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Rule 240.15fk-1(c)(2)(i)
Foreign SBS Dealer
THIS DOCUMENT IS A TECHNICAL ILLUSTRATION OF HOW CERTAIN DISCLOSURES IN SEC FILINGS ARE TO BE TAGGED. IT DOES NOT INDICATE WHICH PARTICULAR DISCLOSURES MUST BE INCLUDED AND/OR TAGGED IN COMMISSION FILINGS, AND IT DOES NOT CONSTITUTE LEGAL GUIDANCE OF ANY SORT.
1. INTRODUCTION
Foreign Security-Based Swap Dealer (“Foreign SBSD”) is incorporated under the laws of Eutopia, with a principal office in Eutopiaville and licensed to provide banking, financial and other services. Foreign SBSD engages in security-based swap dealing with counterparties within and outside of the U.S. and is a registered non-US SBS dealer (“SBSD”) with the SEC and is subject to the Securities Exchange Act of 1934 (“Exchange Act”), as amended by Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), and Commission regulations promulgated thereunder.
Foreign SBSD has elected to rely on substituted compliance pursuant to the Commission Order Granting Conditional Substituted Compliance in Connection with Certain Requirements Applicable to Non-U.S. Security-Based Swap Dealers and Major Security-Based Swap Participants Subject to Regulation in Eutopia, as amended by a subsequent Commission order dated January 30, 2022 (the “Substituted Compliance Order”). Accordingly, in lieu of policies, controls and process for compliance with the Commission requirements in respect of which substituted compliance is granted, Foreign SBSD relies on policies, controls and processes which have been reasonably designed, established and maintained to achieve and evidence compliance with the relevant local regulations identified by the Commission in the Substituted Compliance Order as well as conditions established therein.
Foreign SBSD requests confidential treatment of this filing under the Freedom of Information Act, 5 U.S.C. § 552. This information is furnished solely for the SEC’s use.
Overview of Foreign SBSD
Foreign SBSD is a Eutopian broker-dealer and a designated investment firm which delivers a broad range of financial services to clients located worldwide and is authorized by the Eutopian Financial Conduct Authority (FCA). Foreign SBSD is wholly-owned by Eutopia Foreign Holdings, Inc., which has subsidiaries across Europe, North America and Asia to engage in business activities in those jurisdictions, primarily to local clients and comply with local banking and/or securities authorities.
Foreign SBSD’s ultimate parent and controlling entity, Eutopia National Bank (ENB) is domiciled in Eutopia and the primary client facing entity that transacts with clients and counterparties globally. ENB is authorized to engage in various financial service activities, including but not limited to insurance mediation, execution of orders on behalf of clients, portfolio management, provision of investment advice, underwriting, foreign exchange services, investment research and investment services. ENB generates revenues from the following business activities: Investment Banking; Fixed Income; Equities; and Investment Management, which includes Asset Management and Wealth Management. Security Based Swap (“SBS”) activity is primarily conducted via Foreign SBSD.
Organization
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Foreign SBSD Governance and Control
Foreign SBSD has established governance and organizational responsibilities designed to ensure that it meets its obligations under applicable requirements.
Foreign SBSD is governed by its Board of Directors (“Board”) and its Chief Executive Officer (“CEO”). Further, members of Foreign SBSD’s senior management include the Chief Compliance Officer (“CCO”) and Chief Risk Officer (“CRO”). While the CEO, CCO and CRO may delegate authority to certain employees, each retains accountability and responsibility for various compliance requirements.
Certain members of the Board also serve on the Risk Committee, which supports and advises the Board and senior management in overseeing, monitoring and managing risks associated with Foreign SBSD’s activities. The Risk Committee assists the Board in drafting and recommending updates to Foreign SBSD’s risk policies, procedures and reporting framework, including changes or updates thereto. The Risk Committee and Board each meet quarterly to address material business, capacity, infrastructure, operations, and legal/regulatory concerns across Foreign SBSD. Issues raised and discussed at these meetings are evaluated, when appropriate, for potential impact on Foreign SBSD’s policies and procedures.
In light of the overall governance used to test Foreign SBSD’s policies, standards, and procedures, the supervision framework and associated tools as well as the governance in relation to the SBSD registration and the more general governance and escalation pathways, Foreign SBSD views its policies, standards and procedures to be effective. Any outstanding concerns Foreign SBSD has in relation to the policies, standards, and procedures are detailed in this Report as Material Non-Compliance Issues or Areas for Improvement.
Financial, Managerial, Operational and Staffing Compliance Resources
The Board, in combination with the CEO and senior management provide oversight and governance of the firm’s swap dealer program with respect to CFTC and SEC compliance with the regulations as set out in the Dodd-Frank Act.
Foreign SBSD has 6 full-time employees dedicated to SBS compliance, comprising of compliance professionals and quality assurance staff. In addition, other divisions such as Finance, Legal, Technology, Data Management and HR, contribute resources in support of the swap dealing program. The following department staff contributed to SBS compliance-related functions as follows:
| Department | Total FTE | % of Time spent on Compliance |
| Finance | 100 | 4% |
| Legal | 30 | 21% |
| Technology | 5 | 8% |
| Data Management | 5 | 11% |
| Human Resources | 10 | 5% |
Foreign SBSD utilizes the following applications with respect to its Swap program:
| · | CollateralTracker – Trade Collateral system |
| · | TradeComplianceSuite – Reports relevant transactions to Swap Data Repositories (SDR) |
| · | ReconciliationSuite – Trade reconciliation tool between Foreign SBSD, SDR and clients. |
No deficiencies with respect to compliance resources exist.
Policies and Procedures Relating to the SBS Business
Foreign SBSD maintains written policies and procedures that are applicable to its swap dealing activity and in support of the swap dealing compliance program. Foreign SBSD has established written policies and procedures designed to comply with regulatory requirements applicable to the business it conducts, including but not limited to its obligations pertaining to CFTC/SEC compliance obligations.
Where available, Foreign SBSD relies on Substituted Compliance and its policies and procedures are designed to ensure compliance with local regulatory requirements to satisfy its local obligations and conditions under substituted compliance.
Such policies and procedures may have application at a global, International and/or Regional level, for instance the global Code of Conduct applies to all staff and sets the standards for expected behaviour and conduct of all staff globally, including but not limited to Foreign SBSD staff. Foreign SBSD is subject to a global standard regarding conflicts of interest management and a more detailed regional Conflicts of Interest Policy that is generally consistent with international standards notwithstanding certain regional specific regulatory requirements, for example MiFID II conflicts of interest requirements.
Copies of the global Code of Conduct and Conflicts of Interest Policy are attached as Exhibit A.
There have been no material changes to the applicable policies relevant and noted above to Foreign SBSD swap dealer compliance program.
Areas for Improvement
Foreign SBSD’s compliance team undergoes a review of its compliance systems annually in an effort to identify material non-compliance issues, areas for improvement, or necessary changes in response to regulatory requirements. This year’s review found the following areas for improvement:
| 1) | Compliance noted there was insufficient documentation for certain regulatory transaction reporting, which did not consistently capture the required level of detail to ensure that the implementation of the regulatory reporting would result in correct and accurate transaction reporting. This issue was identified upon reviewing historic transaction reporting reports. To resolve this issue, Compliance worked with key stakeholders to define and document a standard set of reporting procedures, which will be used for future regulatory reporting as well as to conduct training for impacted teams on the use of these templates. |
| 2) | Compliance also raised an issue related to regulatory reporting of commodity mixed swaps. Although commodity mixed swaps are reportable for both SEC and CFTC, commodity mixed swaps are not currently able to be reported because the SBS data repositories are not registered with the SEC for the commodities asset class. This issue impacted 13 trades. To remediate this issue, Compliance completed an analysis and confirmed that since these commodity mixed swaps contained equity components, they could be reported to the repository using equities reporting templates, given the unavailability of reporting templates for commodities. Additional changes were made to the front office systems to incorporate this logic. |
| 3) | Foreign SBSD continued to enhance its onboarding training program which covers both employees responsible for counterparty onboarding, as well as for trading desks. The training was updated to incorporate common data entry errors, lessons learned from historical onboarding failures and potential consequences of non-compliance. Lastly Compliance updated the training to account for nuanced scenarios which occurred during the prior year. |
Material non-Compliance Issues
Two immaterial non-compliance issues were identified during the relevant period. The amounts involved were less than 100 euros and customers were reimbursed within one day.
CCO Certification
This CCO Report covers SwapCo’s Fiscal Year of January 1, 2024 through December 31, 2024. SwapCo’s Audit Committee and Board reviewed the report prior to furnishing this report to the Commission. To the best of my knowledge and reasonable belief, and under penalty of law, the information contained in the attached Annual Report, is accurate and complete in all material respects.
Jacques Alouette
January 3, 2025.