Proposed Exemption From Certain Prohibited Transaction Restrictions Involving UBS Asset Management (Americas) Inc.; UBS Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC; and Certain Future Affiliates in UBS's Asset Management and Global Wealth Management U.S. Divisions (Collectively, the Applicants or the UBS QPAMs) Located in Chicago, Illinois; Hartford, Connecticut; New York, New York; and Chicago, Illinois, Respectively
| Published date | 30 September 2019 |
| Citation | 84 FR 51621 |
| Record Number | 2019-21124 |
| Section | Notices |
| Court | Employee Benefits Security Administration |
Federal Register, Volume 84 Issue 189 (Monday, September 30, 2019)
[Federal Register Volume 84, Number 189 (Monday, September 30, 2019)]
[Notices]
[Pages 51621-51635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21124]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-11998]
Proposed Exemption From Certain Prohibited Transaction
Restrictions Involving UBS Asset Management (Americas) Inc.; UBS Realty
Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC; and
Certain Future Affiliates in UBS's Asset Management and Global Wealth
Management U.S. Divisions (Collectively, the Applicants or the UBS
QPAMs) Located in Chicago, Illinois; Hartford, Connecticut; New York,
New York; and Chicago, Illinois, Respectively
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document provides notice of the pendency before the
Department of Labor (the Department) of
[[Page 51622]]
a proposed individual exemption from certain of the prohibited
transaction restrictions of the Employee Retirement Income Security Act
of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986
(the Code). If this proposed exemption is granted, certain entities
with specified relationships to UBS AG (UBS), UBS Securities Japan and
UBS France will not be precluded from relying on the exemptive relief
provided by Prohibited Transaction Class Exemption 84-14.
DATES: If granted, this proposed exemption will be in effect for five
years beginning on February 20, 2020 and ending on February 20, 2025.
Written comments and requests for a public hearing on the proposed
exemption should be submitted to the Department by November 14, 2019.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, U.S.
Department of Labor, 200 Constitution Avenue NW, Suite 400, Washington,
DC 20210, Attention: Application No. D-11998 or via private delivery
service or courier to the Employee Benefits Security Administration
(EBSA), Office of Exemption Determinations, U.S. Department of Labor,
122 C St. NW, Suite 400, Washington, DC 20001. Attention: Application
No. D-11998. Interested persons may also submit comments and/or hearing
requests to EBSA via email to [email protected] or by FAX to (202) 693-
8474, or online through http://www.regulations.gov. Any such comments
or requests should be sent by the end of the scheduled comment period.
The application for exemption and the comments received will be
available for public inspection in the Public Disclosure Room of the
Employee Benefits Security Administration, U.S. Department of Labor,
Room N-1515, 200 Constitution Avenue NW, Washington, DC 20210. See
SUPPLEMENTARY INFORMATION below for additional information regarding
comments.
FOR FURTHER INFORMATION CONTACT: Brian Mica of the Department at (202)
693-8402. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION:
Comments: Comments should state the nature of the person's interest
in the proposed exemption and the manner in which the person would be
adversely affected by the exemption, if granted. Any person who may be
adversely affected by an exemption can request a hearing on the
exemption. A request for a hearing must state: (1) The name, address,
telephone number, and email address of the person making the request;
(2) the nature of the person's interest in the exemption and the manner
in which the person would be adversely affected by the exemption; and
(3) a statement of the issues to be addressed and a general description
of the evidence to be presented at the hearing. The Department will
grant a request for a hearing made in accordance with the requirements
above where a hearing is necessary to fully explore material factual
issues identified by the person requesting the hearing. A notice of
such hearing shall be published by the Department in the Federal
Register. The Department may decline to hold a hearing if: (1) The
request for the hearing does not meet the requirements above; (2) the
only issues identified for exploration at the hearing are matters of
law; or (3) the factual issues identified can be fully explored through
the submission of evidence in written (including electronic) form.
Warning: All comments received will be included in the public
record without change and may be made available online at http://www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information in the body of your comment, but DO NOT submit
information that you consider to be confidential, or otherwise
protected (such as Social Security number or an unlisted phone number)
or confidential business information that you do not want publicly
disclosed. However, if EBSA cannot read your comment due to technical
difficulties and cannot contact you for clarification, EBSA might not
be able to consider your comment. Additionally, the http://www.regulations.gov website is an ``anonymous access'' system, which
means EBSA will not know your identity or contact information unless
you provide it in the body of your comment. If you send an email
directly to EBSA without going through http://www.regulations.gov, your
email address will be automatically captured and included as part of
the comment that is placed in the public record and made available on
the internet.
Background: On February 26, 2019, the Department published
Prohibited Transaction Exemption (PTE) 2019-01, which is a one year
exemption permitting certain entities with specified relationships to
UBS to continue to rely upon the relief provided by PTE 84-14 \1\ for a
period of one year beginning February 20, 2019, notwithstanding certain
criminal convictions, as described herein (the Convictions) and the
2019 French Conviction.\2\ The Department granted PTE 2019-01 to
protect plans and IRAs that use UBS asset managers, from the costs and
expenses that could have arisen if the UBS QPAMs had lost their ability
to rely on PTE 84-14 as of the 2019 French Conviction Date, as
represented by the Applicants. The temporary nature of PTE 2019-01
allows the Department sufficient time, including a longer comment
period for this proposed five-year exemption, to determine whether a
longer-term exemption is necessary and appropriate.
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\1\ 49 FR 9494, March 13, 1984, as corrected at 50 FR 41430
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005) and
as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as
PTE 84-14 or the QPAM exemption.
\2\ PTE 2019-01; 84 FR 6163, February 26, 2019.
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The UBS QPAMs request a longer-term individual exemption providing
the same relief as was provided in PTE 2019-01. Accordingly, the
Department proposes to grant this five-year exemption to protect
Covered Plans \3\ from certain costs and/or investment losses that may
arise to the extent entities with a corporate relationship to UBS, UBS
Securities Japan, or UBS France lose their ability to rely on PTE 84-14
as of February 20, 2020.
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\3\ A ``Covered Plan'' is a plan subject to Part 4 of Title 1 of
ERISA (``ERISA-covered plan'') or a plan subject to section 4975 of
the Code (``IRA'') with respect to which a UBS QPAM relies on PTE
84-14, or with respect to which a UBS QPAM (or any UBS affiliate)
has expressly represented that the manager qualifies as a QPAM or
relies on the QPAM class exemption (PTE 84-14). A Covered Plan does
not include an ERISA-covered plan or IRA to the extent the UBS QPAM
has expressly disclaimed reliance on QPAM status or PTE 84-14 in
entering into its contract, arrangement, or agreement with the
ERISA-covered plan or IRA.
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The proposed exemption would provide relief from certain of the
restrictions set forth in sections 406 and 407 of ERISA. It would not,
however, provide relief from any other violation of law. Furthermore,
the Department cautions that the relief in this proposed exemption
would terminate immediately if, among other things, an entity within
the UBS corporate structure is convicted of a crime covered by Section
I(g) of PTE 84-14 (other than the 2013 Conviction, 2018 Conviction, and
the 2019 French Conviction) during the exemption period (as defined in
Section II(j)). Although the UBS QPAMs could apply for a new exemption
in that
[[Page 51623]]
circumstance, the Department would not be obligated to grant the
exemption. The terms of this exemption have been specifically designed
to permit plans to terminate their relationships in an orderly and cost
effective fashion in the event of an additional conviction, or the
expiration of this exemption without additional relief, or a
determination that it is otherwise prudent for a plan to terminate its
relationship with an entity covered by the exemption.
To the extent additional clarification is necessary, these persons
or entities should contact EBSA's Office of Exemption Determinations,
at 202-693-8540.
Summary of Facts and Representations \4\
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\4\ The Summary of Facts and Representations is based on the
Applicants' representations, unless indicated otherwise.
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UBS and the QPAMs
1. UBS AG (UBS) is a Swiss-based global financial services company
organized under the laws of Switzerland. UBS has banking divisions and
subsidiaries throughout the world, with its United States headquarters
located in New York, New York and Stamford, Connecticut. UBS itself
does not provide investment management services to client plans that
are subject to Part 4 of Title I of ERISA (ERISA plans) or section 4975
of the Code (IRAs), or otherwise exercise discretionary control over
ERISA assets. All ERISA assets are managed by U.S. affiliates of UBS.
2. UBS Asset Management (Americas) Inc., UBS Realty Investors LLC,
UBS Hedge Fund Solutions LLC, and UBS O'Connor LLC \5\ are currently
the four UBS affiliates that rely on PTE 84-14. Collectively, these UBS
QPAMs have total ERISA assets under management of approximately $11.5
billion as of June 30, 2018, excluding ERISA assets invested in pooled
funds that are not plan asset funds.
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\5\ UBS Asset Management (Americas) Inc. and UBS Realty
Investors LLC are wholly-owned by UBS Americas, Inc., a wholly-owned
subsidiary of UBS AG. UBS Hedge Fund Solutions LLC (formerly UBS
Alternative and Quantitative Investments, LLC) and UBS O'Connor LLC
are wholly-owned by UBS Americas Holding LLC, a wholly-owned
subsidiary of UBS AG.
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ERISA and Code Prohibited Transactions and PTE 84-14
3. Section 406 of ERISA and section 4975(c)(1) of the Code
proscribe certain ``prohibited transactions'' between plans and related
parties with respect to those plans. Under ERISA such parties are known
as ``parties in interest.'' Under section 3(14) of ERISA, parties in
interest with respect to a plan include, among others, the plan
fiduciary, a sponsoring employer of the plan, a union whose members are
covered by the plan, service providers with respect to the plan, and
certain of their affiliates.\6\ The prohibited transaction provisions
under section 406(a) of ERISA and 4975(c)(1) of the Code prohibit, in
relevant part, sales, leases, loans or the provision of services
between a party in interest and a plan (or an entity whose assets are
deemed to constitute the assets of a plan), as well as the use of plan
assets by or for the benefit of, or a transfer of plan assets to, a
party in interest.\7\ Under the authority of section 408(a) of ERISA
and section 4975(c)(2) of the Code, the Department has the authority to
grant exemptions from such ``prohibited transactions'' in accordance
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR
66637, 66644, October 27, 2011).
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\6\ Under the Code such parties, or similar parties, are
referred to as ``disqualified persons.''
\7\ The prohibited transaction provisions also include certain
fiduciary prohibited transactions under section 406(b) of ERISA and
4975(c)(1)(E) and (F) of the Code. These include transactions
involving fiduciary self-dealing, fiduciary conflicts of interest,
and kickbacks to fiduciaries. PTE 84-14 provides only very narrow
conditional relief for transactions described in Section 406(b) of
ERISA.
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4. PTE 84-14 exempts certain prohibited transactions between a
party in interest and an ``investment fund'' (as defined in Section
VI(b) of PTE 84-14) \8\ in which a plan has an interest, if the
investment manager satisfies the definition of ``qualified professional
asset manager'' (QPAM) and satisfies additional conditions for the
exemption. PTE 84-14 was developed and granted based on the essential
premise that broad relief could be afforded for all types of
transactions in which a plan engages only if the commitments and the
investments of plan assets and the negotiations leading thereto are the
sole responsibility of an independent, discretionary, manager.\9\
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\8\ An ``investment fund'' includes single customer and pooled
separate accounts maintained by an insurance company, individual
trusts and common, collective or group trusts maintained by a bank,
and any other account or fund to the extent that the disposition of
its assets (whether or not in the custody of the QPAM) is subject to
the discretionary authority of the QPAM.
\9\ See 75 FR 38837, 38839 (July 6, 2010).
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5. However, Section I(g) of PTE 84-14 prevents an entity that may
otherwise meet the definition of QPAM from utilizing the exemptive
relief provided by PTE 84-14, for itself and its client plans, if that
entity or an ``affiliate'' \10\ thereof or any owner, direct or
indirect, of a 5 percent or more interest in the QPAM has, within 10
years immediately preceding the transaction, been either convicted or
released from imprisonment, whichever is later, as a result of criminal
activity described in that section. Section I(g) was included in PTE
84-14, in part, based on the expectation that a QPAM, and those who may
be in a position to influence its policies, maintain a high standard of
integrity.\11\
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\10\ Section VI(d) of PTE 84-14 defines the term ``affiliate''
for purposes of Section I(g) as ``(1) Any person directly or
indirectly through one or more intermediaries, controlling,
controlled by, or under common control with the person, (2) Any
director of, relative of, or partner in, any such person, (3) Any
corporation, partnership, trust or unincorporated enterprise of
which such person is an officer, director, or a 5 percent or more
partner or owner, and (4) Any employee or officer of the person who-
(A) Is a highly compensated employee (as defined in Section
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of
the yearly wages of such person), or (B) Has direct or indirect
authority, responsibility or control regarding the custody,
management or disposition of plan assets.''
\11\ See 47 FR 56945, 56947 (December 21, 1982).
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Previous Convictions
6. UBS Securities Japan was previously convicted (2013 Conviction)
of a crime arising out of its fraudulent submission of Yen London
Interbank Offer Rate (Yen LIBOR) rates between 2006 and 2009, and its
participation in a scheme to defraud counterparties to interest rate
derivatives trades executed on its behalf, by secretly manipulating
certain benchmark interest rates, to which the profitability of those
trades was tied. This crime was described in detail in PTE 2013-09.\12\
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\12\ See PTE 2013-09, 78 FR 56740 (September 13, 2003).
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Although UBS and the United States Department of Justice (DOJ)
entered into a Non-Prosecution Agreement (the LIBOR NPA) related to
UBS's misconduct involving its submission of Yen LIBOR rates and other
benchmark rates between 2001 and 2010, the DOJ subsequently determined
that the LIBOR NPA had been breached due to, among other things, UBS
having engaged in deceptive currency trading and sales practices in
conducting certain foreign exchange (FX) market transactions, as well
as collusive conduct in certain FX markets (FX Misconduct). UBS then
entered a guilty plea and was itself convicted (2018 Conviction) of a
crime arising out of UBS's scheme to defraud counterparties to interest
rate derivatives transactions, by secretly manipulating benchmark
interest rates to which the profitability of those transactions was
tied. This crime was described in detail in PTE 2017-07.\13\
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\13\ See PTE 2017-07, 82 FR 61916 (December 29, 2017).
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[[Page 51624]]
Previous Exemptions
7. PTE 2013-09 allowed UBS QPAMs to continue to rely on PTE 84-14,
notwithstanding the 2013 conviction, as long as a number of conditions
were met. One of those conditions requires that UBS or any of its
affiliates may not be further convicted of a crime described in Section
I(g) of PTE 84-14. The 2018 Conviction violated this condition in PTE
2013-09 and therefore, the UBS QPAMs could no longer rely on the relief
provided by PTE 2013-09. The Department granted PTE 2017-07 to allow
the UBS QPAMs to continue to rely on PTE 84-14 notwithstanding the
Convictions.
2019 French Conviction
8. In 2013, France opened an investigation into UBS, UBS France,
and certain former employees of UBS France S.A. The investigation
centered on the maintenance of foreign (``cross-border'') UBS bank
accounts held for private citizens. The investigating judges closed the
investigation in February 2016. UBS and UBS France received the
National Financial Prosecutor's recommendation (``requisitoire'') in
July 2016 that charges be filed. The investigating judges issued the
trial order (``Ordonnance de renvoi'') in March 2017 that set out the
precise charges against UBS, UBS France, and the individual former
employees. UBS was charged with: (1) ``illicit solicitation,'' based on
the alleged solicitation of French clients within French territory from
2004-2011 by Swiss-based UBS client advisors without authorization to
conduct such business in France; and (2) laundering the proceeds of tax
fraud, based on UBS's alleged assistance from 2004 to 2012 to French
taxpayers in opening bank accounts outside of France to conceal their
identities from relevant authorities for the purposes of alleged tax
evasion. Following a trial in the French First Instance Court, UBS and
UBS France were convicted of illegally soliciting clients from 2004 to
2012 and laundering the proceeds of tax fraud from 2004 to 2012. The
French court imposed penalties of 3.7 billion Euros on UBS and 15
million Euros on UBS France. UBS and UBS France were also assessed
civil damages of 800 million Euros by the French court. UBS and UBS
France are appealing the 2019 French Conviction.
The 2019 French Conviction violated PTE 2017-07 and therefore, the
UBS QPAMs could no longer rely on the relief provided by PTE 2017-07 as
of the 2019 French Conviction Date. As stated above, the Department
granted PTE 2019-01 to allow the UBS QPAMs to rely on PTE 84-14
notwithstanding the Convictions and the 2019 French Conviction for a
period of one-year.
Current Exemption Request
9. On June 3, 2019, the UBS QPAMs filed an exemption request to
continue to rely on PTE 84-14 after the expiration of the temporary
one-year exemption, PTE 2019-01. The UBS QPAMs request that the
Department issue an exemption which would allow for the continued
reliance on PTE 84-14 by the UBS QPAMs notwithstanding the Convictions
and the 2019 French Conviction. The UBS QPAMs request an exemption that
covers the remaining disqualification period under Section I(g) of PTE
84-14 (nine years beginning on February 20, 2020), and that the
exemption contain the same conditions as PTE 2017-07.
10. The UBS QPAMs represent they are separate entities from the
entities involved in the 2019 French Conviction and none of the UBS
QPAMs or their personnel knew of, had reason to know of, or
participated in the conduct that is the subject of the 2019 French
Conviction. Additionally, the UBS QPAMs represent that neither the UBS
QPAMs nor their personnel received direct compensation, or knowingly
received indirect compensation, in connection with the conduct that is
the subject of the 2019 French Conviction. Furthermore, the UBS QPAMs
represent that no UBS QPAM exercised authority over the assets of any
plan in a manner that it knew or should have known would further the
conduct that is the subject of the 2019 Conviction, or otherwise caused
the UBS QPAMs, their affiliates, or related parties to directly or
indirectly profit from the conduct that is the subject of the 2019
French Conviction.
11. The UBS QPAMs represent that the conduct that is the subject of
the 2019 French Conviction relates to cross-border banking practices,
and that UBS was the first Swiss bank to accept responsibility for the
misconduct and to remediate. According to the UBS QPAMs, UBS resolved
similar charges in the U.S. when UBS entered into a deferred
prosecution agreement with the United States Department of Justice
(DOJ) in 2009 regarding cross-border banking practices from 2000
through 2007 taking place at UBS's now-defunct U.S. cross-border desk
within the UBS wealth management business. Additionally, according to
the UBS QPAMs, by 2010, UBS adopted a global Policy on Cross-border
Standards establishing global standards and a robust framework for
compliance with applicable laws and regulations in each country in
which UBS continued its cross-border business. UBS also made a decision
to provide wealth management services only to clients willing to attest
that they are in compliance with their tax obligations of their home
countries.
12. The UBS QPAMs represent that the majority of the conduct that
is the subject of the 2019 French Conviction occurred prior to 2012
when UBS implemented reforms to its control framework and compliance
programs. UBS QPAMs state that UBS substantially transformed its
organization through a series of remedial measures and compliance
reforms from 2008 through 2011. These efforts, according to the UBS
QPAMs, were a result of significant changes to UBS's senior management
in late 2011 and early 2012 which were supported by the highest levels
of the bank, including the appointment of a new Chief Executive
Officer, a new Chairman of the Board of Directors, and a new Chief Risk
Officer. Moreover, the UBS QPAMs represent that the cross-border
criminal misconduct in France took place prior to the granting of PTE
2013-09 and PTE 2017-07 which imposed additional comprehensive
conditions on UBS and the UBS QPAMs designed to protect the rights of
participants and beneficiaries.
13. The UBS QPAMs represent they have worked diligently to comply
with each of the conditions of PTE 2013-09, PTE 2016-17,\14\ and PTE
2017-07. The UBS QPAMs claim that the policies, practices and
conditions implemented in accordance with PTE 2017-07 are sufficient to
protect the rights and interest of plans and plan participants
particularly. They argue that this is particularly true because all the
conduct that is the subject of the 2019 French Conviction occurred
before they had reformed their compliance structure and culture in
response to the LIBOR and FX matters, implemented the protective
conditions of PTE 2017-07, and engaged in the cross-border remediation
efforts noted above.
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\14\ 81 FR 94049 (December 22, 2016). PTE 2016-17 is a temporary
exemption for UBS QPAMs to rely on the exemptive relief provided by
PTE 84-14, notwithstanding the Convictions, for up to twelve months
from January 5, 2017.
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Term of the Exemption
14. As noted above, the UBS QPAMs have requested a nine year
exemption. The UBS QPAMs state that, by the time a final exemption
takes effect, they will have been operating under the comprehensive
conditions of PTE 2017-07 for more than two years and under the
conditions of PTE 2013-09 for nearly six years. The UBS QPAMs state
[[Page 51625]]
that the Department has had sufficient time to assess the UBS QPAMs'
compliance with these conditions and consider any relevant comments. In
addition, they claim that granting longer-term relief would be in the
best interest of plans, which are otherwise uncertain of the duration
of relief and, accordingly, have to expend the time and resources
necessary to be sure that they can replace the UBS QPAMs in the event
that the Department does not grant permanent relief. The UBS QPAMs
argue that nothing about the 2019 French Conviction would prevent the
Department from granting an exemption for the remaining
disqualification period provided under Section I(g).
The UBS QPAMs also argue that, in other cases, the Department has
granted exemptions for the full 10-year period based on the foreign
conviction of an affiliate of the QPAM where, as in this instance, the
QPAM did not engage in the misconduct or act as a fiduciary to ERISA-
covered plans or exercise discretionary control over ERISA-covered
assets. Moreover, the UBS QPAMs state the conduct that is the subject
of the 2019 French Conviction occurred over ten years ago, and well
before the Department had concluded the conditions of the 2013
exemption were sufficiently protective. Accordingly, they argue that
the conditions of that exemption are appropriate for the 2019 French
Conviction as well. The UBS QPAMs also request that the exemption's
term be defined in such a way that if UBS's appeal of the 2019 French
Conviction is successful, the term of the exemption would be for ten
years, beginning from the date of the 2018 Conviction.
The Department is not persuaded that the exemptive relief for the
remaining nine year disqualification period under PTE 84-14 Section
I(g) would be protective and in the best interest of participants and
beneficiaries. This exemption, if granted, would provide exemptive
relief notwithstanding the 2013 Conviction, the 2018 Conviction, as
well as the 2019 French Conviction. As stated in previous exemptions,
the Department considers the entirety of the record before it when
developing an exemption. In the case of the UBS QPAMs, that record
includes consideration of the 2013 Conviction, the Plea Agreement, the
LIBOR NPA in which UBS agreed, among other things, not to commit any
crime in violation of U.S. laws for a period of two years and the Plea
Agreement, the breach of the LIBOR NPA, the 2018 conviction, and the
2019 French Conviction.
Both the LIBOR NPA and the Plea Agreement contain a Statement of
Facts (SOF) that describes the circumstances of UBS's scheme to defraud
counterparties to interest rate derivatives transactions by secretly
manipulating benchmark interest rates to which the profitability of
those transactions was tied. The SOF describes the wide-ranging and
systematic efforts, practiced nearly on a daily basis, by several UBS
employees: (a) To manipulate the YEN LIBOR in order to benefit UBS's
trading positions; (b) to use cash brokers to influence other
Contributor Panel banks' Yen LIBOR submissions; and (c) to collude
directly with employees at other Contributor Panel banks to influence
those banks' Yen LIBOR submissions. The Department considered the DOJ's
determination that UBS subsequently breached the LIBOR NPA when certain
employees engaged in fraudulent and deceptive trading and sales
practices in certain foreign exchange (FX) market transactions via
telephone, email and/or electronic chat, to the detriment of UBS
customers.\15\ These employees also colluded with other actors in
certain FX markets in order to manipulate those markets. The Department
considered the Factual Basis for Breach attached to the Plea Agreement
which details that conduct (the FX Misconduct as defined in Section
II(d)).
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\15\ The circumstances of UBS's violation of the terms of the
LIBOR NPA are described in detail in Exhibit 1 to the Plea
Agreement, entitled ``The Factual Basis for Breach of the Non-
Prosecution Agreement'' (the Factual Basis for Breach).
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In developing this exemption, the Department also considered
statements from a number of regulators about the FX Misconduct. The
Financial Conduct Authority's (FCA) Final Notice dated November 11,
2014 states: ``During the Relevant Period, UBS did not exercise
adequate and effective control over its G10 spot FX trading business. .
. . The front office failed adequately to discharge these
responsibilities with regard to obvious risks associated with
confidentiality, conflicts of interest and trading conduct.'' That
notice also states: ``These failings occurred in circumstances where
certain of those responsible for managing front office matters were
aware of and/or at times involved in behaviors described above.'' The
United States Commodity and Futures Trading Commission's (CFTC) Order
dated November 11, 2014 states: ``During the Relevant Period, UBS
failed to adequately address the risks associated with its FX traders
participating in the fixing of certain FX benchmark rates. UBS also
lacked adequate internal controls in order to prevent its FX traders
from engaging in improper communications with certain FX traders at
other banks. UBS lacked sufficient policies, procedures and training
specifically governing participation in trading around the FX benchmark
rates. . . .'' The Department took into consideration the monetary
penalties imposed and the agreements by UBS with certain other U.S. and
non-U.S. regulatory agencies to further strengthen its internal
controls.
In light of the breach of two previous exemptions, which were
themselves necessitated by criminal conduct, the severity of the
misconduct, and the repeated criminal violations, the Department has
concluded that it is appropriate to propose a limited five-year term of
relief. Relevant to this determination is a finding set forth in an
audit report required by PTE 2016-17, performed by Fiduciary
Counselors, Inc., dated August 7, 2018.\16\ The five-year term and the
exemption's protective conditions reflect the Department's intent to
protect Covered Plans that entrust substantial assets with a UBS QPAM,
following serious misconduct, supervisory failures, repeated criminal
convictions, and violations of a two previous exemptions.
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\16\ In that audit report, Fiduciary Counselors, Inc. states, on
page 26: ``Asset Management [QPAM] informed us that during the Audit
Period it utilized PTE 86-128 with respect to effecting securities
transactions using affiliated brokers for one ERISA Plan client.
However, it does not appear that Asset Management correctly followed
all of the requirement of PTE 86-128. Specifically, it does not
appear that Asset Management provided its client with the required
annual termination notice. Additionally, it does not appear that
Asset Management timely provided its client with the required annual
disclosure summary.
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The 2019 French Conviction violated one of the conditions of the
previous exemptions. The conduct that is the subject of the 2019 French
Conviction reinforces the Department's concerns about the need for
careful scrutiny to ensure that the interests of plan participants,
beneficiaries, and IRA owners are safeguarded. As stated in PTE 2017-
07, the five-year term gives the Department the opportunity to review,
on an ongoing basis, the UBS QPAMs' adherence to the conditions set out
herein. The five-year period stresses the importance of the UBS QPAMs'
efforts to maintain supervisory mechanisms, policies, and procedures
that safeguard plans and IRAs, and guard against the risk of further
misconduct.
The Department additionally notes that, if the UBS QPAMs' appeal of
the 2019 French Conviction is successful the UBS QPAMs may rely on PTE
2017-
[[Page 51626]]
07, PTE 2019-01, or, if granted, this exemption, during their
respective effective periods, as long as the applicable conditions
therein are met.\17\ The Applicants may apply for an additional
extension at such time as they believe appropriate. Before granting an
extension, however, the Department expects to consider carefully the
efficacy of this exemption and any public comments on additional
extensions, particularly including comments on how well the exemption
has or has not worked to safeguard the interests of Covered Plans.
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\17\ In this circumstance, the Department would consider good
faith compliance with the conditions of PTE 2019-01 and this
exemption, if granted, as compliance with the conditions of PTE
2017-07.
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Conditions of the Exemption
15. The UBS QPAMs have requested that the Department omit from this
proposed exemption any reference to foreign convictions as it appears
in Section I(l) of PTE 2019-01. PTE 2019-01 Section I(l) states in part
``if, during the Exemption Period, an entity within the UBS corporate
structure is convicted of a crime described in Section I(g) of PTE 84-
14 . . . , including a conviction in a foreign jurisdiction for a crime
described in Section I(g) of PTE 84-14, relief in this exemption would
terminate immediately.'' The UBS QPAMs argue the inclusion of this
language by the Department ``is superfluous given the Department's
current stated interpretation of Section I(g), unnecessary given the
Department's articulation of that interpretation throughout the
temporary exemption's preamble, and could produce uncertainty if
included in a longer-term exemption in the event the Department were
subsequently to `reverse its view' on Section I(g)'s applicability to
foreign convictions.'' Given the Department's current stated
interpretation of Section I(g) as articulated in PTE 2019-01, it adopts
the UBS QPAMs' request.
16. The UBS QPAMs recommended the proposed exemption contain
certain revisions to the conditions of the one-year exemption, PTE
2019-01, to align this proposed exemption with PTE 2017-07.
In developing administrative exemptions under Section 408(a) of
ERISA, the Department seeks to implement its statutory directive to
grant only exemptions that are appropriately protective of affected
plans and IRAs and in their interest. In discharging this obligation,
the Department will sometimes impose conditions that depart from those
provided in older exemptions based on the Department's experience with
those exemptions, the Department's conclusion that new or revised
conditions will better serve the interests of affected plans and IRAs,
similar changes in more recent exemptions applicable to other firms
providing the same services, and other factors. In the Department's
view, the conditions set forth in PTE 2019-01 best protect the
interests of plan participants, beneficiaries, and IRA owners, and are
consistent with the terms of similar exemptions relied upon by other
service providers. Therefore, the conditions of this proposed exemption
follow the conditions of PTE 2019-01 while incorporating certain
updates the Department finds necessary to protect the interest of plans
and IRAs and certain conditions that have been modified at the request
of the UBS QPAMs.
17. The UBS QPAMs specifically request that the Department modify
text in Section I(a) of PTE 2019-01, which conditions relief on the
fact that third parties engaged ``on behalf of'' the UBS QPAMs did not
``know of, have reason to know of, or participate in'' the criminal
conduct that is the subject of the 2019 French Conviction. In
particular, the UBS QPAMs request deletion of the exemption's reference
to such third parties who ``had responsibility for, or exercised
authority in connection with the management of plan assets.''
Additionally, the UBS QPAMs object to the exemption's provision stating
that a person is treated as having participated in criminal misconduct
not only if the person actively engaged in the misconduct, but also if
he or she knowingly approved of the criminal conduct or, with knowledge
of the misconduct, failed to take active steps to prohibit it, such as
reporting the conduct to supervisors.
The Department declines to make the requested modifications to
Section I(a) of the proposed exemption. In the Department's view, the
UBS QPAMs are appropriately held accountable in this manner for the
conduct of the third parties they engaged on their behalf to manage or
exercise authority over plan assets. If such parties knowingly
participated in the criminal conduct that is the subject of the 2019
French conviction, the QPAMs' culpability is potentially greater than
the Department assumed in drafting exemption conditions, and there may
be need for greater protections or reduced relief.
Moreover, the Department's expectation of adherence to high
standards of integrity is not satisfied merely by avoiding actively
engaging in misconduct, but also extends to taking measures to stop
misconduct that is known or should be known. Silent acquiescence to
criminal conduct falls far short of the standards expected of parties
relying on the exemption.
The condition as written in PTE 2019-01 was specifically designed
to give assurance that the UBS QPAMs and third parties engaged on the
UBS QPAMs' behalf did not participate, approve, or facilitate criminal
misconduct. Accordingly, the condition treats as knowing participation
a party's failure to take active steps to prevent the criminal conduct
that is the subject of the 2019 exemption.
18. The UBS QPAMs similarly request that Section I(b) of the
proposed exemption not include the condition set forth in Section I(b)
of PTE 2019-01, which provides that the parties engaged to act on
behalf of the UBS QPAMs must not have received compensation in
connection with the criminal conduct that is the subject of the 2019
French Conviction. This condition too reflects the Department's view
that the QPAMs and the parties engaged on their behalf to manage or
exercise authority over plan assets should adhere to high standards of
integrity. Accordingly, they should neither have participated in nor
profited from the criminal conduct that is the subject of the 2019
French conviction. If such parties, in fact, received direct or
indirect compensation in connection with the criminal conduct, their
culpability, and the culpability of the USB QPAMs, is potentially
greater than the Department assumed in drafting exemption conditions,
and there may be need for greater protections or reduced relief.
Therefore, Section I(b) of the proposed exemption will continue to
extend the prohibition against the receipt of compensation in
connection with the conduct that is the subject of the 2019 French
Conviction to third parties with responsibility or authority over plan
assets.
19. The UBS QPAMs request that the timing of the audit periods and
the Exemption Review be such that the initial periods under audit and
review be for a period of thirteen months. The Department has
accommodated this request and Sections I(i) and I(m) of the proposed
exemption provide for initial periods of thirteen months.
Statutory Findings
20. Section 408(a) of ERISA provides, in part, that the Department
may not grant an exemption unless the Department finds that the
exemption is administratively feasible, in the interest of affected
plans and of their participants and beneficiaries, and
[[Page 51627]]
protective of the rights of such participants and beneficiaries. These
criteria are discussed below.
a. ``Administratively Feasible.'' The Department has tentatively
determined that the proposal is administratively feasible since, among
other things, a qualified independent auditor will be required to
perform an in-depth audit covering, among other things, each UBS QPAM's
compliance with the exemption, and a corresponding written audit report
will be provided to the Department and available to the public. The
independent audit will provide an incentive for, and a measure of,
compliance, while reducing the immediate need for review and oversight
by the Department.
b. ``In the interest of.'' The Department has tentatively
determined that the proposed exemption is in the interests of the
participants and beneficiaries of each affected Covered Plan. Based on
the representation of the UBS QPAMs, it is the Department's
understanding that if the requested exemption were denied, client
ERISA-covered plans would be unable to maintain their investment
strategy with their current asset manager and would be subject to
disruptions and costs associated with changing asset managers. The UBS
QPAMs claim that their ERISA plan clients have long availed themselves
of the benefit of the UBS QPAMs' investment expertise, even after the
grant of PTE 2013-09 and PTE 2017-07. The UBS QPAMs state that granting
the exemption would enable the UBS QPAMs to continue to effect a wide
range of beneficial transactions on their ERISA clients' behalf without
undue administrative delay or other conditions or limitations that
could be disadvantageous to the ERISA plan clients. The UBS QPAMs
represent that without the ability to serve as QPAMs certain prudent
and appropriate investment opportunities may not be available to such
ERISA plan clients. The UBS QPAMs state that PTE 84-14 is one of the
most commonly used prohibited transaction exemptions and, for some
transactions, may be the only available exemption. In addition, the UBS
QPAMs and counterparties to transactions with the UBS QPAMs frequently
rely on PTE 84-14 as a backup exemption for transactions. The UBS QPAMs
claim that some third parties may elect not to engage in transactions
involving plan assets managed by the UBS QPAMs without the assurance
they receive from the availability of PTE 84-14 or, if they do engage
in the transactions, may only do so on less advantageous terms.
Additionally, the UBS QPAMs represent that if client ERISA plans
were to move to new asset managers they could incur transition costs,
including the costs associated with identifying an asset manager (such
as the costs and management time required in a Request for Proposal
process, consultant fees and other due diligence expenses), brokerage
and other transaction costs associated with the sale of portfolio
investments to accommodate the investment policies and strategy of the
new asset manager, the opportunity costs of holding cash pending
investment by the new asset manager, and lost investment opportunities
in connection with a change of asset managers. The UBS QPAMs claim that
losing the ability to use PTE 84-14 would make it difficult, costly,
and impracticable to enter into many transactions that are in the best
interests of ERISA client plans, reducing plan choices, especially
among large institutional banks.
Further, the UBS QPAMs represent that if the requested exemption
were not granted, ERISA plan clients could be effectively prohibited
from entering into certain transactions, either because no other
exemption is available or the counterparty is not willing to enter into
the transaction without the protections provided by PTE 84-14. The UBS
QPAMs claim that the loss of the ability to use PTE 84-14 could
significantly delay or even make impossible transactions that would be
beneficial for the ERISA plans. The UBS QPAMs also represent that
counterparties could seek to terminate contracts for certain
outstanding transactions (including swaps) that require the UBS QPAMs
to represent that they are QPAMs and/or use PTE 84-14 and additionally,
pursuant to these contracts, swap transactions with certain
counterparties could automatically and immediately be terminated
without any notice or action of such counterparties, even if other
prohibited transaction exemptions are available which could result in
significant losses for the client ERISA plans.
c. ``Protective of.'' The Department has tentatively determined
that the exemption, as proposed, will be protective of the rights of
participants and beneficiaries of affected plans and IRAs and will
appropriately protect plans subject to Part 4 of Title I of ERISA (an
ERISA-covered plan) or plans subject to section 4975 of the Code (an
IRA), in each case, with respect to which a UBS QPAM relies on PTE 84-
14, or with respect to which a UBS QPAM (or any UBS affiliate) has
expressly represented that the manager qualifies as a QPAM or relies on
the QPAM class exemption (PTE 84-14) (Covered Plans).\18\ This
exemption, if granted, would provide relief for the UBS QPAMs to rely
on PTE 84-14, notwithstanding the 2013 Conviction, the 2018 Conviction,
and the 2019 French Conviction for a five-year period from the
expiration of PTE 2019-01. The proposal has essentially the same
conditions as PTE 2019-01.
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\18\ For purposes of this exemption, a Covered Plan does not
include an ERISA-covered plan or IRA to the extent the UBS QPAM has
expressly disclaimed reliance on QPAM status or PTE 84-14 in
entering into a contract, arrangement, or agreement with the ERISA-
covered plan or IRA.
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Relief is necessary since, at present, the judgment in the French
First Instance Court constitutes a conviction, consistent with the
Department's prior practice and treatment of foreign convictions.\19\
If UBS is successful in its appeal of the verdict of the French First
Instance Court, the UBS QPAMs may rely on PTE 2017-07, PTE 2019-01, or,
if granted this exemption, during the exemptions' respective effective
periods, as long as the applicable conditions therein are met.\20\
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\19\ The UBS QPAMs have requested the Department revisit
application of PTE 84-14, Section I(g), to foreign convictions
through an Advisory Opinion. The Department has not yet responded to
this request.
\20\ In this circumstance, the Department would consider good
faith compliance with the conditions of PTE 2019-01 and this
exemption, if granted, as compliance with the conditions of PTE
2017-07.
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Several of the conditions are aimed at ensuring that the UBS QPAMs
were not involved in the conduct that gave rise to any of the
Convictions and the 2019 French Conviction. Accordingly, the proposal
generally precludes relief to the extent the UBS QPAMs and any other
party engaged on behalf of such QPAMs who had responsibility for, or
exercised authority in connection with the management of plan assets,
and were aware of, participated in, approved of, furthered, benefitted,
or profited from: (1) The FX Misconduct; (2) the criminal conduct of
UBS Securities Japan and UBS that is the subject of the Convictions; or
(3) the criminal conduct of UBS and UBS France that is the subject of
the 2019 French Conviction.\21\ Further, the UBS QPAMs may not employ
or knowingly engage any of the individuals that participated in the
conduct attributable to the FX Misconduct, the 2013 and 2018
Convictions, or the 2019 French Conviction.
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\21\ For clarity, references to the UBS QPAMs include any
individual employed by or engaged to work on behalf of these QPAMs
during or after the period of misconduct.
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The proposal further provides that no UBS QPAM will use its
authority or
[[Page 51628]]
influence to direct an ``investment fund'' that is subject to ERISA or
the Code and managed by such UBS QPAM with respect to one of more
Covered Plans, to enter into any transaction with UBS, UBS Securities
Japan, or UBS France, or engage UBS, UBS Securities Japan, or UBS
France to provide any service to such investment fund, for a direct or
indirect fee borne by such investment fund, regardless of whether such
transaction or service may otherwise be within the scope of relief
provided by an administrative or statutory exemption. Also, with very
limited exceptions, UBS, UBS Securities Japan, and UBS France may not
act as a fiduciary within the meaning of section 3(21)(A)(i) or (iii)
of ERISA, or section 4975(e)(3)(A) and (C) of the Code, with respect to
ERISA-covered plan and IRA assets.
The proposal requires each UBS QPAM to update, implement and follow
certain written policies and procedures (the Policies). These Policies
are similar to the policies and procedures mandated by PTE 2019-01. In
general terms, the Policies must require, and must be reasonably
designed to ensure that, among other things: The asset management
decisions of the UBS QPAMs are conducted independently of the corporate
management and business activities of UBS, UBS Securities Japan, and
UBS France; the UBS QPAMs fully comply with ERISA's fiduciary duties,
and with ERISA and the Code's prohibited transaction provisions; the
UBS QPAMs do not knowingly participate in any other person's violation
of ERISA or the Code with respect to Covered Plans; any filings or
statements made by the UBS QPAMs to regulators, on behalf of or in
relation to Covered Plans, are materially accurate and complete; the
UBS QPAMs do not make material misrepresentations or omit material
information in its communications with such regulators with respect to
Covered Plans; the UBS QPAMs do not make material misrepresentations or
omit material information in its communications with Covered Plans; the
UBS QPAMs comply with the terms of this exemption; and any violation
of, or failure to comply with any of these items by the UBS QPAMs, is
corrected as soon as reasonably possible upon discovery, or as soon
after the UBS QPAMs reasonably should have known of the noncompliance
(whichever is earlier). Any such violation or compliance failure not so
corrected must be reported, upon the discovery of such failure to so
correct, in writing, to appropriate corporate officers, the head of
compliance and the General Counsel (or their functional equivalent),
and the independent auditor responsible for reviewing compliance with
the Policies.
This proposal mandates training (Training), which is similar to the
training required under PTE 2019-01. In this regard, all relevant UBS
QPAM asset/portfolio management, trading, legal, compliance, and
internal audit personnel must be trained annually during the Exemption
Period. Among other things, the Training must, at a minimum, cover the
Policies, ERISA and Code compliance, ethical conduct, the consequences
of not complying with the conditions of this exemption (including any
loss of exemptive relief provided herein), and the requirement for
prompt reporting of wrongdoing. The Training must be conducted by a
professional who has been prudently selected and who has appropriate
technical training and proficiency with ERISA and the Code.
Under this proposal, as in PTE 2019-01, each UBS QPAM must submit
to an annual audit conducted by an independent auditor.\22\ Among other
things, the auditor must test a sample of each UBS QPAM's transactions
involving Covered Plans, sufficient in size and nature to afford the
auditor a reasonable basis to determine such QPAM's operational
compliance with the Policies and Training. The auditor's conclusions
cannot be based solely on the Exemption Report created by the
Compliance Officer, described below, in lieu of independent
determinations and testing performed by the auditor.
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\22\ Audits covering time periods prior to the 2019 French
Conviction Date must be completed in accordance with the
requirements of PTE 2017-07 and PTE 2019-01, as applicable.
Accordingly, the last audit performed pursuant to PTE 2017-07 will
cover the period beginning January 10, 2018 and ending on the 2019
French Conviction Date and the corresponding Audit Report must be
completed within six months and submitted to the Department within
45 days of completion.
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The Audit Report must be certified by the General Counsel or one of
the three most senior executive officers of the UBS QPAM to which the
Audit Report applies. A copy of the Audit Report must be provided to
the Risk Committee of UBS's Board of Directors. Among other things, UBS
must submit to the Office of Exemption Determinations (OED), any
engagement agreement with an auditor to perform the audit required
under the terms of this exemption no later than two (2) months after
the execution of such agreement;
This proposal requires that, as of the effective date this
exemption, and throughout the Exemption Period, with respect to any
arrangement, agreement, or contract between a UBS QPAM and a Covered
Plan, the UBS QPAM must agree and warrant: (i) To comply with ERISA and
the Code, as applicable with respect to such Covered Plan; and (ii) to
refrain from engaging in prohibited transactions that are not otherwise
exempt (and to promptly correct any inadvertent prohibited
transactions). The UBS QPAMs must further agree and warrant to comply
with the standards of prudence and loyalty set forth in section 404 of
ERISA with respect to each such ERISA-covered plan and IRA to the
extent that section 404 is applicable. Each UBS QPAM must also agree
and warrant to indemnify and hold harmless such Covered Plan for any
actual losses resulting directly from any of the following: (a) A UBS
QPAM's violation of ERISA's fiduciary duties, as applicable, and/or the
prohibited transaction provisions of ERISA and the Code, as applicable;
(b) a breach of contract by the UBS QPAM; or (c) any claim arising out
of the failure of such UBS QPAM to qualify for the exemptive relief
provided by PTE 84-14 as a result of a violation of Section I(g) of PTE
84-14 other than the 2013 Conviction, the 2018 Conviction, or the 2019
French Conviction. This condition applies only to actual losses caused
by the UBS QPAM. As noted above, the Applicant has identified a wide
range of potential harm and costs that may be incurred by plans and
IRAs if the UBS QPAMs were no longer able to rely on PTE 84-14. The
Department views actual losses arising from unwinding transactions with
third parties, and from transitioning Covered Plan assets to third
parties, to be ``direct'' results of violating the terms of this
provision.
This exemption contains specific notice requirements. In this
regard, each UBS QPAM will provide a notice of the exemption, along
with a separate summary describing the facts that led to the Conviction
(the Summary), which have been submitted to the Department, and a
prominently displayed statement (the Statement) that the Convictions,
and in the Department's view, the 2019 French Conviction, each
separately result in a failure to meet a condition in PTE 84-14 and/or
PTE 2017-07, to each sponsor and beneficial owner of a Covered Plan, or
the sponsor of an investment fund in any case where a UBS QPAM acts as
a sub-advisor to the investment fund in which such ERISA-covered plan
and IRA invests. The notice, Summary and Statement must be provided
prior to, or contemporaneously with, the client's receipt of a written
asset management agreement from the UBS QPAM.
[[Page 51629]]
Disclosures may be delivered electronically.
The proposal requires that each UBS QPAM maintain records necessary
to demonstrate that the conditions of this exemption have been met, for
six (6) years following the date of any transaction for which such UBS
QPAM relies upon the relief in the exemption. The proposal mandates
that UBS continue to designate a senior compliance officer (the
Compliance Officer) who will be responsible for compliance with the
Policies and Training requirements described herein. The Compliance
Officer must conduct an annual reviews (the Exemption Review) during
the Exemption Period \23\ to determine the adequacy and effectiveness
of the implementation of the Policies and Training. The Compliance
Officer must be a professional with extensive relevant experience and
must have a reporting line within UBS's Compliance and Operational Risk
Control function to the Head of Compliance and Operational Rick
Control, Asset Management. At a minimum, the Exemption Review must
include review of the following items: (i) Any compliance matter
related to the Policies or Training that was identified by, or reported
to, the Compliance Officer during the previous year; (ii) the most
recent Audit Report issued pursuant to this exemption or PTE 2019-01;
(iii) any material change in the relevant business activities of the
UBS QPAMs; and (iv) any change to ERISA, the Code, or regulations that
may be applicable to the activities of the UBS QPAMs.
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\23\ All Exemption Reviews for periods prior to the effective
date of this exemption must be conducted and completed pursuant to
the requirements of PTE 2017-07 or PTE 2019-01, as applicable.
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The Compliance Officer must prepare a written report (an Exemption
Report) that summarizes his or her material activities during the
Exemption Period and sets forth any instance of noncompliance
discovered during the Exemption Period, and any related corrective
action. In each Exemption Report, the Compliance Officer must certify
in writing that to his or her knowledge the report is accurate and the
UBS QPAMs have complied with the Policies and Training, and/or
corrected (or are correcting) any instances of noncompliance.
Each Exemption Report must be provided to the appropriate corporate
officers of UBS and each UBS QPAM to which such report relates and to
the head of compliance and the General Counsel (or their functional
equivalent) of the relevant UBS QPAM. The Exemption Report must be made
unconditionally available to the independent auditor. The Exemption
Review, including the Compliance Officer's written Exemption Report,
must be completed within three (3) months following the end of the
period to which it relates.
UBS must also immediately disclose to the Department any Deferred
Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA)
with the U.S. Department of Justice, entered into by UBS or any of its
affiliates (as defined in Section VI(d) of PTE 84-14) in connection
with conduct described in Section I(g) of PTE 84-14 or section 411 of
ERISA. UBS must also immediately provide the Department with any
information requested by the Department, as permitted by law, regarding
the agreement and/or conduct and allegations that led to the agreement.
The proposal mandates that, among other things, each UBS QPAM
clearly and prominently inform Covered Plan clients of their right to
obtain a copy of the Policies or a description (Summary Policies) which
accurately summarizes key components of the UBS QPAM's written Policies
developed in connection with this exemption. If the Policies are
thereafter changed, each Covered Plan client must receive a new
disclosure within six (6) months following the end of the calendar year
during which the Policies were changed.\24\ With respect to this
requirement, the description may be continuously maintained on a
website, provided that such website link to the Policies or Summary
Policies is clearly and prominently disclosed to each Covered Plan.
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\24\ In the event Applicant meets this disclosure requirement
through Summary Policies, changes to the Policies shall not result
in the requirement for a new disclosure unless the Summary Policies
are no longer accurate because of the changes.
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The proposal requires that UBS QPAMs must comply with each
condition of PTE 84-14, as amended, with the sole exception of the
conduct that is attributable to the 2013 Conviction, the 2018
Conviction and the 2019 French Conviction. If, during the Exemption
Period, an entity within the UBS corporate structure is convicted of a
crime described in Section I(g) of PTE 84-14, (other than the 2013
Conviction, 2018 Conviction, and the 2019 French Conviction) relief in
this exemption, if granted, would terminate immediately.
Summary
21. Given the conditions described above, the Department has
tentatively determined that providing five-year relief to the Applicant
satisfies the statutory requirements for an exemption under section
408(a) of ERISA and section 4975(c)(2) of the Code.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within fifteen (15) days of the publication of the notice of
proposed five-year exemption in the Federal Register. The notice will
be provided to all interested persons in the manner described in
Section I(k) of this proposed five-year exemption and will contain the
documents described therein and a supplemental statement, as required
pursuant to 29 CFR 2570.43(a)(2). The supplemental statement will
inform interested persons of their right to comment on and to request a
hearing with respect to the pending exemption. All written comments
and/or requests for a hearing must be received by the Department within
forty five (45) days of the date of publication of this proposed five-
year exemption in the Federal Register. All comments will be made
available to the public.
Warning: If you submit a comment, EBSA recommends that you include
your name and other contact information in the body of your comment,
but DO NOT submit information that you consider to be confidential, or
otherwise protected (such as Social Security number or an unlisted
phone number) or confidential business information that you do not want
publicly disclosed. All comments may be posted on the internet and can
be retrieved by most internet search engines.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the
[[Page 51630]]
employees of the employer maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Proposed Exemption
The Department is considering granting a five-year exemption under
the authority of section 408(a) of the Act (or ERISA) and section
4975(c)(2) of the Internal Revenue Code (or Code), and in accordance
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR
66637, 66644, October 27, 2011).\25\ Effective December 31, 1978,
section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1
(1996), transferred the authority of the Secretary of the Treasury to
issue exemptions of the type requested to the Secretary of Labor.
Therefore, this notice of proposed exemption is issued solely by the
Department.
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\25\ For purposes of this proposed three-year temporary
exemption, references to section 406 of Title I of the Act, unless
otherwise specified, should be read to refer as well to the
corresponding provisions of section 4975 of the Code.
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Section I. Covered Transactions
Certain entities with specified relationships to UBS (hereinafter,
the UBS QPAMs, as defined in Section II(e)) will not be precluded from
relying on the exemptive relief provided by Prohibited Transaction
Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption) during the
Exemption Period,\26\ notwithstanding the 2013 Conviction of UBS
Securities Japan Co., Ltd., the 2018 Conviction of UBS (collectively
the Convictions, as defined in Section II(a)), and the 2019 French
Conviction of UBS and UBS France (as defined in Section II(b)),
provided that the following conditions are satisfied:
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\26\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(October 10, 1985), as amended at 70 FR 49305(August 23, 2005), and
as amended at 75 FR 38837 (July 6, 2010).
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(a) The UBS QPAMs (including their officers, directors, agents
other than UBS, UBS Securities Japan and UBS France, and the employees
of such UBS QPAMs, did not know of, did not have reason to know of, or
did not participate in: (1) The FX Misconduct; (2) the criminal conduct
of UBS Securities Japan and UBS that is the subject of the Convictions;
or (3) the criminal conduct of UBS and UBS France that is the subject
of the 2019 French Conviction. Further, any other party engaged on
behalf of such UBS QPAMs who had responsibility for, or exercised
authority in connection with the management of plan assets did not know
of, did not have reason to know of, or participate in the criminal
conduct of UBS and UBS France that is the subject of the 2019 French
Conviction. For purposes of this exemption, ``participate in'' refers
not only to active participation in the FX Misconduct, the criminal
conduct that is the subject of the Convictions, and the criminal
conduct that is the subject of the 2019 French Conviction, but also to
knowing approval of the criminal conduct, or knowledge of such conduct
without taking active steps to prohibit such conduct, including
reporting the conduct to such individual's supervisors, and to the
Board of Directors;
(b) The UBS QPAMs (including their officers, directors, agents
other than UBS, UBS Securities Japan, and UBS France, and employees of
such UBS QPAMs) did not receive direct compensation, or knowingly
receive indirect compensation, in connection with the (1) the FX
Misconduct; (2) the criminal conduct of UBS Securities Japan and UBS
that is the subject of the Convictions; or (3) the criminal conduct of
UBS and UBS France that is the subject of the 2019 French Conviction.
Further, any other party engaged on behalf of such UBS QPAMs who had
responsibility for, or exercised authority in connection with the
management of plan assets did not receive direct compensation, or
knowingly receive indirect compensation, in connection with the
criminal conduct of UBS and UBS France that is the subject of the 2019
French Conviction;
(c) The UBS QPAMs will not employ or knowingly engage any of the
individuals who participated in: (1) The FX Misconduct; (2) the
criminal conduct of UBS Securities Japan and UBS that is the subject of
the Convictions; or (3) the criminal conduct of UBS and UBS France that
is the subject of the 2019 French Conviction;
(d) At all times during the Exemption Period, no UBS QPAM will use
its authority or influence to direct an ``investment fund'' (as defined
in Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and
managed by such UBS QPAM with respect to one or more Covered Plans (as
defined in Section II(c)) to enter into any transaction with UBS, UBS
Securities Japan, or UBS France or to engage UBS, UBS Securities Japan,
or UBS France to provide any service to such investment fund, for a
direct or indirect fee borne by such investment fund, regardless of
whether such transaction or service may otherwise be within the scope
of relief provided by an administrative or statutory exemption;
(e) Any failure of the UBS QPAMs to satisfy Section I(g) of PTE 84-
14 arose solely from the Convictions and the 2019 French Conviction;
(f) A UBS QPAM did not exercise authority over the assets of any
plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or
section 4975 of the Code (an IRA) in a manner that it knew or should
have known would: Further the FX Misconduct, the criminal conduct that
is the subject of the Convictions, or the criminal conduct that is the
subject of the 2019 French Conviction; or cause the UBS QPAM or its
affiliates to directly or indirectly profit from the FX Misconduct, the
criminal conduct that is the subject of the Convictions, or the
criminal conduct that is the subject of the 2019 French Conviction;
(g) Other than with respect to employee benefit plans maintained or
sponsored for its own employees or the employees of an affiliate, UBS,
UBS Securities Japan, and UBS France will not act as fiduciaries within
the meaning of section 3(21)(A)(i) or (iii) of ERISA, or section
4975(e)(3)(A) and (C) of the Code, with respect to ERISA-covered plan
and IRA assets; provided, however, that UBS, UBS Securities Japan, and
UBS France will not be treated as violating the conditions of this
exemption solely because they acted as an investment advice fiduciary
within the meaning of section 3(21)(A)(ii) of ERISA or section
4975(e)(3)(B) of the Code;
(h)(1) Each UBS QPAM must continue to maintain, adjust (to the
extent necessary), implement, and follow written policies and
procedures (the Policies). The Policies must require, and
[[Page 51631]]
must be reasonably designed to ensure that:
(i) The asset management decisions of the UBS QPAM are conducted
independently of UBS's corporate management and business activities,
including the corporate management and business activities of the
Investment Bank division, UBS Securities Japan, and UBS France. This
condition does not preclude a UBS QPAM from receiving publicly
available research and other widely available information from a UBS
affiliate;
(ii) The UBS QPAM fully complies with ERISA's fiduciary duties, and
with ERISA and the Code's prohibited transaction provisions, in each
case as applicable with respect to each Covered Plan, and does not
knowingly participate in any violation of these duties and provisions
with respect to Covered Plans;
(iii) The UBS QPAM does not knowingly participate in any other
person's violation of ERISA or the Code with respect to Covered Plans;
(iv) Any filings or statements made by the UBS QPAM to regulators,
including, but not limited to, the Department, the Department of the
Treasury, the Department of Justice, and the Pension Benefit Guaranty
Corporation, on behalf of or in relation to Covered Plans, are
materially accurate and complete, to the best of such QPAM's knowledge
at that time;
(v) To the best of the UBS QPAM's knowledge at that time, the UBS
QPAM does not make material misrepresentations or omit material
information in its communications with such regulators with respect to
Covered Plans, or make material misrepresentations or omit material
information in its communications with Covered Plans; and
(vi) The UBS QPAM complies with the terms of this five-year
exemption;
(2) Any violation of, or failure to comply with an item in
subparagraphs (h)(1)(ii) through (vi), is corrected as soon as
reasonably possible upon discovery, or as soon after the QPAM
reasonably should have known of the noncompliance (whichever is
earlier), and any such violation or compliance failure not so corrected
is reported, upon the discovery of such failure to so correct, in
writing. Such report shall be made to the head of compliance and the
General Counsel (or their functional equivalent) of the relevant UBS
QPAM that engaged in the violation or failure, and the independent
auditor responsible for reviewing compliance with the Policies. A UBS
QPAM will not be treated as having failed to develop, implement,
maintain, or follow the Policies, provided that it corrects any
instance of noncompliance as soon as reasonably possible upon
discovery, or as soon as reasonably possible after the UBS QPAM
reasonably should have known of the noncompliance (whichever is
earlier), and provided that it adheres to the reporting requirements
set forth in this subparagraph (2);
(3) Each UBS QPAM will maintain, adjust (to the extent necessary)
and implement a program of training during the Exemption Period, to be
conducted at least annually, for all relevant UBS QPAM asset/portfolio
management, trading, legal, compliance, and internal audit personnel.
The Training must:
(i) At a minimum, cover the Policies, ERISA and Code compliance
(including applicable fiduciary duties and the prohibited transaction
provisions), ethical conduct, the consequences for not complying with
the conditions of this exemption (including any loss of exemptive
relief provided herein), and prompt reporting of wrongdoing; and
(ii) Be conducted by a professional who has been prudently selected
and who has appropriate technical training and proficiency with ERISA
and the Code;
(i)(1) Each UBS QPAM submits to an audit conducted by an
independent auditor, who has been prudently selected and who has
appropriate technical training and proficiency with ERISA and the Code,
to evaluate the adequacy of, and each UBS QPAM's compliance with, the
Policies and Training described herein. The audit requirement must be
incorporated in the Policies. The initial audit must cover the thirteen
(13) month period that begins on February 20, 2020 and ends on March
19, 2021, and must be completed by September 19, 2021. The second audit
must cover the period March 20, 2021 through March 19, 2022 and must be
completed by September 19, 2022. The third audit must cover the period
March 20, 2022 through March 19, 2023 and must be completed by
September 19, 2023. The fourth audit must cover the period March 20,
2023 through March 19, 2024 and must be completed by September 19,
2024. The fifth audit must cover the period March 20, 2024 through
February 20, 2025 and must be completed by August 20, 2025. The
corresponding certified Audit Reports must be submitted to the
Department no later than 45 days following the completion of the audit;
\27\ For time periods ending prior to February 20, 2020, and covered by
the audit required pursuant to PTE 2017-07 \28\ and PTE 2019-01,\29\
the audit requirements in Section I(i) of PTE 2017-07 and PTE 2019-01
will remain in effect.\30\
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\27\ The initial Audit Report must be submitted to the
Department by November 3, 2021. The second Audit Report must be
submitted to the Department by November 3, 2022. The third Audit
Report must be submitted to the Department by November 3, 2023. The
fourth Audit Report must be submitted to the Department by November
3, 2024. The fifth Audit Report must be submitted to the Department
by October 4, 2025.
\28\ 82 FR 61903 (December 29, 2017). PTE 2017-07 is an
exemption that permits UBS QPAMs to rely on the exemptive relief
provided by PTE 84-14, notwithstanding the 2013 and 2018
Convictions.
\29\ 84 FR 6163 (February 26, 2019. PTE 2019-01 is an exemption
that permits the UBS QPAMs to rely on the exemptive relief provided
by PTE 84-14 notwithstanding the 2013 and 2018 Convictions and the
2019 French Conviction.
\30\ Accordingly, pursuant to PTE 2019-01, the final audit under
PTE 2017-07 will cover the period beginning on January 10, 2018 and
ending on February 19, 2019, and the corresponding Audit Report must
be completed by August 19, 2019 and the Audit Report submitted to
the Department by October 3, 2019. Likewise, the audit required
under PTE 2019-01 must cover the period cover the period beginning
February 20, 2019 and ending on February 19, 2020. The corresponding
Audit Report must be completed by August 19, 2020 and submitted to
the Department by October 3, 2020.
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(2) Within the scope of the audit and to the extent necessary for
the auditor, in its sole opinion, to complete its audit and comply with
the conditions for relief described herein, and only to the extent such
disclosure is not prevented by state or federal statute, or involves
communications subject to attorney client privilege, each UBS QPAM and,
if applicable, UBS, will grant the auditor unconditional access to its
business, including, but not limited to: Its computer systems; business
records; transactional data; workplace locations; training materials;
and personnel. Such access is limited to information relevant to the
auditor's objectives as specified by the terms of this exemption;
(3) The auditor's engagement must specifically require the auditor
to determine whether each UBS QPAM has developed, implemented,
maintained, and followed the Policies in accordance with the conditions
of this five-year exemption, and has developed and implemented the
Training, as required herein;
(4) The auditor's engagement must specifically require the auditor
to test each UBS QPAM's operational compliance with the Policies and
Training. In this regard, the auditor must test, for each UBS QPAM, a
sample of such UBS QPAM's transactions involving Covered Plans,
sufficient in size and nature to afford the auditor a reasonable basis
to determine such UBS QPAM's operational compliance with the Policies
and Training;
[[Page 51632]]
(5) For the audit, on or before the end of the relevant period
described in Section I(i)(1) for completing the audit, the auditor must
issue a written report (the Audit Report) to UBS and the UBS QPAM to
which the audit applies that describes the procedures performed by the
auditor in connection with its examination. The auditor, at its
discretion, may issue a single consolidated Audit Report that covers
all the UBS QPAMs. The Audit Report must include the auditor's specific
determinations regarding:
(i) The adequacy of each UBS QPAM's Policies and Training; each UBS
QPAM's compliance with the Policies and Training; the need, if any, to
strengthen such Policies and Training; and any instance of the
respective UBS QPAM's noncompliance with the written Policies and
Training described in Section I(h) above. The UBS QPAM must promptly
address any noncompliance. The UBS QPAM must promptly address or
prepare a written plan of action to address any determination as to the
adequacy of the Policies and Training and the auditor's recommendations
(if any) with respect to strengthening the Policies and Training of the
respective UBS QPAM. Any action taken or the plan of action to be taken
by the respective UBS QPAM must be included in an addendum to the Audit
Report (such addendum must be completed prior to the certification
described in Section I(i)(7) below). In the event such a plan of action
to address the auditor's recommendation regarding the adequacy of the
Policies and Training is not completed by the time of submission of the
Audit Report, the following period's Audit Report must state whether
the plan was satisfactorily completed. Any determination by the auditor
that a UBS QPAM has implemented, maintained, and followed sufficient
Policies and Training must not be based solely or in substantial part
on an absence of evidence indicating noncompliance. In this last
regard, any finding that a UBS QPAM has complied with the requirements
under this subparagraph must be based on evidence that the particular
UBS QPAM has actually implemented, maintained, and followed the
Policies and Training required by this exemption. Furthermore, the
auditor must not solely rely on the Exemption Report created by the
compliance officer (the Compliance Officer), as described in Section
I(m) below, as the basis for the auditor's conclusions in lieu of
independent determinations and testing performed by the auditor as
required by Section I(i)(3) and (4) above; and
(ii) The adequacy of the Exemption Review described in Section
I(m);
(6) The auditor must notify the respective UBS QPAM of any instance
of noncompliance identified by the auditor within five (5) business
days after such noncompliance is identified by the auditor, regardless
of whether the audit has been completed as of that date;
(7) With respect to the Audit Report, the General Counsel, or one
of the three most senior executive officers of the UBS QPAM to which
the Audit Report applies, must certify in writing, under penalty of
perjury, that the officer has reviewed the Audit Report and this
exemption; that, to the best of such officer's knowledge at the time,
such UBS QPAM has addressed, corrected, remedied any noncompliance and
inadequacy or has an appropriate written plan to address any inadequacy
regarding the Policies and Training identified in the Audit Report.
Such certification must also include the signatory's determination,
that, to the best of such officer's knowledge at the time, the Policies
and Training in effect at the time of signing are adequate to ensure
compliance with the conditions of this exemption and with the
applicable provisions of ERISA and the Code;
(8) The Risk Committee of UBS's Board of Directors is provided a
copy of the Audit Report; and a senior executive officer of UBS's
Compliance and Operational Risk Control function must review the Audit
Report for each UBS QPAM and must certify in writing, under penalty of
perjury, that such officer has reviewed the Audit Report;
(9) Each UBS QPAM provides its certified Audit Report, by regular
mail to: Office of Exemption Determinations (OED), 200 Constitution
Avenue NW, Suite 400, Washington, DC 20210; or by private carrier to:
122 C Street NW, Suite 400, Washington, DC 20001-2109. This delivery
must take place no later than 45 days following completion of the Audit
Report. The Audit Reports will be made part of the public record
regarding this five-year exemption. Furthermore, each UBS QPAM must
make its Audit Reports unconditionally available, electronically or
otherwise, for examination upon request by any duly authorized employee
or representative of the Department, other relevant regulators, and any
fiduciary of a Covered Plan;
(10) Any engagement agreement with an auditor to perform the audit
required by this exemption that is entered into subsequent to the
effective date of this exemption must be submitted to OED no later than
two (2) months after the execution of such agreement;
(11) The auditor must provide the Department, upon request, for
inspection and review, access to all the workpapers created and used in
connection with the audit, provided such access and inspection is
otherwise permitted by law; and
(12) UBS must notify the Department of a change in the independent
auditor no later than two (2) months after the engagement of a
substitute or subsequent auditor and must provide an explanation for
the substitution or change including a description of any material
disputes between the terminated auditor and UBS;
(j) As of the effective date of this five-year exemption, with
respect to any arrangement, agreement, or contract between a UBS QPAM
and a Covered Plan, the UBS QPAM agrees and warrants to Covered Plans:
(1) To comply with ERISA and the Code, as applicable with respect
to such Covered Plan; to refrain from engaging in prohibited
transactions that are not otherwise exempt (and to promptly correct any
inadvertent prohibited transactions); and to comply with the standards
of prudence and loyalty set forth in section 404 of ERISA with respect
to each such ERISA-covered plan and IRA to the extent that section 404
is applicable;
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from: a UBS QPAM's violation of ERISA's
fiduciary duties, as applicable, and of the prohibited transaction
provisions of ERISA and the Code, as applicable; a breach of contract
by the QPAM; or any claim arising out of the failure of such UBS QPAM
to qualify for the exemptive relief provided by PTE 84-14 as a result
of a violation of Section I(g) of PTE 84-14 other than the Convictions
and the 2019 French Conviction. This condition applies only to actual
losses caused by the UBS QPAM's violations.
(3) Not to require (or otherwise cause) the Covered Plan to waive,
limit, or qualify the liability of the UBS QPAM for violating ERISA or
the Code or engaging in prohibited transactions;
(4) Not to restrict the ability of such Covered Plan to terminate
or withdraw from its arrangement with the UBS QPAM with respect to any
investment in a separately managed account or pooled fund subject to
ERISA and managed by such QPAM, with the exception of reasonable
restrictions, appropriately disclosed in advance, that are specifically
designed to ensure equitable treatment of all investors in a
[[Page 51633]]
pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors. In connection with any
such arrangements involving investments in pooled funds subject to
ERISA entered into after the effective date of PTE 2017-07, the adverse
consequences must relate to a lack of liquidity of the underlying
assets, valuation issues, or regulatory reasons that prevent the fund
from promptly redeeming an ERISA-covered plan's or IRA's investment,
and such restrictions must be applicable to all such investors and be
effective no longer than reasonably necessary to avoid the adverse
consequences;
(5) Not to impose any fees, penalties, or charges for such
termination or withdrawal with the exception of reasonable fees,
appropriately disclosed in advance, that are specifically designed to
prevent generally recognized abusive investment practices or
specifically designed to ensure equitable treatment of all investors in
a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in a like manner to all such investors;
and
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting liability of the UBS QPAM for a violation of such agreement's
terms. To the extent consistent with Section 410 of ERISA, however,
this provision does not prohibit disclaimers for liability caused by an
error, misrepresentation, or misconduct of a plan fiduciary or other
party hired by the plan fiduciary who is independent of UBS and its
affiliates, or damages arising from acts outside the control of the UBS
QPAM;
(7) For Covered Plans that enter into a written asset or investment
management agreement with a UBS QPAM on or after the effective date of
this exemption, the UBS QPAM will agree to its obligations under this
Section I(j) in an updated investment management agreement between the
UBS QPAM and such clients or other written contractual agreement. This
condition will be deemed met for each Covered Plan that received a
notice pursuant to PTE 2016-17, PTE 2017-07, and/or PTE 2019-01 that
meets the terms of this condition. Notwithstanding the above, a UBS
QPAM will not violate the condition solely because a Plan or IRA
refuses to sign an updated investment management agreement.
(k) Each UBS QPAM will provide a notice of the proposed exemption,
along with a separate summary describing the facts that led to the
Convictions and the 2019 French Conviction (the Summary), which have
been submitted to the Department, and a prominently displayed statement
(the Statement) that the Convictions and, in the Department's view, the
2019 French Conviction, each separately result in a failure to meet a
condition in PTE 84-14 and PTE 2017-07, to each sponsor and beneficial
owner of a Covered Plan that entered into a written asset or investment
management agreement with a UBS QPAM, or the sponsor of an investment
fund in any case where a UBS QPAM acts as a sub-advisor to the
investment fund in which such ERISA-covered plan and IRA invests. The
notice, Summary and Statement must be provided prior to, or
contemporaneously with, the client's receipt of a written asset
management agreement from the UBS QPAM. If this five-year exemption is
granted, the clients must receive a Federal Register copy of the notice
of final five-year exemption within sixty (60) days of the effective
date of the five year exemption. The notice may be delivered
electronically (including by an email that has a link to the five-year
exemption);
(l) The UBS QPAMs must comply with each condition of PTE 84-14, as
amended, with the sole exception of the violations of Section I(g) of
PTE 84-14 that are attributable to the Convictions and the 2019 French
Conviction. If, during the Exemption Period, an entity within the UBS
corporate structure is convicted of a crime described in Section I(g)
of PTE 84-14, (other than the 2013 Conviction, 2018 Conviction, and the
2019 French Conviction), relief in this exemption would terminate
immediately;
(m)(1) UBS continues to designate a senior compliance officer (the
Compliance Officer) who will be responsible for compliance with the
Policies and Training requirements described herein. The Compliance
Officer must conduct an annual review during the Exemption Period (the
Exemption Review), to determine the adequacy and effectiveness of the
implementation of the Policies and Training. With respect to the
Compliance Officer, the following conditions must be met:
(i) The Compliance Officer must be a professional who has extensive
experience with, and knowledge of, the regulation of financial services
and products, including under ERISA and the Code; and
(ii) The Compliance Officer must have a reporting line within UBS's
Compliance and Operational Risk Control (C&ORC) function to the Head of
Compliance and Operational Risk Control, Asset Management. The C&ORC
function is organizationally independent of UBS's business divisions-
including Asset Management, the Investment Bank, and Global Wealth
Management-and is led by the head of Group Compliance, Regulatory and
Governance, or another appropriate member of the Group Executive Board;
(2) With respect to the Exemption Review, the following conditions
must be met:
(i) The Exemption Review includes a review of the UBS QPAMs'
compliance with and effectiveness of the Policies and Training and of
the following: Any compliance matter related to the Policies or
Training that was identified by, or reported to, the Compliance Officer
or others within the C&ORC function during the previous year; the most
recent Audit Report issued pursuant to this exemption or PTE 2019-01;
any material change in the relevant business activities of the UBS
QPAMs; and any change to ERISA, the Code, or regulations related to
fiduciary duties and the prohibited transaction provisions that may be
applicable to the activities of the UBS QPAMs;
(ii) The Compliance Officer prepares a written report for the
Exemption Review (an Exemption Report) that (A) summarizes his or her
material activities during the Exemption Period; (B) sets forth any
instance of noncompliance discovered during the Exemption Period, and
any related corrective action; (C) details any change to the Policies
or Training to guard against any similar instance of noncompliance
occurring again; and (D) makes recommendations, as necessary, for
additional training, procedures, monitoring, or additional and/or
changed processes or systems, and management's actions on such
recommendations;
(iii) In the Exemption Report, the Compliance Officer must certify
in writing that to the best of his or her knowledge at the time: (A)
The report is accurate; (B) the Policies and Training are working in a
manner which is reasonably designed to ensure that the Policies and
Training requirements described herein are met; (C) any known instance
of noncompliance during the Exemption Period and any related correction
taken to date have been identified in the Exemption Report; and (D) the
UBS QPAMs have complied with the Policies and Training, and/or
corrected (or are correcting) any known instances of noncompliance in
accordance with Section I(h) above;
[[Page 51634]]
(iv) The Exemption Report must be provided to appropriate corporate
officers of UBS and each UBS QPAM to which such report relates, and to
the head of compliance and the General Counsel (or their functional
equivalent) of the relevant UBS QPAM; and the report must be made
unconditionally available to the independent auditor described in
Section I(i) above;
(v) The first Exemption Review, including the Compliance Officer's
written Exemption Report, must cover the thirteen month period
beginning on February 20, 2020 and ending on March 19, 2021, and must
be completed by June 19, 2021. The second Exemption Review and
Exemption Report must cover the period beginning on March 20, 2021 and
ending on March 19, 2022, and must be completed by June 19, 2022. The
third Exemption Review and Exemption Report must cover the period
beginning on March 20, 2022 and ending on March 19, 2023, and must be
completed by June 19, 2023. The fourth Exemption Review and Exemption
Report must cover the period beginning on March 20, 2023 and ending on
March 19, 2024, and must be completed by June 19, 2024. The fifth
Exemption Review and Exemption Report must cover the period beginning
on March 20, 2024 and ending on February 20, 2025, and must be
completed by May 20, 2025. The Exemption review undertaken pursuant to
PTE 2019-01 must cover the period February 20, 2019 through February
19, 2020 and be completed by May 19, 2020; \31\
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\31\ All Exemption Reviews for periods prior to the effective
date of this exemption must be conducted and completed pursuant to
the requirements of PTE 2017-07 or PTE 2019-01, as applicable.
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(n) UBS imposes its internal procedures, controls, and protocols on
UBS Securities Japan to: (1) Reduce the likelihood of any recurrence of
conduct that is the subject of the 2013 Conviction, and (2) comply in
all material respects with the Business Improvement Order, dated
December 16, 2011, issued by the Japanese Financial Services Authority;
(o) UBS complies in all material respects with the audit and
monitoring procedures imposed on UBS by the U.S. Commodity Futures
Trading Commission Order, dated December 19, 2012;
(p) Each UBS QPAM will maintain records necessary to demonstrate
that the conditions of this exemption have been met, for six (6) years
following the date of any transaction for which such UBS QPAM relies
upon the relief in the exemption;
(q) During the Exemption Period, UBS must: (1) Immediately disclose
to the Department any Deferred Prosecution Agreement (a DPA) or Non-
Prosecution Agreement (an NPA) with the U.S. Department of Justice,
entered into by UBS or any of its affiliates (as defined in Section
VI(d) of PTE 84-14) in connection with conduct described in Section
I(g) of PTE 84-14 or section 411 of ERISA; and (2) immediately provides
the Department any information requested by the Department, as
permitted by law, regarding the agreement and/or conduct and
allegations that led to the agreement;
(r) Each UBS QPAM, in its agreements with, or in other written
disclosures provided to Covered Plans, will clearly and prominently
inform Covered Plan clients of their right to obtain a copy of the
Policies or a description (Summary Policies) which accurately
summarizes key components of the UBS QPAM's written Policies developed
in connection with this exemption. If the Policies are thereafter
changed, each Covered Plan client must receive a new disclosure within
six (6) months following the end of the calendar year during which the
Policies were changed.\32\ With respect to this requirement, the
description may be continuously maintained on a website, provided that
such website link to the Policies or Summary Policies is clearly and
prominently disclosed to each Covered Plan; and
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\32\ In the event the Applicant meets this disclosure
requirement through Summary Policies, changes to the Policies shall
not result in the requirement for a new disclosure unless, as a
result of changes to the Policies, the Summary Policies are no
longer accurate.
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(s) A UBS QPAM will not fail to meet the terms of this exemption,
solely because a different UBS QPAM fails to satisfy a condition for
relief described in Sections I(c), (d), (h), (i), (j), (k), (l), (p),
or (r); or if the independent auditor described in Section I(i) fails a
provision of the exemption other than the requirement described in
Section I(i)(11), provided that such failure did not result from any
actions or inactions of UBS or its affiliates.
Section II. Definitions
(a) The term ``Convictions'' means the 2013 Conviction and the 2018
Conviction. The term ``2013 Conviction'' means the judgment of
conviction against UBS Securities Japan Co. Ltd. in case number 3:12-
cr-00268-RNC in the U.S. District Court for the District of Connecticut
for one count of wire fraud in violation of Title 18, United States
Code, sections 1343 and 2 in connection with submission of YEN London
Interbank Offered Rates and other benchmark interest rates. The term
``2018 Conviction'' means the judgment of conviction against UBS in
case number 3:15-cr-00076-RNC in the U.S. District Court for the
District of Connecticut for one count of wire fraud in violation of
Title 18, United States Code, Sections 1343 and 2 in connection with
UBS's submission of Yen London Interbank Offered Rates and other
benchmark interest rates between 2001 and 2010. For all purposes under
this exemption, ``conduct'' of any person or entity that is the
``subject of the Convictions'' encompasses any conduct of UBS and/or
their personnel, that is described in (i) Exhibit 3 to the Plea
Agreement entered into between UBS and the Department of Justice
Criminal Division, on May 20, 2015, in connection with case number
3:15-cr-00076-RNC, and (ii) Exhibits 3 and 4 to the Plea Agreement
entered into between UBS Securities Japan and the Department of Justice
Criminal Division, on December 19, 2012, in connection with case number
3:12-cr-00268-RNC;
(b) The term ``2019 French Conviction'' means the adverse judgment
on February 20, 2019 against UBS and UBS France in case Number
1105592033 in the French First Instance Court. For all purposes under
this exemption, ``conduct'' of any person or entity that is the
``criminal conduct that is the subject of the 2019 French Conviction'',
includes any conduct of UBS, its affiliates, or UBS France and/or their
personnel that is described in any such judgment;
(c) The term ``Covered Plan'' means a plan subject to Part IV of
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to
section 4975 of the Code (an ``IRA''), in each case, with respect to
which a UBS QPAM relies on PTE 84-14, or with respect to which a UBS
QPAM (or any UBS affiliate) has expressly represented that the manager
qualifies as a QPAM or relies on the QPAM class exemption (PTE 84-14).
A Covered Plan does not include an ERISA-covered plan or IRA to the
extent the UBS QPAM has expressly disclaimed reliance on QPAM status or
PTE 84-14 in entering into a contract, arrangement, or agreement with
the ERISA-covered plan or IRA.
(d) The term ``FX Misconduct'' means the conduct engaged in by UBS
personnel described in Exhibit 1 of the Plea Agreement (Factual Basis
for Breach) entered into between UBS and the Department of Justice
Criminal Division, on May 20, 2015 in connection with Case Number 3:15-
cr-00076-RNC filed in the US District Court for the District of
Connecticut.
[[Page 51635]]
(e) The term ``UBS QPAM'' means UBS Asset Management (Americas)
Inc., UBS Realty Investors LLC, UBS Hedge Fund Solutions LLC, UBS
O'Connor LLC, and any future entity within the Asset Management or the
Global Wealth Management Americas U.S. divisions of UBS that qualifies
as a ``qualified professional asset manager'' (as defined in Section
VI(a) of PTE 84-14) \33\ and that relies on the relief provided by PTE
84-14, and with respect to which UBS is an ``affiliate'' (as defined in
Part VI(d) of PTE 84-14). The term ``UBS QPAM'' excludes UBS securities
Japan, the entity implicated in the criminal conduct that is the
subject of the 2013 Conviction, UBS, the entity implicated in the
criminal conduct that is the subject of the 2018 Conviction and
implicated in the criminal conduct of UBS and UBS France that is the
subject of the 2019 French Conviction and UBS France, the entity
implicated in the criminal conduct of UBS and UBS France that is the
subject of the 2019 French Conviction.
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\33\ In general terms, a QPAM is an independent fiduciary that
is a bank, savings and loan association, insurance company, or
investment adviser that meets certain equity or net worth
requirements and other licensure requirements and that has
acknowledged in a written management agreement that it is a
fiduciary with respect to each plan that has retained the QPAM.
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(f) The term ``UBS'' means UBS AG.
(g) The term ``UBS France'' means ``UBS (France) S.A.,'' a wholly-
owned subsidiary of UBS incorporated under the laws of France.
(h) The term ``UBS Securities Japan'' means UBS Securities Japan
Co. Ltd, a wholly-owned subsidiary of UBS incorporated under the laws
of Japan.
(i) All references to ``the 2019 French Conviction Date'' means
February 20, 2019;
(j) The term ``Exemption Period'' means the five year period
beginning on February 20, 2020 and ending on February 20, 2025;
(k) The term ``Plea Agreement'' means the Plea Agreement (including
Exhibits 1 and 3 attached thereto) entered into between UBS and the
Department of Justice Criminal Division, on May 20, 2015 in connection
with Case Number 3:15-cr-00076-RNC filed in the US District Court for
the District of Connecticut.
Effective Date: This exemption will be in effect for a period of
five years beginning on February 20, 2020.
Signed at Washington, DC, this 25th day of September, 2019.
Lyssa Hall,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department Of Labor.
[FR Doc. 2019-21124 Filed 9-27-19; 8:45 am]
BILLING CODE 4510-29-P
