[Federal Register Volume 84, Number 30 (Wednesday, February 13, 2019)]
[Notices]
[Pages 3818-3828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02218]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application No. D-11988]


Proposed Exemption Involving UBS Assets Management (Americas) 
Inc.; UBS Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS 
O'Connor LLC; and Certain Future Affiliates in UBS's Asset Management 
and Global Wealth Management U.S. Divisions (collectively, the 
Applicants or the UBS QPAMs) Located in Chicago, Illinois; Hartford, 
Connecticut; New York, New York; and Chicago, Illinois, Respectively

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document contains notice of pendency before the 
Department of Labor (the Department) of a proposed temporary one-year 
individual exemption from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). 
If this proposed exemption is granted, certain entities with specified 
relationships to UBS will not be precluded from relying on the 
exemptive relief provided by Prohibited Transaction Class Exemption 84-
14.

DATES: If there is a judgment in the French First Instance Court 
against UBS and/or UBS France and that judgment constitutes a 
conviction under Section I(g) of PTE 84-14, this exemption will be in 
effect for one year from the date of that judgment.
    Written comments and requests for a public hearing on the proposed 
exemption should be submitted to the Department by February 19, 2019.

ADDRESSES: Comments should state the nature of the person's interest in 
the proposed exemption and the manner in which the person would be 
adversely affected by the exemption, if granted. A request for a 
hearing can be requested by any interested person who may be adversely 
affected by an exemption. A request for a hearing must state: (1) The 
name, address, telephone number, and email address of the person making 
the request; (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption; and (3) a statement of the issues to be addressed and a 
general description of the evidence to be presented at the hearing. The 
Department will grant a request for a hearing made in accordance with 
the requirements above where a hearing is necessary to fully explore 
material factual issues identified by the person requesting the 
hearing. A notice of such hearing shall be published by the Department 
in the Federal Register. The Department may decline to hold a hearing 
where: (1) The request for the hearing does not meet the requirements 
above; (2) the only issues identified for exploration at the hearing 
are matters of law; or (3) the factual issues identified can be fully 
explored through the submission of evidence in written (including 
electronic) form.
    All written comments and requests for a hearing (at least three 
copies) should be sent to the Employee Benefits Security Administration 
(EBSA), Office of Exemption Determinations, U.S. Department of Labor, 
200 Constitution Avenue NW, Suite 400, Washington, DC 20210. Attention: 
Application No. D-11988. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via email or FAX. Any such 
comments or requests should be sent either by email to: [email protected], 
or by FAX to (202) 693-8474 by the end of the scheduled comment period. 
The application for exemption and the comments received will be 
available for public inspection in the Public Documents Room of the 
Employee Benefits Security Administration, U.S. Department of Labor, 
Room N-1515, 200 Constitution Avenue NW, Washington, DC 20210.
    Warning: All comments received will be included in the public 
record without change and may be made available online at http://www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be confidential or 
other information whose disclosure is restricted by statute. If you 
submit a comment, EBSA recommends that you include your name and other 
contact information in the body of your comment, but DO NOT submit 
information that you consider to be confidential, or otherwise 
protected (such as Social Security number or an unlisted phone number) 
or confidential business information that you do not want publicly 
disclosed. However, if EBSA cannot read your comment due to technical 
difficulties and cannot contact you for clarification, EBSA might not 
be able to consider your comment. Additionally, the http://www.regulations.gov website is an ``anonymous access'' system, which 
means EBSA will not know your identity or contact information unless 
you provide it in the body of your comment. If you send an email 
directly to EBSA without going through http://www.regulations.gov, your 
email address will be automatically captured and included as part of 
the comment that is placed in the public record and made available on 
the internet.

FOR FURTHER INFORMATION CONTACT: Mr. Brian Mica of the Department at 
(202) 693-8402. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: In March 2017, UBS and UBS France were 
charged with offenses under French law arising out of their cross-
border banking business. A trial was held in 2018, and the French court 
announced that it would issue a judgment on February 20, 2019. This 
judgment (the Potential 2019 French Judgment Against UBS/UBS France) 
may be adverse to UBS and/or UBS France. UBS recently requested that 
the Department issue an advisory opinion that an adverse judgment from

[[Page 3819]]

the French court would not disqualify UBS asset managers from acting as 
QPAMs under PTE 84-14 (described below) pursuant to the criminal 
disqualification set forth in Section I(g) of PTE 84-14. UBS requested 
that, if the Department was not prepared to issue the opinion, the 
Department issue a temporary exemption. The Department may not issue an 
Advisory Opinion before possible conviction and is proposing this 
temporary exemption.
    Certain UBS affiliates are acting as QPAMs pursuant to an 
individual exemption granted on December 29, 2017, which addresses 
prior convictions.\1\ This proposal uses the term ``Potential 2019 
French Judgment Against UBS/UBS France'' to describe an adverse 
judgment issued by a French court regarding case Number 1105592033. The 
Department is proposing this exemption to protect plans and IRAs that 
use UBS asset managers, from the costs and expenses that may arise in 
that instance, as represented by the Applicant. The temporary nature of 
this exemption gives the Department the opportunity to determine 
whether a longer term exemption is necessary and/or appropriate, 
including whether additional conditions are warranted.
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    \1\ See PTE 2017-07, 82 FR 61916 (December 29, 2017).
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    Comments received in response to this proposed one year temporary 
exemption will also be considered in connection with the Department's 
determination whether or not to grant any subsequent exemption. No 
relief from a violation of any other law would be provided by this 
exemption. Furthermore, the Department cautions that the relief in this 
exemption would terminate immediately if, among other things, an entity 
within the UBS corporate structure is convicted of a crime described in 
Section I(g) of PTE 84-14 (other than the 2013 Conviction, 2018 
Conviction, and the Potential 2019 French Judgment Against UBS/UBS 
France) or is convicted in a foreign jurisdiction for a crime described 
in Section I(g) of PTE 84-14, during the Exemption Period.
    While an entity could apply for a new exemption in that 
circumstance, the Department would not be obligated to grant the 
exemption. The terms of this proposed exemption have been specifically 
designed to permit Covered Plans, defined below, to terminate their 
relationships in an orderly and cost-effective fashion in the event of 
an additional conviction or a determination that it is otherwise 
prudent for a Covered Plan to terminate its relationship with an entity 
covered by the proposed exemption.

Summary of Facts and Representations 2
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    \2\ The Summary of Facts and Representations is based on the 
Applicants' representations, unless indicated otherwise.
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    1. UBS AG (UBS) is a Swiss-based global financial services company 
organized under the laws of Switzerland. UBS has banking divisions and 
subsidiaries throughout the world, with its United States headquarters 
located in New York, New York and Stamford, Connecticut. UBS itself 
does not provide investment management services to client plans that 
are subject to Part 4 of Title I of ERISA (ERISA plans) or section 4975 
of the Code (IRAs), or otherwise exercise discretionary control over 
ERISA assets. All ERISA assets are managed by U.S. affiliates of UBS.
    2. UBS Asset Management (Americas) Inc., UBS Realty Investors LLC, 
UBS Hedge Fund Solutions LLC, and UBS O'Connor LLC \3\ are currently 
the four UBS affiliates that rely on PTE 84-14. Collectively, these UBS 
QPAMs have total ERISA assets under management of approximately $11.5 
billion as of June 30, 2018, excluding ERISA assets invested in pooled 
funds that are not plan asset funds.
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    \3\ UBS Asset Management (Americas) Inc. and UBS Realty 
Investors LLC are wholly owned by UBS Americas, Inc., a wholly-owned 
subsidiary of UBS AG. UBS Hedge Fund Solutions LLC (formerly UBS 
Alternative and Quantitative Investments, LLC) and UBS O'Connor LLC 
are wholly owned by UBS Americas Holding LLC, a wholly owned 
subsidiary of UBS AG.
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    3. UBS Securities Japan was previously convicted of a crime that 
violated PTE 84-14's Section I(g), the anti-criminal provision.\4\ This 
crime was described in detail in PTE 2013-09 (September 13, 2013). UBS 
itself was previously convicted of a crime that violated PTE 84-14's 
Section I(g). That crime was described in detail in PTE 2017-07 
(December 29, 2017). Those individual exemptions allowed UBS QPAMs to 
continue to rely on PTE 84-14, notwithstanding the convictions, as long 
as a number of conditions were met.
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    \4\ Section I(g) of PTE 84-14 generally provides that 
``[n]either the QPAM nor any affiliate thereof . . . nor any owner . 
. . of a 5 percent or more interest in the QPAM is a person who 
within the 10 years immediately preceding the transaction has been 
either convicted or released from imprisonment, whichever is later, 
as a result of'' certain criminal activity therein described.
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    One of those conditions requires that UBS or any of its affiliates 
may not be further convicted of a crime described in Section I(g) of 
PTE 84-14.\5\ In the event of such a conviction, the Applicants would 
no longer be able to rely on PTE 2017-07, which permits them to avail 
themselves of PTE 84-14. This exemption, if granted, would provide 
relief for the UBS QPAMs to rely on PTE 84-14, notwithstanding the 2013 
Conviction, the 2018 Conviction, and the Potential 2019 French Judgment 
Against UBS/UBS France for a one-year period while the Department 
decides what, if any, additional action is appropriate.
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    \5\ The Department notes that Section I(g) was included in PTE 
84-14, in part, based on the expectation that a QPAM, and those who 
may be in a position to influence its policies, maintain a high 
standard of integrity.
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    4. Potential 2019 French Judgment Against UBS/UBS France. In 2013, 
France opened an investigation into UBS, UBS France, and certain former 
employees of UBS France S.A. The investigation centered on the 
maintenance of foreign (``cross-border'') UBS bank accounts held for 
private citizens. The investigating judges closed the investigation in 
February 2016. UBS and UBS France received the National Financial 
Prosecutor's recommendation (``requisitoire'') in July 2016 that 
charges be filed. The investigating judges issued the trial order 
(``Ordonnance de renvoi'') in March 2017 that set out the precise 
charges against UBS, UBS France, and the individual former employees. 
UBS was charged with (1) ``illicit solicitation,'' based on the alleged 
solicitation of French clients within French territory from 2004-2011 
by Swiss-based UBS client advisors without authorization to conduct 
such business in France; and (2) money laundering, based on UBS's 
alleged assistance from 2004 to 2012 to French taxpayers in opening 
bank accounts outside of France to conceal their identities from 
relevant authorities for the purposes of alleged tax evasion. UBS 
disputes the charges.
    5. The UBS QPAMs represent they are separate entities from the 
entities involved in alleged misconduct that may lead to the Potential 
2019 French Judgment Against UBS/UBS France and none of the UBS QPAMs 
(including their officers, directors, agents other than UBS, and 
employees) knew of, had reason to know of, or participated in the 
alleged conduct that is the subject of the French charges. The UBS 
QPAMs represent that no UBS QPAMs (including their officers, directors, 
agents other than UBS, and employees) received direct compensation, or 
knowingly received indirect compensation, in connection with the 
alleged conduct underlying the Potential 2019 French Judgment Against 
UBS/UBS France. Additionally, the UBS

[[Page 3820]]

QPAMs represent that no UBS QPAM exercised authority over the assets of 
any plan in a manner that it knew or should have known would further 
the alleged conduct underlying the French charges or otherwise cause 
any UBS QPAMs, their affiliates, or related parties to directly or 
indirectly profit from the alleged conduct underlying the French 
charges.
    6. The Department notes that the rules set forth in section 406 of 
ERISA and section 4975(c) of the Code proscribe certain ``prohibited 
transactions'' between plans and related parties with respect to those 
plans, known as ``parties in interest.'' \6\ Under section 3(14) of 
ERISA, parties in interest with respect to a plan include, among 
others, the plan fiduciary, a sponsoring employer of the plan, service 
providers with respect to the plan, and certain of their affiliates. 
The prohibited transaction provisions under section 406(a) of ERISA 
prohibit, in relevant part, sales, leases, loans or the provision of 
services between a party in interest and a plan (or an entity whose 
assets are deemed to constitute the assets of a plan), as well as the 
use of plan assets by or for the benefit of, or a transfer of plan 
assets to, a party in interest.\7\ Under section 408(a) of ERISA and 
section 4975(c)(2) of the Code, the Department has the authority to 
grant exemptions from such ``prohibited transactions'' in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 
66637, 66644, October 27, 2011).
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    \6\ For purposes of the Summary of Facts and Representations, 
references to specific provisions of Title I of ERISA, unless 
otherwise specified, refer also to the corresponding provisions of 
the Code.
    \7\ The prohibited transaction provisions also include certain 
fiduciary prohibited transactions under section 406(b) of ERISA. 
These include transactions involving fiduciary self-dealing, 
fiduciary conflicts of interest, and kickbacks to fiduciaries.
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    7. PTE 84-14 \8\ exempts certain prohibited transactions between a 
party in interest and an ``investment fund'' (as defined in Section VI 
(b) of PTE 84-14) \9\ in which a plan has an interest, if the 
investment manager satisfies the definition of ``qualified professional 
asset manager'' (QPAM) and satisfies additional conditions for the 
exemption. PTE 84-14 was developed and granted based on the essential 
premise that broad relief could be afforded for all types of 
transactions in which a plan engages only if the commitments and the 
investments of plan assets and the negotiations leading thereto are the 
sole responsibility of an independent, discretionary, manager.\10\ 
Section I(g) of PTE 84-14 generally provides that ``[n]either the QPAM 
nor any affiliate thereof . . . nor any owner . . . of a 5 percent or 
more interest in the QPAM is a person who within the 10 years 
immediately preceding the transaction has been either convicted or 
released from imprisonment, whichever is later, as a result of'' 
certain criminal activity therein described, such as felonies arising 
out of the conduct of the business of a broker, dealer, investment 
adviser or bank, or income tax evasion.
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    \8\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010).
    \9\ An ``investment fund'' includes single customer and pooled 
separate accounts maintained by an insurance company, individual 
trusts and common, collective or group trusts maintained by a bank, 
and any other account or fund to the extent that the disposition of 
its assets (whether or not in the custody of the QPAM) is subject to 
the discretionary authority of the QPAM.
    \10\ See 75 FR 38837, 38839 (July 6, 2010).
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    8. Section 408(a) of ERISA provides, in part, that the Department 
may not grant an exemption unless the Department finds that such 
exemption is administratively feasible, in the interest of affected 
plans and of their participants and beneficiaries, and protective of 
the rights of such participants and beneficiaries.
    9. In the interest of. The Department has tentatively determined 
that the proposed exemption is in the interests of the participants and 
beneficiaries of each affected ERISA plan and IRA. It is the 
Department's understanding, based on representations from the UBS 
QPAMs, that if the requested exemption were denied, the UBS QPAMs may 
be unable to effectively manage plan assets subject to ERISA or the 
prohibited transaction provisions of the Code. The UBS QPAMs state that 
this would cause client ERISA plans to question the prudence of 
retaining the UBS QPAMs as a manager of choice and client ERISA plans 
who otherwise want to retain the UBS QPAMs could feel compelled to find 
other managers who could manage their assets without having to either 
forgo transactions or rely on other more complex prohibited transaction 
exemptions.
    The UBS QPAMs have represented that if client ERISA plans were to 
move to new asset managers they could incur transition costs including 
the costs associated with identifying an asset manager (such as the 
costs and management time required in a Request for Proposal process, 
consultant fees and other due diligence expenses), brokerage and other 
transaction costs associated with the sale of portfolio investments to 
accommodate the investment policies and strategy of the new asset 
manager, the opportunity costs of holding cash pending investment by 
the new asset manager, and lost investment opportunities in connection 
with a change of asset managers. The UBS QPAMs claim that losing the 
ability to use PTE 84-14 would make it difficult, costly, and 
impracticable to enter into many transactions that are in the best 
interests of client plans, reducing plan choices, especially among 
large institutional financial banks.
    The UBS QPAMs represent further that if the requested exemption is 
not granted, ERISA plan clients may be effectively prohibited from 
entering into certain transactions, either because no other exemption 
is available or the counterparty is not willing to enter into the 
transaction without the protections provided by PTE 84-14. The UBS 
QPAMS state that these transactions would include those not covered by 
other exemptions such as a purchase or sale from a party in interest of 
a security without a readily ascertainable fair market value. The UBS 
QPAMs claim that the loss of the ability to utilize PTE 84-14 could 
significantly delay or even make impossible transactions that would be 
beneficial for the ERISA plans because other statutory and class 
prohibited transaction exemptions are not broad enough to cover such 
routine transactions entered at the direction of the UBS QPAMs. The UBS 
QPAMs also represent that counterparties could seek to terminate 
contracts for certain outstanding transactions (including swaps) that 
require the UBS QPAMs to represent that they are QPAMs and/or utilize 
PTE 84-14 and additionally, pursuant to these contracts, swap 
transactions with certain counterparties could automatically and 
immediately be terminated without any notice or action of such 
counterparties, even if other prohibited transaction exemptions are 
available. The UBS QPAMs further claim that such a termination could 
result in significant losses for the client ERISA plans that would be 
avoided if the exemption were granted.
    10. Protective of. The Department has tentatively determined that 
the exemption, as proposed, will be protective of the rights of 
participants and beneficiaries of affected plans. The proposal is for 
one year, and has essentially the same conditions as PTE 2017-07.\11\ 
However, the Department has determined to revise certain of those 
conditions so that it can make its required finding that the proposed 
one-year exemption will be protective of the rights of participants and 
beneficiaries

[[Page 3821]]

of affected plans and IRAs and are sufficient to protect plans subject 
to Part 4 of Title I of ERISA (an ERISA-covered plan) or plans subject 
to section 4975 of the Code (an IRA), in each case, with respect to 
which a UBS QPAM relies on PTE 84-14, or with respect to which a UBS 
QPAM (or any UBS affiliate) has expressly represented that the manager 
qualifies as a QPAM or relies on the QPAM class exemption (PTE 84-14) 
(Covered Plans).\12\
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    \11\ If longer term relief is warranted, the exemption may 
contain additional conditions.
    \12\ For purposes of this exemption, a Covered Plan does not 
include an ERISA-covered plan or IRA to the extent the UBS QPAM has 
expressly disclaimed reliance on QPAM status or PTE 84-14 in 
entering into a contract, arrangement, or agreement with the ERISA-
covered plan or IRA.
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    This proposed exemption, if granted, is effective for period of one 
year from a judgment, if any, against UBS or UBS France by the French 
First Instance Court in case Number 1105592033. As noted above, relief 
is necessary to the extent the judgment in the French First Instance 
Court constitutes a conviction under Section I(g) of PTE 84-14. If the 
Applicant submits an exemption request for longer term relief, and the 
Department subsequently determines that longer term relief is 
warranted, the effective period of this exemption will end on the 
earlier of one year from the date of judgment by the French First 
Instance Court or the effective date of the subsequent exemption. 
Several of the conditions are aimed at ensuring that the UBS QPAMs were 
not involved in the conduct that gave rise to any of the Convictions 
and the Potential 2019 French Judgment Against UBS/UBS France. 
Accordingly, the proposal generally precludes relief to the extent the 
UBS QPAMs and any other party engaged on behalf of such QPAMs who had 
responsibility for, or exercised authority in connection with the 
management of plan assets, were aware of, participated in, approved of, 
furthered, benefitted, or profited from, FX misconduct, the misconduct 
that is the subject of the 2013 and 2018 Convictions and the Potential 
2019 French Judgment Against UBS/UBS France.\13\ Further, the UBS QPAMs 
may not employ or knowingly engage any of the individuals that 
participated in the conduct attributable to the Convictions or the 
Potential 2019 French Judgment Against UBS/UBS France.
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    \13\ For clarity, references to the UBS QPAMs include any 
individual employed by or engaged to work on behalf of these QPAMs 
during or after the period of misconduct.
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    The proposal further provides that no UBS QPAM will use its 
authority or influence to direct an ``investment fund'' that is subject 
to ERISA or the Code and managed by such UBS QPAM with respect to one 
of more Covered Plans, to enter into any transaction with UBS, UBS 
Securities Japan, or UBS France, or engage UBS, UBS Securities Japan, 
or UBS France to provide any service to such investment fund, for a 
direct or indirect fee borne by such investment fund, regardless of 
whether such transaction or service may otherwise be within the scope 
of relief provided by an administrative or statutory exemption.
    If granted, the exemption will terminate if UBS or any of its 
affiliates are convicted of any additional crimes described in Section 
I(g) of PTE 84-14, or if any of the other conditions of PTE 84-14 have 
not been met. Also, with very limited exceptions, UBS, UBS Securities 
Japan, and UBS France may not act as a fiduciary within the meaning of 
section 3(21)(A)(i) or (iii) of ERISA, or section 4975(e)(3)(A) and (C) 
of the Code, with respect to ERISA-covered plan and IRA assets.
    The proposal requires each UBS QPAM to update, implement and follow 
certain written policies and procedures (the Policies). These Policies 
are similar to the policies and procedures mandated by PTE 2017-07. In 
general terms, the Policies must require, and must be reasonably 
designed to ensure that, among other things: The asset management 
decisions of the UBS QPAMs are conducted independently of the corporate 
management and business activities of UBS, UBS Securities Japan, and 
UBS France; the UBS QPAMs fully comply with ERISA's fiduciary duties, 
and with ERISA and the Code's prohibited transaction provisions; the 
UBS QPAMs do not knowingly participate in any other person's violation 
of ERISA or the Code with respect to Covered Plans; any filings or 
statements made by the UBS QPAMs to regulators, on behalf of or in 
relation to Covered Plans, are materially accurate and complete; the 
UBS QPAMs do not make material misrepresentations or omit material 
information in its communications with such regulators with respect to 
Covered Plans; or make material misrepresentations or omit material 
information in its communications with Covered Plans; the UBS QPAMs 
comply with the terms of this exemption; and any violation of, or 
failure to comply with any of these items, is corrected as soon as 
reasonably possible upon discovery, or as soon after the UBS QPAM 
reasonably should have known of the noncompliance (whichever is 
earlier). Any such violation or compliance failure not so corrected 
must be reported, upon the discovery of such failure to so correct, in 
writing, to appropriate corporate officers, the head of compliance and 
the General Counsel (or their functional equivalent), and the 
independent auditor responsible for reviewing compliance with the 
Policies and a fiduciary of any affected Covered Plan where such 
fiduciary is independent of UBS.
    This proposal mandates training (Training), which is similar to the 
training required under PTE 2017-07. In this regard, all relevant UBS 
QPAM asset/portfolio management, trading, legal, compliance, and 
internal audit personnel must be trained during the Exemption Period. 
Among other things, the Training must, at a minimum, cover the 
Policies, ERISA and Code compliance, ethical conduct, the consequences 
for not complying with the conditions of this exemption (including any 
loss of exemptive relief provided herein), and the requirement for 
prompt reporting of wrongdoing. The Training must be conducted by a 
professional who has been prudently selected and who has appropriate 
technical training and proficiency with ERISA and the Code.
    Under this proposal, as in PTE 2017-07, each UBS QPAM must submit 
to an audit conducted by an independent auditor.\14\ Among other 
things, the auditor must test a sample of each UBS QPAM's transactions 
involving Covered Plans, sufficient in size and nature to afford the 
auditor a reasonable basis to determine such QPAM's operational 
compliance with the Policies and Training. The auditor's conclusions 
cannot be based solely on the Exemption Report created by the 
Compliance Officer, described below, in lieu of independent 
determinations and testing performed by the auditor.
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    \14\ Audits covering time periods prior to the date of a 
judgment, if any, against UBS or UBS France by the French First 
Instance Court must be completed in accordance with the requirements 
of PTE 2017-07, as applicable. Accordingly, the last audit performed 
pursuant to PTE 2017-07 will cover the period beginning January 10, 
2018 and ending on the date a judgment, if any, is issued against 
UBS or UBS France by the French First Instance Court. The 
corresponding Audit Report must be completed within six months of 
the date of any such judgment and submitted to the Department within 
45 days of completion.
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    The Audit Report must be certified by the General Counsel or one of 
the three most senior executive officers of the UBS QPAM to which the 
Audit Report applies. A copy of the Audit Report must be provided to 
the Risk Committee of UBS's Board of Directors. Among other things, UBS 
must submit to the Office of Exemption Determinations (OED), any 
engagement agreement with an auditor to perform the audit required 
under the terms of this exemption that

[[Page 3822]]

is entered subsequent to the Potential 2019 French Judgment Against 
UBS/UBS France, no later than two (2) months after the execution of 
such agreement;
    This proposal requires that, as of the date of a judgment, if any, 
against UBS or UBS France by the French First Instance Court, and 
throughout the Exemption Period, with respect to any arrangement, 
agreement, or contract between a UBS QPAM and a Covered Plan, the UBS 
QPAM must agree and warrant: (i) To comply with ERISA and the Code, as 
applicable with respect to such Covered Plan; and (ii) to refrain from 
engaging in prohibited transactions that are not otherwise exempt (and 
to promptly correct any inadvertent prohibited transactions). The UBS 
QPAMs must further agree and warrant to comply with the standards of 
prudence and loyalty set forth in section 404 of ERISA with respect to 
each such ERISA-covered plan. Each UBS QPAM must also agree and warrant 
to indemnify and hold harmless such Covered Plan for any actual losses 
resulting directly from any of the following: (a) A UBS QPAM's 
violation of ERISA's fiduciary duties, as applicable, and/or the 
prohibited transaction provisions of ERISA and the Code, as applicable; 
(b) a breach of contract by the UBS QPAM; or (c) any claim arising out 
of the failure of such UBS QPAM to qualify for the exemptive relief 
provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 
84-14 other than the Conviction. This condition applies only to actual 
losses caused by the UBS QPAM. As noted above, the Applicant has 
identified a wide range of potential harm and costs that may be 
incurred by plans and IRAs if the UBS QPAMs were no longer able to rely 
on PTE 84-14. The Department views actual losses arising from unwinding 
transactions with third parties, and from transitioning Covered Plan 
assets to third parties, to be ``direct'' results of violating the 
terms of this provision.
    This exemption contains specific notice requirements. In this 
regard, by 60 days after the date of a judgment, if any, against UBS or 
UBS France by the French First Instance Court, each UBS QPAM will 
provide a notice of the exemption, along with a separate summary 
describing the facts that led to the Conviction (the Summary), which 
have been submitted to the Department, and a prominently displayed 
statement (the Statement) (collectively, Initial Notice) that the 
Convictions and the Potential 2019 French Judgment Against UBS/UBS 
France each separately result in a failure to meet a condition in PTE 
84-14 and/or PTE 2017-07, to each sponsor and beneficial owner of a 
Covered Plan, or the sponsor of an investment fund in any case where a 
UBS QPAM acts as a sub-advisor to the investment fund in which such 
ERISA-covered plan and IRA invests. All prospective Covered Plans that 
enter into a written asset or investment management agreement with a 
UBS QPAM on or after the date of the Initial Notice must receive a copy 
of the exemption, the Summary, and the Statement prior to, or 
contemporaneously with, the Covered Plan's receipt of a written asset 
management agreement from the UBS QPAM. The notice requirements shall 
operate in tandem to ensure that all Covered Plan clients receive 
either the Initial Notice or a subsequent notice. Disclosures may be 
delivered electronically.
    The proposal requires that each UBS QPAM maintain records necessary 
to demonstrate that the conditions of this exemption have been met, for 
six (6) years following the date of any transaction for which such UBS 
QPAM relies upon the relief in the exemption. The proposal mandates 
that UBS continue to designate a senior compliance officer (the 
Compliance Officer) who will be responsible for compliance with the 
Policies and Training requirements described herein. The Compliance 
Officer must conduct an exemption review (the Exemption Review) for the 
period beginning on the date of a judgment, if any, against UBS or UBS 
France by the French First Instance Court \15\ to determine the 
adequacy and effectiveness of the implementation of the Policies and 
Training. The Compliance Officer must be a professional with extensive 
relevant experience with a reporting line within UBS's Compliance and 
Operational Risk Control function to the Head of Compliance and 
Operational Rick Control, Asset Management. At a minimum, the Exemption 
Review must include review of the following items: (i) Any compliance 
matter related to the Policies or Training that was identified by, or 
reported to, the Compliance Officer during the previous year; (ii) any 
material change in the relevant business activities of the UBS QPAMs; 
and (iii) any change to ERISA, the Code, or regulations that may be 
applicable to the activities of the UBS QPAMs.
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    \15\ Pursuant to PTE 2017-07 the Compliance Officer must conduct 
and exemption review (annual review) for each period corresponding 
to the audit periods set forth in Section I(i)(1) of PTE 2017-07 and 
the Compliance officer's written report submitted to the Department 
within three (3) months of the end of the period to which it 
relates. Accordingly, the final exemption review pursuant to PTE 
2017-07 must cover the period January 10, 2018 through the date of a 
judgment, if any, against UBS or UBS France by the French First 
Instance Court, and the corresponding Compliance Officer's written 
report must be submitted within three (3) months of the date of such 
a judgment.
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    The Compliance Officer must prepare a written report (an Exemption 
Report) that summarizes his or her material activities during the 
Exemption Period and sets forth any instance of noncompliance 
discovered during the Exemption Period, and any related corrective 
action. In each Exemption Report, the Compliance Officer must certify 
in writing that to his or her knowledge the report is accurate and the 
UBS QPAMs have complied with the Policies and Training, and/or 
corrected (or are correcting) any instances of noncompliance.
    The Exemption Report must be provided to the appropriate corporate 
officers of UBS and each UBS QPAM to which such report relates and to 
the head of compliance and the General Counsel (or their functional 
equivalent) of the relevant UBS QPAM. The Exemption Report must be made 
unconditionally available to the independent auditor. The Exemption 
Review, including the Compliance Officer's written Exemption Report, 
must be completed within three (3) months following the end of the 
period to which it relates.
    UBS must also immediately disclose to the Department any Deferred 
Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA) 
with the U.S. Department of Justice, entered into by UBS or any of its 
affiliates (as defined in Section VI(d) of PTE 84-14) in connection 
with conduct described in Section I(g) of PTE 84-14 or section 411 of 
ERISA. UBS must also immediately provide the Department with any 
information requested by the Department, as permitted by law, regarding 
the agreement and/or conduct and allegations that led to the agreement.
    The proposal mandates that, among other things, each UBS QPAM 
clearly and prominently informs Covered Plan clients of their right to 
obtain a copy of the Policies or a description (Summary Policies) which 
accurately summarizes key components of the UBS QPAM's written Policies 
developed in connection with this exemption. If the Policies are 
thereafter changed, each Covered Plan client must receive a new 
disclosure within six (6) months following the end of the calendar year 
during which the Policies were

[[Page 3823]]

changed.\16\ With respect to this requirement, the description may be 
continuously maintained on a website, provided that such website link 
to the Policies or Summary Policies is clearly and prominently 
disclosed to each Covered Plan.
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    \16\ In the event Applicant meets this disclosure requirement 
through Summary Policies, changes to the Policies shall not result 
in the requirement for a new disclosure unless the Summary Policies 
are no longer accurate because of the changes.
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    The proposal requires that UBS QPAMs must comply with each 
condition of PTE 84-14, as amended, with the sole exception of the 
violations of Section I(g) of PTE 84-14 that are attributable to the 
Convictions and the Potential 2019 French Judgment Against UBS/UBS 
France. If, during the Exemption Period, an entity within the UBS 
corporate structure is convicted of a crime described in Section I(g) 
of PTE 84-14, (other than the 2013 Conviction, 2018 Conviction, and the 
Potential 2019 French Judgment Against UBS/UBS France), or is convicted 
in a foreign jurisdiction for a crime described in Section I(g) of PTE 
84-14, relief in this proposed exemption would terminate immediately.
    11. Administratively Feasible. The Department has tentatively 
determined that the proposal is administratively feasible since, among 
other things, a qualified independent auditor will be required to 
perform an in-depth audit covering, among other things, each UBS QPAM's 
compliance with the exemption, and a corresponding written audit report 
will be provided to the Department and available to the public.

Notice to Interested Persons

    Notice to interested persons is by publication of this notice of 
proposed temporary one-year exemption in the Federal Register. All 
written comments and/or requests for a hearing must be received by the 
Department within three days of the date of publication of this 
proposed exemption in the Federal Register.
    All comments will be made available to the public. Warning: If you 
submit a comment, EBSA recommends that you include your name and other 
contact information in the body of your comment, but DO NOT submit 
information that you consider to be confidential, or otherwise 
protected (such as a Social Security number or an unlisted phone 
number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemption, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

Proposed Exemption

    The Department is considering granting a one-year temporary 
exemption under the authority of section 408(a) of the Act (or ERISA) 
and section 4975(c)(2) of the Internal Revenue Code (or Code), and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011).\17\ Effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type requested to the Secretary of Labor. 
Therefore, this notice of proposed exemption is issued solely by the 
Department.
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    \17\ For purposes of this proposed one year temporary exemption, 
references to section 406 of Title I of the Act, unless otherwise 
specified, should be read to refer as well to the corresponding 
provisions of section 4975 of the Code.
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Section I. Covered Transactions

    If the proposed one year temporary exemption is granted, certain 
entities with specified relationships to UBS (hereinafter, the UBS 
QPAMs, as defined in Sections II(e)) will not be precluded from relying 
on the exemptive relief provided by Prohibited Transaction Class 
Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\18\ notwithstanding 
the 2013 Conviction of UBS Securities Japan Co., Ltd., the 2018 
Conviction of UBS (collectively the Convictions, as defined in Section 
II(a)), and the Potential 2019 French Judgment Against UBS/UBS France 
(as defined in Section II(b)) during the Exemption Period, provided 
that the following conditions are satisfied: \19\
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    \18\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430, 
(October 10, 1985), as amended at 70 FR 49305(August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as 
``PTE 84-14'' or the ``QPAM Exemption.''
    \19\ Section I(g) of PTE 84-14 generally provides that 
``[n]either the QPAM nor any affiliate thereof . . . nor any owner . 
. . of a 5 percent or more interest in the QPAM is a person who 
within the 10 years immediately preceding the transaction has been 
either convicted or released from imprisonment, whichever is later, 
as a result of'' certain criminal activity therein described.
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    (a) The UBS QPAMs (including their officers, directors, agents 
other than UBS, UBS Securities Japan, and UBS France), and employees of 
such UBS QPAMs and any other party engaged on behalf of such UBS QPAMs 
who had responsibility for, or exercised authority in connection with 
the management of plan assets did not know of, did not have reason to 
know of, or participate in: (1) The FX Misconduct; (2) the criminal 
conduct of UBS Securities Japan and UBS that is the subject of the 
Convictions; or (3) the alleged criminal conduct of UBS and UBS France 
that is the subject of the Potential 2019 French Judgment Against UBS/
UBS France. For purposes of this exemption, ``participate in'' refers 
not only to active participation in the FX Misconduct, the misconduct 
underlying the Convictions, and the alleged misconduct underlying the 
Potential 2019 French Judgment Against UBS/UBS France, but also to 
knowing approval of that misconduct, or knowledge of such misconduct

[[Page 3824]]

without taking active steps to prohibit such conduct, such as reporting 
the conduct to supervisors, including the Board of Directors;
    (b) The UBS QPAMs (including their officers, directors, agents 
other than UBS, UBS Securities Japan, and UBS France, and employees of 
such UBS QPAMs and any other parties engaged on behalf of such UBS 
QPAMs) did not receive direct compensation, or knowingly receive 
indirect compensation, in connection with the (1) the FX Misconduct; 
(2) the criminal conduct of UBS Securities Japan and UBS that is the 
subject of the Convictions; or (3) the alleged criminal conduct of UBS 
and UBS France that is the subject of the Potential 2019 French 
Judgment Against UBS/UBS France;
    (c) The UBS QPAMs will not employ or knowingly engage any of the 
individuals that participated in: (1) The FX Misconduct; (2) the 
criminal conduct of UBS Securities Japan and UBS that is the subject of 
the Convictions; or (3) the alleged criminal conduct of UBS and UBS 
France that is the subject of the Potential 2019 French Judgment 
Against UBS/UBS France;
    (d) At all times during the Exemption Period, no UBS QPAM will use 
its authority or influence to direct an ``investment fund'' (as defined 
in Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and 
managed by such UBS QPAM with respect to one or more Covered Plans (as 
defined in Section II(c)) to enter into any transaction with UBS, UBS 
Securities Japan, or UBS France or to engage UBS, UBS Securities Japan, 
or UBS France to provide any service to such investment fund, for a 
direct or indirect fee borne by such investment fund, regardless of 
whether such transaction or service may otherwise be within the scope 
of relief provided by an administrative or statutory exemption;
    (e) Any failure of the UBS QPAMs to satisfy Section I(g) of PTE 84-
14 arose solely from the Convictions and the Potential 2019 French 
Judgment Against UBS/UBS France;
    (f) A UBS QPAM did not exercise authority over the assets of any 
plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or 
section 4975 of the Code (an IRA) in a manner that it knew or should 
have known would: Further the FX Misconduct, the criminal conduct that 
is the subject of the Convictions, or the alleged criminal conduct that 
is the subject of the Potential 2019 French Judgment Against UBS/UBS 
France; or cause the UBS QPAM or its affiliates to directly or 
indirectly profit from the FX Misconduct, the criminal conduct that is 
the subject of the Convictions, or the alleged criminal conduct that is 
the subject of the Potential 2019 French Judgment Against UBS/UBS 
France;
    (g) Other than with respect to employee benefit plans maintained or 
sponsored for its own employees or the employees of an affiliate, UBS, 
UBS Securities Japan, and UBS France will not act as fiduciaries within 
the meaning of section 3(21)(A)(i) or (iii) of ERISA, or section 
4975(e)(3)(A) and (C) of the Code, with respect to ERISA-covered plan 
and IRA assets; provided, however, that UBS, UBS Securities Japan, and 
UBS France will not be treated as violating the conditions of this 
exemption solely because it acted as an investment advice fiduciary 
within the meaning of section 3(21)(A)(ii) of ERISA or section 
4975(e)(3)(B) of the Code;
    (h)(1) Each UBS QPAM must continue to maintain, adjust (to the 
extent necessary), implement, and follow written policies and 
procedures (the Policies). The Policies must require, and must be 
reasonably designed to ensure that:
    (i) The asset management decisions of the UBS QPAM are conducted 
independently of UBS's corporate management and business activities, 
including the corporate management and business activities of the 
Investment Bank division, UBS Securities Japan, and UBS France; this 
condition does not preclude a UBS QPAM from receiving publicly 
available research and other widely available information from a UBS 
affiliate;
    (ii) The UBS QPAM fully complies with ERISA's fiduciary duties, and 
with ERISA and the Code's prohibited transaction provisions, in each 
case as applicable with respect to each Covered Plan, and does not 
knowingly participate in any violation of these duties and provisions 
with respect to Covered Plans;
    (iii) The UBS QPAM does not knowingly participate in any other 
person's violation of ERISA or the Code with respect to Covered Plans;
    (iv) Any filings or statements made by the UBS QPAM to regulators, 
including, but not limited to, the Department, the Department of the 
Treasury, the Department of Justice, and the Pension Benefit Guaranty 
Corporation, on behalf of or in relation to Covered Plans, are 
materially accurate and complete, to the best of such QPAM's knowledge 
at that time;
    (v) To the best of the UBS QPAM's knowledge at that time, the UBS 
QPAM does not make material misrepresentations or omit material 
information in its communications with such regulators with respect to 
Covered Plans, or make material misrepresentations or omit material 
information in its communications with Covered Plans;
    (vi) The UBS QPAM complies with the terms of this exemption;
    (2) Any violation of, or failure to comply with an item in 
subparagraphs (h)(1)(ii) through (h)(1)(vi), is corrected as soon as 
reasonably possible upon discovery, or as soon after the QPAM 
reasonably should have known of the noncompliance (whichever is 
earlier), and any such violation or compliance failure not so corrected 
is reported, upon the discovery of such failure to so correct, in 
writing. Such report shall be made to the head of compliance and the 
General Counsel (or their functional equivalent) of the relevant UBS 
QPAM that engaged in the violation or failure, and, the independent 
auditor responsible for reviewing compliance with the Policies, and a 
fiduciary of any affected Covered Plan where such fiduciary is 
independent of UBS. Notwithstanding the foregoing, with respect to any 
Covered Plan sponsored by an ``affiliate'' (as defined in Section VI(d) 
of PTE 84-14) of UBS or beneficially owned by an employee of UBS or its 
affiliates, such fiduciary does not need to be independent of UBS. A 
UBS QPAM will not be treated as having failed to develop, implement, 
maintain, or follow the Policies, provided that it corrects any 
instance of noncompliance as soon as reasonably possible upon 
discovery, or as soon as reasonably possible after the QPAM reasonably 
should have known of the noncompliance (whichever is earlier), and 
provided that it adheres to the reporting requirements set forth in 
this subparagraph (vii);
    (3) Each UBS QPAM will maintain, adjust (to the extent necessary) 
and implement a program of training during the Exemption Period, to be 
conducted during the Exemption Period, for all relevant UBS QPAM asset/
portfolio management, trading, legal, compliance, and internal audit 
personnel. The Training must:
    (i) At a minimum, cover the Policies, ERISA and Code compliance 
(including applicable fiduciary duties and the prohibited transaction 
provisions), ethical conduct, the consequences for not complying with 
the conditions of this exemption (including any loss of exemptive 
relief provided herein), and prompt reporting of wrongdoing; and
    (ii) Be conducted by a professional who has been prudently selected 
and who has appropriate technical training

[[Page 3825]]

and proficiency with ERISA and the Code;
    (i)(1) Each UBS QPAM submits to an audit conducted by an 
independent auditor, who has been prudently selected and who has 
appropriate technical training and proficiency with ERISA and the Code, 
to evaluate the adequacy of, and each UBS QPAM's compliance with, the 
Policies and Training described herein. The audit requirement must be 
incorporated in the Policies. The audit must cover the Exemption Period 
and must be completed no later than six (6) months after the end of the 
exemption period. For time periods ending prior to a judgment, if any, 
against UBS or UBS France by the French First Instance Court and 
covered by the audit required pursuant to PTE 2017-07,\20\ the audit 
requirements in Section I(i) of PTE 2017-07 will remain in effect. The 
audit under PTE 2017-07 covering the time period from January 10, 2018 
until the date of a judgment, if any, against UBS or UBS France by the 
French First Instance Court must be completed within six (6) months of 
the date of any such judgment, and the corresponding certified Audit 
Report must be submitted to the Department no later than 45 days 
following the completion of such audit; \21\
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    \20\ 82 FR 61903 (December 29, 2017). PTE 2017-07 is an 
exemption that permits UBS QPAMs to rely on the exemptive relief 
provided by PTE 84-14, notwithstanding the 2013 and 2018 
Convictions.
    \21\ Pursuant to PTE 2017-07, the initial audit period begins on 
January 10, 2018 and ends on March 9, 2019, and the corresponding 
Audit Report must be completed by September 9, 2019 and the Audit 
Report submitted to the Department within 45 days after completion. 
Accordingly, the last audit performed pursuant to PTE 2017-07 will 
cover the period beginning January 10, 2018 and ending on the date 
of judgment, if any, against UBS or UBS France by the French First 
Instance Court. The corresponding Audit Report must be completed 
within six months of any such judgment and submitted to the 
Department within 45 days of completion.
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    (2) Within the scope of the audit and to the extent necessary for 
the auditor, in its sole opinion, to complete its audit and comply with 
the conditions for relief described herein, and only to the extent such 
disclosure is not prevented by state or federal statute, or involves 
communications subject to attorney client privilege, each UBS QPAM and, 
if applicable, UBS, will grant the auditor unconditional access to its 
business, including, but not limited to: Its computer systems; business 
records; transactional data; workplace locations; training materials; 
and personnel. Such access is limited to information relevant to the 
auditor's objectives as specified by the terms of this exemption;
    (3) The auditor's engagement must specifically require the auditor 
to determine whether each UBS QPAM has developed, implemented, 
maintained, and followed the Policies in accordance with the conditions 
of this exemption, and has developed and implemented the Training, as 
required herein;
    (4) The auditor's engagement must specifically require the auditor 
to test each UBS QPAM's operational compliance with the Policies and 
Training. In this regard, the auditor must test, for each UBS QPAM, a 
sample of such UBS QPAM's transactions involving Covered Plans, 
sufficient in size and nature to afford the auditor a reasonable basis 
to determine such UBS QPAM's operational compliance with the Policies 
and Training;
    (5) For the audit, on or before the end of the relevant period 
described in Section I(i)(1) for completing the audit, the auditor must 
issue a written report (the Audit Report) to UBS and the UBS QPAM to 
which the audit applies that describes the procedures performed by the 
auditor in connection with its examination. The auditor, at its 
discretion, may issue a single consolidated Audit Report that covers 
all the UBS QPAMs. The Audit Report must include the auditor's specific 
determinations regarding:
    (i) The adequacy of each UBS QPAM's Policies and Training; each UBS 
QPAM's compliance with the Policies and Training; the need, if any, to 
strengthen such Policies and Training; and any instance of the 
respective UBS QPAM's noncompliance with the written Policies and 
Training described in Section I(h) above. The UBS QPAM must promptly 
address any noncompliance. The UBS QPAM must promptly address or 
prepare a written plan of action to address any determination as to the 
adequacy of the Policies and Training and the auditor's recommendations 
(if any) with respect to strengthening the Policies and Training of the 
respective UBS QPAM. Any action taken or the plan of action to be taken 
by the respective UBS QPAM must be included in an addendum to the Audit 
Report (such addendum must be completed prior to the certification 
described in Section I(i)(7) below). In the event such a plan of action 
to address the auditor's recommendation regarding the adequacy of the 
Policies and Training is not completed by the time of submission of the 
Audit Report, the following period's Audit Report must state whether 
the plan was satisfactorily completed. Any determination by the auditor 
that a UBS QPAM has implemented, maintained, and followed sufficient 
Policies and Training must not be based solely or in substantial part 
on an absence of evidence indicating noncompliance. In this last 
regard, any finding that a UBS QPAM has complied with the requirements 
under this subparagraph must be based on evidence that the particular 
UBS QPAM has actually implemented, maintained, and followed the 
Policies and Training required by this exemption. Furthermore, the 
auditor must not solely rely on the Exemption Report created by the 
compliance officer (the Compliance Officer), as described in Section 
I(m) below, as the basis for the auditor's conclusions in lieu of 
independent determinations and testing performed by the auditor as 
required by Section I(i)(3) and (4) above; and
    (ii) The adequacy of the Exemption Review described in Section 
I(m);
    (6) The auditor must notify the respective UBS QPAM of any instance 
of noncompliance identified by the auditor within five (5) business 
days after such noncompliance is identified by the auditor, regardless 
of whether the audit has been completed as of that date;
    (7) With respect to the Audit Report, the General Counsel, or one 
of the three most senior executive officers of the UBS QPAM to which 
the Audit Report applies, must certify in writing, under penalty of 
perjury, that the officer has reviewed the Audit Report and this 
exemption; that, to the best of such officer's knowledge at the time, 
such UBS QPAM has addressed, corrected, remedied any noncompliance and 
inadequacy or has an appropriate written plan to address any inadequacy 
regarding the Policies and Training identified in the Audit Report. 
Such certification must also include the signatory's determination, 
that, to the best of such officer's knowledge at the time, the Policies 
and Training in effect at the time of signing are adequate to ensure 
compliance with the conditions of this exemption and with the 
applicable provisions of ERISA and the Code;
    (8) The Risk Committee of UBS's Board of Directors is provided a 
copy of the Audit Report; and a senior executive officer of UBS's 
Compliance and Operational Risk Control function must review the Audit 
Report for each UBS QPAM and must certify in writing, under penalty of 
perjury, that such officer has reviewed the Audit Report;
    (9) Each UBS QPAM provides its certified Audit Report, by regular 
mail to: Office of Exemption Determinations (OED), 200 Constitution 
Avenue NW, Suite 400, Washington, DC 20210; or by

[[Page 3826]]

private carrier to: 122 C Street NW, Suite 400, Washington, DC 20001-
2109. This delivery must take place no later than 45 days following 
completion of the Audit Report. The Audit Report will be made part of 
the public record regarding this exemption. Furthermore, each UBS 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) Any engagement agreement with an auditor to perform the audit 
required under the terms of this exemption that is entered subsequent 
to the date of a judgment, if any, against UBS or UBS France by the 
French First Instance Court must be submitted to OED no later than two 
(2) months after the execution of such agreement;
    (11) The auditor must provide the Department, upon request, for 
inspection and review, access to all the workpapers created and 
utilized in connection with the audit, provided such access and 
inspection is otherwise permitted by law; and
    (12) UBS must notify the Department of a change in the independent 
auditor no later than two (2) months after the engagement of a 
substitute or subsequent auditor and must provide an explanation for 
the substitution or change including a description of any material 
disputes between the terminated auditor and UBS;
    (j) As of the date of a judgment, if any, against UBS or UBS France 
by the French First Instance and throughout the Exemption Period, with 
respect to any arrangement, agreement, or contract between a UBS QPAM 
and a Covered Plan, the UBS QPAM agrees and warrants to Covered Plans:
    (1) To comply with ERISA and the Code, as applicable with respect 
to such Covered Plan; to refrain from engaging in prohibited 
transactions that are not otherwise exempt (and to promptly correct any 
inadvertent prohibited transactions); and to comply with the standards 
of prudence and loyalty set forth in section 404 of ERISA with respect 
to each such ERISA-covered plan and IRA to the extent that section 404 
is applicable;
    (2) To indemnify and hold harmless the Covered Plan for any actual 
losses resulting directly from: A UBS QPAM's violation of ERISA's 
fiduciary duties, as applicable, and of the prohibited transaction 
provisions of ERISA and the Code, as applicable; a breach of contract 
by the QPAM; or any claim arising out of the failure of such UBS QPAM 
to qualify for the exemptive relief provided by PTE 84-14 as a result 
of a violation of Section I(g) of PTE 84-14 other than the Convictions 
and the Potential 2019 French Judgment Against UBS/UBS France. This 
condition applies only to actual losses caused by the UBS QPAM's 
violations.
    (3) Not to require (or otherwise cause) the Covered Plan to waive, 
limit, or qualify the liability of the UBS QPAM for violating ERISA or 
the Code or engaging in prohibited transactions;
    (4) Not to restrict the ability of such Covered Plan to terminate 
or withdraw from its arrangement with the UBS QPAM with respect to any 
investment in a separately managed account or pooled fund subject to 
ERISA and managed by such QPAM, with the exception of reasonable 
restrictions, appropriately disclosed in advance, that are specifically 
designed to ensure equitable treatment of all investors in a pooled 
fund in the event such withdrawal or termination may have adverse 
consequences for all other investors. In connection with any such 
arrangements involving investments in pooled funds subject to ERISA 
entered into after the effective date of PTE 2017-07, the adverse 
consequences must relate to a lack of liquidity of the underlying 
assets, valuation issues, or regulatory reasons that prevent the fund 
from promptly redeeming an ERISA-covered plan's or IRA's investment, 
and such restrictions must be applicable to all such investors and be 
effective no longer than reasonably necessary to avoid the adverse 
consequences;
    (5) Not to impose any fees, penalties, or charges for such 
termination or withdrawal with the exception of reasonable fees, 
appropriately disclosed in advance, that are specifically designed to 
prevent generally recognized abusive investment practices or 
specifically designed to ensure equitable treatment of all investors in 
a pooled fund in the event such withdrawal or termination may have 
adverse consequences for all other investors, provided that such fees 
are applied consistently and in like manner to all such investors; and
    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting liability of the UBS QPAM for a violation of such agreement's 
terms. To the extent consistent with Section 410 of ERISA, however, 
this provision does not prohibit disclaimers for liability caused by an 
error, misrepresentation, or misconduct of a plan fiduciary or other 
party hired by the plan fiduciary who is independent of UBS and its 
affiliates, or damages arising from acts outside the control of the UBS 
QPAM;
    (7) Within six months of the date of a judgment, if any, against 
UBS or UBS France by the French First Instance Court, each UBS QPAM 
must provide a notice of its obligations under this Section I(j) to 
each Covered Plan. For prospective Covered Plans that enter into a 
written asset or investment management agreement with a UBS QPAM on or 
after the date of such a judgment, the UBS QPAM will agree to its 
obligations under this Section I(j) in an updated investment management 
agreement between the UBS QPAM and such clients or other written 
contractual agreement. This condition will be deemed met for each 
Covered Plan that received a notice pursuant to PTE 2016-17 and/or PTE 
2017-07 that meets the terms of this condition. Notwithstanding the 
above, a UBS QPAM will not violate the condition solely because a Plan 
or IRA refuses to sign an updated investment management agreement.
    (k) Within 60 days of a judgment, if any, against UBS or UBS France 
by the French First Instance Court, each UBS QPAM will provide a notice 
of the exemption, along with a separate summary describing the facts 
that led to the Convictions and the Potential 2019 French Judgment 
Against UBS/UBS France (the Summary), which have been submitted to the 
Department, and a prominently displayed statement (the Statement) 
(collectively, Initial Notice) that the Convictions and the Potential 
2019 French Judgment Against UBS/UBS France, each separately result in 
a failure to meet a condition in PTE 84-14 and PTE 2017-07, to each 
sponsor and beneficial owner of a Covered Plan, or the sponsor of an 
investment fund in any case where a UBS QPAM acts as a sub-advisor to 
the investment fund in which such ERISA-covered plan and IRA invests. 
Effective as of the date that is 60 days after the Potential 2019 
French Judgment Against UBS/UBS France Date, all Covered Plan clients 
that enter into a written asset or investment management agreement with 
a UBS QPAM after that date must receive a copy of the exemption, the 
Summary, and the Statement prior to, or contemporaneously with, the 
Covered Plan's receipt of a written asset management agreement from the 
UBS QPAM. Disclosures may be delivered electronically;
    (l) The UBS QPAMs must comply with each condition of PTE 84-14, as 
amended, with the sole exception of the violations of Section I(g) of 
PTE 84-14 that are attributable to the Convictions and the Potential 
2019 French Judgment

[[Page 3827]]

Against UBS/UBS France. If, during the Exemption Period, an entity 
within the UBS corporate structure is convicted of a crime described in 
Section I(g) of PTE 84-14, (other than the 2013 Conviction, 2018 
Conviction, and the Potential 2019 French Judgment Against UBS/UBS 
France), or is convicted in a foreign jurisdiction for a crime 
described in Section I(g) of PTE 84-14, relief in this proposed 
exemption would terminate immediately;
    (m)(1) UBS continues to designate a senior compliance officer (the 
Compliance Officer) who will be responsible for compliance with the 
Policies and Training requirements described herein. The Compliance 
Officer must conduct a review for the Exemption Period (the Exemption 
Review),\22\ 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:
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    \22\ Pursuant to PTE 2017-07 the Compliance Officer must conduct 
an exemption review (annual review) for each period corresponding to 
the audit periods set forth in Section I(i)(1) of PTE 2017-07 and 
the Compliance officer's written report submitted to the Department 
within three (3) months of the end of the period to which it 
relates. Accordingly, the final exemption review pursuant to PTE 
2017-07 must cover the period January 10, 2018 through the date of a 
judgment, if any, against UBS or UBS France by the French First 
Instance Court, and the corresponding Compliance Officer's written 
report must be submitted within three (3) months of any such 
judgment.
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    (i) The Compliance Officer must be a professional who has extensive 
experience with, and knowledge of, the regulation of financial services 
and products, including under ERISA and the Code; and
    (ii) The Compliance Officer must have a reporting line within UBS's 
Compliance and Operational Risk Control (C&ORC) function to the Head of 
Compliance and Operational Risk Control, Asset Management. The C&ORC 
function is organizationally independent of UBS's business divisions--
including Asset Management, the Investment Bank, and Global Wealth 
Management--and is led by the Global Head of C&ORC, who will report 
directly to UBS's Chief Risk Officer, the head of Group Compliance, 
Regulatory and Governance, or another appropriate member of the Group 
Executive Board;
    (2) With respect to the Exemption Review, the following conditions 
must be met:
    (i) The Exemption Review includes a review of the UBS QPAMs' 
compliance with and effectiveness of the Policies and Training and of 
the following: Any compliance matter related to the Policies or 
Training that was identified by, or reported to, the Compliance Officer 
or others within the C&ORC function during the previous year; the most 
recent Audit Report issued pursuant to this exemption or PTE 2017-07; 
any material change in the relevant business activities of the UBS 
QPAMs; and any change to ERISA, the Code, or regulations related to 
fiduciary duties and the prohibited transaction provisions that may be 
applicable to the activities of the UBS QPAMs;
    (ii) The Compliance Officer prepares a written report for the 
Exemption Review (an Exemption Report) that (A) summarizes his or her 
material activities during the Exemption Period; (B) sets forth any 
instance of noncompliance discovered during the Exemption Period, and 
any related corrective action; (C) details any change to the Policies 
or Training to guard against any similar instance of noncompliance 
occurring again; and (D) makes recommendations, as necessary, for 
additional training, procedures, monitoring, or additional and/or 
changed processes or systems, and management's actions on such 
recommendations;
    (iii) In the Exemption Report, the Compliance Officer must certify 
in writing that to the best of his or her knowledge at the time: (A) 
The report is accurate; (B) the Policies and Training are working in a 
manner which is reasonably designed to ensure that the Policies and 
Training requirements described herein are met; (C) any known instance 
of noncompliance during the Exemption Period and any related correction 
taken to date have been identified in the Exemption Report; and (D) the 
UBS QPAMs have complied with the Policies and Training, and/or 
corrected (or are correcting) any known instances of noncompliance in 
accordance with Section I(h) above;
    (iv) The Exemption Report must be provided to appropriate corporate 
officers of UBS and each UBS QPAM to which such report relates, and to 
the head of compliance and the General Counsel (or their functional 
equivalent) of the relevant UBS QPAM; and the report must be made 
unconditionally available to the independent auditor described in 
Section I(i) above;
    (v) The 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) UBS imposes its internal procedures, controls, and protocols on 
UBS Securities Japan to: (1) Reduce the likelihood of any recurrence of 
conduct that that is the subject of the 2013 Conviction, and (2) comply 
in all material respects with the Business Improvement Order, dated 
December 16, 2011, issued by the Japanese Financial Services Authority;
    (o) UBS complies in all material respects with the audit and 
monitoring procedures imposed on UBS by the U.S. Commodity Futures 
Trading Commission Order, dated December 19, 2012;
    (p) Each UBS QPAM will maintain records necessary to demonstrate 
that the conditions of this exemption have been met, for six (6) years 
following the date of any transaction for which such UBS QPAM relies 
upon the relief in the exemption;
    (q) During the Exemption Period, UBS must: (1) Immediately disclose 
to the Department any Deferred Prosecution Agreement (a DPA) or Non-
Prosecution Agreement (an NPA) with the U.S. Department of Justice, 
entered into by UBS or any of its affiliates (as defined in Section 
VI(d) of PTE 84-14) in connection with conduct described in Section 
I(g) of PTE 84-14 or section 411 of ERISA; and (2) immediately provides 
the Department any information requested by the Department, as 
permitted by law, regarding the agreement and/or conduct and 
allegations that led to the agreement;
    (r) Within six months from the date of a judgment, if any, against 
UBS or UBS France by the French First Instance Court, each UBS QPAM, in 
its agreements with, or in other written disclosures provided to 
Covered Plans, will clearly and prominently inform Covered Plan clients 
of their right to obtain a copy of the Policies or a description 
(Summary Policies) which accurately summarizes key components of the 
UBS QPAM's written Policies developed in connection with this 
exemption. If the Policies are thereafter changed, each Covered Plan 
client must receive a new disclosure within six (6) months following 
the end of the calendar year during which the Policies were 
changed.\23\ With respect to this requirement, the description may be 
continuously maintained on a website, provided that such website link 
to the Policies or Summary Policies is clearly and prominently 
disclosed to each Covered Plan; and
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    \23\ In the event the Applicant meets this disclosure 
requirement through Summary Policies, changes to the Policies shall 
not result in the requirement for a new disclosure unless, as a 
result of changes to the Policies, the Summary Policies are no 
longer accurate.
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    (s) A UBS QPAM will not fail to meet the terms of this exemption, 
solely because a different UBS QPAM fails to satisfy a condition for 
relief described in

[[Page 3828]]

Sections I(c), (d), (h), (i), (j), (k), (l), (p), or (r); or if the 
independent auditor described in Section I(i) fails a provision of the 
exemption other than the requirement described in Section I(i)(11), 
provided that such failure did not result from any actions or inactions 
of UBS or its affiliates.

Section II. Definitions

    (a) The term ``Convictions'' means the 2013 Conviction and the 2017 
Conviction. The term ``2013 Conviction'' means the judgment of 
conviction against UBS Securities Japan Co. Ltd. in case number 3:12-
cr-00268-RNC in the U.S. District Court for the District of Connecticut 
for one count of wire fraud in violation of Title 18, United States 
Code, sections 1343 and 2 in connection with submission of YEN London 
Interbank Offered Rates and other benchmark interest rates. The term 
``2018 Conviction'' means the judgment of conviction against UBS in 
case number 3:15-cr-00076-RNC in the U.S. District Court for the 
District of Connecticut for one count of wire fraud in violation of 
Title 18, United States Code, Sections 1343 and 2 in connection with 
UBS's submission of Yen London Interbank Offered Rates and other 
benchmark interest rates between 2001 and 2010. For all purposes under 
this exemption, ``conduct'' of any person or entity that is the 
``subject of the Convictions'' encompasses any conduct of UBS and/or 
their personnel, that is described in (i) Exhibit 3 to the Plea 
Agreement entered into between UBS and the Department of Justice 
Criminal Division, on May 20, 2015, in connection with case number 
3:15-cr-00076-RNC, and (ii) Exhibits 3 and 4 to the Plea Agreement 
entered into between UBS Securities Japan and the Department of Justice 
Criminal Division, on December 19, 2012, in connection with case number 
3:12-cr-00268-RNC;
    (b) The term ``Potential 2019 French Judgment Against UBS/UBS 
France'' includes any adverse judgment against UBS or UBS France 
regarding case Number 1105592033. For all purposes under this 
exemption, ``conduct'' of any person or entity that is the ``subject of 
the alleged criminal conduct that may be the subject of the Potential 
2019 French Judgment Against UBS/UBS France'' encompasses any conduct 
of UBS, its affiliates, or UBS France and/or their personnel that is 
described in any such judgment.
    (c) The term ``Covered Plan'' means a plan subject to Part IV of 
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to 
section 4975 of the Code (an ``IRA''), in each case, with respect to 
which a UBS QPAM relies on PTE 84-14, or with respect to which a UBS 
QPAM (or any UBS affiliate) has expressly represented that the manager 
qualifies as a QPAM or relies on the QPAM class exemption (PTE 84-14). 
A Covered Plan does not include an ERISA-covered plan or IRA to the 
extent the UBS QPAM has expressly disclaimed reliance on QPAM status or 
PTE 84-14 in entering into a contract, arrangement, or agreement with 
the ERISA-covered plan or IRA.
    (d) The term ``FX Misconduct'' means the conduct engaged in by UBS 
personnel described in Exhibit 1 of the Plea Agreement (Factual Basis 
for Breach) entered into between UBS and the Department of Justice 
Criminal Division, on May 20, 2015 in connection with Case Number 3:15-
cr-00076-RNC filed in the US District Court for the District of 
Connecticut.
    (e) The term ``UBS QPAM'' means UBS Asset Management (Americas) 
Inc., UBS Realty Investors LLC, UBS Hedge Fund Solutions LLC, UBS 
O'Connor LLC, and any future entity within the Asset Management or the 
Global Wealth Management Americas U.S. divisions of UBS that qualifies 
as a ``qualified professional asset manager'' (as defined in Section 
VI(a) of PTE 84-14) \24\ and that relies on the relief provided by PTE 
84-14, and with respect to which UBS is an ``affiliate'' (as defined in 
Part VI(d) of PTE 84-14). The term ``UBS QPAM'' excludes UBS securities 
Japan, the entity implicated in the criminal conduct that is the 
subject of the 2013 Conviction, UBS, the entity implicated in the 
criminal conduct that is the subject of the 2018 Conviction and 
implicated in the alleged criminal conduct that is the subject of the 
Potential 2019 French Judgment Against UBS/UBS France, and UBS France, 
the entity implicated in the alleged criminal conduct that is the 
subject of the Potential 2019 French Judgment Against UBS/UBS France.
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    \24\ In general terms, a QPAM is an independent fiduciary that 
is a bank, savings and loan association, insurance company, or 
investment adviser that meets certain equity or net worth 
requirements and other licensure requirements and that has 
acknowledged in a written management agreement that it is a 
fiduciary with respect to each plan that has retained the QPAM.
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    (f) The term ``UBS'' means UBS AG.
    (g) The term ``UBS France'' means ``UBS (France) S.A.,'' a wholly-
owned subsidiary of UBS incorporated under the laws of France.
    (h) The term ``UBS Securities Japan'' means UBS Securities Japan 
Co. Ltd, a wholly-owned subsidiary of UBS incorporated under the laws 
of Japan.
    (i) All references to ``the date of a judgment, if any, by the 
French First Instance Court'' refer to any judgment against UBS or UBS 
France in case number 1105592033;
    (j) The term ``Exemption Period'' means one year beginning on the 
date an adverse French judgment against UBS or UBS France regarding 
case Number 1105592033;
    (k) The term ``Plea Agreement'' means the Plea Agreement (including 
Exhibits 1 and 3 attached thereto) entered into between UBS and the 
Department of Justice Criminal Division, on May 20, 2015 in connection 
with Case Number 3:15-cr-00076-RNC filed in the US District Court for 
the District of Connecticut.
    Effective Date: If granted, the exemption discussed in this notice 
will be effective for one year from the date of judgment, if any, 
against UBS or UBS France by the French First Instance Court in case 
Number 1105592033.

    Signed at Washington, DC, this 8th day of February, 2019.
Lyssa Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2019-02218 Filed 2-11-19; 11:15 am]
 BILLING CODE 4510-29-P