On 16 August 2021, the European Central Bank (ECB) published a memorandum of understanding (MoU) that it has agreed with the US Securities and Exchange Commission (SEC) relating to the supervision and oversight of security-based swap entities, together with a related press release.

The MoU relates to SEC security-based swap entities that are also EU credit institutions or investment firms supervised by the ECB as significant credit institutions under the single supervisory mechanism (SSM) (covered firms). Non-US security-based swap dealers and major security-based swap participants with significant business in the US must register with the SEC by 1 November 2021 and 1 December 2021 respectively.

Under Rule 3a71-6 of the US Securities Exchange Act of 1934, the SEC has the power to issue an order relating to the financial regulatory system of a member state participating in the SSM determining that an SEC-registered security-based swap dealer or major security-based swap participant may comply with specified EU requirements to satisfy US requirements. Before the SEC can issue the order, it must determine that EU requirements applicable to a covered firm or its activities are comparable to US requirements. The SEC must also have entered into an MoU or other arrangement that addresses supervisory and enforcement co-operation.

The MoU was signed on and came into force on 16 August 2021. Its aim is to address the requirement for an MoU between the SEC and the ECB and to provide the SEC and the ECB with the necessary tools to monitor and enforce ongoing compliance by covered firms with any substituted compliance order and with the applicable laws and regulations.

The FCA published the text of an equivalent MoU agreed between it, the Bank of England (BoE) and the SEC on 6 August 2021 (see Legal update, FCA publishes text of SEC MoU on OTC derivatives substituted compliance).