Notice2023-08941
Exemption From Certain Prohibited Transaction Restrictions Involving TT International Asset Management Ltd (TTI or the Applicant) Located in London, United Kingdom
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
April 28, 2023
Effective
February 13, 2023
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains a notice of exemption issued by the Department of Labor (the Department) 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). This exemption allows TTI to continue to rely on the exemptive relief provided by Prohibited Transaction Class Exemption 84- 14 (PTE 84-14 or the QPAM Exemption), notwithstanding the judgment of conviction against SMBC Nikko Securities, Inc. (Nikko Tokyo), as described below.
Full Text
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<title>Federal Register, Volume 88 Issue 82 (Friday, April 28, 2023)</title>
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[Federal Register Volume 88, Number 82 (Friday, April 28, 2023)]
[Notices]
[Pages 26336-26343]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-08941]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2023-13; Exemption Application No. D-
12080]
Exemption From Certain Prohibited Transaction Restrictions
Involving TT International Asset Management Ltd (TTI or the Applicant)
Located in London, United Kingdom
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
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SUMMARY: This document contains a notice of exemption issued by the
Department of Labor (the Department) 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). This exemption allows TTI to continue to rely on the
exemptive relief provided by Prohibited Transaction Class Exemption 84-
14 (PTE 84-14 or the QPAM Exemption), notwithstanding the judgment of
conviction against SMBC Nikko Securities, Inc. (Nikko Tokyo), as
described below.
DATES: The exemption will be effective for a period of one year,
beginning on February 13, 2023, and ending on February 12, 2024.
FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department
at (202) 693-8456. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On January 10, 2023, the Department
published a notice of proposed exemption in the Federal Register \1\
permitting TTI to continue to rely on the exemptive relief provided by
the QPAM Exemption \2\ for a period of one year, notwithstanding the
judgment of
[[Page 26337]]
conviction against TTI's affiliate, SMBC Nikko Securities, Inc. (Nikko
Tokyo) for attempting to peg, fix or stabilize the prices of certain
Japanese equity securities that Nikko Tokyo was attempting to place in
a block offering (the Conviction).\3\ The Department is granting this
exemption to ensure that the participants and beneficiaries of ERISA-
covered Plans and IRAs managed by TTI (together, Covered Plans) are
protected.
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\1\ 88 FR 1408 (January 10, 2023).
\2\ 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).
\3\ Section I(g) of PTE 84-14 generally provides that
``[n]either the QPAM nor any affiliate thereof . . . nor any owner .
. . of a 5 percent or more interest in the QPAM is a person who
within the 10 years immediately preceding the transaction has been
either convicted or released from imprisonment, whichever is later,
as a result of'' certain crimes.
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This exemption provides only the relief specified in the text of
the exemption and does not provide relief from violations of any law
other than the prohibited transaction provisions of Title I of ERISA
and the Code expressly stated herein.
The Department intends for the terms of this exemption to promote
adherence by TTI to basic fiduciary standards under Title I of ERISA
and the Code. An important objective in granting this exemption is to
ensure that Covered Plans can terminate their relationships with TTI in
an orderly and cost-effective fashion in the event the fiduciary of a
Covered Plan determines that it is prudent to do so.
Based on the Applicant's adherence to all the conditions of the
exemption, the Department makes the requisite findings under ERISA
Section 408(a) that the exemption is: (1) administratively feasible,
(2) in the interest of Covered Plans and their participants and
beneficiaries, and (3) protective of the rights of the participants and
beneficiaries of Covered Plans. Accordingly, affected parties should be
aware that the conditions incorporated in this exemption are,
individually and taken as a whole, necessary for the Department to
grant the relief requested by the Applicant. Absent these or similar
conditions, the Department would not have granted this exemption.
The Applicant requested an individual exemption pursuant to ERISA
Section 408(a) in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
Background
TTI is a global investment firm headquartered in London, UK. TTI is
wholly owned by Sumitomo Mitsui Financial Group, Inc. (SMFG) and is
currently a member of the Sumitomo Mitsui Banking Corporation group
(the SMBC Group). The SMBC group provides asset management services
through two subsidiaries. The first is TTI, which is managed
independently of the broader SMBC Group. The second is Sumitomo Mitsui
DS Asset Management Company, Limited, an investment manager
headquartered in Tokyo. The SMBC Group also conducts securities market
activities through the SMBC Nikko Securities franchise. As relevant to
this exemption, that includes Nikko Tokyo, a Japanese broker-dealer.
In offering investment management services, TTI operates as a QPAM
in reliance on the QPAM Exemption.\4\ In this regard, TTI advises four
segregated ERISA accounts on behalf of the ERISA-covered plans of two
major U.S. employers \5\ and operates three segregated accounts for
public pension plans, which currently hold approximately $1.1 billion
in assets. TTI also manages three funds as ERISA ``plan asset'' \6\
funds.\7\
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\4\ Currently, TTI is the only member of the SMBC group that is
relying upon the QPAM Exemption. TTI states that it is possible that
certain affiliates may seek ERISA business in the future that would
require reliance on the QPAM Exemption. The exemption granted herein
is limited to TTI.
\5\ Together, these two ERISA-covered plans currently hold
approximately $218 million in assets.
\6\ The Department's Plan Asset Regulations provide as a general
rule that, when an employee benefit plan governed by ERISA or
Section 4975 of the Code invests in an entity, the Plan's assets
include the Plan's investment but do not, solely by reason of such
investment in the entity, include any of the underlying assets of
the entity. However, where, as in the case of the three funds, the
Plan's investment is an equity interest that is not a publicly
offered security or a security issued by a company that is
registered under the 1940 Act, the Plan's assets include both the
equity interest and an undivided interest in each of the underlying
assets of the entity unless one of the exceptions in the Plan Asset
Regulations is satisfied. See 29 CFR 2510.3-101.
\7\ The TT Emerging Markets Opportunities Fund II Limited, the
TT Environmental Solutions Equity Master Fund II Limited, and the TT
Non-U.S. Equity Master Fund Limited.
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The QPAM Exemption exempts certain prohibited transactions between
a party in interest and an ``investment fund'' (as defined in Section
VI(b) of the QPAM Exemption) in which a plan has an interest if the
investment manager with discretion over the investment of plan assets
satisfies the definition of ``qualified professional asset manager''
and satisfies additional conditions of the exemption. The QPAM
Exemption 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.\8\
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\8\ See 75 FR 38837, 38839 (July 6, 2010).
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Section I(g) of the QPAM Exemption prevents an entity that may
otherwise meet the definition of QPAM from utilizing the exemptive
relief provided, for itself and its client plans, if that entity, an
``affiliate'' thereof,\9\ or any direct or indirect five percent or
more owner in the QPAM has been either convicted or released from
imprisonment, whichever is later, as a result of criminal activity
described in section I(g) within the 10 years immediately preceding the
transaction. Section I(g) was included in the QPAM Exemption, in part,
based on the Department's expectation that a QPAM, and those who may be
in a position to influence the QPAM's policies, must maintain a high
standard of integrity.
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\9\ 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.''
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On March 24, 2022, the Tokyo District Public Prosecutors Office
charged Nikko Tokyo and four of its officers and employees in Tokyo
District Court with violations of Japan's Financial Instruments and
Exchange Act (the Misconduct).\10\ In connection with the charges, the
Tokyo Public Prosecutor alleged that between December 2019 and November
2020, Nikko Tokyo, through the actions of relevant officers, purchased
shares of five issuers for its own account in an attempt to peg, fix,
or stabilize the prices of those securities in anticipation of a block
offer. This activity was intended to ensure that the price of the
securities being sold through the block offering did not decline
significantly, which would have potentially harmed Nikko Tokyo's
interests.\11\
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\10\ In these block offerings, the dealer typically makes money
from the spread between the price at which it purchased the shares
and the price at which it sells them.
\11\ The Tokyo Public Prosecutor alleged that these
``stabilization transactions'' violated Article 197 Paragraph 1,
Item 5, Article 159, Paragraph 3, and Article 207, Paragraph 1, Item
1 of the FIEA and Article 60 of the Penal Code.
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On April 13, 2022, the Tokyo Public Prosecutor filed additional
charges against Nikko Tokyo and two officers and employees of Nikko
Tokyo for
[[Page 26338]]
engaging in similar conduct in connection with five additional block
offerings between October 2020 and April 2021.\12\ The March 24, 2022,
and April 13, 2022 charges against Nikko Tokyo were consolidated for
purposes of the Tokyo District Court proceeding.
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\12\ Charges were filed under Article 197 Paragraph 1, Item 5,
Article 159, Paragraph 3, and Article 207, Paragraph 1, Item 1 of
the FIEA and Article 60 of the Penal Code.
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Both TTI and Nikko Tokyo are direct subsidiaries of SMFG and thus
are affiliates for the purposes of Section I(g) of the QPAM Exemption.
Once the Tokyo District Court issued its final decision and sentenced
Nikko Tokyo in connection with the Conviction, Section I(g) was
triggered and TTI, as well as TTI's Covered Plan clients, lost the
ability to rely on the QPAM Exemption.
On October 19, 2022, TTI submitted an exemption request to the
Department that would permit TTI and its Covered Plan clients to
continue to utilize the relief in the QPAM Exemption. In support of its
exemption request, TTI asserts that Nikko Tokyo is a foreign affiliate
with respect to TTI and has wholly separate businesses, operations,
management, systems, premises, and legal and compliance personnel; that
TTI was not involved in any way in the Misconduct; and that the
Misconduct did not involve any ERISA assets. TTI further states that,
since its acquisition by SMFG on February 28, 2020, TTI has remained a
stand-alone business with distinct reporting lines, governance
structures, and control frameworks.
In its exemption application, TTI submits that Covered Plans would
be harmed because of the resulting severe limitations on the investment
transactions that would be available to them. Further, TTI states that
Covered Plans could incur significant costs, including transaction
costs, costs associated with finding and evaluating other managers, and
costs associated with reinvesting assets with those new managers. These
and other assertions regarding projected hardships to Covered Plans are
presented in greater detail in the proposed exemption and the
Department encourages readers to consult the proposed exemption for
additional context.
In its exemption application, TTI requested: (1) a longer five-year
term of relief and (2) an exemption that would cover TTI and TTI's
current and future affiliates and related entities. The Department,
however, declined TTI's requests and instead proposed a limited one-
year term that applies exclusively to TTI. In this way, the Department
would retain the ability to review TTI's adherence to the conditions
set out in this exemption before considering a longer term of relief.
The Department notes that this exemption includes protective
conditions that allow Covered Plans to continue to utilize the services
of TTI if they determine that it is prudent to do so. In this regard,
this exemption allows Covered Plans to avoid cost and disruption to
investment strategies that may arise if such Covered Plans are forced,
on short notice, to hire a different QPAM or asset manager because TTI
no longer is able to rely on the relief provided by PTE 84-14 due to
the Conviction.
Written Comments
In the proposed exemption, the Department invited all interested
persons to submit written comments and/or requests for a public hearing
with respect to the notice of proposed exemption by February 13, 2023.
The Department received one written comment from the Applicant and no
requests for a public hearing.
I. Comments From the Applicant
Comment 1: Certification of Audit Report
Section III(i)(7) of the proposed exemption states the following:
With respect to the Audit Report, the joint general manager of the
Corporate Planning who has a direct reporting line to the highest-
ranking compliance officer of TTI must certify in writing, under
penalty of perjury, that the officer has reviewed the Audit Report and
this exemption . . . Notwithstanding the above, no person, including
any person identified by Japanese authorities, who knew of, or should
have known of, or participated in, any misconduct underlying the
Conviction, by any party, may provide the certification required by
this exemption, unless the person took active documented steps to stop
the misconduct underlying the Conviction;
Section III(i)(8) of the Proposed exemption provides: TTI's Board
of Directors must be provided a copy of the Audit Report and the joint
general manager of the Corporate Planning who has a direct reporting
line to the highest-ranking compliance officer of TTI must review the
Audit Report for TTI and certify in writing, under penalty of perjury,
that such officer has reviewed the Audit Report;
The Applicant agrees that TTI's Board of Directors and the joint
general manager of the Corporate Planning Department are the
appropriate recipients of the Audit Report and the appropriate persons
to provide the certifications described in Section III(i)(8). However,
the Applicant believes the Department should clarify the exemption to
make clear that the Corporate Planning Department is a group-level
function of SMFG. As a result, the joint general manager does not have
a direct reporting line to the highest-ranking compliance officer of
TTI; instead, the joint general manager will provide parent-level
oversight of the Audit Report and TTI's compliance with the terms of
the final Exemption.
Additionally, given the Corporate Planning Department's distance
from TTI's day-to-day operations, the Applicant believes that it would
be appropriate for TTI's general counsel or one of its three most
senior executive officers to provide the certification described in
Section III(i)(7) as those individuals will be directly involved in
ensuring that TTI complies with the exemption and will have the
personal knowledge necessary to provide the required certifications.
While the joint general manager's review will provide important parent-
level oversight to the process, they will not be directly involved in
the audit or addressing any potential deficiencies.
The Applicant requests that Section III(j)(7) be modified to read:
With respect to the Audit Report, the general counsel, or one of the
three most senior executive officers of the TTI affiliate 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 . . .
The Applicant also requests that Section III(i)(8) be modified to
read: TTI's Board of Directors must be provided a copy of the Audit
Report and the joint general manager of SMFG's Corporate Planning
Department must review the Audit Report for TTI and certify in writing,
under penalty of perjury, that such officer has reviewed the Audit
Report;
Department's Response: The Department agrees with the Applicant's
requests and has modified Section (III)(i)(7). With respect to Section
(III)(i)(8), the Department agrees with the Applicant's requested
change, provided that the joint general manager of SMFG's Corporate
Planning Department did not know of, have reason to known of, or
participate in, any misconduct underlying the Conviction, unless such
person took active documented steps to stop the misconduct underlying
the Conviction. With respect to this last sentence, the Department
emphasizes that this is an essential requirement of this exemption.
[[Page 26339]]
Comment 2: Entities in Corporate Structure
Section III(l) of the proposed exemption provides: TTI must comply
with each condition of PTE 84-14, as amended, with the sole exception
of the violation of Section I(g) of PTE 84-14 that is attributable to
the Conviction. If an entity within TTI's corporate structure is
convicted of a crime described in Section I(g) of PTE 84-14 (other than
the Conviction) during the Exemption Period,\13\ relief in this
exemption would terminate immediately;
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\13\ The Exemption Period is February 13, 2023, through February
12, 2024.
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The Applicant believes that the language used here--``an entity
within TTI's corporate structure''--is imprecise. The Applicant
requests that the Department replace ``an entity within TTI's corporate
structure'' with ``an affiliate of TTI within the meaning of Section
VI(d) of the QPAM Exemption.''
Accordingly, the Applicant requests that Section III(l) be modified
to read: TTI must comply with each condition of PTE 84-14, as amended,
with the sole exception of the violation of Section I(g) of PTE 84-14
that is attributable to the Conviction. If an affiliate of TTI's (as
defined in Section VI(d) of PTE 84-14) is convicted of a crime
described in Section I(g) of PTE 84-14 (other than the Conviction)
during the Exemption Period, relief in this exemption would terminate
immediately;
Department's Response: The Department agrees with the Applicant's
requests and has modified Section (III)(l) accordingly.
Comment 3: Exemption Period
Section I(c) of the proposed exemption provides for a one-year
Exemption Period (February 13, 2023 through February 12, 2024). The
Applicant requests that the Department grant a permanent or multi-year
exemption based on the remoteness of TTI's involvement in the conduct
related to the Conviction. In support of this request, the Applicant
states that Nikko Tokyo is a remote foreign affiliate of TTI and is not
in the same vertical chain of ownership; that TTI had no role in, and
received no benefit from, the misconduct underlying the Conviction; and
that granting a permanent exemption is the appropriate solution to
sufficiently protect both the public interest and the interests of plan
participants.
Department's Response: The Department declines to make the
Applicant's requested change. In the Department's view, an immediate
exemption is justifiable based on the existing record, as a means of
protecting Covered Plans from possible losses that they might otherwise
incur. The Department is not confident, however, that a longer period
is appropriate based on the existing record and the limited time
available for review. Under this approach, the Department retains the
ability to review TTI's adherence to the conditions set out in this
exemption and to further develop the record before granting a longer
term.
Comment 4: Spelling of Nikko Tokyo
In the introductory paragraph to the proposed exemption, the
Department defines ``Nikko Tokyo'' as ``Sumitomo Mitsui Banking
Corporation Nikko Securities, Inc.'' The Applicant states that Nikko
Tokyo's legal name is ``SMBC Nikko Securities, Inc.''
Department's Response: The Department acknowledges and accepts the
Applicant's correction regarding the correct spelling of Nikko Tokyo.
II. Clarifications From the Department
Implementation of the Policies and Training
Section III(h)(1) of the proposed exemption requires TTI to
develop, implement, maintain, adjust (to the extent necessary), and
follow the written policies and procedures (the Policies). Section
III(h)(2) of the proposed exemption requires TTI to implement a
training program (the Training) during the Exemption Period for all
relevant TTI asset/portfolio management, trading, legal, compliance,
and internal audit personnel.
The Department is clarifying that TTI must develop and implement
the Policies by a date that is six months after the effective date of
this exemption. The Department is also clarifying that TTI must
implement the Training by a date that is six months after the effective
date of this exemption. The Department notes that a six-month
development and implementation period for the Policies and Training is
consistent with other recently granted QPAM exemptions.
Completion of the Audit Report
Section (III)(i)(1) of the proposed exemption requires TTI to
submit to an audit that covers the entire Exemption Period (February
13, 2023 through February 12, 2024). The Department is clarifying that
the associated audit report must be completed by August 12, 2024. The
Department notes that a six-month period for completing the audit
report is consistent with other recently granted QPAM exemptions.
The complete application file (D-12080) is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, Room N-1515, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210. For a more complete
statement of the facts and representations supporting the Department's
decision to grant this exemption, please refer to the notice of
proposed exemption published on January 10, 2023, at 88 FR 1408.
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 ERISA Section 408(a) does not relieve a fiduciary or other party
in interest from certain requirements of other ERISA provisions,
including but not limited to any prohibited transaction provisions to
which the exemption does not apply and the general fiduciary
responsibility provisions of ERISA Section 404, which, among other
things, require a fiduciary to discharge their duties respecting the
plan solely in the interest of the plan's participants and
beneficiaries and in a prudent fashion in accordance with ERISA Section
404(a)(1)(B).
(2) As required by ERISA Section 408(a), the Department hereby
finds that the exemption is: (a) administratively feasible; (b) in the
interests of Covered Plans and their participants and beneficiaries;
and (c) protective of the rights of the Covered Plan's participants and
beneficiaries.
(3) This exemption is supplemental to, and not in derogation of,
any other ERISA provisions, 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 for determining whether the transaction is in fact a
prohibited transaction.
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transactions
that are the subject of the exemption and are true at all times.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the following exemption under the authority of
ERISA Section 408(a) in accordance with the
[[Page 26340]]
Department's exemption procedures set forth in 29 CFR part 2570,
subpart B: \14\
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\14\ 76 FR 66637, 66644 (October 27, 2011).
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Exemption
Section I. Definitions
(a) The term ``Conviction'' means the judgment of conviction
against SMBC Nikko Securities, Inc. (Nikko Tokyo) in Tokyo District
Court for attempting to peg, fix or stabilize the prices of certain
Japanese equity securities that Nikko Tokyo was attempting to place in
a block offering that occurred on February 13, 2023.
(b) 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 Code
section 4975 (an ``IRA''), in each case, with respect to which TTI
relies on PTE 84-14, or with respect to which TTI has expressly
represented that the manager qualifies as a QPAM or relies on the QPAM
class exemption (PTE 84-14 or the QPAM Exemption). A Covered Plan does
not include an ERISA-covered plan or IRA to the extent that TTI 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.
(c) The term ``Exemption Period'' means the one-year period
beginning on the date of the Conviction.
(d) The term ``TTI'' means TT International Asset Management Ltd,
and does not include SMBC Nikko Securities, Inc. (Nikko Tokyo) or any
other affiliates of TT International Asset Management Ltd.
Section II. Covered Transactions
Under this exemption, TTI 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) notwithstanding the Conviction, as
defined in Section I(a), during the Exemption Period, as defined in
Section I(c) provided that the conditions set forth in Section III
below are satisfied.
Section III. Conditions
(a) TTI (including its officers, directors, agents other than Nikko
Tokyo, and employees) did not know of, did not have reason to know of,
and did not participate in the criminal conduct that is the subject of
the Conviction. Further, any other party engaged on behalf of TTI who
had responsibility for or exercised authority in connection with the
management of plan assets did not know or have reason to know of and
did not participate in the criminal conduct that is the subject of the
Conviction. For purposes of this exemption, ``participate in'' refers
not only to active participation in the criminal conduct of Nikko Tokyo
that is the subject of the Conviction, but also to knowing approval of
the criminal conduct or knowledge of such conduct without taking active
steps to prohibit it, including reporting the conduct to such
individual's supervisors, and Board of Directors;
(b) TTI (including its officers, directors, employees, and agents,
other than Nikko Tokyo) did not receive direct compensation, or
knowingly receive indirect compensation, in connection with the
criminal conduct that is the subject of the Conviction. Further, any
other party engaged on behalf of TTI 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 that is the
subject of the Conviction;
(c) TTI does not currently and will not in the future employ or
knowingly engage any of the individuals that participated in the
criminal conduct that is the subject of the Conviction.
(d) At all times during the Exemption Period, TTI will not 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 TTI in reliance on PTE 84-14, or with respect to which TTI
has expressly represented to a Covered Plan that it qualifies as a QPAM
or relies on the QPAM Exemption, to enter into any transaction with
Nikko Tokyo, or to engage Nikko Tokyo 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 TTI to satisfy Section I(g) of PTE 84-14 arose
solely from the Conviction;
(f) TTI did not exercise authority over the assets of any Covered
Plan in a manner that it knew or should have known would further the
criminal conduct that is the subject of the Conviction or cause TTI or
its affiliates to directly or indirectly profit from the criminal
conduct that is the subject of the Conviction;
(g) Other than with respect to employee benefit plans maintained or
sponsored for its own employees or the employees of an affiliate, Nikko
Tokyo will not act as a fiduciary within the meaning of ERISA Section
3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) and (C), with
respect to Covered Plan assets.
(h)(1) By a date that is six (6) months after the effective date of
this exemption, TTI must develop, implement, maintain, adjust (to the
extent necessary), and follow the written policies and procedures (the
Policies). The Policies must require and be reasonably designed to
ensure that:
(i) The asset management decisions of TTI are conducted
independently of the corporate management and business activities of
Nikko Tokyo;
(ii) TTI fully complies with ERISA's fiduciary duties and with
ERISA and the Code's prohibited transaction provisions, 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) TTI 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 TTI to regulators,
including, but not limited to, the Department of Labor (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 TTI's knowledge at the time, TTI 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;
(vi) TTI complies with the terms of this exemption; and
(vii) Any violation of or failure to comply with an item in
subparagraphs (ii) through (vi) is corrected as soon as reasonably
possible upon discovery or as soon after the TTI 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, to the head of
compliance and the general counsel (or their functional equivalent) of
TTI, and the independent auditor responsible for reviewing compliance
with the Policies. TTI will not be treated as having failed to develop,
implement, maintain, or follow the Policies, provided it corrects any
instance of noncompliance as soon as reasonably possible upon
discovery, or as soon as reasonably possible after TTI reasonably
should have known of
[[Page 26341]]
the noncompliance (whichever is earlier), and provided it adheres to
the reporting requirements set forth in this subparagraph (vii);
(2) By a date that is six (6) months after the effective date of
this exemption, TTI must implement a training program (the Training)
during the Exemption Period for all relevant TTI asset/portfolio
management, trading, legal, compliance, and internal audit personnel.
The Training required under this exemption may be conducted
electronically and must: (a) 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 (b) be conducted by a professional who has been
prudently selected and who has appropriate technical training and
proficiency with ERISA and the Code to perform the tasks required by
this exemption;
(i)(1) TTI must submit to an audit 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 TTI's compliance with the Policies and Training conditions
described herein. The audit requirement must be incorporated in the
Policies. The audit must cover the entire Exemption Period and must be
completed by August 12, 2024.
(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, TTI will grant the auditor
unconditional access to its businesses, including, but not limited to:
its computer systems; business records; transactional data; workplace
locations; training materials; and personnel. Such access will be
provided only to the extent that it is not prevented by state or
federal statute, or involves communications subject to attorney client
privilege and may be 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 TTI has developed, implemented, maintained, and
followed the Policies in accordance with the conditions of this
exemption, and has developed and implemented the Training, as required
herein;
(4) The auditor's engagement must specifically require the auditor
to test TTI's operational compliance with the Policies and Training
conditions. In this regard, the auditor must test, for TTI,
transactions involving Covered Plans sufficient in size, number, and
nature to afford the auditor a reasonable basis to determine TTI's
operational compliance with the Policies and Training;
(5) Before the end of the relevant period for completing the audit,
the auditor must issue a written report (the Audit Report) to TTI that
describes the procedures performed by the auditor during the course of
its examination. The Audit Report must include the auditor's specific
determinations regarding:
(i) the adequacy of TTI's Policies and Training; TTI's compliance
with the Policies and Training conditions; the need, if any, to
strengthen such Policies and Training; and any instance of TTI's
noncompliance with the written Policies and Training described in
Section III(h) above. TTI must promptly address any noncompliance and
promptly address or prepare a written plan of action to address any
determination by the auditor regarding the adequacy of the Policies and
Training and the auditor's recommendations (if any) with respect to
strengthening the Policies and Training. Any action taken, or the plan
of action to be taken by TTI must be included in an addendum to the
Audit Report (and such addendum must be completed before the
certification described in Section III(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 the
Audit Report is submitted, the following period's Audit Report must
state whether the plan was satisfactorily completed. Any determination
by the auditor that TTI 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 TTI has complied with the
requirements under this subparagraph must be based on evidence that TTI
has actually implemented, maintained, and followed the Policies and
Training required by this exemption. Furthermore, the auditor must not
solely rely on the Report created by the compliance officer (the
Compliance Officer), as described in Section III(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 III(i)(3) and
(4) above; and
(ii) The adequacy of the Review described in Section III(m);
(6) The auditor must notify TTI 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 TTI affiliate 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 and that to the best of such officer's knowledge at the time,
TTI has addressed, corrected or 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. The certification must also include the signatory's
determination that 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.
Notwithstanding the above, no person, including any person identified
by Japanese authorities, who knew of, or should have known of, or
participated in, any misconduct underlying the Conviction, by any
party, may provide the certification required by this exemption, unless
the person took active documented steps to stop the misconduct
underlying the Conviction;
(8) TTI's Board of Directors must be provided a copy of the Audit
Report and the joint general manager of SMFG's Corporate Planning
Department must review the Audit Report for TTI and certify in writing,
under penalty of perjury, that such officer has reviewed the Audit
Report. With respect to this subsection (8), such certifying joint
general manager must not have known of, had reason to known of, or
participated in, any misconduct underlying the Conviction, unless such
person took active documented steps to stop the misconduct underlying
the Conviction.
(9) TTI must provide its certified Audit Report, by electronic mail
to <a href="/cdn-cgi/l/email-protection#9cf9b1f3f9f8dcf8f3f0b2fbf3ea"><span class="__cf_email__" data-cfemail="294c04464c4d694d4645074e465f">[email protected]</span></a>. This delivery must take place no later than thirty
(30) days following completion of the Audit Report. The Audit Report
will be made part of the public record regarding this exemption.
Furthermore, TTI must make its Audit Report unconditionally available,
electronically or otherwise, for examination upon request by any
[[Page 26342]]
duly authorized employee or representative of the Department, other
relevant regulators, and any fiduciary of a Covered Plan;
(10) TTI and the auditor must submit to <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="1570385a505155717a793b727a63">[email protected]</a>, any
engagement agreement(s) entered into pursuant to the engagement of the
auditor under this exemption no later than two (2) months after the
execution of any such engagement agreement;
(11) The auditor must provide the Department, upon request, access
to all the workpapers it created and utilized in the course of the
audit for inspection and review, provided such access and inspection is
otherwise permitted by law; and
(12) TTI must notify the Department of a change in the independent
auditor no later than 60 days 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 TTI;
(j) Throughout the Exemption Period, with respect to any
arrangement, agreement, or contract between TTI and a Covered Plan, TTI
agrees and warrants:
(1) To comply with ERISA and the Code, as applicable with respect
to such Covered Plan; refrain from engaging in prohibited transactions
that are not otherwise exempt (and to promptly correct any prohibited
transactions); and comply with the standards of prudence and loyalty
set forth in ERISA Section 404 with respect to each such Covered Plan,
to the extent that section is applicable;
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from TTI'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 TTI; or any
claim arising out of the failure of TTI 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 Conviction. This condition applies only to
actual losses caused by TTI's violations. Actual losses include losses
and related costs arising from unwinding transactions with third
parties and from transitioning Plan assets to an alternative asset
manager as well as costs associated with any exposure to excise taxes
under Code Section 4975 because of TTI's inability to rely upon the
relief in the QPAM Exemption.
(3) Not to require (or otherwise cause) the Covered Plan to waive,
limit, or qualify the liability of TTI for violating ERISA or the Code
or engaging in prohibited transactions;
(4) Not to restrict the ability of the Covered Plan to terminate or
withdraw from its arrangement with TTI with respect to any investment
in a separately managed account or pooled fund subject to ERISA and
managed by TTI, with the exception of reasonable restrictions,
appropriately disclosed in advance, that are 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. In connection with any of these arrangements
involving investments in pooled funds subject to ERISA entered into
after the effective date of this exemption, 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 a Covered Plan's investment, and the restrictions must be
applicable to all such investors and 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 the withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in like manner to all such investors;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting the liability of TTI for a violation of such agreement's
terms. To the extent consistent with ERISA Section 410, 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 TTI and its
affiliates, or damages arising from acts outside the control of TTI;
and
(7) TTI must provide a notice of its obligations under this Section
III(j) to each Covered Plan. For all other prospective Covered Plans,
TTI must agree to its obligations under this Section III(j) in an
updated investment management agreement between TTI and such clients or
other written contractual agreement. Notwithstanding the above, TTI
will not violate this condition solely because a Covered Plan refuses
to sign an updated investment management agreement;
(k) Within 60 days after the effective date of this exemption, TTI
provides notice of the exemption as published in the Federal Register,
along with a separate summary describing the facts that led to the
Conviction (the Summary), which has been submitted to the Department,
and a prominently displayed statement (the Statement) that the
Conviction results in a failure to meet a condition in PTE 84-14 to
each sponsor and beneficial owner of a Covered Plan that has entered
into a written asset or investment management agreement with TTI. All
prospective Covered Plan clients that enter into a written asset or
investment management agreement with TTI after a date that is 60 days
after the effective date of this exemption must receive a copy of the
notice of the exemption, the Summary, and the Statement before, or
contemporaneously with, the Covered Plan's receipt of a written asset
or investment management agreement from TTI. The notices may be
delivered electronically (including by an email that has a link to the
exemption). Notwithstanding the above, TTI will not violate the
condition solely because a Covered Plan refuses to sign an updated
investment management agreement.
(l) TTI must comply with each condition of PTE 84-14, as amended,
with the sole exception of the violation of Section I(g) of PTE 84-14
that is attributable to the Conviction. If an affiliate of TTI's (as
defined in Section VI(d) of PTE 84-14) is convicted of a crime
described in Section I(g) of PTE 84-14 (other than the Conviction)
during the Exemption Period, relief in this exemption would terminate
immediately;
(m)(1) Within 60 days after the effective date of this exemption,
TTI must designate a senior compliance officer (the Compliance Officer)
who will be responsible for compliance with the Policies and Training
requirements described herein. Notwithstanding the above, no person,
including any person referenced in the indictment that gave rise to the
Conviction, who knew of, or should have known of, or participated in,
any misconduct described in the indictment, by any party, may be
involved with the designation or responsibilities required by this
condition unless the person took active documented steps to stop the
misconduct. The Compliance Officer must conduct a review of the
Exemption Period (the Exemption Review), to determine the adequacy and
effectiveness of the implementation of the Policies and Training. With
respect
[[Page 26343]]
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 direct reporting line to
the highest-ranking corporate officer in charge of legal compliance for
asset management.
(2) With respect to the Exemption Review, the following conditions
must be met:
(i) The Exemption Review includes a review of TTI's 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 compliance and risk control function (or its equivalent) during the
previous year; any material change in the relevant business activities
of TTI; 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 TTI;
(ii) The Compliance Officer prepares a written report for the
Exemption Review (an Exemption Report) that (A) summarizes their
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 their 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 prior year and any related correction taken
to date have been identified in the Exemption Report; and (D) TTI
complied with the Policies and Training, and/or corrected (or are
correcting) any known instances of noncompliance in accordance with
Section III(h) above;
(iv) The Exemption Report must be provided to appropriate corporate
officers of TTI; the head of compliance and the general counsel (or
their functional equivalent) of TTI; and must be made unconditionally
available to the independent auditor described in Section III(i) above;
(v) The Exemption Review, including the Compliance Officer's
written Report, must be completed within 90 days following the end of
the period to which it relates.
(n) TTI imposes internal procedures, controls, and protocols to
reduce the likelihood of any recurrence of conduct that is the subject
of the Conviction;
(o) Nikko Tokyo complies in all material respects with any
requirements imposed by a U.S. regulatory authority in connection with
the Conviction;
(p) TTI maintains 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 TTI relies upon the relief in
this exemption;
(q) During the Exemption Period, TTI 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 TTI 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 ERISA Section 411; and (2) 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;
(r) Within 60 days after the effective date of this exemption, TTI,
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 TTI'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 180 days following the end of the calendar year
during which the Policies were changed. If TTI 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.
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
(s) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate.
Exemption Date: This exemption is in effect for a period of one
year, beginning on February 13, 2023, and ending on February 12, 2024.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-08941 Filed 4-27-23; 8:45 am]
BILLING CODE 4510-29-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on April 28, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.