Notice2023-10289
Proposed Exemption for Certain Prohibited Transaction Restrictions Involving UBS AG (UBS) and Credit Suisse Group AG (CSAG), Located in Zurich, Switzerland
Primary source
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Published
May 12, 2023
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
The Department previously issued several temporary individual prohibited transaction exemptions (PTEs) that allow certain asset managers related to UBS and CSAG (the UBS QPAMs, CS Affiliated QPAMs, and the CS Related QPAMs, as further defined below) to continue to rely on the exemptive relief provided by Prohibited Transaction Class Exemption (PTE) 84-14, notwithstanding five judgments of convictions involving entities within the UBS and CSAG corporate umbrellas, as described below (the Convictions). The most recent individual exemptions are PTE 2020-01 (for UBS) and PTE 2022-01 for (CSAG). Those individual exemptions will no longer be available following the upcoming merger between CSAG and UBS (the Merger). This exemption would allow the UBS QPAMs, CS Affiliated QPAMs and the CS Related QPAMs to continue to rely on PTE 84-14 as of the date of the Merger if certain conditions are met. As described below, this individual exemption is necessary to preserve the ability of the QPAMs to engage in the transactions permitted by PTE 84-14, which would be lost due solely to the impending merger of UBS and Credit Suisse (and not because of a new conviction for either UBS or Credit Suisse or their affiliates). If granted, the exemption will be for one year. This limited duration reflects the lack of information before the Department regarding the effects the Merger will have on the UBS QPAMs and CS Affiliated and Related QPAMs.
Full Text
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<title>Federal Register, Volume 88 Issue 92 (Friday, May 12, 2023)</title>
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[Federal Register Volume 88, Number 92 (Friday, May 12, 2023)]
[Notices]
[Pages 30785-30798]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-10289]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-12089]
Proposed Exemption for Certain Prohibited Transaction
Restrictions Involving UBS AG (UBS) and Credit Suisse Group AG (CSAG),
Located in Zurich, Switzerland
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: The Department previously issued several temporary individual
prohibited transaction exemptions (PTEs) that allow certain asset
managers related to UBS and CSAG (the UBS QPAMs, CS Affiliated QPAMs,
and the CS Related QPAMs, as further defined below) to continue to rely
on the exemptive relief provided by Prohibited Transaction Class
Exemption (PTE) 84-14, notwithstanding five judgments of convictions
involving entities within the UBS and CSAG corporate umbrellas, as
described below (the Convictions). The most recent individual
exemptions are PTE 2020-01 (for UBS) and PTE 2022-01 for (CSAG). Those
individual exemptions will no longer be available following the
upcoming merger between CSAG and UBS (the Merger). This exemption would
allow the UBS QPAMs, CS Affiliated QPAMs and the CS Related QPAMs to
continue to rely on PTE 84-14 as of the date of the Merger if certain
conditions are met. As described below, this individual exemption is
necessary to preserve the ability of the QPAMs to engage in the
transactions permitted by PTE 84-14, which would be lost due solely to
the impending merger of UBS and Credit Suisse (and not because of a new
conviction for either UBS or Credit Suisse or their affiliates). If
granted, the exemption will be for one year. This limited duration
reflects the lack of information before the Department regarding the
effects the Merger will have on the UBS QPAMs and CS Affiliated and
Related QPAMs.
DATES:
Applicability Date: If granted, this proposed exemption will be in
effect for one year beginning on the date of the Merger.
Comments due: Written comments and requests for a public hearing on
the proposed exemption should be submitted to the Department by May 18,
2023.
ADDRESSES: All written comments and requests for a hearing should be
sent to the Employee Benefits Security Administration (EBSA), Office of
Exemption Determinations, Attention: Application No. D-12089 via email
to <a href="/cdn-cgi/l/email-protection#f89dd5b7bdbcb89c9794d69f978e"><span class="__cf_email__" data-cfemail="d0b5fd9f959490b4bfbcfeb7bfa6">[email protected]</span></a> or online through <a href="https://www.regulations.gov">https://www.regulations.gov</a>. 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: Joseph Brennan of the Department at
(202) 693-8456. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION:
Comments
It is the Department's understanding that the Merger is due to
occur by the end of May 2023. Due to this time constraint, persons are
encouraged to submit all comments electronically and not to follow with
paper copies. 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 the Department to hold 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a>, 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a> 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a>,
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
UBS and CSAM have represented that they are unable to provide the
Department with a complete exemption application due to the exigent
circumstances giving rise to the Merger. Accordingly, this proposed
exemption would require UBS, as the entity surviving the Merger, to
provide the Department with a written report every 120 days following
the Merger (the Merger Report), containing full and complete updates
regarding the Merger. In the Merger Report, UBS must identify any
material omissions and correct any inaccuracies in the Summary of Facts
and Representations as set forth below. The Merger Report will be
available to the public through EBSA's Public Disclosure Office, and to
Covered Plan fiduciaries via a link provided by the relevant Affiliated
QPAM.\1\
[[Page 30786]]
Additionally, in its first Merger Report to the Department, UBS must:
(1) identify the QPAMs using this exemption as the date of the Report;
(2) provide details regarding the extent to which the Credit Suisse
Affiliated QPAMs have been integrated into UBS's operations and any
other relevant changes with respect to any QPAMs that are using this
exemption; (3) any operational or other changes that impact any
requirements under this exemption; and (4) detailed information
regarding the costs to ERISA-covered Plans and IRAs (together, Covered
Plans) that would arise if this one-year exemption is not renewed.
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\1\ 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
an Affiliated QPAM relies on PTE 84-14, or with respect to which an
Affiliated QPAM (or any CSAG or UBS affiliate) has expressly
represented that the manager qualifies as a QPAM or relies on PTE
84-14. A Covered Plan does not include an ERISA-covered plan or IRA
to the extent the Affiliated 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.
Notwithstanding the above, an Affiliated QPAM may disclaim reliance
on QPAM status or PTE 84-14 in a written modification of a contract,
arrangement, or agreement with an ERISA-covered plan or IRA, where:
the modification is made in a bilateral document signed by the
client; the client's attention is specifically directed toward the
disclaimer; and the client is advised in writing that, with respect
to any transaction involving the client's assets, the Affiliated
QPAM will not represent that it is a QPAM, and will not rely on the
relief described in PTE 84-14.
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Department Warning: The Department notes that this proposed
exemption's abridged notice and comment period is due to the exigent
circumstances that are necessitating the Merger and the fact that the
parties to the Merger have existing QPAM exemptions in place. The
Department clarifies that future QPAM applicants should expect to
provide a full notice and comment period to ensure that ERISA-covered
plans and their participants and beneficiaries are adequately
protected.
This proposed exemption would provide relief from certain of the
restrictions set forth in ERISA Sections 406 and 407. No relief from a
violation of any other law would be provided by this exemption,
including any criminal conviction described herein. The Department
stresses that this proposed exemption would provide Covered Plans and
Affiliated QPAMs and Related QPAMs with the ability to rely on PTE 84-
14 for one year and that this proposed exemption, if granted, will
terminate at the end of that one-year period.
Covered Plan fiduciaries are strongly cautioned that the Department
might not extend this one-year exemption following its expiration due
to the significant number of convictions and the seriousness of the
underlying conduct of the tainted entities that will now reside
together within the UBS corporate umbrella following the Merger. In
this regard, Covered Plan fiduciaries should be aware that the
Department will not extend this exemption beyond the proposed one-year
term unless, among other things, UBS submits an application with
detailed written information to the Department substantially in advance
of the expiration of this one-year term that is sufficient for the
Department to make its findings under ERISA Section 408(a) that an
extension of this exemption is in the interest and protective of
affected Covered Plans, and administratively feasible.
The Department cautions that the relief in this proposed exemption
would terminate immediately if an affiliate of UBS'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 Convictions) during the
effective period of the exemption. While such an entity could apply for
a new exemption in that circumstance, the Department would not be
obligated to propose such an exemption. The Department might also
consider developing an individual exemption on its own motion that
would protect affected Covered Plans by permitting some, but not all,
of the transactions covered by PTE 84-14. If the Department took that
approach, the UBS/CSAG affiliated entities would no longer rely on or
reference PTE 84-14 for relief, but rather would rely on the new
individual exemption for any relief, which would not be based on their
status as QPAMs status under PTE 84-14. The Department invites comments
regarding this possible individual exemption.
The terms of this proposed one-year exemption have been designed to
permit plans to terminate their relationships with the Affiliated QPAMs
and the Related QPAMs in an orderly and cost-effective fashion in the
event of an additional conviction or a determination by a plan that it
is otherwise prudent to do so.
Summary of Facts and Representations <SUP>2</SUP>
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\2\ The Summary of Facts and Representations is based on UBS and
CSAM's representations and does not reflect factual findings or
opinion of the Department, unless indicated otherwise. The
Department notes that availability of this exemption is subject to
the express condition that the material facts and representations
made by UBS and CSAM are true, complete, and accurately describe all
material terms of the transaction(s) covered by the exemption. If
there is any material change in a transaction covered by the
exemption, or in a material fact or representation that is part of
the record attributable to D-12089, the exemption will cease to
apply as of the date of the change. The record attributable to D-
12089 include the representations in paragraph 18 below. As
discussed above and below, the exemption requires UBS and/or CSAG to
submit a Merger Report to the Department every 120 days following
the Merger, containing all relevant details of the Merger. In the
report, UBS and/or CSAG must identify any material omissions in this
Summary and correct any inaccuracies in the Summary. The Merger
Report will be available to the public through EBSA's Public
Disclosure Office and to Covered Plan fiduciaries via a link
provided by the relevant Affiliated QPAM.
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Credit Suisse Group AG
1. CCSG is currently a publicly-traded corporation headquartered in
Zurich, Switzerland that owns a 100% interest in Credit Suisse AG
(CSAG). Currently, two Credit Suisse asset management affiliates,
Credit Suisse Asset Management, LLC (CSAM LLC) and Credit Suisse Asset
Management Limited (CSAM Ltd.) (together, the CS Affiliated QPAMs),
manage the assets of ERISA-covered plans and IRAs (together, Covered
Plans, as further defined below) on a discretionary basis.
2. CSAG also owns a five percent or more interest in certain other
entities that may provide investment management services to plans but
that are not affiliates of CSAG (the CS Related QPAMs).
UBS AG
3. UBS AG (UBS) is a Swiss-based global financial services company
organized under the laws of Switzerland. UBS Asset Management
(Americas) Inc., UBS Realty Investors LLC, UBS Hedge Fund Solutions
LLC, and UBS O'Connor LLC are currently the four UBS affiliates that
rely on PTE 84-14 (the UBS QPAMs).
Relevant ERISA Provisions and PTE 84-14
4. The rules set forth in ERISA section 406 and Code section
4975(c)(1) proscribe certain ``prohibited transactions'' between plans
and related parties with respect to those plans. Under ERISA section
3(14), such parties are known as ``parties in interest'' with respect
to a plan, and 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.\3\
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\3\ Under the Code, such parties, or similar parties, are
referred to as ``disqualified persons.''
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5. The prohibited transaction provisions under ERISA Section 406(a)
and Code Section 4975(c)(1) 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
[[Page 30787]]
a transfer of plan assets to, a party in interest.\4\ Under ERISA
Section 408(a) and Code Section 4975(c)(2), 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) if the Department finds that an
exemption is (i) administratively feasible; (ii) in the interests of
the plan and of its participants and beneficiaries; and (iii)
protective of the rights of participants and beneficiaries. PTE 84-14
reflects the Department's conclusion that it could provide broad relief
from the prohibited transaction provisions of ERISA Section 406(a) and
Code Section 4975(c)(1) only if the commitments and the investments of
plan assets and the negotiations leading thereto, are the sole
responsibility of an independent discretionary manager the meets the
exemption's conditions.
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\4\ The prohibited transaction provisions also include certain
fiduciary prohibited transactions under ERISA section 406(b) and
Code section 4975(c)(1)(E) and (F). 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 ERISA section
406(b).
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6. Section I(g) of PTE 84-14 prevents an entity that may otherwise
meet the definition of a QPAM from utilizing the exemptive relief
provided by PTE 84-14 for itself and its client plans, if that entity
or an ``affiliate'' thereof,\5\ 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.
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\5\ 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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7. The inclusion of Section I(g) in PTE 84-14 is, in part, based on
an expectation that QPAMs will maintain a high standard of integrity.
This expectation extends not only to the QPAM itself but also to those
who may be in a position to influence the policies of the QPAM.
The CSAG Conviction
8. On May 19, 2014, the Tax Division of the United States
Department of Justice (DOJ) and the U.S. Attorney's Office for the
Eastern District of Virginia filed a one-count criminal information
(the CSAG Information) in the District Court for the Eastern District
of Virginia charging CSAG with a conspiracy to violate Code section
7206(2) in violation of Title 18, United States Code, Section 371.
According to the Statement of Facts, for decades before and through
approximately 2009 CSAG operated an illegal cross-border banking
business that knowingly and willfully aided and assisted thousands of
U.S. clients in opening and maintaining undeclared accounts that
concealed offshore assets and income from the IRS. On May 19, 2014,
pursuant to a plea agreement (the Plea Agreement), CSAG entered a plea
of guilty for assisting U.S. citizens in federal income tax evasion.
The District Court entered a judgment of conviction against CSAG on
November 21, 2014.
The CSSEL Conviction
9. On October 19, 2021, the DOJ, Criminal Division, Money
Laundering and Asset Recovery Section and Fraud Section, and the United
States Attorney's Office for the Eastern District of New York, filed a
criminal information in the District Court for the Eastern District of
New York charging CSSEL with one count of conspiracy to commit wire
fraud in violation of 18 U.S.C. 1349. CSSEL agreed to resolve the
action through a plea agreement presented to the New York District
Court on October 19, 2021 (the CSSEL Plea Agreement). Under the CSSEL
Plea Agreement, CSSEL agreed to enter a plea of guilty to the charge
set out in the CSSEL Information (the CSSEL Plea). On October 19, 2021,
in connection with the CSSEL Plea, the ultimate parent of CSSEL, CSG,
entered into a Deferred Prosecution Agreement (the DPA) with the
Criminal Division, Money Laundering and Asset Recovery Section and
Fraud Section of the DOJ and the United States Attorney's Office for
the Eastern District of New York.
The District Court entered a judgment of conviction against CSSEL
on July 22, 2022.
The 2013 and 2018 UBS Convictions
10. 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.
11. 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 UBS had breached the LIBOR NPA, among other things, by engaging in
deceptive currency trading and sales practices with respect to certain
foreign exchange (FX) market transactions and collusive conduct in
certain FX markets (FX Misconduct). UBS entered a guilty plea and was
convicted (the 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.
The 2019 UBS French Conviction
12. 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. 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.
Prior Exemptions
13. To protect Covered Plans from the costs and harms that could
arise if the UBS QPAMs and the Credit Suisse Affiliated and CS Related
QPAMs lost their ability to engage in potentially beneficial
transactions on behalf of the Covered Plans due to the convictions
identified above (the Convictions), the Department issued a number of
temporary individual exemptions. Several of these exemptions were
extensions of prior temporary exemptions. In connection with the Credit
Suisse-related convictions, the Department issued the following
exemptions: PTE 2022-01 (87 FR 1186 (Jan. 10, 2022)); PTE 2019-07 (84
FR 61928 (Nov. 14, 2019)); PTE 2015-14 (80 FR 59817 (Oct. 2, 2015));
PTE 2014-11 (79 FR 68716 (Nov. 18, 2014)). In connection with the UBS-
related convictions, the Department issued: PTE 2020-01 (85 FR 8020
(Feb. 12, 2020)); PTE 2019-01 (84 FR 6163 (Feb. 26, 2019)); PTE 2017-07
(82 FR 61903 (Dec. 29, 2017)); PTE 2016-17 (81 FR 94049
[[Page 30788]]
(Dec. 22, 2016)); PTE 2013-09 (78 FR 56740 (Sep. 13, 2013)).
Proposed Merger
14. The Department learned from recent news reports that UBS was
acquiring CSAG in a stock purchase. Representatives of CSAM and UBS
confirmed the impending Merger in a telephone call with the Department
on March 21, 2023, but the representatives stated that few additional
details were available at that time. The Department understands through
these representatives that the Merger will involve UBS acquiring CSAG
in a stock sale that will occur on or about May 31, 2023.
15. The most recent exemption the Department granted for UBS, PTE
2020-01, permits the UBS QPAMs to continue to rely on PTE 84-14 only
if, among other things, UBS and its affiliates have not been convicted
of a crime described in Section I(g) of PTE 84-14 over the prior 10
years, other than the UBS-related convictions described above. The
Department expects that, following the Merger, UBS will be affiliated
with CSAG and CSSEL, and the convictions attributable to UBS and CSAG
(which are covered by PTE 2022-01) will result in a violation of PTE
2020-01. It is therefore the Department's expectation that following
the Merger, UBS will no longer be able to rely on PTE 2020-01. In order
to protect Covered Plans that could be harmed from the sudden loss of
PTE 2020-01 and PTE 2022-01 due to the Merger, the relief in this
exemption is effective as of the date of the Merger. Accordingly, if
the Merger occurs prior to the date this exemption is granted, the
relief in the exemption will be retroactive to the date of the Merger.
16. On April 17, 2023, UBS and CSAM (and their affiliated QPAMs)
submitted a request to modify their existing exemptions. In their
request, UBS and CSAM stated that, following the Merger, ``it is
important that the combined bank be able to continue the asset
management businesses that the two banks currently maintain
independently, including their subsidiaries' QPAM services.'' UBS and
CSAM proposed ``separate somewhat harmonized, exemptions because at
this time it is not clear when, and how, the Credit Suisse QPAMs will
be restructured within the UBS structure after closing.'' The
modifications sought by UBS and CSAM would have allowed the affected
QPAMs to rely on their existing exemptions subject to essentially the
same conditions, while expanding the number of Convictions covered by
each exemption. UBS and CSAM state that, among other things, ``The
largely ministerial modifications [CSAM and UBS] are proposing are
essential given the change in [UBS and CSAM's] circumstances to ensure
that these exemptions remain administratively feasible and available
for the QPAMs' use as they serve plans and participants and
beneficiaries.''
17. Similarly, following the Merger, the Department does not expect
that the CS Affiliated QPAMs and the CS Related QPAMs would be able to
rely on PTE 2022-01, because that individual exemption permits them to
continue to rely on PTE 84-14 only if, among other things, CSAG and its
affiliates are not convicted of a crime described in Section I(g) of
PTE 84-14 other than the CSAG and CSSEL convictions described above
during the prior 10 years. The Department understands that following
the Merger, CSAG will be affiliated with UBS, UBS Securities Japan, and
UBS France, and will be accountable for the convictions attributable to
those entities in violation of PTE 2022-01. Therefore, the Department
is proposing this exemption to protect Covered Plans from the costs and
harms that could arise if the CS QPAMs and CS Related QPAMs can no
longer rely on PTE 2022-01 as of the date of the Merger, solely as a
result of the Merger and not due to any new convictions. As noted
above, if this exemption is granted after the date of the Merger, the
relief in the exemption will be retroactive to the date of the Merger.
The Department notes that this proposal is contingent on there being a
Merger, and if the Merger does not happen, any granted exemption will
have no effect.
Harm to Covered Plans in the Absence of QPAM Relief[hairsp]
<SUP>6</SUP>
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\6\ CSAM submitted these representations to the Department on
March 16, 2023, in connection with an exemption application
submitted by CSAM (the CSAM Application), for the CS Affiliated and
Related QPAMs to continue to rely upon PTE 84-14 beyond the one-year
term of their current individual exemption (PTE 2022-01), which
expires on the earlier of July 21, 2023, or the date of the Merger.
The CSAM Application was submitted to the Department before the
Merger was announced. The Department closed the CSAM Application
upon receipt of the CSAM and UBS modification request discussed
herein. The CSAM Application and supporting documents are available
to the public through EBSA's Public Disclosure Office, by
referencing D-12089.
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18. CSAM represents that if the Credit Suisse QPAMs lose the
ability to rely upon PTE 84-14, the Covered Plan clients of those QPAMs
would suffer the time and expense of finding replacement asset managers
where they otherwise might not choose to do so. Further, transactions
currently dependent on the QPAM Exemption would be in default, and
counterparties may provide less advantageous pricing or not bid at all,
because the plan's investment manager is not a QPAM. Credit Suisse
submits that Covered Plans that choose to remain with CSAM following
CSAM's loss of QPAM relief would have a circumscribed set of
transactions available to them, or their transactions could be more
expensive because of the preference that counterparties have for
transacting business with QPAMs.
CSAG states that CSAM's Commodities team provides exposure to a
variety of commodity benchmarks, and CSAM's Credit Investment Group
manages leveraged loans and special situations credit across a broad
spectrum of products. For CSAM's credit strategy, the loans purchased
by plans contain representations that the QPAM Exemption is applicable
to the transaction. According to CSAG, all loan documentation would
have to be changed if QPAM relief is lost, and all of the loan agents
would have to agree to accept another applicable exemption. For the
commodities strategy, the guidelines for this strategy include cleared
derivatives, which also depend upon PTE 84-14 for exemptive relief.
CSAG submits that Covered Plans who have hired CSAM are managed by
fiduciaries acting in the best interest of their respective plans.
Those fiduciary obligations and the decisions to use CSAM for the
plans' asset management needs are based on a number of factors,
including investment performance, the perceived skill of CSAM's
portfolio managers, and risk management.
In its request for modifications to its existing exemption, UBS
states that the requested modifications will help ensure that the QPAMs
continue to operate without disruption to their plan clients, which in
turn is necessary for UBS and CSAM to successfully complete the merger.
19. The Department is proposing this exemption to protect Covered
Plans from the costs and harms that could arise if the UBS QPAMs were
no longer able to rely on PTE 2020-01 as of the date of the Merger.
Department's Note: The Department is requesting detailed
information from UBS and CSAG regarding the costs and harms to Covered
Plans, if any, that could arise if the UBS QPAMs and the CS QPAMs can
no longer rely on PTE 2020-01 and PTE 2022-01 following the Merger. The
Department cautions Covered Plan fiduciaries that if UBS and CSAG do
not submit detailed and reliable information in this regard, the
Department will not extend the relief in this exemption beyond one
year.
[[Page 30789]]
Covered Plan fiduciaries are also cautioned that the purpose of the
one-year exemption would be to allow Covered Plans to avoid the costs
and disruption to investment strategies that may suddenly arise if the
Covered Plans are forced to hire a different QPAM or asset manager on
short notice, because their current QPAM is no longer able to rely on
the relief provided by PTE 84-14 due to the Merger/Convictions. The
Department's decision to propose this exemption is in no way an
indication that the UBS QPAMs and the CS Affiliated QPAMs will receive
additional exemptive relief. As the Department stated above,
considering the number of Convictions and the severity of the
associated misconduct, it is possible that the Department will not
grant additional relief if UBS is convicted of another crime that is
not covered under this exemption, or if evidence of additional
misconduct is forthcoming.
This Proposed Exemption
20. Upon learning of the impending Merger and given the lack of
information immediately available from CSAG and UBS, in the interest of
protecting plans, participants and beneficiaries, the Department began
developing this proposed exemption on its own motion. UBS submitted an
exemption modification request on April 17, 2023. However, the
Department was unable to determine that the terms of the modifications
sought by Credit Suisse and UBS would be sufficiently protective of
affected Covered Plans. Accordingly, the Department has developed this
exemption primarily on its own motion, based on its understanding of
the facts associated with the Merger made by Credit Suisse and UBS
representatives.
Summary of the Exemption's Protective Conditions
21. In developing administrative exemptions under ERISA section
408(a), the Department implements its statutory directive to grant only
exemptions that are appropriately protective of, and in the interest
of, affected plans and IRAs. The Department is proposing this exemption
with protective conditions that would protect Covered Plans (and their
participants and beneficiaries) and allow them to continue to benefit
from the transactions described in PTE 84-14. The Department notes that
this exemption includes all the conditions imposed upon CSAG and UBS in
their most recent individual exemptions and expands on some conditions
by making certain that conditions previously applicable only to the UBS
QPAMs also apply to the CS Affiliated QPAMs and vice versa. This
proposed exemption also includes certain stronger conditions that the
Department has included in its most recent QPAM exemptions that were
not included in the prior UBS and CS exemptions and the reporting
requirement mentioned above and described below.
22. For the remainder of this preamble, the CS Affiliated QPAMs and
the UBS QPAMs are collectively referred to as the Affiliated QPAMs, and
the CS Related QPAMs are referred to as the Related QPAMs. This
proposed exemption requires the Affiliated QPAMs and the Related QPAMs
to comply with substantially the same conditions they were subject to
before the Merger under the applicable individual exemption, although
as discussed above, several of those conditions have been expanded and
a reporting requirement has been added that is described below.
23. It is a material condition of this exemption that the
Affiliated QPAMs and the Related QPAMs (including their officers,
directors, agents (with very narrow exceptions), employees of such
QPAMs, and CSAG and UBS employees that do work for Affiliated or
Related QPAMs) must not have known, have reason to know of, nor
participated in the criminal conduct of that is the subject of any of
the Convictions. Each Affiliated and Related QPAM (and their officers,
directors, etc.) must meet this condition with respect to each
Conviction regardless of whether the misconduct occurred within the
QPAM's corporate umbrella at the time it occurred. Further, any other
party engaged on behalf of the Affiliated QPAMs and Related QPAMs who
had responsibility for or exercised authority in connection with the
management of plan assets must not have known, had reason to know of,
nor participated in the criminal conduct that is the subject of any of
the Convictions. Again, each Affiliated and Related QPAM (and their
officers, directors, etc.) must comply with this prohibition,
regardless of whether the criminal misconduct occurred within the
QPAM's corporate umbrella at the time the Conviction occurred.
24. The protective conditions contained in this proposed exemption
include a requirement that precludes each Affiliated QPAM from
currently and in the future employing or knowingly engaging any of the
individuals who participated in the criminal conduct of an entity that
is the subject of any of the Convictions (i.e., UBS and UBS Securities
Japan, UBS France, CSG, CSAG, and CSSEL; hereinafter, a Misconduct
Entity). This means that no individual who participated in criminal
misconduct at a Misconduct Entity may be employed by any Affiliated
QPAM, regardless of whether the Misconduct Entity was outside the
QPAM's corporate umbrella at the time of the misconduct.
25. Under this exemption, no Affiliated QPAM may use its authority
or influence to direct a Covered Plan to enter into any transaction
with a Misconduct Entity, or to engage a Misconduct Entity to provide
any service to such Covered Plan, regardless of whether such
transaction or service may otherwise be within the scope of relief
provided by an administrative or statutory exemption. In other words,
no Affiliated QPAM may enter into a transaction on behalf of a Covered
Plan with any Misconduct Entity. Further, other than with respect to
employee benefit plans maintained or sponsored for its own employees or
the employees of an affiliate, a Misconduct Entity may 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.
26. Each Affiliated QPAM must continue to maintain, adjust to the
extent necessary, implement, and follow written policies and procedures
(the Policies) that are reasonably designed to ensure that: (a) the
asset management decisions of the Affiliated QPAM are conducted
independently of each Misconduct Entity's corporate management and
business activities; (b) the Affiliated QPAMs fully comply with ERISA's
fiduciary duties and with ERISA's and the Code's prohibited transaction
provisions; (c) the Affiliated QPAMs do not knowingly participate in
any other person's violation of ERISA or the Code with respect to
Covered Plans; (d) any filings or statements made by the Affiliated
QPAMs to regulators on behalf of, or in relation to, Covered Plans are
materially accurate and complete; (e) the Affiliated QPAMs do not make
material misrepresentations or omit material information in their
communications with such regulators, or in their communications with
Covered Plans; and (f) the Affiliated QPAMs comply with the terms of
the exemption.
27. This proposed exemption requires each Affiliated QPAM to
maintain, adjust to the extent necessary, and implement a training
program (the Training) that will be conducted at least annually for all
relevant asset/portfolio management, trading, legal, compliance, and
internal audit personnel. The Training must cover, at a minimum, the
Policies, ERISA and Code compliance,
[[Page 30790]]
ethical conduct, the consequences that would result from not complying
with the proposed exemption conditions, and the requirement to promptly
report wrongdoing.
28. This proposed exemption requires each Affiliated QPAM to engage
an independent auditor annually to evaluate the adequacy of, and the
QPAM's compliance with, the Policies and Training required by the
exemption. The independent auditor must be prudently selected by the
Affiliated QPAMs and have appropriate technical training and
proficiency with ERISA and the Code to perform the tasks required by
the exemption. The Affiliated QPAMs must grant the auditor
unconditional access to their business, and the auditor's engagement
must specifically require the auditor to test each Affiliated QPAM's
operational compliance with the Policies and Training.
29. The independent auditor must issue a written audit report (the
Audit Report) to CSAG, UBS and the Affiliated QPAM to which the audit
applies, that describes the procedures performed by the auditor in
connection with its examination.\7\ Further, the Affiliated QPAMs must
promptly address any instance of noncompliance identified by the
auditor, and 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 Affiliated
QPAM. The Audit Report must be provided to the Department by the
Affiliated QPAM, and the Department will make the Audit Report part of
the public record regarding this one-year exemption.
---------------------------------------------------------------------------
\7\ CSAG must provide the audit to UBS Board and if a CS
Affiliated QPAM is not in operation at the time of certification,
the report must be certified by UBS (see operative (i)(7) and (8).
---------------------------------------------------------------------------
30. This proposed exemption further requires the General Counsel,
or one of the three most senior executive officers of the Affiliated
QPAM to which the Audit Report applies, to certify in writing and under
penalty of perjury that the officer has reviewed the Audit Report and
the exemption, and the Affiliated QPAM has addressed, corrected, and
remedied (or has an appropriate written plan to address) any identified
instance of noncompliance or inadequacy regarding the Policies and
Training identified in the Audit Report.
31. With respect to any arrangement, agreement, or contract between
an Affiliated QPAM and a Covered Plan, this proposal requires each
Affiliated QPAM to agree and warrant: (a) to comply with ERISA and the
Code, including the standards of prudence and loyalty set forth in
ERISA section 404; (b) to refrain from engaging in prohibited
transactions that are not otherwise exempt; (c) to indemnify and hold
harmless the Covered Plan for any actual losses resulting directly
from, among other things, the Affiliated QPAM's violation of ERISA's
fiduciary duties; (d) with narrow exceptions, to not restrict the
ability of such Covered Plan to terminate or withdraw from its
arrangement with the Affiliated QPAM with respect to any investment in
a separately managed account or pooled fund subject to ERISA and
managed by such QPAM; (e) with narrow exceptions, to not impose any
fees, penalties, or charges for such termination or withdrawal; and (f)
to not include exculpatory provisions disclaiming or otherwise limiting
the liability of the Affiliated QPAM for a violation of such
agreement's terms.
32. Each Affiliated QPAM must provide a notice of its obligations
under this exemption to each applicable Covered Plan. Each Affiliated
QPAM also must provide to each applicable sponsor and beneficial owner
of a Covered Plan a copy of the proposal and final notice of the
exemption as published in the Federal Register, a separate summary
describing the facts that led to each Conviction (the Summary), and a
prominently displayed statement (the Statement) that each Conviction
each results in a failure to meet a condition in PTE 84-14 and an
individual exemption, which must be identified.
33. This proposed exemption requires each Affiliated QPAM to
maintain a designated senior compliance officer (the Compliance
Officer) who will be responsible for compliance with the Policies and
Training requirements described in this proposed exemption. The
Compliance Officer must conduct a review, for the twelve-month period
specified below (the Exemption Review), to determine the adequacy and
effectiveness of the implementation of the Policies and Training and
issue a written report (the Exemption Report) on the findings.
34. This proposed exemption requires UBS to impose internal
procedures, controls, and protocols on each Misconduct Entity to reduce
the likelihood of any recurrence of conduct that is the subject of the
Convictions.
35. Additional New Conditions. This proposed exemption requires UBS
to submit a written report to the Department every 120 days following
the merger of UBS and Credit Suisse that provides updates regarding the
progress of the Merger. This report must also be provided to Covered
Plan fiduciaries (including via an electronic link). Additionally, in
its first report to the Department, UBS must: (1) identify the QPAMs
using this exemption as the date of the Report; (2) provide details
regarding the extent to which the CS Affiliated QPAMs have been
integrated into UBS's operations and any other relevant changes with
respect to any QPAMs that are using this exemption; (3) any other
changes, whether operational or otherwise, that impact any requirements
under this exemption. As noted above, the first Merger Report must
identify any material omission and/or error set forth in this Summary
of Facts and Representations.
Further, the proposed exemption clarifies that the ``best
knowledge'' standard described herein and used elsewhere in the
exemption includes matters that are known to the applicable individual
or should be known to such individual upon the exercise of such
individual's due diligence required under the circumstances. The
Department further notes that, with respect to an entity other than a
natural person, the term ``best knowledge'' includes matters that are
known to the directors and officers of the entity or should be known to
such individuals upon the exercise of such individuals' due diligence
required under the circumstances.
Statutory Findings
36. ERISA section 408(a) 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 protective of the rights of
such participants and beneficiaries. These criteria are discussed
below.
37. ``Administratively Feasible.'' The Department has tentatively
determined that the proposal is administratively feasible, because
among other things, a qualified independent auditor will be engaged by
the Affiliated QPAM to perform an in-depth annual audit covering each
Affiliated QPAM's compliance with the terms of the exemption, and a
corresponding written audit report will be provided to the Department
and be made available to the public. Further, detailed periodic reports
will be made to the Department and to Covered Plan fiduciaries.
38. ``In the interest of.'' The Department has tentatively
determined that the proposed exemption is in the interests of the
participants and
[[Page 30791]]
beneficiaries of affected Covered Plans. The Department understands
based on representations, that if the requested exemption is denied,
Covered Plans may be forced to find other managers, at significant
costs to the Covered Plans, including the costs associated with
terminating, unwinding, or modifying existing transactions. It is also
the understanding of the Department that ineligibility under Section
I(g) of PTE 84-14 would deprive the Covered Plans of the investment
management services that these plans expected to receive when they
appointed these managers and could result in the termination of
relationships that the fiduciaries of the Covered Plans have determined
to be in the best interests of those plans, even after the disclosures
of the earlier convictions pursuant to the individual exemptions the
managers previously received.
39. ``Protective of.'' The Department has tentatively determined
that the proposed exemption is protective of the interests of the
participants and beneficiaries of affected Covered Plans. As described
above, the proposed exemption imposes a suite of affirmative
requirements and obligations upon the QPAMs that include but are not
limited to: (a) the maintenance of the Policies; (b) the maintenance of
the Training; (c) a robust audit conducted by a qualified independent
auditor; (d) the provision of certain agreements and warranties on the
part of the Affiliated QPAMs; (e) specific notices and disclosures
concerning the circumstances necessitating the need for exemptive
relief and the Affiliated QPAMs' obligations under this proposed
exemption; and (f) the designation of a Compliance Officer with
responsibility to ensure compliance with the Policies and Training
requirements under this proposed exemption, and the Compliance
Officer's completion of an Exemption Review and corresponding Exemption
Report. The Department notes that this exemption includes all
conditions imposed upon Credit Suisse and UBS in their most recent
individual exemptions, and expands upon several of them, and includes
also certain stronger conditions that the Department has included in
its most recent QPAM exemptions.
Summary
40. This proposed one-year exemption provides relief from certain
of the restrictions set forth in ERISA section 406 and Code Section
4975(c)(1). No relief or waiver of a violation of any other law is
provided by the exemption. The relief in this proposed one-year
exemption would terminate immediately if, among other things, an entity
within the UBS corporate structure is convicted of any crime covered by
Section I(g) of PTE 84-14 (other than a Conviction). While such an
entity could request a new exemption in that event, the Department is
not obligated to grant the request. Consistent with this proposed
exemption, the Department's consideration of additional exemptive
relief is subject to the findings required under ERISA section 408(a)
and Code section 4975(c)(2).
41. When interpreting and implementing this exemption, the
Applicant and the relevant QPAM should resolve any ambiguities
considering the exemption's protective purposes. To the extent
additional clarification is necessary, these persons or entities should
contact EBSA's Office of Exemption Determinations, at 202-693-8540.
42. Based on the conditions that are included in this proposed
exemption, the Department has tentatively determined that the relief
sought by the Applicant would satisfy the statutory requirements for an
individual exemption under ERISA Section 408(a) and Code Section
4975(c)(2).
Notice to Interested Persons
UBS will provide notice of this proposed exemption to its Covered
Plan clients by email within two business days after the publication of
the notice of proposed exemption in the Federal Register. CSAM with
provide notice of this proposed exemption to its Covered Plan clients
via overnight carrier within one business day after the publication of
the notice of proposed exemption in the Federal Register. Written
comments and hearing requests are due within six days after publication
of the notice of proposed 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 ERISA and/or Code section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain other provisions of ERISA and/or the Code, including 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 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 ERISA section 404(a)(1)(B); nor does it affect the requirement of
Code section 401(a) that the plan must operate for the exclusive
benefit of the employees of the employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be granted under ERISA section 408(a)
and/or Code section 4975(c)(2), 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 ERISA 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 One-Year Exemption
The Department is considering granting this one-year exemption
under the authority of ERISA section 408(a) and Internal Revenue Code
(or Code) section 4975(c)(2), and in accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27,
2011).\8\ Effective December 31, 1978, section 102 of Reorganization
Plan No. 4 of 1978, 5
[[Page 30792]]
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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\8\ For purposes of this one-year exemption, references to ERISA
section 406, unless otherwise specified, should be read to refer as
well to the corresponding provisions of Code section 4975.
---------------------------------------------------------------------------
Section I. Definitions
(a) Names of Certain Corporate Entities:
(1) The term ``CSG'' means Credit Suisse Group AG, a publicly-
traded corporation organized under the laws of Switzerland.
(2) The term ``CSAG'' means Credit Suisse AG and is 100% owned by
CSG.
(3) The term ``CSAM Ltd.'' means Credit Suisse Asset Management
Limited and is a Credit Suisse asset management affiliate, together
with CSSAM LLC are the CS Affiliated QPAMs.
(4) The term ``CSSAM LLC'' means Credit Suisse Asset Management,
LLC and is a Credit Suisse asset management affiliate, together with
CSAM Ltd. are the CS Affiliated QPAMs.
(5) The term ``CSSEL'' means Credit Suisse Securities (Europe)
Limited and is headquartered in London, United Kingdom and indirectly a
wholly owned subsidiary of CSG.
(6) The term ``UBS'' means UBS AG, a publicly traded corporation
organized under the laws of Switzerland.
(7) The term ``UBS Americas'' means UBS Asset Management (Americas)
Inc. and is one of the four UBS affiliates and is wholly owned by UBS
Americas, Inc., a wholly owned subsidiary of UBS AG.
(8) The term ``UBS France'' means UBS (France) S.A. and is a wholly
owned subsidiary of UBS incorporated under the laws of France.
(9) The term ``UBS Hedge Fund Solutions LLC'' was formerly known as
UBS Alternative and Quantitative Investments, LLC is one of four UBS
affiliates and is wholly owned by UBS Americas Holding LLC, a wholly
owned subsidiary of UBS AG.
(10) The term ``UBS O'Connor LLC'' is one of four UBS affiliates
and is wholly owned by UBS Americas Holding LLC, a wholly owned
subsidiary of UBS AG.
(11) The term ``UBS Realty Investors LLC'' is one of the four UBS
affiliates and is wholly owned by UBS Americas, Inc., a wholly owned
subsidiary of UBS AG.
(12) The term ``UBS Securities Japan'' means UBS Securities Japan
Co. Ltd, a wholly owned subsidiary of UBS incorporated under the laws
of Japan.
(b) The term ``Affiliated QPAM'' means: (1) the ``CS Affiliated
QPAMS,'' which are Credit Suisse Asset Management, LLC (``CSAM LLC'')
and Credit Suisse Asset Management Limited (``CSAM Ltd.''); and (2) the
``UBS QPAMs,'' which are 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) 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 Affiliated QPAM excludes a Misconduct Entity.
(c) The term ``Convictions'' means (1) the judgment of conviction
against CSAG for one count of conspiracy to violate section 7206(2) of
the Internal Revenue Code in violation of Title 18, United States Code,
Section 371, that was entered in the District Court for the Eastern
District of Virginia in Case Number 1:14-cr-188-RBS, on November 21,
2014 (the ``CSAG Conviction''); (2) the judgment of conviction against
CSSEL in Case Number 1:21-cr-00520-WFK (the ``CSSEL Conviction''); (3)
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; (4) 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; and (5) the judgment of
conviction on February 20, 2019, against UBS and UBS France in case
Number 1105592033 in the French First Instance Court (the 2019 French
Conviction).
(d) 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 an
Affiliated QPAM relies on PTE 84-14, or with respect to which an
Affiliated QPAM (or any CSAG or UBS affiliate) has expressly
represented that the manager qualifies as a QPAM or relies on PTE 84-
14. A Covered Plan does not include an ERISA-covered plan or IRA to the
extent the Affiliated 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. Notwithstanding the
above, an Affiliated QPAM may disclaim reliance on QPAM status or PTE
84-14 in a written modification of a contract, arrangement, or
agreement with an ERISA-covered plan or IRA, where: the modification is
made in a bilateral document signed by the client; the client's
attention is specifically directed toward the disclaimer; and the
client is advised in writing that, with respect to any transaction
involving the client's assets, the Affiliated QPAM will not represent
that it is a QPAM, and will not rely on the relief described in PTE 84-
14.
(e) The term ``Exemption Period'' means the one-year period that
begins on the closing date of the acquisition of CSAG by UBS
(hereinafter, the Merger).
(f) 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.
(g) The term ``Misconduct Entity'' means an entity subject to one
of the Convictions described above, i.e., UBS, UBS Securities Japan,
UBS France, CSAG and CSSEL.
(h) The term ``Related QPAM'' means any current or future
``qualified professional asset manager'' (as defined in Section VI(a)
of PTE 84-14) that relies on the relief provided by PTE 84-14, and with
respect to which CS or UBS owns a direct or indirect five (5) percent
or more interest, but with respect to which a Misconduct Entity is not
an ``affiliate'' (as defined in section VI(d)(1) of PTE 84-14). The
term ``Related QPAM'' excludes a Misconduct Entity.
(i) The term ``best knowledge,'' ``to the best of one's
knowledge,'' ``best knowledge at that time,'' and other similar ``best
knowledge'' terms shall include matters that are known to the
applicable individual or should be known to such individual upon the
exercise of such individual's due diligence required under the
circumstances, and, with respect to an entity other than a natural
person, such term includes matters that are known to the directors and
officers of the entity or should be known to such individuals upon the
exercise of such individuals' due diligence required under the
circumstances.
[[Page 30793]]
Section II. Covered Transactions
If this proposed exemption is granted, the Affiliated QPAMs and the
Related QPAMs would not be precluded from relying on the exemptive
relief provided by Prohibited Transaction Class Exemption 84-14 (PTE
84-14) \9\ during the Exemption Period, notwithstanding the
``Convictions,'' provided that the definitions in Section I and the
conditions in Section III are satisfied.
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\9\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as
amended at 75 FR 38837 (July 6, 2010).
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Section III. Conditions
(a) The Affiliated QPAMs and the Related QPAMs (including their
officers, directors, agents other than the Misconduct Entities,
employees of such QPAMs, and employees of Misconduct Entities that do
work for Affiliated or Related QPAMs described in subparagraph (d)
below) did not know or did not have reason to know of and did not
participate in the conduct underlying the Convictions and the FX
Misconduct. Further, any other party engaged on behalf of the
Affiliated QPAMs and the Related QPAMs 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 underlying the Convictions described in Section
I(c)(1) and (2) and the 2019 French Conviction.
For all purposes of this exemption, the ``conduct'' of any person
or entity that is the ``subject of the Convictions'' encompasses any
misconduct of CSAG, CSSEL, UBS, UBS France, UBS Securities Japan, and/
or their personnel: (i) that is described in 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; (ii) that is described in 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; (iii) that is the basis
of the 2019 French Conviction; and (iv) that is the subject of the CSAG
and CSSEL convictions described in Section I(c)(1) and (c)(2); and for
purposes of the exemption as well as the avoidance of doubt, the term
``participate in'' (as included paragraph (c) below), refers not only
to active participation in the criminal conduct but includes an
individual or entity's knowledge or approval of the criminal conduct,
without taking active steps to prohibit such conduct, such as reporting
the conduct to the individual's supervisors, and to the Board of
Directors.
(b) The Affiliated QPAMs and the Related QPAMs (including their
officers, directors, agents other than the Misconduct Entities,
employees of such QPAMs, and CSAG employees described in subparagraph
(d)(3) below) did not receive direct compensation, or knowingly receive
indirect compensation, in connection with the criminal conduct of that
is the subject of the Convictions and the UBS FX Misconduct. Further,
any other party engaged on behalf of the Affiliated QPAMs and the
Related 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 that is the subject of the subject of the
Convictions;
(c) The Affiliated QPAMs do not currently and will not in the
future employ or knowingly engage any of the individuals who
participated in the criminal conduct underlying the Convictions;
(d) At all times during the Exemption Period, no Affiliated 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 Affiliated QPAM with respect to one or
more Covered Plans, to enter into any transaction with a Misconduct
Entity or to engage a Misconduct Entity 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. An Affiliated QPAM will not fail this condition
solely because:
(1) A CSAG (or successor) affiliate serves as a local sub-custodian
that is selected by an unaffiliated global custodian that, in turn, is
selected by someone other than an Affiliated QPAM or Related QPAM;
(2) CSAG (or a successor) provides only necessary, non-investment
related, non-fiduciary services that support the operations of an
Affiliated QPAMs, at an Affiliated QPAM's own expense, and the Covered
Plan is not required to pay any additional fee beyond its agreed-to
asset management fee. This exception does not permit CSAG or its
branches to provide any service to an investment fund managed by an
Affiliated QPAM or Related QPAM; or
(3) CSAG (or successor) employees are double-hatted, seconded,
supervised, or subject to the control of an Affiliated QPAM;
(e) Any failure of an Affiliated QPAM to satisfy Section I(g) of
PTE 84-14 arose solely from the Convictions;
(f) An Affiliated QPAM or a Related 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 Code section 4975 (an ``IRA'') in a manner
that it knew or should have known would further the criminal conduct
underlying the Convictions; or cause the Affiliated QPAM or Related
QPAM or its affiliates to directly or indirectly profit from the
criminal conduct underlying the Convictions;
(g) No Misconduct Entity will 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 ERISA-covered Plan and IRA assets, except that each
may act as such a fiduciary (1) with respect to employee benefit plans
sponsored for its own employees or employees of an affiliate; or (2) in
connection with securities lending services of the New York Branch of
CSAG. No Misconduct Entity will be treated as violating the conditions
of the exemption solely because it acted as an investment advice
fiduciary within the meaning of ERISA section 3(21)(A)(ii) or Code
section 4975(e)(3)(B);
(h)(1) Each Affiliated QPAM must maintain, adjust (to the extent
necessary), implement, and follow the written policies and procedures
described below (Policies).\10\ The Policies must require and must be
reasonably designed to ensure that:
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\10\ This exemption does not preclude the UBS QPAMs and CS
Affiliated QPAM from maintaining separate Policies provided that the
Policies comply with this exemption.
---------------------------------------------------------------------------
(i) The asset management decisions of the QPAM are conducted
independently of the corporate and management and business activities
of each Misconduct Entity, and without considering any fee a related
local sub-custodian may receive from those decisions. This condition
does not preclude an Affiliated QPAM, as defined in Section I(b)(1),
from receiving publicly available research and other widely available
information from a CSAG affiliate, other than CSSEL, or from a UBS
affiliate;
(ii) The 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
[[Page 30794]]
Plan, and does not knowingly participate in any violation of these
duties and provisions with respect to Covered Plans;
(iii) The 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 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 its knowledge at that time, the 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 QPAM complies with the terms of this one-year exemption,
and CSAG complies with the terms of Section III(d)(2);
(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. This report must be made to the head of compliance and the
general counsel (or their functional equivalent) of the relevant QPAM
that engaged in the violation or failure, and the independent auditor
responsible for reviewing compliance with the Policies. A QPAM will not
be treated as having failed to develop, implement, maintain, or follow
the Policies, if it corrects any instance of noncompliance as soon as
reasonably possible upon discovery, or as soon as reasonably possible
after the 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 Affiliated QPAM must maintain, adjust (to the extent
necessary), and implement or continue a program of training during the
Exemption Period (the Training) that is conducted at least annually for
all relevant Affiliated QPAM asset/portfolio management, trading,
legal, compliance, and internal audit personnel.\11\ The Training must:
---------------------------------------------------------------------------
\11\ This exemption does not preclude an Affiliated QPAM from
maintaining separate training programs provided each training
program complies with this exemption.
---------------------------------------------------------------------------
(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 the requirement for 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 to perform the tasks required by this exemption; and
(iii) Be conducted in-person, electronically, or via a website;
(i)(1) Each CS Affiliated QPAM (as defined in Section I(b)(1)
submits 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 each CS
Affiliated QPAM's compliance with, the Policies and Training described
above in Section III(h). The audit requirement must be incorporated in
the Policies. The audit must cover the Exemption Period and must be
completed no later than 180 days after the Exemption Period. The prior
exemption audits required pursuant to PTE 2019-07 and PTE 2022-01 must
be completed for the prior period of November 21, 2021, through the
beginning date of the Exemption Period of this one-year exemption
within 180 days of the beginning of the Exemption Period of this one-
year exemption. These prior exemption audits and coinciding audit
reports can be combined into one audit and report for the prior
exemption audits. The prior exemption audit report(s) must be submitted
in accordance with section III(i)(9) below;
(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 CS Affiliated
QPAM and, if applicable, CSAG, 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 CS Affiliated QPAM has developed,
implemented, maintained, and followed the Policies in accordance with
the conditions of this one-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 CS Affiliated QPAM's operational compliance with the
Policies and Training. In this regard, the auditor must test, for each
CS Affiliated QPAM, a sample of such: (1) CS Affiliated QPAM's
transactions involving Covered Plans; (2) each CS Affiliated QPAM's
transactions involving CSAG affiliates that serve as a local sub-
custodian. The samples must be sufficient in size and nature to afford
the auditor a reasonable basis to determine such CS Affiliated QPAM's
operational compliance with the Policies and Training;
(5) For each audit, on or before the end of the relevant period
described in Section III(i)(1) for completing the audits, the auditor
must issue a written report (the Audit Report) to CSAG and the CS
Affiliated 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 CS Affiliated QPAMs. The Audit Report must
include the auditor's specific determinations regarding:
(i) The adequacy of each CS Affiliated QPAM's Policies and
Training; each CS Affiliated QPAM's compliance with the Policies and
Training; the need, if any, to strengthen such Policies and Training;
and any instance of the respective CS Affiliated QPAM's noncompliance
with the written Policies and Training described in Section III(h)
above. The CS Affiliated QPAM must promptly address any noncompliance.
The CS Affiliated 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 CS
Affiliated QPAM. Any action taken or the plan of action to be taken by
the respective CS Affiliated QPAM must be included in an addendum to
the Audit Report (such addendum must be completed before to the
certification described in Section III(i)(7) below). In
[[Page 30795]]
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 CS Affiliated 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 CS Affiliated QPAM has complied with the requirements under this
subparagraph must be based on evidence that the particular CS
Affiliated QPAM has actually implemented, maintained, and followed the
Policies and Training required by this exemption. Furthermore, the
auditor must not solely rely on the Annual Exemption Report created by
the Compliance Officer, as described in Section III(o) 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 Exemption Review described in Section
III(n);
(6) The auditor must notify the respective CS Affiliated 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 CS Affiliated QPAM
or successor 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, the CS Affiliated QPAM has addressed, corrected,
and 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. This certification must also
include the signatory's determination that, to the best of the
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. Notwithstanding the above, no person, including any
person referenced in the CSAG or CSSEL Statement of Facts that gave
rise to the CSAG or CSSEL Plea Agreement, who knew of, or should have
known of, or participated in, any misconduct described in the CSAG or
CSSEL Statement of Facts, by any party, may provide the certification
required by this exemption, unless the person took active documented
steps to stop the misconduct.
(8) A copy of the Audit Report must be provided to CSAG's Board of
Directors or its successor and either the Risk Committee or the Audit
Committee of CSAG's Board of Directors or its successor; and a senior
executive officer or chairperson of either the Risk Committee or the
Audit Committee must review the Audit Report for each CS Affiliated
QPAM and must certify in writing, under penalty of perjury, that such
person has reviewed each Audit Report. The Audit Report under this
section III(i) must comply with the delivery and certification
requirements in section III(j)(8) below;
(9) Each CS Affiliated QPAM provides its certified Audit Report to
the Department by regular mail addressed to: Office of Exemption
Determinations (OED), 200 Constitution Avenue NW, Washington, DC 20001,
or via email to <a href="/cdn-cgi/l/email-protection#badf97f5fffefaded5d694ddd5cc"><span class="__cf_email__" data-cfemail="4c29610309080c282320622b233a">[email protected]</span></a>. The delivery must take place no later
than 45 days following completion of the Audit Report. The Audit Report
will be made part of the public record regarding this one-year
exemption. Furthermore, each CS Affiliated 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 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, inspection, and review
is otherwise permitted by law; and
(12) CSAG and/or the CS Affiliated QPAM 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 involving the terminated auditor
and CSAG and/or the CS Affiliated QPAMs;
(j)(1) Each UBS QPAM (as defined in Section I(b)(2) 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 above in
Section (h). The audit requirement must be incorporated in the
Policies. The audit must cover the Exemption Period and it must be
completed no later than 180 days after the end of the Exemption Period.
The prior exemption audits required pursuant to PTE 2020-01 must be
completed for the prior periods of: (1) March 20, 2022 through March
19, 2023; and (2) March 20, 2023 through the beginning date of the
Exemption Period for this one-year exemption, and each must be provided
within 180 days of the beginning of the Exemption Period. These prior
exemption audits and coinciding audit reports can be combined into one
audit and report for the prior exemption audits. The prior exemption
audit report(s) must be submitted in accordance with section III(j)(9)
below;
(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 one-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 30796]]
(5) For the audit, on or before the end of the relevant period
described in Section I(k)(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 III(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 III(j)(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
each UBS QPAM has 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, 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 III(j)(3) and (4)
above; and
(ii) The adequacy of the Exemption Review described in Section
III(n);
(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, and 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, Washington, DC 20001; or via email to <a href="/cdn-cgi/l/email-protection#c1a4ec8e848581a5aeadefa6aeb7"><span class="__cf_email__" data-cfemail="1f7a32505a5b5f7b707331787069">[email protected]</span></a>. 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 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 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;
(k) As of the effective date of this one-year exemption, with
respect to any arrangement, agreement, or contract between an
Affiliated QPAM and a Covered Plan, the 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
prohibited transactions); and to comply with the standards of prudence
and loyalty set forth in ERISA Section 404 with respect to each such
ERISA-covered plan and IRA to the extent that ERISA Section 404 is
applicable;
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from the 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 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 a Conviction covered
under this exemption. This condition applies only to actual losses
caused by the QPAM's violations. The term Actual Losses includes, but
is not limited to, 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 as a result of a
QPAM'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 the QPAM for violating ERISA or the
Code for engaging in prohibited transactions;
(4) Not to restrict the ability of the Covered Plan to terminate or
withdraw from its arrangement with the QPAM, with respect to any
investment in a
[[Page 30797]]
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 pooled fund in the
event such withdrawal or termination may have adverse consequences for
all other investors. In connection with any such arrangement 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 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;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting liability of the QPAM 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 UBS (and
affiliates) or CSAG (and affiliates), or damages arising from acts
outside the control of the Affiliated QPAM; and
(7) Within 120 days after the effective date of this one-year
exemption, each QPAM must provide a notice of its obligations under
this Section III(k) to each Covered Plan. For prospective Covered Plans
that enter into a written asset or investment management agreement with
a QPAM on or after a date that is 120 days after the effective date of
this exemption, the QPAM must agree to its obligations under this
Section III(k) in an updated investment management agreement between
the QPAM and such clients or other written contractual agreement.
Notwithstanding the above, a QPAM will not violate the condition solely
because a Covered Plan refuses to sign an updated investment management
agreement. For new Covered Plans that were provided an investment
management agreement prior to the effective date of this exemption,
returning it within 120 days after the effective date of this
exemption, and that signed investment management agreement requires
amendment to meet the terms of the exemption, the QPAM may provide the
new Covered Plan with amendments that need not be signed with any
documents required by this subsection (k) within ten (10) business days
after receipt of the signed agreement.
(l) Within 60 days after the effective date of this one-year
exemption, each Affiliated QPAM provides notice of the proposed and
final exemption as published in the Federal Register, along with a
summary describing the facts that led to the Convictions (the Summary),
which has been submitted to the Department, and a prominently displayed
statement (the Statement) that the Convictions result 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 an Affiliated QPAM, or the sponsor of an
investment fund in any case where an Affiliated QPAM acts as a sub-
adviser to the investment fund in which such ERISA-covered plan and IRA
invests. All prospective Covered Plan clients that enter into a written
asset or investment management agreement with an Affiliated QPAM 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 the CS
Affiliated QPAM or the UBS Affiliated QPAM. The notices may be
delivered electronically (including by an email that has a link to the
one-year exemption).
(m) The Affiliated QPAMs 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 Convictions. If, during
the Exemption Period, an entity within the CSAG or UBS corporate
structure is convicted of a crime described in Section I(g) of PTE 84-
14 (other than the Convictions), relief in this exemption would
terminate immediately;
(n)(1) Within 60 days after the effective date of this exemption,
each QPAM must designate a senior compliance officer (the Compliance
Officer) who will be responsible for compliance with the Policies and
Training requirements described herein. For purposes of this condition
(n), each relevant line of business within a CS Affiliated QPAM or UBS
Affiliated QPAM may designate its own Compliance Officer(s).
Notwithstanding the above, the appointed Compliance Officer may not be
a person who: (i) participated in the criminal conduct underlying the
Convictions, or knew of, or (ii) had reason to know of, the criminal
conduct without taking active documented steps to stop the misconduct;
The Compliance Officer must conduct a review of each twelve-month
period of the Exemption Period (the Exemption Review), to determine the
adequacy and effectiveness of the implementation of the Policies and
Training.\12\ With respect to the Compliance Officer, the following
conditions must be met:
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\12\ Pursuant to PTE 2020-01 and PTE 2022-01 the Compliance
Officer must conduct an exemption review (annual review) for each
period corresponding to the audit periods set forth in those
exemptions and the Compliance officer's written report submitted to
the Department within three (3) months of the end of the period to
which it relates. Accordingly, the final exemption review pursuant
to PTE 2020-01 must cover the period March 19, 2022 through the
beginning date of the Exemption Period of this one-year exemption
and must be completed within three (3) months from the end of the
period to which it relates. Also, the final exemption review
pursuant to PTE 2022-01 must cover the period November 21, 2022
through the beginning date of the Exemption Period of this one-year
exemption and must be completed within three (3) months from the end
of the period to which it relates.
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(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 compliance for the
applicable Affiliated QPAM.
(2) With respect to the Exemption Review, the following conditions
must be met:
(i) The Annual Exemption Review includes a review of the Affiliated
QPAM'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 time period; the most recent Audit Report issued
pursuant to this exemption or PTE
[[Page 30798]]
2020-01 or PTE 2022-01; any material change in the relevant business
activities of the Affiliated 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
Affiliated QPAMs;
(ii) The Compliance Officer prepares a written report for the
Exemption Review (an Exemption Report) that (A) summarizes their
material activities during the prior year; (B) sets forth any instance
of noncompliance discovered during the prior year, 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 prior year and any related correction taken
to date have been identified in the Exemption Report; and (D) the
Affiliated QPAMs have 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 CSAG and UBS and to each Affiliated QPAM to which such
report relates, and to the head of compliance and the general counsel
(or their functional equivalent) of CSAG, UBS, the relevant Affiliated
QPAM. The Exemption Report 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 Annual Exemption Report, must cover the Exemption Period, and
The Annual Review, including the Compliance Officer's written Report,
must be completed within three (3) months following the end of the
period to which it relates;
(o) UBS imposes its internal procedures, controls, and protocols on
each Misconduct Entity to reduce the likelihood of any recurrence of
conduct that is the subject of the Convictions;
(p) Relief in this exemption will terminate on the date that is six
months following the date that a U.S. regulatory authority makes a
final decision that UBS or CSAG or an affiliate of either failed to
comply in all material respects with any requirement imposed by such
regulatory authority in connection with the Convictions;
(q) Each Affiliated 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 the
Affiliated QPAM relies upon the relief in this exemption;
(r) 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 CSAG or any of their 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
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;
(s) Within 60 days after the effective date of this exemption, each
Affiliated 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 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.\13\ 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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\13\ If 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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(t) An Affiliated QPAM will not fail to meet the terms of this one-
year exemption solely because a different Affiliated QPAM fails to
satisfy a condition for relief described in Section III(c), (d), (h),
(i), (j), (k), (l), (m), (s) or (u); or if the independent auditor
described in Section III(i) or (j) fails to comply with a provision of
the exemption other than the requirement described in Section
III(i)(11) and (j)(11), provided that such failure did not result from
any actions or inactions of CSAG or UBS or its affiliates; and
(u) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate.
(v) Every 120 days following the merger of UBS and Credit Suisse,
UBS must submit a written report to the Department that updates the
progress of the Merger. This report must also be provided to Covered
Plan fiduciaries (including via an electronic link). Additionally, in
its first report to the Department, UBS must: (1) identify the QPAMs
using this exemption as the date of the Report; (2) provide details
regarding the extent to which the CS Affiliated QPAMs have been
integrated into UBS's operations and any other relevant changes with
respect to any QPAMs that are using this exemption; (3) any other
changes, whether operational or otherwise, that impact any requirements
under this exemption; and (4) detailed information regarding the costs
to ERISA-covered Plans and IRAs (together, Covered Plans) that would
arise if this one-year exemption is not renewed.
Applicability Date: This exemption will be in effect for one (1)
year, beginning on the date of the closing of the acquisition of CSAG
by UBS.
Signed at Washington, DC, this 10th day of May 2023.
George Christopher Cosby,
Director, U.S. Department of Labor, Employee Benefits Security
Administration, Office of Exemption Determinations.
[FR Doc. 2023-10289 Filed 5-11-23; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on May 12, 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.