Notice2025-15281
Exemption for the Royal Bank of Canada and Its Current and Future Affiliates (Collectively, RBC or the Applicant) Located in Toronto, Ontario, Canada
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 12, 2025
Effective
September 5, 2025
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document provides notice of an individual exemption from certain prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the Code). This exemption permits certain qualified professional asset managers with specified relationships to Royal Bank of Canada Trust Company (Bahamas) Limited, and certain current and future affiliates of the Royal Bank of Canada (collectively, the RBC QPAMs), to continue to rely on the class exemptive relief granted in Prohibited Transaction Exemption (PTE) 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the March 5, 2024 judgment of conviction against Royal Bank of Canada Trust Company (Bahamas) Limited (RBCTC Bahamas) for aiding and abetting tax fraud, entered in France in the Paris Court of Appeal.
Full Text
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<title>Federal Register, Volume 90 Issue 153 (Tuesday, August 12, 2025)</title>
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[Federal Register Volume 90, Number 153 (Tuesday, August 12, 2025)]
[Notices]
[Pages 38800-38813]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-15281]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2025-07; Application No. D-12102]
Exemption for the Royal Bank of Canada and Its Current and Future
Affiliates (Collectively, RBC or the Applicant) Located in Toronto,
Ontario, Canada
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
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SUMMARY: This document provides notice of an individual exemption from
certain prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (ERISA) and the Internal Revenue Code of
1986 (the Code). This exemption permits certain qualified professional
asset managers with specified relationships to Royal Bank of Canada
Trust Company (Bahamas) Limited, and certain current and future
affiliates of the Royal Bank of Canada (collectively, the RBC QPAMs),
to continue to rely on the class exemptive relief granted in Prohibited
Transaction Exemption (PTE) 84-14 (PTE 84-14 or the QPAM Exemption),
notwithstanding the March 5, 2024 judgment of conviction against Royal
Bank of Canada Trust Company (Bahamas) Limited (RBCTC Bahamas) for
aiding and abetting tax fraud, entered in France in the Paris Court of
Appeal.
DATES: This final exemption will be in effect for the period beginning
on the earlier of September 5, 2025, or date of publication in the
Federal Register; and end on March 4, 2030 (the Exemption Period).
FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji-Keefe, Office of
Exemption Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, (202) 693-8567 (this is not a toll-free
number).
SUPPLEMENTARY INFORMATION: The Applicant requested an individual
exemption pursuant to ERISA section 408(a) and Code section 4975(c)(2)
in accordance with the Department's exemption procedures.\1\ On January
17, 2025, the Department published a notice of proposed exemption (the
Proposed Exemption) in the Federal Register \2\ that would permit the
RBC QPAMs to rely on the QPAM Exemption \3\ for five years,
notwithstanding the March 5, 2024 judgment of conviction against RBCTC
Bahamas for aiding and abetting tax fraud.
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\1\ 29 CFR part 2570, subpart B (75 FR 66637, 66644, October 27,
2011).
\2\ 90 FR 6013 (January 17, 2025).
\3\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), as
amended at 75 FR 38837 (July 6, 2010), and as amended at 89 FR 23090
(April 3, 2024).
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After considering the public comment that the Department received
in response to the Proposed Exemption, the Department is granting this
exemption to protect the interests of participants and beneficiaries of
plans that are subject to Part 4, Title I of ERISA (ERISA-covered
plans) and Individual Retirement Accounts subject to Code Section 4975
(IRAs) (together, Covered Plans).\4\ This exemption provides only the
relief specified in the text of the exemption and does not provide
relief from violations of any law other than the prohibited transaction
provisions of Title I of ERISA and the Code expressly stated herein.
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\4\ The term ``Covered Plan'' means an ERISA-covered Plan or an
IRA, in each case, with respect to which an RBC QPAM relies on PTE
84-14, or with respect to which an RBC QPAM (or any RBC affiliate)
has expressly represented that the manager qualifies as a QPAM or
relies on the QPAM Exemption. A ``Covered Plan'' does not include an
ERISA-covered Plan or IRA to the extent the RBC QPAM has expressly
disclaimed reliance on QPAM status or PTE 84-14 in entering into its
contract, arrangement, or agreement with the Covered Plan.
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Based on the Applicant's adherence to all the conditions of PTE
2016-10 \5\ and this exemption, the Department makes the requisite
findings under ERISA section 408(a) and Code section 4975(c)(2) that
the exemption is: (1) administratively feasible for the Department; (2)
in the interest of Covered Plans and their participants and
beneficiaries; and (3) protective of the rights of the participants and
beneficiaries of Covered Plans. Accordingly, affected parties should be
aware that the conditions incorporated in this exemption are necessary,
individually and taken as a whole, for the Department to grant the
relief requested by the Applicant. Absent these conditions, the
Department would not have granted this exemption.
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\5\ 81 FR 75147 (October 28, 2016).
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Benefits of the Exemption: The Department's objective in granting
this exemption is to protect Covered Plans from the harms and costs
that RBC represents would be imposed on them if the RBC QPAMs could no
longer rely on the relief provided in the QPAM Exemption. Among other
important conditions, this exemption ensures that a Covered Plan can
terminate its relationship with an RBC QPAM in an orderly and cost-
effective fashion when the fiduciary of a Covered Plan determines that
it is prudent to do so, subject to certain reasonable restrictions
described herein. This exemption promotes the RBC QPAMs' adherence to
basic fiduciary standards and responsibilities required by Title I of
ERISA and the Code and reinforces their obligation to act with a high
degree of integrity on behalf of their Covered Plan clients as required
by the QPAM Exemption.
Background
The Royal Bank of Canada
1. RBC is a Canadian corporation headquartered in Toronto, Ontario,
Canada. RBC provides personal and commercial banking, wealth management
services, insurance, investor services, and capital markets products
and services on a global basis.
The RBC QPAMs
2. The primary U.S. bank and U.S. registered investment adviser
affiliates in which RBC owns a significant interest, directly or
indirectly, and that currently rely on the QPAM Exemption include the
following:
<bullet> RBC Global Asset Management (U.S.) Inc. In its most recent
(at the time of the April 3, 2024 exemption application) Form ADV Part
I(A) reported assets of almost $80 billion managed on a discretionary
basis, including ERISA assets.
<bullet> RBC Global Asset Management (UK) Limited. As of April 2,
2024, managed assets of nearly $122 billion on a discretionary basis,
including ERISA assets and approximately $993 million in public pension
assets for state and local plans, which may by law or contract require
it to comply with the prohibited transaction rules under ERISA.
<bullet> RBC Capital Markets, LLC. As of April 2, 2024, this entity
managed assets of approximately $149 billion on a discretionary basis,
including ERISA and IRA assets.
<bullet> City National Bank. As of April 2, 2024, this entity
managed assets of approximately $24.2 billion on a discretionary basis,
including ERISA and IRA assets.
[[Page 38801]]
<bullet> City National Securities, Inc. As of April 2, 2024, this
entity managed assets of nearly $1.5 billion on a discretionary basis,
including ERISA and IRA assets.
<bullet> City National Rochdale, LLC. As of April 2, 2024, this
entity managed assets of over $60 billion on a discretionary basis,
including ERISA and IRA assets, and including $29 million in public
pension assets for state and local plans, which may by law or contract
require it to comply with the prohibited transaction rules under ERISA.
3. RBC states that, in managing these assets, the RBC QPAMs
regularly rely on the QPAM Exemption for, among other things, global
fixed income and equities, futures, options, swaps and other
derivatives, alternative funds, including hedge funds, and similar
instruments and strategies. The issuing documents for many instruments
state that the investment manager is deemed to represent that it is
relying, at least partially, on the QPAM Exemption.
The Convicted Entity: RBCTC Bahamas
4. RBCTC Bahamas is a wholly owned subsidiary of RBC located in the
Bahamas and regulated by the Central Bank of the Bahamas. RBCTC Bahamas
previously provided trust and company management services in all major
currencies to international clients. RBCTC Bahamas is not engaged in
asset management activities and does not act as a fiduciary of any
plans subject to Part 4 of Title I of ERISA or Code section 4975.
5. Over the last several years, RBCTC Bahamas's operations have
been reduced. Among other things, on November 18, 2016, RBC sold some
of RBCTC Bahamas' assets to another financial institution, but did not
sell the assets relating to the servicing of the Bahamian trust that is
connected to the allegations at issue in the criminal case and for
which RBCTC Bahamas has served as successor trustee since 2004 (the
Delta Trust).
ERISA and Code Prohibited Transactions and PTE 84-14
6. The rules set forth in ERISA Section 406 and Code Section
4975(c) proscribe certain ``prohibited transactions'' between plans and
parties in interest with respect to those plans. ERISA Section 3(14)
defines parties in interest with respect to a plan to include, among
others, the plan fiduciary, a sponsoring employer of the plan, a union
whose members are covered by the plan, service providers with respect
to the plan, and certain of their affiliates.\6\ The transactions
prohibited by ERISA Section 406(a) that are relevant to this exemption
are: (1) 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); (2) the use of plan assets by or for
the benefit of a party in interest; or (3) a transfer of plan assets to
a party in interest.\7\
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\6\ Under the Code, such parties, or similar parties, are
referred to as ``disqualified persons.''
\7\ The prohibited transaction provisions also include certain
fiduciary prohibited transactions under ERISA Section 406(b). These
include transactions involving fiduciary self-dealing, fiduciary
conflicts of interest, and kickbacks to fiduciaries. The QPAM
Exemption provides only very narrow relief from ERISA Section
406(b).
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7. The QPAM Exemption exempts certain prohibited transactions
between a party in interest and an ``investment fund'' (as defined in
Section VI(b) of the QPAM Exemption) in which a plan has an interest if
the investment manager satisfies the definition of ``qualified
professional asset manager'' (QPAM) and satisfies the conditions of the
exemption.\8\ The QPAM Exemption was developed and granted based on the
essential premise that broad relief could be afforded from the
prohibition of ERISA section 406(a) for all types of transactions in
which a plan engages only if the commitments and the investments of
plan assets and the negotiations leading thereto are the sole
responsibility of an independent discretionary manager.\9\
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\8\ The QPAM Exemption was recently amended, effective June 17,
2024 to, among other things, (1) require a QPAM to provide a one-
time notice to the Department that the QPAM is relying upon the
exemption; (2) update the list of crimes enumerated under Section
I(g) to explicitly include foreign crimes that are substantially
equivalent to the listed crimes; (3) expand the circumstances that
may lead to ineligibility; and (4) provide a one-year transition
period to help Covered Plans avoid or minimize possible negative
impacts of terminating or switching QPAMs or adjusting asset
management arrangements when a QPAM becomes ineligible pursuant to
Section I(g) and allow QPAMs a reasonable period of time to seek an
individual exemption, if appropriate. See 89 FR 23090 (April 3,
2024).
\9\ See 49 FR 9494, 9497 (March 13, 1984).
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8. Section I(g) of the QPAM Exemption prevents an entity that may
otherwise meet the definition of QPAM from utilizing the exemptive
relief provided by the QPAM Exemption for itself and its client plans
if that entity, an ``affiliate'' thereof,\10\ or any direct or indirect
five percent or more owner of the QPAM has been either convicted or
released from imprisonment, whichever is later, because of criminal
activity described in Section I(g), or otherwise violates Section I(g),
within the 10 years immediately preceding a transaction. Section I(g)
was included in the QPAM Exemption, in part, based on the Department's
expectation that QPAMs, and those who may be in a position to influence
the QPAM's policies, must maintain a high standard of integrity.\11\
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\10\ Section VI(d) of PTE 84-14 defines the term ``affiliate''
for purposes of Section I(g) as ``(1) Any person directly or
indirectly through one or more intermediaries, controlling,
controlled by, or under common control with the person, (2) Any
director of, relative of, or partner in, any such person, (3) Any
corporation, partnership, trust or unincorporated enterprise of
which such person is an officer, director, or a 5 percent or more
partner or owner, and (4) Any employee or officer of the person
who--(A) Is a highly compensated employee (as defined in Section
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of
the yearly wages of such person), or (B) Has direct or indirect
authority, responsibility or control regarding the custody,
management or disposition of plan assets.''
\11\ See 47 FR 56947 (December 21, 1982).
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Investigation for Tax Fraud
9. In January 2012, RBCTC Bahamas was summoned to appear before a
French Judge of Instruction (the Investigative Judge) concerning an
investigation into nonpayment of French inheritance taxes by Guy
Wildenstein and Alec Daniel Armand Wildenstein (the Wildensteins)
following the death in 2001 of family patriarch Daniel Wildenstein.\12\
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\12\ A judicial investigation in France is a proceeding run by
an investigative judge that is required by French law to take place
prior to a decision is made by a prosecutor to charge a defendant.
At the end of the investigation, the Prosecutor decides whether
there is enough evidence against the identified suspect(s) and, in
case there is, whether the suspect(s) should be judged by a criminal
court. Babonneau et Associes: <a href="https://www.sba-avocats.com/Criminal-defense-attorney-paris-criminal-investigation-in-france.html">https://www.sba-avocats.com/Criminal-defense-attorney-paris-criminal-investigation-in-france.html</a>.
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10. In anticipation of a conviction of RBCTC Bahamas, the Applicant
applied for an exemption to continue to rely upon the relief in the
QPAM exemption. On October 28, 2016, the Department granted PTE 2016-
10,\13\ to protect Covered Plans from the costs and/or investment
losses RBC asserted could arise if RBC QPAMs became ineligible to rely
on PTE 84-14 due to a conviction of RBCTC Bahamas.\14\ The effective
period of PTE 2016-10 was limited to one year from the date of the
anticipated conviction to provide the Department ``more time to
consider whether longer-term relief is warranted.'' \15\
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\13\ 81 FR 75147 (October 28, 2016).
\14\ Id. at 75149.
\15\ Id.
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11. RBCTC Bahamas contested the charges in the French court and was
acquitted, although further litigation ensued. RBC requested that the
Department confirm that PTE 2016-10 would still apply if RBCTC Bahamas
was ultimately convicted of the same
[[Page 38802]]
crime based on the same underlying facts, but in a different court than
the one identified in PTE 2016-10. In response, on December 11, 2023
the Department issued a ``Technical Correction'' to PTE 2016-10 that
revised the definition of ``Conviction'' in PTE 2016-10 to refer to
``the potential judgment of conviction against RBCTC Bahamas for aiding
and abetting tax fraud to be entered in France in the Court of Appeal,
French Special Prosecutor No. 1120392066, French Investigative Judge
No. JIRSIF/11/12 or another court of competent jurisdiction.'' \16\
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\16\ See 88 FR 85931 (December 11, 2023).
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12. On March 5, 2024, the French Court of Appeal rendered a
judgment of conviction against RBCTC Bahamas and the other defendants.
Pursuant to the Technical Correction, the relief in PTE 2016-10 became
effective on March 5, 2024, and was scheduled to expire on March 4,
2025.
13. RBC applied to the Department for an exemption that would
extend the relief in PTE 2016-10, beyond March 4, 2025. In response, on
January 17, 2025, the Department published a proposed exemption that
would extend the relief in PTE 2016-10 for five years (the RBC Five-
Year Proposed QPAM Exemption), from March 5, 2025, to March 4, 2030.
14. Following publication of the RBC Five-Year Proposed QPAM
Exemption in the Federal Register, RBC's counsel expressed concern to
the Department that the proposed exemption would not be granted before
the existing relief in PTE 2016-10 expired. RBC's counsel stated that
even if the RBC QPAMs eventually received relief retroactive to March
5, 2025, the resulting ``gap period,'' during which the RBC QPAMs would
not qualify for the QPAM Exemption (from March 5, 2025, until the date
the Department published the final exemption) would be harmful to
Covered Plans and their participants and beneficiaries. For example,
RBC represents that many investments needing continuing relief, such as
derivatives, loans, leases, and other extensions of credit, contain
deemed or explicit representations that the QPAM Exemption is
applicable, with a corresponding contractual obligation to notify the
lender, lessor or counterparty if the representation becomes untrue.
Under master agreements, those representations are deemed to be made
each time a transaction is entered, meaning RBC QPAMs could be
prohibited from entering transactions on behalf of underlying plans for
as long as the representation remains untrue (for example, for the
period during which exemptive relief is not provided). A breach of a
representation or warranty can also trigger an event of default for
those trading agreements, which could leave the ERISA plan responsible
for liquidation and other transition costs. Upon the expiration of PTE
2016-10, that obligation is triggered unless further relief is in
place. As a prudent fiduciary, the investment manager would be
obligated to identify every instrument and communicate with every
counterparty. While some counterparties might negotiate additional,
potentially onerous terms to avoid termination, others would invoke
their rights on default.
15. In response to RBC's concerns, on March 5, 2025, the Department
published a notice of amendment to PTE 2016-10 (the Amendment) in the
Federal Register to extend the exemption's effective period until the
earlier of September 4, 2025 or the date the Department issues its
final agency action in connection with the RBC Five-Year Proposed QPAM
Exemption.\17\ This exemption grants the relief described in the RBC
Five-Year Proposed QPAM Exemption, subject to the changes described
below.
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\17\ See 90 FR 11330 (March 5, 2025).
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16. The Applicant represents that the conduct that is the subject
of the Conviction did not involve any RBC QPAM acting in its role as an
investment manager of any Covered Plan or otherwise relate to the asset
management services provided by the RBC QPAMs. Further, the asset
management businesses of the RBC QPAMs did not know or have reason to
know of the conduct underlying the charges and did not participate in
or receive compensation in connection with the conduct underlying the
charges. The convicted entity, RBCTC Bahamas, did not provide any
fiduciary services to, or act as a QPAM for, ERISA plans or IRAs, and
RBCTC Bahamas does not provide investment management services to ERISA
plans or IRAs or otherwise exercise discretionary control over ERISA
plan or IRA assets.
Hardship and Costs to Covered Plans
17. Paragraphs 21 through 26 of the Proposed Exemption describe and
quantify the hardship and costs that RBC represents Covered Plans would
incur if RBC QPAMs could no longer rely on the QPAM Exemption. In
general terms, according to the Applicant, RBC QPAMs rely on the QPAM
Exemption when investing in various securities and financial
instruments on behalf of Covered Plans. Many counterparties to Covered
Plans' purchases and sales of fixed income products (including
corporate bonds, U.S. Treasury and agency-backed securities, asset-
backed securities, emerging market sovereign and corporate debt,
convertible bonds, term loans, repurchase agreements, swaps, futures,
options and foreign exchange transactions) specifically require a
representation that the QPAM Exemption applies, and those contracts
could be in default if the requested exemption was not granted.\18\
Further, pension plans (including Covered Plans and non-ERISA plans)
treat an entity's eligibility to rely on the QPAM Exemption as a
prerequisite for entrusting an investment manager to manage plan
assets. If the RBC QPAMs lost the ability to rely on the QPAM
Exemption, these plans would likely terminate their contracts with RBC
QPAMs, and plan consultants likely would move their clients' assets
away from RBC. The Applicant represents that Covered Plan clients could
suffer additional transaction costs associated with liquidating fixed
income securities, depending on the strategy.\19\
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\18\ Accounts managed by the RBC QPAMs invest in fixed income
products, with a total portfolio of ERISA and public plan assets
valued at over $18.5 billion.
\19\ See the Proposed Exemption for Royal Bank of Canada and Its
Current and Future Affiliates at 90 FR 6018 through 6019 for a more
complete description of the investment strategies in the summary
table.
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Department's Request for Comment Regarding Harms to Plans
18. In the Proposed Exemption, the Department requested the
Applicant to provide: (1) a description, in itemized form, of how the
basis point range described above was derived by the Applicant,
including the assumptions or methodologies relied upon; (2) an
explanation of the Applicant's assumptions or methodologies in
connection with the amount of Covered Plan assets that are likely to be
subject to the costs described above; (3) an explanation of the
likelihood of the costs occurring, for each of the transition costs
described above; (4) an explanation of the circumstances under which
the transition costs described above are being incurred; (5) a
description of the extent to which any of the asserted costs reflect
the QPAMs' imposition of additional charges or fees on Covered Plans
resulting from the loss of QPAM status, and the cause of such
additional charges or fees; and (6) an explanation of the applicability
of the QPAMs' indemnification obligations under section III(j)(2).\20\
Additionally,
[[Page 38803]]
the Department requested information substantiating harms to pooled
funds, including estimates of the costs and any assumptions relied upon
in making the estimate.\21\ Responses to the information requested are
described below.
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\20\ See the Proposed Exemption, at 90 FR 6019, 6020.
\21\ See Proposed Exemption, at 90 FR 6017, 6018.
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Department's Note Regarding Harms to Plans for Purposes of Section
III(j)(2)
19. In the preamble to the Proposed Exemption, the Department noted
that Section III(j)(2) of the Proposed Exemption requires RBC QPAMs to
``indemnify and hold harmless'' Covered Plans for ``actual losses
resulting directly from the RBC QPAM's violation of any conditions of
this exemption, an RBC 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 RBC QPAM; or any
claim arising out of the failure of such RBC QPAM to qualify for the
exemptive relief provided by the QPAM Exemption as a result of a
violation of Section I(g), other than the Conviction.'' \22\
Furthermore, the Department noted that, to the extent Covered Plans
transition to new asset managers because the RBC QPAMs can no longer
rely on the QPAM Exemption, the liquidation and additional costs
arising from the transition constitute actual losses resulting directly
from the failure of such QPAM to qualify for the exemptive relief
provided by the QPAM Exemption as a result of violation of Section
I(g). The Department also noted that if a plan's fiduciary is compelled
to replace an RBC asset manager as a result of a violation of Section
I(g) and the asset manager's loss of QPAM status, the affected plan is
entitled to indemnification of its associated losses, including the
transitional expenses necessary to effectuate the switch to a qualified
QPAM.
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\22\ Section I(i)(7) of PTE 2016-10, under which RBC QPAMs are
currently operating for the ability to rely on PTE 84-14, contains
substantially similar language. In that regard, Section I(i)(7) of
PTE 2016-10 requires the RBC QPAMs to ``. . . indemnify and hold
harmless the ERISA-covered plan or IRA for any damages resulting
from a violation of applicable laws, a breach of contract, or any
claim arising out of the failure of such RBC QPAM to qualify for the
exemptive relief provided by PTE 84-14 as a result of a violation of
Section I(g) of PTE 84-14 other than the Conviction.''
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Written Comments Received
20. In the Proposed Exemption, the Department invited all
interested persons to submit written comments and/or requests for a
public hearing, which were due to the Department by March 3, 2025. The
Department received one written comment letter from the Applicant dated
February 28, 2025, and no requests for a public hearing.\23\ The
comment letter is organized into three primary sections: (1) requested
clarifications and/or modifications of the operative language, (2)
responses to the Department's requests for information regarding costs
and harm to Covered Plan clients and pooled funds from a denial of the
exemption, and (3) a description of how the exemption would be in the
interest of Covered Plans and their participants and beneficiaries. The
sections of the comment letter are addressed in order below.
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\23\ All information submitted by the Applicant to the
Department in connection with this exemption is available through
the Department's Public Disclosure Room, by referencing D-12102.
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Part I. Requested Clarifications and/or Modifications of the Operative
Language
Comment 1--Modification of the Audit Period
21. Section III(i) of the Proposed Exemption states, in pertinent
part, that ``the RBC QPAMs must submit to a 12-month audit conducted
every two years . . . and the first audit must cover a consecutive 12-
month period starting on March 5, 2025,'' i.e., the first day of the
effective period of the exemption. The Applicant states that the
process to select and retain an independent auditor is often lengthy,
and if the audit period begins concurrently with the effective date of
the exemption (at the expiration of PTE 2016-10), the RBC QPAMs
effectively must select an auditor immediately, which is not feasible
or consistent with their obligations.
Department's Response: The Department agrees to modify the audit
period for purposes of consistency with other similarly situated
financial institutions. Therefore, the audit requirement is modified so
that the first audit covers a consecutive 12-month period starting on
March 5, 2026. The second audit must cover the consecutive 12-month
period starting on March 5, 2028. In the event that the Department
grants exemptive relief to the Applicant for an additional 4-year
period, the next audit would cover the period from March 5, 2030,
through March 4, 2031, and have a required completion date of September
4, 2031.
Comment 2--Accounts Signing Agreements After the Period Specified by
Section III(j) and Section III(k)
22. Section III(j)(7) of the Proposed Exemption requires RBC QPAMs
to provide a notice of their obligations under Section III(j)(1)
through (6) (the Notice of Obligations) to each Covered Plan within 60
calendar days after the exemption's effective date. For prospective
Covered Plan clients that enter into a written investment management
agreement with an RBC QPAM on or after 60 calendar days from
exemption's effective date, the RBC QPAM is required to agree to these
obligations in updated investment management agreements or other
written contractual agreements.
23. Section III(k) of the Proposed Exemption requires RBC QPAMs to
provide, within 60 days after the effective date of this exemption: (1)
notice of the exemption as published in the Federal Register; (2) a
separate summary describing the facts that led to the Conviction (the
Summary); and (3) a prominently displayed statement (the Statement)
that the Conviction results in a failure to meet a condition in the
QPAM Exemption (collectively, the Disclosures), to each sponsor and
beneficial owner of a Covered Plan, or the sponsor of an investment
fund in any case where an RBC QPAM acts only as a sub-advisor to the
investment fund in which such Covered Plan invests. Covered Plan
clients entering into a contract with an RBC QPAM or a subscription
agreement for a pooled fund managed by an RBC QPAM on or after 60 days
after the effective date of the exemption must receive the Disclosures
prior to, or contemporaneously with, the client's receipt of its
written contract or subscription agreement.
24. The Applicant requests that the Department account for so-
called ``in-flight'' agreements for prospective clients; that is,
clients that received a prior version written asset or investment
management agreement from an RBC QPAM before the effective date of the
exemption, but who did not return the signed agreement until after the
effective date of the exemption. The Applicant states that clients do
not return signed agreements immediately, and in many cases, it takes
several months for them to do so.\24\
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\24\ RBC represents that it has historically honored agreements
that were provided to clients within the preceding six months.
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25. The Applicant requests that Section III(j)(7) and Section
III(k) be modified so that the RBC QPAMs will be in compliance with
those sections with respect to ``in-flight'' agreements, if clients are
sent the Notice of Obligations and the Disclosures within 30 business
days after the date the RBC QPAM receives the signed ``in-flight''
agreement. Covered Plan clients who return an ``in-flight'' agreement
later than six months from the exemption's
[[Page 38804]]
effective date must receive a new investment management agreement to
sign with all of the accompanying Disclosures.
Department's Response: The Department agrees with the Applicant's
request. Section III(j)(7) is modified to include the following
language after the sentence ending with, ``that meets the terms of this
condition'':
For Covered Plan clients that received a prior version of the
written contractual agreement from an RBC QPAM, and sign such agreement
after the exemption's effective date, the terms of the exemption will
be met if such clients are sent notice of the RBC QPAMs' obligations
under this Section III(j) within 30 business days after the date the
RBC QPAM receives the signed agreements. Covered Plan clients that
return such signed agreement later than six months after the
exemption's effective date must receive and execute an updated
agreement with the QPAM's obligations under Section III(j).\25\
---------------------------------------------------------------------------
\25\ The Department notes that even if a Covered Plan received a
notice under Section I(i) of PTE 2016-10 they will likely need to
resend the notice required by Section III(j)(7) of this exemption,
due to the clarifying changes made to the language in Section III(j)
since PTE 2016-10 was published.
---------------------------------------------------------------------------
Section III(k) is modified to include the following language at the
end of the paragraph:
For clients that received a prior version written contractual
agreement from an RBC QPAM and sign such agreement after the
exemption's effective date, the terms of the exemption will be met if
such clients receive the notice of the exemption as published in the
Federal Register, the Summary, and the Statement, within 30 business
days after the date the RBC QPAM receives the signed agreements.
Covered Plan clients that return the signed agreement later than six
months after the exemption's effective date must receive a new, updated
agreement along with the notice, the Summary, and the Statement.
Comment 3--Modification of Section III(j)(2) of the Proposed Exemption
26. Section III(j)(2) of the Proposed Exemption states, in
pertinent part, that ``[t]hroughout the Exemption Period, with respect
to any arrangement, agreement, or contract between an RBC QPAM and a
Covered Plan, the RBC QPAM agrees and warrants . . . [t]o indemnify and
hold harmless the Covered Plan for any actual losses resulting directly
from the RBC QPAM's violation of any conditions of this exemption, an
RBC 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 RBC QPAM; or any claim arising
out of the failure of such RBC QPAM to qualify for the exemptive relief
provided by PTE 84-14 as a result of a violation of section I(g) of PTE
84-14 other than the Conviction.''
27. The Applicant requests that the Department revert to the
contractual provisions required to be agreed to in Covered Plan client
contracts under PTE 2016-10. Section I(i)(7) of PTE 2016-10 requires
the RBC QPAMs to ``. . . indemnify and hold harmless the ERISA-covered
plan or IRA for any damages resulting from a violation of applicable
laws, a breach of contract, or any claim arising out of the failure of
such RBC QPAM to qualify for the exemptive relief provided by PTE 84-14
as a result of a violation of Section I(g) of PTE 84-14 other than the
Conviction.''
28. The Applicant states that the language requiring
indemnification for losses resulting from an RBC QPAM's violation of a
condition of the exemption is a significant extension of, and
inconsistent with, the Department's prior practice and a material
departure from RBC's existing exemption (i.e., PTE 2016-10). The
Applicant argues that requiring indemnification for a violation of the
exemption's conditions invites ``novel litigation not founded in legal
principles.'' The Applicant suggests that the Department's own language
in Section III(j)(2) supports this position because of the way that the
indemnification works (i.e., it applies to violations of ERISA's
fiduciary duties, as applicable [emphasis added]). The Applicant also
raises objections based on what it perceives to be an increased threat
of litigation by ``creative advocate[s]'' and based on potential
arguments with clients over what constitutes losses directly resulting
from a violation of the exemption. The Applicant also expressed concern
about what it views as the provision's lack of efficacy in deterring
future bad conduct and effect of further punishing ``non-culpable
affiliates'' of convicted entities. The Applicant argues that
punishment and deterrence are roles of the sentencing court and that
the threat of litigation is not an appropriate consequence of violating
the exemption. Moreover, the Applicant argues that the condition does
not protect plans from the effects of the misconduct underlying the
Conviction or any future misconduct, since the Conviction did not
relate to the asset management business or have a rational nexus to
that business.
29. Finally, RBC states that it has already undertaken the notices
and updates to template investment management agreements, as required
under PTE 2016-10. The Applicant argues that requiring new notices and
agreements to reflect a single change in this new exemption would serve
only to confuse clients because they received a notice less than one
year ago and would require them to again enlist counsel to review the
new language at considerable expense.
Department's Response: The Department declines to make the
requested change. The Applicant is correct that proposed Section
III(j)(2) expands the indemnification provision in Section I(i)(7) of
PTE 2016-10, to include indemnification for losses resulting from an
RBC QPAM's violation of a condition of the exemption. However, the
proposed indemnification provision is consistent with parallel
provisions in recent QPAM Section I(g) individual exemptions. These
provisions reflect the Department's review of representations and data,
submitted by applicants for QPAM Section I(g) individual exemptions,
including representations and data provided by RBC, and are designed to
ensure that Covered Plans do not bear the costs and harms associated
with a QPAM's loss of exemptive relief, which may arise if the QPAM
doesn't abide by the conditions of the exemption. The Department is not
inclined to weaken a protection that has allowed it to make its
findings under ERISA 408(a) in recent, similar exemptions.
30. The Department also disagrees that the language in Section
(j)(2) represents a departure of legal norms that may unfairly invite
``novel'' or an ``increased threat of'' litigation. Simply complying
with the terms of the exemption would allow the Applicant to avoid the
``novel'' or increased threats of litigation that the Applicant is
concerned about.
31. The Department also disagrees with the Applicant's contention
that the condition would not protect Covered Plans from the effects of
the misconduct underlying the Conviction or any future misconduct. The
Applicant's own representations and data, considered carefully by the
Department, identify serious, potential costs and harms to Covered
Plans, that could result if the RBC QPAMs lose the ability to rely on
the QPAM Exemption. If RBC or any entity within its corporate umbrella
engages in disqualifying fraudulent behavior in the future, the ``hold
harmless'' provision in this exemption would serve to protect Covered
Plans from those harms and costs, if Covered
[[Page 38805]]
Plan fiduciaries determine it prudent to transition their assets to new
asset managers.
32. Regarding the Applicant's contention that the notice required
by Section (j)(2) would create confusion and expenses for Covered
Plans, the Applicant must ensure the notice is drafted clearly, so that
its Covered Plan clients can understand their rights under the
provision. The Applicant is free to provide additional, accurate, clear
context in the notice, if that would further help Covered Plan clients
avoid confusion and expenses.
Comment 4--Timing of Notices in Section III(j)(7) and Section III(k)
33. As described above, Section III(j)(7) of the Proposed Exemption
requires RBC QPAMs to: (1) provide the Notice of Obligations to each
Covered Plan within sixty (60) calendar days after the exemption's
effective date; and (2) with respect to Covered Plans that enter into a
written asset or investment management agreement with an RBC QPAM on or
after 60 calendar days from the exemption's effective date, to agree to
its obligations under section III(j) in an updated investment
management agreement with the Covered Plan. Section III(k) requires RBC
QPAMs to provide the Disclosures, to each sponsor and beneficial owner
of a Covered Plan, or the sponsor of an investment fund in any case
where an RBC QPAM acts only as a sub-advisor to the investment fund in
which such Covered Plan invests within sixty (60) days after the
effective date of this exemption.
34. The Applicant requests that the QPAMs be allowed ninety (90)
days to complete the mailings and updates under both Sections III(j)(7)
and III(k). The Applicant argues that a ninety (90) day period would
allow RBC QPAMs to include the notices as part of a quarterly mailing,
rather than to undertake the substantial effort of a separate off-cycle
mailing.
Department's Response: The Department has considered the
Applicant's request and has made the change in the final exemption. In
the Department's view, allowing the RBC QPAMs ninety (90) days to
complete the mailings described in Section III(j)(7) and Section III(k)
would not affect the Department's determination that the exemption is
protective of the rights of the participants and beneficiaries of
Covered Plans.
35. However, the Department, on its own motion, is deleting the
language in Section III(j)(7) that the ``. . . condition will be deemed
met for each Covered Plan that received a notice pursuant to PTE 2016-
10 that meets the terms of this condition,'' because, as described
above, Section III(j)(2) in this exemption contains different language
than was present in Section I(i)(7) of PTE 2016-10. Thus, there is no
practical way that the notice sent pursuant to PTE 2016-10 could meet
the terms of Section III(j) of this exemption.
36. The Department is also modifying Section III(o) on its own
motion, for consistency with the new disclosure deadlines described
above. Section III(o) provides that, ``[w]ithin sixty (60) days after
the effective date of this exemption, each RBC QPAM, in its agreements
with, or in other written disclosures provided to Covered Plans,
clearly and prominently informs Covered Plan clients of the Covered
Plan's 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.'' The
exemption text has been modified to substitute ``ninety (90)'' in place
of ``sixty (60)'' where it appears in Section III(o).
Comment 5--Distribution of Audit Report
37. Section III(i)(8) of the Proposed Exemption requires, in
relevant part, that the Audit Committee of RBC's Supervisory Board must
be provided a copy of each Audit Report, and a senior executive officer
with a direct reporting line to the highest-ranking compliance officer
of RBC must review the Audit Report for each RBC QPAM and certify in
writing and under penalty of perjury that such officer has reviewed
each Audit Report.
38. The Applicant requests a modification so that the Audit Report
will be distributed to: (a) the Audit Committee of each RBC QPAM's
Supervisory Board, instead of being distributed to the Audit Committee
of RBC's Supervisory Board (RBC's parent company Audit Committee); and
(b) a senior executive officer with a direct reporting line to the
highest-ranking compliance officer of each RBC QPAM. That senior
executive officer will review the Audit Report for that RBC QPAM and
provide certification that such officer has reviewed the audit report,
instead of the senior executive officer with a direct reporting line to
the highest-ranking compliance officer of the (parent) RBC reviewing
the report and providing the certification. According to the Applicant,
the Audit Committees for the respective QPAMs are better positioned to
receive and review that QPAM's Audit Report, to coordinate with
compliance personnel responsible for that QPAM, and to assist in
implementing any recommendations from the independent auditor. The
Applicant also states that there is no justification for providing the
audit report to an RBC Supervisory Board committee, and that doing so
would cause confusion, disruption, and needless discussion at the Board
level, which would not serve the interests of Covered Plans.
Department's Response: The Department concurs, in part, with the
Applicant's request and has modified the text accordingly; except that
the Department also views delivery to the Supervisory Board of the
parent RBC, and to a senior executive officer with a direct reporting
line to the highest-ranking compliance officer of the parent RBC, as an
important way to keep the QPAM accountable to the organization's
leadership for complying with the requirements of the exemption.
Therefore, Section III(i)(8) has been modified to require provision of
the Audit Report to both the Audit Committee of RBC's Supervisory
Board, as well as the Audit Committee of each RBC QPAM's Supervisory
Board; and to require the highest ranking compliance officer of the RBC
QPAM, as well as RBC, to review the Audit Report and certify as to such
review.
Part II. Applicant's Statement and Responses Regarding Potential Costs
and Harm to Covered Plan Clients and Pooled Funds From Denial of the
Exemption
39. The Applicant provided a lengthy general statement on the harms
that it claims Covered Plans would incur if the RBC QPAMs could no
longer rely on the QPAM Exemption. Many of the descriptions of the
costs and harms were already provided in the Applicant's initial
application and additional submissions. In general terms, the Applicant
commented that the RBC QPAMs may rely on the QPAM Exemption when
investing in various securities and financial instruments on behalf of
ERISA clients, and if the QPAM Exemption were lost, transactions
currently dependent on the QPAM Exemption, or where that exemption was
the counterparty's expected relief, could be in default and terminated
at a significant cost to the plans. The Applicant's comment reiterates
the potential costs of liquidation for the strategies managed by RBC's
asset management QPAMs, as of March 31, 2024.\26\
---------------------------------------------------------------------------
\26\ These estimates were already provided and previously
considered by the Department in publishing the Proposed Exemption.
See 90 FR 6017, 6018, for a description of the estimated costs if
the RBC QPAM liquidated their investment strategies on behalf of
ERISA Covered Plan clients (including some public plan clients).
---------------------------------------------------------------------------
[[Page 38806]]
40. The Applicant also summarized the main points of a report
submitted by a pension consultant in connection with the Proposed
Exemption for DWS Investment Management Americas, Inc.\27\ The
Applicant emphasized the report's focus on a fiduciary's judgment in
choosing to remain with an investment manager after being made aware of
the convictions and conduct through public documents, proposed
exemptions, etc. Finally, the Applicant argues that denying the
exemption would cause not just Covered Plan clients to leave RBC, but
also non-plan investors, because of the importance of ``QPAM status''
to all investors.
---------------------------------------------------------------------------
\27\ 80 FR 13091 (February 21, 2024). See Analysis of Potential
Losses in the Event an Exemption is Denied, Lawrence E. Davanzo,
March 21, 2021, at <a href="https://www.regulations.gov/comment/EBSA-2024-0004-0003">https://www.regulations.gov/comment/EBSA-2024-0004-0003</a>.
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A. The Department's Request for a Clear Description of Potential Costs
and Harm to Covered Plan Clients
1. A description, in itemized form, of how the basis point range
was derived by the Applicant, including the assumptions or
methodologies relied upon.
41. For transaction costs related to equity, the Applicant states
that it routinely inputs its trading costs into a third-party
aggregator to test whether the transaction costs are reasonable.
Transaction cost data is sourced from a third-party market data firm,
which aggregates transaction data from hundreds of asset management and
other buy-side firms to provide insight into the global cost of
trading. The market data firm provides a quarterly survey with
breakdowns of the trading costs by major geographic region and firm
size. That aggregation relates to particular securities RBC holds for
its clients.
42. The cost to liquidate a fund is estimated using the survey data
by grouping the fund holdings based on the market/region and size of
each holding. Averages over a period of eight quarters are used to
determine a cost to trade within each market. The average is intended
to mitigate the effects of cyclicality or seasonality in trading costs.
The standard deviation of trading costs by market over the same period
is calculated to provide a measure of variability. These are the data
from which RBC derived the figures provided in prior responses relating
to transaction cost estimates.
43. For fixed income costs, the liquidation cost analysis was
performed using a proprietary liquidity risk model, which is designed
to estimate transaction costs as a function of trade size across the
bond universe. It assesses transaction costs dynamically based on
observable and quantifiable parameters, such as bid-ask spreads, credit
spread levels, trade size, amounts outstanding, and number of market
makers. Modeled transaction costs are derived from modelling bid-ask
spreads, based on the nominal amount to be traded. The liquidity model
is used for both internal risk management and external reporting to
clients and regulators. It is compliant with regulatory requirements,
including those from the European Securities and Markets Authority and
the International Organization of Securities Commissions.
Department's Response: The Department notes the Applicant's
response.
2. An explanation of the amount of Covered Plan assets that are
likely to be subject to the costs described above and an explanation of
the Applicant's assumptions or methodologies in connection with such
figures.
44. The Applicant states that the entirety of Covered Plan assets
that are invested in strategies and instruments dependent on the QPAM
Exemption could be subject to liquidation and reinvestment costs, as
well as the costs associated with identifying and retaining a
transition consultant and a new investment manager on an emergent
basis. Whether a Covered Plan client decides to terminate its RBC QPAM
is uniquely within the fiduciary decision-making process and in the
plan fiduciary's control. As such, the Applicant is unable to estimate
with any accuracy the number of Covered Plan clients that would be
inclined or feel compelled to terminate their relationships with RBC
QPAMs as a result of a loss of the QPAM Exemption, or how many
counterparties in the countless transactions would elect to hold those
transactions in default. Covered Plans that do elect to find new
managers likely would transfer all of their assets from the RBC QPAMs,
not just assets whose strategies rely on the QPAM Exemption, meaning
the client's entire portfolio would be subject to transaction and
ancillary costs.
Department's Response: The Department notes the Applicant's
response.
3. An explanation of the likelihood of the costs occurring, for
each of the transition costs described above.
45. The Applicant states that the transaction costs described above
are extremely likely in the event an exemption is denied entirely. The
only scenario in which the direct costs of liquidation would not be
incurred is if a plan retained a new manager that elected to maintain
the plan's assets in the same securities and positions, thereby
negating the need to liquidate. The Applicant represents that, in its
experience, managers prefer to liquidate and reinvest a plan's holdings
and begin with a clean slate rather than inherit existing securities.
As such, the probability is high that the securities and instruments in
which a Covered Plan's assets are invested by an RBC QPAM would be
liquidated and reinvested by a new manager.
Department's Response: The Department notes the Applicant's
response.
4. An explanation of the circumstances under which the transition
costs described above are being incurred.
46. The Applicant states that plans are liable to incur transaction
costs if, upon denial of an exemption, they either elect or feel
compelled to retain a new manager and must liquidate all existing
positions, or transactions dependent on the QPAM Exemption
automatically are in default and must be terminated or are terminated
at the election of the counterparty. The Applicant states that nothing
in the law would compel any client to terminate the services of an RBC
QPAM.
Department's Response: The Department notes the Applicant's
response.
5. A description of the extent to which any of the asserted costs
reflect the QPAMs' imposition of additional charges or fees on Covered
Plans resulting from the loss of QPAM status, and the cause of such
additional charges or fees.
47. For avoidance of doubt, the Department's asked whether the
harms and costs described above by the Applicant include any costs that
would be imposed by RBC and its affiliates as a result of an RBC QPAM's
inability to rely on the QPAM Exemption, such as termination fees,
penalty fees, fees for breach of contract with counterparties (to the
extent imposed by the RBC QPAM or an affiliate) or with an RBC QPAM, or
other costs and charges imposed by RBC and its affiliates. The
Applicant represents that none of the estimated transaction costs or
other fees would be imposed on Covered Plans by an RBC QPAM.
Department's Response: The Department notes the Applicant's
response.
6. An explanation of the extent to which the costs described herein
are not
[[Page 38807]]
likely to be covered by the QPAMs' indemnification obligations under
Section III(j)(2), and an explanation why such costs are not
attributable to the Applicant's violation of exemption conditions.
48. The Applicant states that the indemnification obligations in
Section III(j)(2) apply only if and when final exemptive relief is
granted. The transaction costs described above and in previous
submissions, by contrast, would occur only in the event an exemption is
denied. In the former scenario, assuming no affiliate of RBC is
convicted of another disqualifying crime, RBC's indemnification
obligations under this exemption would not be triggered because RBC's
Covered Plan clients would not change managers, thereby avoiding any
transaction costs. In the latter scenario, the Applicant has no
indemnification obligation.
Department's Response: The Department notes the Applicant's
response that the indemnification obligation in Section III(j)(2) would
apply once relief is granted. The Department also notes the Applicant's
representations above regarding the importance of the QPAM Exemption to
Covered Plans that hire and retain RBC QPAMs. Those representations
suggest to the Department that a number of Covered Plans may transition
to new asset managers if the RBC QPAMs can no longer rely on the QPAM
Exemption due to a conviction that violates Section I(g). For that
reason, the Department continues to believe that affected Covered Plans
are entitled to indemnification of their associated losses, including
the transitional expenses necessary to effectuate the switch to a
qualified QPAM.
B. Applicant's Statement of Potential Costs Relating to the Request for
Proposal Process
49. According to the Applicant, in addition to the cost of
liquidating assets, costs associated with identifying and selecting new
managers and then reinvesting assets would be borne by Covered Plans
and their participants. Based on data available in the market and from
submissions by other applicants, the Applicant estimates that plans
would incur the following additional costs associated with
transitioning assets to a new manager:
<bullet> Consulting fees: $30,000 to $40,000 in consulting fees for
a new private manager search. Consultants may charge twice as much or
more for customized searches for private market managers than they
charge for public market manager searches.
<bullet> Additional time expended: 25-50 hours of client time to
evaluate alternative managers. Plans typically rely on several
individuals (whether through a board of trustees, investment
committees, or otherwise) to evaluate and select managers. Further,
unless a plan has in-house investment professionals, it almost
invariably relies on outside consultants to assist with the search and
evaluation (at a substantial cost, as noted above).
<bullet> Legal fees: $10,000-$30,000 in legal fees to review/
negotiate new management agreement and guidelines. Agreements for
institutional asset management are almost invariably negotiated.
Further, agreements and guidelines for real estate strategies,
especially direct real estate, are generally more complex than for
other strategies. In addition, clients could incur $15,000-$30,000 to
negotiate each new futures, cleared derivatives, swap or other trading
agreement.
Department's Response: The Department notes the Applicant's
response.
C. Applicant's Statement Regarding Potential Costs and Harm to Pooled
Funds
50. The Department requested additional information from the
Applicant in its comment letter substantiating harms to pooled funds,
including estimates of the costs and any assumptions relied upon in
making the estimate. In response, the Applicant stated that investors
within a pooled investment vehicle can experience dilution when other
investors enter or exit the fund. As investors purchase or sell units
of a fund, the investment adviser or portfolio manager for the fund
purchases or sells securities. Purchasing and selling securities and
financial instruments incurs costs, such as brokerage fees or
commissions, transaction charges, bid-ask spreads and taxes. Those
costs are generally incurred by the fund itself and included in the
fund's net asset value such that they are not borne only by the
redeeming investor. The amount of dilution that non-redeeming investors
may experience may vary based on factors such as market conditions,
amount of cash held by the pooled fund, and the percentage of the fund
held by plan asset investors.
Department's Response: The Department notes the Applicant's
response.
Part III. Applicant's Statement Why the Exemption is in the Interest of
Covered Plans
51. The Applicant concluded its comment with a summary of reasons
that it believes an exemption would be in the interest of Covered
Plans. Specifically, the Applicant represents that the RBC QPAMs have
fully adhered to the terms and conditions of PTE 2016-10. The Applicant
states that this record of compliance, combined with the conditions of
the exemption, should give the Department confidence. The Applicant
stresses that the RBC QPAMs were not tainted with the compliance
failures that led to RBCTC Bahamas' Conviction, and the independent
auditor required by the exemption will provide additional protection by
specifically determining whether the RBC QPAMs are subject to improper
influence by non-asset management affiliates.
52. The Applicant notes that the exemption requires detailed
policies, procedures, and training that are designed to strengthen the
continued culture of compliance within the RBC QPAMs, with oversight by
both the independent auditor and a senior compliance officer charged
with the responsibility of creating a report on compliance with the
exemption, which is reviewed by the auditor. In light of the above, the
Applicant submits that the Department should have a basis to conclude
that the exemption would be in the interest of and protective of plans
and their participants and beneficiaries.
Revisions by the Department on Its Own Motion
53. On its own motion, the Department added the following phrase to
the end of the definition of ``Conviction'' in Section I(a), in order
align the operative language of the exemption with that granted to
Northern Trust in connection with Exemption Application No. D-12101:
``or to be entered in another court of competent jurisdiction.'' The
Department also made several minor, non-substantive revisions that are
intended to clarify the exemption and/or correct scrivener's errors.
Conclusion
54. The Department has carefully considered the commenter's
requests. After giving full consideration to the entire record,
including the comments, the Department has determined to grant the
exemption subject to the modifications and clarifications described
herein. In granting this exemption, the Department has relied
[[Page 38808]]
on the representations of the Applicant. If any material statement in
the Application, final exemption or the Applicant's comment is not, or
may no longer be, completely and factually accurate, the Applicant and
recipients of the exemptive relief provided herein must immediately
alert the Department.\28\
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\28\ The Representations stated herein are based on the
Applicant's representations provided in its exemption application
and do not reflect factual findings or opinions of the Department
unless indicated otherwise. The Department notes that the
availability of this exemption is subject to the express condition
that the material facts and representations contained in application
D-12102 are true and complete at all times, and accurately describe
all material terms of the transactions covered by the exemption. If
there is any material change in a transaction covered by the
exemption, or in a material fact or representation described in the
application, the exemption will cease to apply as of the date of the
change.
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Publicly Available Information
55. The complete application file (D-12102) is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, Room N-1515, U.S. Department of Labor, 200
Constitution Avenue NW, Washington, DC 20210 reachable by telephone at
(202) 693-8673. For a more complete statement of the facts and
representations supporting the Department's decision to grant this
exemption, please refer to the notice of proposed exemption published
on January 17, 2025, at 90 FR 6013.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under ERISA Section 408(a) 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 their
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) As required by ERISA Section 408(a) and Code Section
4975(c)(2), the Department hereby finds that the exemption is (1)
administratively feasible, (2) in the interests of the plan and of its
participants and beneficiaries, and (3) protective of the rights of
participants and beneficiaries of the plan;
(3) The exemption is supplemental to, and not in derogation of, any
other provisions of ERISA and 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 availability of the exemption is subject to the express
condition that the material facts and representations contained in each
application are true and complete at all times, and that each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the following exemption under the authority of
ERISA section 408(a) and Code section 4975(c)(2) in accordance with the
Department's exemption procedures regulation.\29\
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\29\ 29 CFR part 2570, subpart B (76 FR 66637, 66644, October
27, 2011). Effective December 31, 1978, section 102 of
Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996),
transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested by the Applicant to the Secretary
of Labor. Therefore, this notice of proposed exemption is issued
solely by the Department. For purposes of this exemption, references
to ERISA section 406, unless otherwise specified, should be read to
refer as well to the corresponding provisions of Code section 4975.
---------------------------------------------------------------------------
Exemption
Section I: Definitions
(a) The term ``Conviction'' means the judgment of conviction
against RBCTC Bahamas, an RBC ``affiliate'' (as defined in PTE 84-14,
Section VI(d)), entered on March 5, 2024, for aiding and abetting tax
fraud in France in the Paris Court of Appeal, French Special Prosecutor
No. 11203092066, or to be entered in another court of competent
jurisdiction.
(b) The term ``RBC QPAM'' means a ``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 RBCTC
Bahamas is a current or future ``affiliate'' (as defined in section
VI(d) of PTE 84-14). The RBC QPAMs do not and must not include RBCTC
Bahamas.
(c) The term ``RBC'' means Royal Bank of Canada, together with its
current and future affiliates.
(d) The term ``RBCTC Bahamas'' means Royal Bank of Canada Trust
Company (Bahamas) Limited, a Bahamian ``affiliate'' of RBC (as defined
in section VI(c) of PTE 84-14).
(e) The term ``Covered Plan'' means a plan subject to ERISA Title
I, Part 4 (an ERISA Plan) or a plan subject to Code Section 4975 (an
IRA), in each case, with respect to which an RBC QPAM relies on PTE 84-
14, or with respect to which an RBC QPAM (or any RBC 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 Plan or IRA to
the extent the RBC QPAM has expressly disclaimed reliance on QPAM
status or PTE 84-14 in entering into its contract, arrangement, or
agreement with the Covered Plan. Notwithstanding the above, an RBC QPAM
may disclaim reliance on QPAM status or PTE 84-14 in a written
modification of a contract, arrangement, or agreement with a Covered
Plan 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 RBC QPAM will not
represent that it is a QPAM and will not rely on the relief described
in PTE 84-14.
(f) The term ``Exemption Period'' means the period beginning on the
earlier of September 5, 2025, or the date the exemption is published in
the Federal Register; and ending on March 4, 2030.
(g) Wherever found, any reference in this exemption to ``the best
knowledge'' of a party, ``best of [a party's] knowledge,'' and similar
formulations of the ``best knowledge'' standard, will be deemed to mean
the actual knowledge of the party and the knowledge which they would
have had if they had conducted their reasonable due diligence required
under the circumstances into the relevant subject matter. If a
condition of the exemption requires an individual to provide
certification pursuant to their ``best knowledge,'' then such
individual, in order to make such certification, must perform their
reasonable due diligence required under the circumstances to determine
whether the information such individual is certifying is complete and
accurate in all respects. Furthermore, with respect to an entity other
than a natural person, the ``best knowledge'' of the entity 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
[[Page 38809]]
individuals' due diligence required under the circumstances.
(h) The terms ``participate,'' and ``participate in,'' when used to
describe a person's role in the criminal conduct described in this
exemption, refer not only to a person's active participation in the
misconduct of RBCTC Bahamas that is the subject of the Conviction, but
also includes the knowing or tacit approval of the misconduct
underlying the Conviction or knowledge of such conduct without taking
active steps to prohibit it, including reporting the conduct to such
individual's supervisors, and to RBC's board of directors.
Section II: Transactions
The RBC QPAMs will not be precluded from relying on the exemptive
relief provided by Prohibited Transaction Exemption 84-14 (PTE 84-14)
\30\ notwithstanding the Conviction (as defined above) \31\ during the
Exemption Period, provided that the conditions in Section III are
satisfied.
---------------------------------------------------------------------------
\30\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), as
amended at 75 FR 38837 (July 6, 2010), as amended at 89 FR 23090
(April 3, 2024), and as corrected at 89 FR 65779 (August 13, 2024).
\31\ Section I(g) of PTE 84-14 generally provides that ``a QPAM
is ineligible to rely on this exemption for 10 years following: . .
. [a] Criminal Conviction, as defined in Section VI(r). . . .''
---------------------------------------------------------------------------
Section III: Conditions
(a) The RBC QPAMs (including their officers, directors, agents
other than RBCTC, and employees of such RBC QPAMs) did not know of,
have reason to know of, and did not participate in the criminal
misconduct of RBCTC Bahamas that is the subject of the Conviction.
Further, any other party engaged on behalf of the RBC 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 misconduct that is the subject of
the Conviction.
(b) The RBC QPAMs (including their officers, directors, agents
other than RBCTC, and employees of such RBC QPAMs) did not receive any
direct compensation or knowingly receive any indirect compensation in
connection with the criminal misconduct that is the subject of the
Conviction. Further, any other party engaged on behalf of the RBC QPAMs
who had responsibility for or exercised authority in connection with
the management of plan assets did not receive any direct compensation
or knowingly receive any indirect compensation in connection with the
criminal misconduct that is the subject of the Conviction;
(c) The RBC QPAMs will not employ or knowingly engage any of the
individuals that participated in the criminal misconduct that is the
subject of the Conviction;
(d) At all times during the Exemption Period, no RBC 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 an RBC QPAM in reliance of PTE 84-14, or with
respect to which an RBC QPAM has expressly represented to a Covered
Plan that it qualifies as a QPAM or relies on PTE 84-14, to enter into
any transaction with RBCTC Bahamas or engage RBCTC Bahamas to provide
any service to such Covered Plan for a direct or indirect fee borne by
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;
(e) Any failure of the RBC QPAMs to satisfy PTE 84-14, Section I(g)
arose solely from the Conviction;
(f) An RBC QPAM did not exercise authority over the assets of any
Covered Plan in a manner that it knew or should have known would: (i)
further the criminal misconduct that is the subject of the Conviction;
or (ii) cause the RBC QPAM or its affiliates to directly or indirectly
profit from the criminal misconduct that is the subject of the
Conviction;
(g) Other than with respect to employee benefit plans maintained or
sponsored for its own employees or the employees of an affiliate, RBCTC
Bahamas will not act as a fiduciary within the meaning of ERISA
Sections 3(21)(A)(i) or (iii) or Code Sections 4975(e)(3)(A) and (C)
with respect to Covered Plan assets; provided, however, that RBCTC
Bahamas will not be treated as violating the conditions of this
exemption solely because they acted as investment advice fiduciaries
within the meaning of ERISA Section 3(21)(A)(ii) or Code Section
4975(e)(3)(B);
(h)(1) Each RBC QPAM must continue to maintain, adjust (to the
extent necessary), implement, and follow written policies and
procedures (the Policies). The Policies must require and be reasonably
designed to ensure that:
(i) the asset management decisions of the RBC QPAM are conducted
independently of the management and business activities of RBC,
including RBCTC Bahamas;
(ii) the RBC QPAM fully complies with ERISA's fiduciary duties and
with ERISA and the Code's prohibited transaction provisions as
applicable with respect to each Covered Plan and does not knowingly
participate in any violations of these duties and provisions with
respect to Covered Plans;
(iii) the RBC 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 RBC QPAM to regulators,
including but not limited to, the Department of Labor, the Department
of the Treasury, the Department of Justice, and the Pension Benefit
Guaranty Corporation, on behalf of or in relation to Covered Plans are
materially accurate and complete to the best of such QPAM's knowledge
at that time;
(v) to the best of the RBC QPAM's knowledge at the time, the RBC
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;
(vi) the RBC QPAM complies with the terms of the exemption;
(vii) any violation of or failure to comply with a requirement set
forth in subparagraphs (h)(1)(ii) through (h)(1)(vi), is corrected
promptly upon discovery or as soon after the RBC QPAM reasonably should
have known of the noncompliance (whichever is earlier) and any such
violation or compliance failure not promptly corrected is reported,
upon discovering the failure to promptly correct, in writing, to
appropriate corporate officers, the head of compliance and the General
Counsel (or their functional equivalent) of the relevant RBC QPAM that
engaged in the violation or failure, and the independent auditor
responsible for reviewing compliance with the Policies. An RBC QPAM
will not be treated as having failed to develop, implement, maintain,
or follow the Policies, provided that it corrects any instance of
noncompliance promptly when discovered or when it reasonably should
have known of the noncompliance (whichever is earlier), and provided
that it adheres to the reporting requirements set forth in this
subparagraph (vii);
(2) Each RBC QPAM must maintain, adjust (to the extent necessary)
and implement a training program (the Training) that is conducted at
least annually for all relevant RBC QPAM asset/portfolio management,
trading, legal, compliance, and internal audit personnel. The Training
must:
[[Page 38810]]
(i) At a minimum, cover the Policies, ERISA and Code compliance
(including applicable fiduciary duties and the prohibited transaction
provisions), ethical conduct, the consequences for not complying with
the conditions of this exemption (including any loss of exemptive
relief provided herein), and prompt reporting of wrongdoing;
(ii) Be conducted in-person, electronically or via a website 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 verified, through in-training knowledge checks,
``graduation'' tests, and/or other technological tools designed to
confirm that personnel fully and in good faith participate in the
Training;
(i)(1) The RBC QPAMs must submit to a 12-month audit conducted
every two years by an independent auditor who has been prudently
selected and has appropriate technical training and proficiency with
ERISA and the Code to evaluate the adequacy of each RBC QPAM's
compliance with the Policies and Training conditions described herein.
The audit requirement must be incorporated in the Policies, and the
first audit must cover a consecutive 12-month period starting on March
5, 2026. The second audit must cover the consecutive 12-month period
starting on March 5, 2028, and in the event that the Department grants
additional exemptive relief to the Applicant after the expiration of
this exemption, the next audit would cover the consecutive 12-month
period starting on March 5, 2030. Each audit must be completed no later
than six (6) months after the corresponding audit's ending period;
(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 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, the RBC QPAMs and,
if applicable, RBC, 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 the RBC QPAMs have developed, implemented,
maintained, and followed the Policies in accordance with the conditions
of this exemption and have developed and implemented the Training, as
required herein;
(4) The auditor's engagement must specifically require the auditor
to test the RBC QPAMs operational compliance with the Policies and
Training. In this regard, the auditor must test a sample of each QPAM's
transactions involving Covered Plans that are sufficient in size and
nature to afford the auditor a reasonable basis to determine such RBC
QPAM's operational compliance with the Policies and Training;
(5) For each audit, the auditor must issue a written report (the
Audit Report) to RBC and the RBC QPAM to which the audit applies that
describes the procedures performed by the auditor in connection with
its examination on or before the end of the relevant period described
in Section III(i)(1) for completing the audit. The auditor, at its
discretion, may issue a single consolidated Audit Report that covers
all of the RBC QPAMs. The Audit Report must include the auditor's
specific determinations regarding:
(i) The adequacy of each RBC QPAM's Policies and Training; each RBC
QPAM's compliance with the Policies and Training; the need, if any, to
strengthen such Policies and Training; and any instance of the
respective RBC QPAM's noncompliance with the written Policies and
Training. The non-compliant RBC QPAM must promptly address any
noncompliance and prepare a written plan of action to address any
determination by the auditor regarding the adequacy of the Policies and
Training and the auditor's recommendations (if any) with respect to
strengthening the Policies and Training of the respective RBC QPAM. Any
action taken or the plan of action to be taken by the respective RBC
QPAM must be included in an addendum to the Audit Report (and such
addendum must be completed before the certification described in
Section III(i)(7) below). In the event such a plan of action to address
the auditor's recommendation regarding the adequacy of the Policies and
Training is not completed by the time the Audit Report is submitted,
the following period's Audit Report must state whether the plan was
satisfactorily completed. Any determination by the auditor that the
respective RBC 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 an RBC QPAM has complied with the
requirements under this subparagraph must be based on evidence that the
particular RBC QPAM has actually implemented, maintained, and followed
the Policies and Training required by this exemption. Furthermore, the
auditor must not rely solely on the Annual Report created by the
compliance officer (the Compliance Officer) as described in Section
III(m) below, as the basis for the auditor's conclusions in lieu of
independent determinations and testing performed by the auditor as
required by Section III(i)(3) and (4) above; and
(ii) The adequacy of the most recent Annual Review described in
Section III(m);
(6) The auditor must notify the respective RBC 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 each Audit Report, the RBC QPAM's general
counsel, or one of the three most senior executive officers of the line
of business engaged in discretionary asset management services through
the RBC QPAM with respect to which the Audit Report applies, must
certify in writing, under penalty of perjury, that such signatory has
reviewed the Audit Report and this exemption and that to the best of
such signatory's knowledge at the time, such RBC QPAM has addressed,
corrected, or remedied any noncompliance and inadequacy or has an
appropriate written plan to address any inadequacy regarding the
Policies and Training identified in the Audit Report. Such
certification must also include the signatory's determination that, to
the best of such signatory'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 proposed exemption, and with the
applicable provisions of ERISA and the Code. Notwithstanding the above,
no person who knew of, or should have known of, or participated in the
criminal conduct that is the subject of the Conviction, by any party,
may provide the certification required by this exemption, unless the
person took active documented steps to stop the misconduct underlying
the Conviction;
(8) The Audit Committee of RBC's Supervisory Board and the Audit
Committee of each RBC QPAM's Supervisory Board are each provided a copy
of each Audit Report (an RBC QPAM's Audit Committee need only receive
the respective QPAM's Audit
[[Page 38811]]
Report); and a senior executive officer with a direct reporting line to
the highest-ranking compliance officer of RBC must review the Audit
Report for each RBC QPAM; and a senior executive officer in each RBC
QPAM with a direct reporting line to the highest-ranking compliance
officer of such RBC QPAM must review the Audit Report applicable for
that RBC QPAM; and all must certify in writing and under penalty of
perjury that such officer(s) have reviewed such Audit Report(s). RBC
must provide notice to the Department if there is a switch in the
committee(s) to which the Audit Report will be provided. With respect
to this subsection (8), such certifying executive officer(s) must not
have known of, had reason to know of, or participated in, the criminal
conduct that is the subject of the Conviction, unless such person took
active documented steps to stop the misconduct underlying the
Conviction;
(9) Each RBC QPAM provides its certified Audit Report by electronic
mail to: <a href="/cdn-cgi/l/email-protection#fb9ed6949e9fbb9f9497d59c948d"><span class="__cf_email__" data-cfemail="fc99d1939998bc989390d29b938a">[email protected]</span></a>. This delivery must take place no later than
forty-five (45) days following completion of the Audit Report. The
Audit Report will be made part of the public record regarding this
exemption. Furthermore, each RBC QPAM must make its Audit Report
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) Each RBC QPAM and the auditor must submit the following
document(s) to OED via electronic mail to <a href="/cdn-cgi/l/email-protection#1d78307278795d797271337a726b"><span class="__cf_email__" data-cfemail="5431793b313014303b387a333b22">[email protected]</span></a>: Any engagement
agreement(s) entered into pursuant to the engagement of the auditor
under this exemption, no later than two (2) months after the execution
of any such engagement agreement;
(11) The auditor must provide the Department, upon request, for
inspection and review, access to all the workpapers created and
utilized in the course of the audit, provided such access and
inspection is otherwise permitted by law; and
(12) RBC must notify the Department of a change in the independent
auditor no later than two (2) months after the engagement of a
substitute or subsequent auditor and must provide an explanation for
the substitution or change including a description of any material
disputes between the terminated auditor, and RBC or any of its
affiliates;
(j) Throughout the Exemption Period, with respect to any
arrangement, agreement, or contract between an RBC QPAM and a Covered
Plan, the RBC QPAM agrees and warrants:
(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 in accordance with applicable rules under ERISA
and the Code); and to comply with the standards of prudence and loyalty
set forth in ERISA Section 404 with respect to each such Covered Plan
to the extent that section is applicable;
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from the RBC QPAM's violation of any
conditions of this exemption, an RBC 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 RBC QPAM; or any claim arising out of the failure of such RBC
QPAM to qualify for the exemptive relief provided by PTE 84-14 as a
result of a violation of Section I(g) of PTE 84-14 other than the
Conviction. Actual losses include, but are 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 PTE 84-14.
(3) Not to require or otherwise cause the Covered Plan to waive,
limit, or qualify the liability of the RBC QPAM for violating ERISA or
the Code or engaging in prohibited transactions;
(4) Not to restrict the ability of such Covered Plan to terminate
or withdraw from its arrangement with the RBC QPAM with respect to any
investment in a separately managed account or pooled fund subject to
ERISA and managed by such QPAM, with the exception of reasonable
restrictions, appropriately disclosed in advance, that are specifically
designed to ensure equitable treatment of all investors in a pooled
fund in the event such withdrawal or termination may have adverse
consequences for all other investors. In connection with any of these
arrangements involving investments in pooled funds subject to ERISA
entered into after the effective date of this exemption, the adverse
consequences must relate to a lack of liquidity of the underlying
assets, valuation issues, or regulatory reasons that prevent the fund
from promptly redeeming a Covered Plan's investment, and such
restrictions must be applicable to all investors in the pooled fund on
equal terms and effective no longer than reasonably necessary to avoid
the adverse consequences;
(5) Not to impose any fees, penalties, or charges for such
termination or withdrawal with the exception of reasonable fees,
appropriately disclosed in advance, that are specifically designed to
prevent generally recognized abusive investment practices or
specifically designed to ensure equitable treatment of all investors in
a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in like manner to all such investors;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting liability of the RBC 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 RBC and its
affiliates, or damages arising from acts outside the control of the RBC
QPAM; and
(7) Within ninety (90) calendar days after this exemption's
effective date, each RBC QPAM must provide a notice of its obligations
under this Section III(j) to each Covered Plan. For Covered Plans that
enter into a written asset or investment management agreement with an
RBC QPAM on or after ninety (90) calendar days from this exemption's
effective date, the RBC QPAM must agree to its obligations under this
Section III(j) in an updated investment management agreement between
the RBC QPAM and such clients or other written contractual agreement.
For Covered Plan clients that received a prior version of the written
contractual agreement from an RBC QPAM and sign such agreement after
the exemption's effective date, the terms of the exemption will be met
if such clients are sent notice of the RBC QPAMs' obligations under
this Section III(j) within 30 business days after the date the RBC QPAM
receives the signed agreements. Covered Plan clients that return such
signed agreement later than six months after the exemption's effective
date must receive and execute an updated agreement with the QPAM's
obligations under Section III(j). Condition III(j)(7) will also be met
where the RBC QPAM has already agreed to the same obligations required
by this Section III(j) in an updated investment management agreement
between the RBC QPAM and a Covered
[[Page 38812]]
Plan. Notwithstanding the above, an RBC QPAM will not violate the
condition solely because a Covered Plan client refuses to sign an
updated investment management agreement;
(k) Within ninety (90) days after the effective date of this
exemption, each RBC QPAM provides notice of the exemption as published
in the Federal Register, along with a separate summary describing the
facts that led to the Conviction (the Summary), which have been
submitted to the Department, and a prominently displayed statement (the
Statement) that the Conviction results in a failure to meet a condition
in PTE 84-14, to each sponsor and beneficial owner of a Covered Plan,
or the sponsor of an investment fund in any case where an RBC QPAM acts
only as a sub-advisor to the investment fund in which such Covered Plan
invests. All prospective Covered Plan clients that enter into a written
asset or investment management agreement with an RBC QPAM (including a
participation or subscription agreement in a pooled fund managed by an
RBC QPAM) after the date that is ninety (90) days after the effective
date of this exemption must receive the proposed and final exemptions
with the Summary and the Statement prior to, or contemporaneously with,
the client's receipt of a written asset management agreement from the
RBC QPAM (for avoidance of doubt, all Covered Plan clients of an RBC
QPAM during the Exemption Period must receive the disclosure described
in this section by the later of (i) ninety (90) days after the
effective date of the exemption or (ii) the date that a Covered Plan
client enters into a written asset investment management agreement with
an RBC QPAM). For clients that received a prior version written
contractual agreement from an RBC QPAM and sign such agreement after
the exemption's effective date, the terms of the exemption will be met
if such clients receive the notice of the exemption as published in the
Federal Register, the Summary, and the Statement, within 30 business
days after the date the RBC QPAM receives the signed agreements.
Covered Plan clients that return the signed agreement later than six
months after the exemption's effective date must receive a new, updated
agreement along with the notice, the Summary, and the Statement;
(l) The RBC QPAMs must comply with each condition of PTE 84-14, as
amended, with the sole exception of the violation of PTE 84-14 Section
I(g) that is attributable to the Conviction. If, during the Exemption
Period, an affiliate of an RBC QPAM (as defined in Section VI(d) of PTE
84-14) violates Section I(g) of PTE 84-14 (other than with respect to
the Conviction), relief provided in this exemption would terminate
immediately;
(m)(1) Within 60 days after the date of publication of the
exemption, each RBC QPAM designates a senior compliance officer (the
Compliance Officer) who will be responsible for compliance with the
Policies and Training requirements described herein. No person who
participated in the criminal conduct that is the subject of the
Conviction may be involved with the designation or responsibilities
required by this condition, unless the person took active documented
steps to stop the criminal conduct that is subject of the Conviction.
The Compliance Officer must conduct a review of each twelve-month
period comprising the Exemption Period (each, an Exemption Review) to
determine the adequacy and effectiveness of the implementation of the
Policies and Training. With respect to the Compliance Officer, the
following conditions must be met:
(i) The Compliance Officer must be a professional who has extensive
experience with, and knowledge of, the regulation of financial services
and products, including under ERISA and the Code; and
(ii) The Compliance Officer must have a direct reporting line to
the highest-ranking corporate officer in charge of compliance for asset
management;
(2) With respect to each Exemption Review, the following conditions
must be met:
(i) The Exemption Review includes a review of the RBC 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) the twelve-month period under review; the most recent Audit
Report issued pursuant to this exemption; the most recent Audit Report
issued in connection with this exemption; (B) any material change in
the relevant business activities of the RBC QPAMs; and (C) 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 RBC QPAMs;
(ii) The Compliance Officer prepares a written report for each
Exemption Review (each, an Exemption Report) that: (A) summarizes their
material activities during the twelve-month period under review; (B)
sets forth any instance of noncompliance discovered during the twelve-
month period under review, 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 each Exemption Report, the Compliance Officer must certify
in writing that to the best of their knowledge at the time: (A) the
report is accurate; (B) the Policies and Training are working in a
manner which is reasonably designed to ensure that the Policies and
Training requirements described herein are met; (C) any known instance
of noncompliance during the twelve-month period under review and any
prior period and any related correction taken to date have been
identified in the Exemption Report; and (D) the RBC QPAMs have complied
with the Policies and Training and/or corrected (or is correcting) any
known instances of noncompliance in accordance with Section III(h)
above;
(iv) Each Exemption Report must be provided to: (A) the appropriate
corporate officers of RBC and each RBC QPAM to which such report
relates, and (B) the head of compliance and the RBC QPAM's general
counsel (or their functional equivalent) of the relevant RBC QPAM; and
must be made unconditionally available to the independent auditor
described in Section III(i) above;
(v) Each Exemption Review, including the Compliance Officer's
written Exemption Report, must be completed within three (3) months
following the end of the period to which it relates;
(n) Each RBC 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 RBC QPAM relies
upon the relief in the exemption;
(o) Within ninety (90) days after the effective date of this
exemption, each RBC QPAM, in its agreements with, or in other written
disclosures provided to Covered Plans, clearly and prominently informs
Covered Plan clients of the Covered Plan's 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
[[Page 38813]]
within six (6) months following the end of the calendar year during
which the Policies were changed. 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.
With respect to this requirement, the description may be continuously
maintained on a website, provided that such website link to the
Policies or the Summary Policies is clearly and prominently disclosed
to each Covered Plan;
(p) An RBC QPAM will not fail to meet the terms of this exemption,
solely because a different RBC QPAM fails to satisfy a condition for
relief described in Sections III(c), (d), (h), (i), (j), (k), (l), (m),
(n),(o), and (u) or if the independent auditor described in Section
III(i) fails to comply with a provision of the exemption, other than
the requirement described in Section III(i)(11), provided that such
failure did not result from any actions or inactions of RBC or its
affiliates;
(q) RBC imposes its internal procedures, controls, and protocols to
reduce the likelihood of any recurrence of conduct that is the subject
of the Conviction;
(r) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate;
(s) With respect to an asset manager that becomes an RBC QPAM after
the effective date of the exemption by virtue of being acquired (in
whole or in part) by RBC or a subsidiary or affiliate of RBC (a
``newly-acquired RBC QPAM''), the newly-acquired RBC QPAM would not be
precluded from relying on the exemptive relief provided by PTE 84-14
notwithstanding the Conviction as of the closing date for the
acquisition; however, the operative terms of the exemption shall not
apply to the newly-acquired RBC QPAM until a date that is six (6)
months after the closing date for the acquisition. To that end, the
newly acquired RBC QPAM will initially submit to an audit pursuant to
Section III(i) of this exemption as of the first audit period that
begins following the closing date for the acquisition. The period
covered by the audit must begin on the acquisition date of the newly-
acquired RBC QPAM;
(t) Relief in this exemption will terminate on the date that is 12
months after the date a U.S. regulatory authority makes a final
decision that RBC or an affiliate failed to comply in all material
respects with any requirement imposed by such regulatory authority in
connection with the Conviction; and
(u) The RBC QPAM(s) must provide the Department with the records
necessary to demonstrate that each condition of this exemption has been
met within 30 days after a request for the records by the Department.
Exemption Date: The exemption will be in effect during the period
beginning on the earlier of September 5, 2025 or the date the exemption
is published in the Federal Register; and ending on March 4, 2030.
Signed at Washington, DC.
Christopher Motta,
Acting Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2025-15281 Filed 8-11-25; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on August 12, 2025.
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.