finalization of certain other rules and implementation of registration of SBS Entities. The SEC issued the statement, in advance of implementation, to address market participants' concerns regarding compliance difficulties presented by differences between the SEC's business conduct standards and those of the CFTC, which are applicable to swap transactions with swap dealers.
The statement generally addresses four categories of requirements within its security-based swap dealer business conduct rules, including:
- The mechanism by which an SBS Entity may determine that a non-ERISA employee benefit plan is not a "special entity," which would entitle the entity to heightened protections;
- Reliance on certain written representations regarding recommendations provided by a security-based swap dealer, such that the security-based swap dealer can establish that it is not acting as an advisor;
- Reliance on certain written representations from qualified independent representatives for purposes of satisfying the safe harbor requirements for SBS Entities acting as counterparties to special entities under Rule 15Fh-5(b); and
- Reliance on previously obtained written representations from a counterparty or representative relating to swaps for purposes of complying with security-based swap due diligence requirements, on the condition that the security-based swap dealer is not aware of information that would cause a reasonable person to question the accuracy of such representations.
The non-enforcement position will apply for five years following the compliance date for the SEC's forthcoming security-based swap dealer and major security-based swap participant registration rules.
The statement can be viewed at: https://www.sec.gov/rules/policy/2018/34-84511.pdf and the SEC's press release can be viewed at: https://www.sec.gov/news/press-release/2018-249.
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