[Federal Register Volume 88, Number 82 (Friday, April 28, 2023)]
[Notices]
[Pages 26336-26343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-08941]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2023-13; Exemption Application No. D-
12080]


Exemption From Certain Prohibited Transaction Restrictions 
Involving TT International Asset Management Ltd (TTI or the Applicant) 
Located in London, United Kingdom

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of exemption.

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SUMMARY: This document contains a notice of exemption issued by the 
Department of Labor (the Department) from certain of the prohibited 
transaction restrictions of the Employee Retirement Income Security Act 
of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 
(the Code). This exemption allows TTI to continue to rely on the 
exemptive relief provided by Prohibited Transaction Class Exemption 84-
14 (PTE 84-14 or the QPAM Exemption), notwithstanding the judgment of 
conviction against SMBC Nikko Securities, Inc. (Nikko Tokyo), as 
described below.

DATES: The exemption will be effective for a period of one year, 
beginning on February 13, 2023, and ending on February 12, 2024.

FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department 
at (202) 693-8456. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On January 10, 2023, the Department 
published a notice of proposed exemption in the Federal Register \1\ 
permitting TTI to continue to rely on the exemptive relief provided by 
the QPAM Exemption \2\ for a period of one year, notwithstanding the 
judgment of

[[Page 26337]]

conviction against TTI's affiliate, SMBC Nikko Securities, Inc. (Nikko 
Tokyo) for attempting to peg, fix or stabilize the prices of certain 
Japanese equity securities that Nikko Tokyo was attempting to place in 
a block offering (the Conviction).\3\ The Department is granting this 
exemption to ensure that the participants and beneficiaries of ERISA-
covered Plans and IRAs managed by TTI (together, Covered Plans) are 
protected.
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    \1\ 88 FR 1408 (January 10, 2023).
    \2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010).
    \3\ Section I(g) of PTE 84-14 generally provides that 
``[n]either the QPAM nor any affiliate thereof . . . nor any owner . 
. . of a 5 percent or more interest in the QPAM is a person who 
within the 10 years immediately preceding the transaction has been 
either convicted or released from imprisonment, whichever is later, 
as a result of'' certain crimes.
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    This exemption provides only the relief specified in the text of 
the exemption and does not provide relief from violations of any law 
other than the prohibited transaction provisions of Title I of ERISA 
and the Code expressly stated herein.
    The Department intends for the terms of this exemption to promote 
adherence by TTI to basic fiduciary standards under Title I of ERISA 
and the Code. An important objective in granting this exemption is to 
ensure that Covered Plans can terminate their relationships with TTI in 
an orderly and cost-effective fashion in the event the fiduciary of a 
Covered Plan determines that it is prudent to do so.
    Based on the Applicant's adherence to all the conditions of the 
exemption, the Department makes the requisite findings under ERISA 
Section 408(a) that the exemption is: (1) administratively feasible, 
(2) in the interest of Covered Plans and their participants and 
beneficiaries, and (3) protective of the rights of the participants and 
beneficiaries of Covered Plans. Accordingly, affected parties should be 
aware that the conditions incorporated in this exemption are, 
individually and taken as a whole, necessary for the Department to 
grant the relief requested by the Applicant. Absent these or similar 
conditions, the Department would not have granted this exemption.
    The Applicant requested an individual exemption pursuant to ERISA 
Section 408(a) in accordance with the procedures set forth in 29 CFR 
part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).

Background

    TTI is a global investment firm headquartered in London, UK. TTI is 
wholly owned by Sumitomo Mitsui Financial Group, Inc. (SMFG) and is 
currently a member of the Sumitomo Mitsui Banking Corporation group 
(the SMBC Group). The SMBC group provides asset management services 
through two subsidiaries. The first is TTI, which is managed 
independently of the broader SMBC Group. The second is Sumitomo Mitsui 
DS Asset Management Company, Limited, an investment manager 
headquartered in Tokyo. The SMBC Group also conducts securities market 
activities through the SMBC Nikko Securities franchise. As relevant to 
this exemption, that includes Nikko Tokyo, a Japanese broker-dealer.
    In offering investment management services, TTI operates as a QPAM 
in reliance on the QPAM Exemption.\4\ In this regard, TTI advises four 
segregated ERISA accounts on behalf of the ERISA-covered plans of two 
major U.S. employers \5\ and operates three segregated accounts for 
public pension plans, which currently hold approximately $1.1 billion 
in assets. TTI also manages three funds as ERISA ``plan asset'' \6\ 
funds.\7\
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    \4\ Currently, TTI is the only member of the SMBC group that is 
relying upon the QPAM Exemption. TTI states that it is possible that 
certain affiliates may seek ERISA business in the future that would 
require reliance on the QPAM Exemption. The exemption granted herein 
is limited to TTI.
    \5\ Together, these two ERISA-covered plans currently hold 
approximately $218 million in assets.
    \6\ The Department's Plan Asset Regulations provide as a general 
rule that, when an employee benefit plan governed by ERISA or 
Section 4975 of the Code invests in an entity, the Plan's assets 
include the Plan's investment but do not, solely by reason of such 
investment in the entity, include any of the underlying assets of 
the entity. However, where, as in the case of the three funds, the 
Plan's investment is an equity interest that is not a publicly 
offered security or a security issued by a company that is 
registered under the 1940 Act, the Plan's assets include both the 
equity interest and an undivided interest in each of the underlying 
assets of the entity unless one of the exceptions in the Plan Asset 
Regulations is satisfied. See 29 CFR 2510.3-101.
    \7\ The TT Emerging Markets Opportunities Fund II Limited, the 
TT Environmental Solutions Equity Master Fund II Limited, and the TT 
Non-U.S. Equity Master Fund Limited.
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    The QPAM Exemption exempts certain prohibited transactions between 
a party in interest and an ``investment fund'' (as defined in Section 
VI(b) of the QPAM Exemption) in which a plan has an interest if the 
investment manager with discretion over the investment of plan assets 
satisfies the definition of ``qualified professional asset manager'' 
and satisfies additional conditions of the exemption. The QPAM 
Exemption was developed and granted based on the essential premise that 
broad relief could be afforded for all types of transactions in which a 
plan engages only if the commitments and the investments of plan assets 
and the negotiations leading thereto are the sole responsibility of an 
independent, discretionary manager.\8\
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    \8\ See 75 FR 38837, 38839 (July 6, 2010).
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    Section I(g) of the QPAM Exemption prevents an entity that may 
otherwise meet the definition of QPAM from utilizing the exemptive 
relief provided, for itself and its client plans, if that entity, an 
``affiliate'' thereof,\9\ or any direct or indirect five percent or 
more owner in the QPAM has been either convicted or released from 
imprisonment, whichever is later, as a result of criminal activity 
described in section I(g) within the 10 years immediately preceding the 
transaction. Section I(g) was included in the QPAM Exemption, in part, 
based on the Department's expectation that a QPAM, and those who may be 
in a position to influence the QPAM's policies, must maintain a high 
standard of integrity.
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    \9\ Section VI(d) of PTE 84-14 defines the term ``affiliate'' 
for purposes of Section I(g) as ``(1) Any person directly or 
indirectly through one or more intermediaries, controlling, 
controlled by, or under common control with the person, (2) Any 
director of, relative of, or partner in, any such person, (3) Any 
corporation, partnership, trust or unincorporated enterprise of 
which such person is an officer, director, or a 5 percent or more 
partner or owner, and (4) Any employee or officer of the person 
who--(A) Is a highly compensated employee (as defined in section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of 
the yearly wages of such person), or (B) Has direct or indirect 
authority, responsibility or control regarding the custody, 
management or disposition of plan assets.''
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    On March 24, 2022, the Tokyo District Public Prosecutors Office 
charged Nikko Tokyo and four of its officers and employees in Tokyo 
District Court with violations of Japan's Financial Instruments and 
Exchange Act (the Misconduct).\10\ In connection with the charges, the 
Tokyo Public Prosecutor alleged that between December 2019 and November 
2020, Nikko Tokyo, through the actions of relevant officers, purchased 
shares of five issuers for its own account in an attempt to peg, fix, 
or stabilize the prices of those securities in anticipation of a block 
offer. This activity was intended to ensure that the price of the 
securities being sold through the block offering did not decline 
significantly, which would have potentially harmed Nikko Tokyo's 
interests.\11\
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    \10\ In these block offerings, the dealer typically makes money 
from the spread between the price at which it purchased the shares 
and the price at which it sells them.
    \11\ The Tokyo Public Prosecutor alleged that these 
``stabilization transactions'' violated Article 197 Paragraph 1, 
Item 5, Article 159, Paragraph 3, and Article 207, Paragraph 1, Item 
1 of the FIEA and Article 60 of the Penal Code.
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    On April 13, 2022, the Tokyo Public Prosecutor filed additional 
charges against Nikko Tokyo and two officers and employees of Nikko 
Tokyo for

[[Page 26338]]

engaging in similar conduct in connection with five additional block 
offerings between October 2020 and April 2021.\12\ The March 24, 2022, 
and April 13, 2022 charges against Nikko Tokyo were consolidated for 
purposes of the Tokyo District Court proceeding.
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    \12\ Charges were filed under Article 197 Paragraph 1, Item 5, 
Article 159, Paragraph 3, and Article 207, Paragraph 1, Item 1 of 
the FIEA and Article 60 of the Penal Code.
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    Both TTI and Nikko Tokyo are direct subsidiaries of SMFG and thus 
are affiliates for the purposes of Section I(g) of the QPAM Exemption. 
Once the Tokyo District Court issued its final decision and sentenced 
Nikko Tokyo in connection with the Conviction, Section I(g) was 
triggered and TTI, as well as TTI's Covered Plan clients, lost the 
ability to rely on the QPAM Exemption.
    On October 19, 2022, TTI submitted an exemption request to the 
Department that would permit TTI and its Covered Plan clients to 
continue to utilize the relief in the QPAM Exemption. In support of its 
exemption request, TTI asserts that Nikko Tokyo is a foreign affiliate 
with respect to TTI and has wholly separate businesses, operations, 
management, systems, premises, and legal and compliance personnel; that 
TTI was not involved in any way in the Misconduct; and that the 
Misconduct did not involve any ERISA assets. TTI further states that, 
since its acquisition by SMFG on February 28, 2020, TTI has remained a 
stand-alone business with distinct reporting lines, governance 
structures, and control frameworks.
    In its exemption application, TTI submits that Covered Plans would 
be harmed because of the resulting severe limitations on the investment 
transactions that would be available to them. Further, TTI states that 
Covered Plans could incur significant costs, including transaction 
costs, costs associated with finding and evaluating other managers, and 
costs associated with reinvesting assets with those new managers. These 
and other assertions regarding projected hardships to Covered Plans are 
presented in greater detail in the proposed exemption and the 
Department encourages readers to consult the proposed exemption for 
additional context.
    In its exemption application, TTI requested: (1) a longer five-year 
term of relief and (2) an exemption that would cover TTI and TTI's 
current and future affiliates and related entities. The Department, 
however, declined TTI's requests and instead proposed a limited one-
year term that applies exclusively to TTI. In this way, the Department 
would retain the ability to review TTI's adherence to the conditions 
set out in this exemption before considering a longer term of relief.
    The Department notes that this exemption includes protective 
conditions that allow Covered Plans to continue to utilize the services 
of TTI if they determine that it is prudent to do so. In this regard, 
this exemption allows Covered Plans to avoid cost and disruption to 
investment strategies that may arise if such Covered Plans are forced, 
on short notice, to hire a different QPAM or asset manager because TTI 
no longer is able to rely on the relief provided by PTE 84-14 due to 
the Conviction.

Written Comments

    In the proposed exemption, the Department invited all interested 
persons to submit written comments and/or requests for a public hearing 
with respect to the notice of proposed exemption by February 13, 2023. 
The Department received one written comment from the Applicant and no 
requests for a public hearing.

I. Comments From the Applicant

Comment 1: Certification of Audit Report

    Section III(i)(7) of the proposed exemption states the following: 
With respect to the Audit Report, the joint general manager of the 
Corporate Planning who has a direct reporting line to the highest-
ranking compliance officer of TTI must certify in writing, under 
penalty of perjury, that the officer has reviewed the Audit Report and 
this exemption . . . Notwithstanding the above, no person, including 
any person identified by Japanese authorities, who knew of, or should 
have known of, or participated in, any misconduct underlying the 
Conviction, by any party, may provide the certification required by 
this exemption, unless the person took active documented steps to stop 
the misconduct underlying the Conviction;
    Section III(i)(8) of the Proposed exemption provides: TTI's Board 
of Directors must be provided a copy of the Audit Report and the joint 
general manager of the Corporate Planning who has a direct reporting 
line to the highest-ranking compliance officer of TTI must review the 
Audit Report for TTI and certify in writing, under penalty of perjury, 
that such officer has reviewed the Audit Report;
    The Applicant agrees that TTI's Board of Directors and the joint 
general manager of the Corporate Planning Department are the 
appropriate recipients of the Audit Report and the appropriate persons 
to provide the certifications described in Section III(i)(8). However, 
the Applicant believes the Department should clarify the exemption to 
make clear that the Corporate Planning Department is a group-level 
function of SMFG. As a result, the joint general manager does not have 
a direct reporting line to the highest-ranking compliance officer of 
TTI; instead, the joint general manager will provide parent-level 
oversight of the Audit Report and TTI's compliance with the terms of 
the final Exemption.
    Additionally, given the Corporate Planning Department's distance 
from TTI's day-to-day operations, the Applicant believes that it would 
be appropriate for TTI's general counsel or one of its three most 
senior executive officers to provide the certification described in 
Section III(i)(7) as those individuals will be directly involved in 
ensuring that TTI complies with the exemption and will have the 
personal knowledge necessary to provide the required certifications. 
While the joint general manager's review will provide important parent-
level oversight to the process, they will not be directly involved in 
the audit or addressing any potential deficiencies.
    The Applicant requests that Section III(j)(7) be modified to read: 
With respect to the Audit Report, the general counsel, or one of the 
three most senior executive officers of the TTI affiliate to which the 
Audit Report applies must certify in writing, under penalty of perjury, 
that the officer has reviewed the Audit Report and this exemption . . .
    The Applicant also requests that Section III(i)(8) be modified to 
read: TTI's Board of Directors must be provided a copy of the Audit 
Report and the joint general manager of SMFG's Corporate Planning 
Department must review the Audit Report for TTI and certify in writing, 
under penalty of perjury, that such officer has reviewed the Audit 
Report;
    Department's Response: The Department agrees with the Applicant's 
requests and has modified Section (III)(i)(7). With respect to Section 
(III)(i)(8), the Department agrees with the Applicant's requested 
change, provided that the joint general manager of SMFG's Corporate 
Planning Department did not know of, have reason to known of, or 
participate in, any misconduct underlying the Conviction, unless such 
person took active documented steps to stop the misconduct underlying 
the Conviction. With respect to this last sentence, the Department 
emphasizes that this is an essential requirement of this exemption.

[[Page 26339]]

Comment 2: Entities in Corporate Structure

    Section III(l) of the proposed exemption provides: TTI must comply 
with each condition of PTE 84-14, as amended, with the sole exception 
of the violation of Section I(g) of PTE 84-14 that is attributable to 
the Conviction. If an entity within TTI's corporate structure is 
convicted of a crime described in Section I(g) of PTE 84-14 (other than 
the Conviction) during the Exemption Period,\13\ relief in this 
exemption would terminate immediately;
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    \13\ The Exemption Period is February 13, 2023, through February 
12, 2024.
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    The Applicant believes that the language used here--``an entity 
within TTI's corporate structure''--is imprecise. The Applicant 
requests that the Department replace ``an entity within TTI's corporate 
structure'' with ``an affiliate of TTI within the meaning of Section 
VI(d) of the QPAM Exemption.''
    Accordingly, the Applicant requests that Section III(l) be modified 
to read: TTI must comply with each condition of PTE 84-14, as amended, 
with the sole exception of the violation of Section I(g) of PTE 84-14 
that is attributable to the Conviction. If an affiliate of TTI's (as 
defined in Section VI(d) of PTE 84-14) is convicted of a crime 
described in Section I(g) of PTE 84-14 (other than the Conviction) 
during the Exemption Period, relief in this exemption would terminate 
immediately;
    Department's Response: The Department agrees with the Applicant's 
requests and has modified Section (III)(l) accordingly.

Comment 3: Exemption Period

    Section I(c) of the proposed exemption provides for a one-year 
Exemption Period (February 13, 2023 through February 12, 2024). The 
Applicant requests that the Department grant a permanent or multi-year 
exemption based on the remoteness of TTI's involvement in the conduct 
related to the Conviction. In support of this request, the Applicant 
states that Nikko Tokyo is a remote foreign affiliate of TTI and is not 
in the same vertical chain of ownership; that TTI had no role in, and 
received no benefit from, the misconduct underlying the Conviction; and 
that granting a permanent exemption is the appropriate solution to 
sufficiently protect both the public interest and the interests of plan 
participants.
    Department's Response: The Department declines to make the 
Applicant's requested change. In the Department's view, an immediate 
exemption is justifiable based on the existing record, as a means of 
protecting Covered Plans from possible losses that they might otherwise 
incur. The Department is not confident, however, that a longer period 
is appropriate based on the existing record and the limited time 
available for review. Under this approach, the Department retains the 
ability to review TTI's adherence to the conditions set out in this 
exemption and to further develop the record before granting a longer 
term.

Comment 4: Spelling of Nikko Tokyo

    In the introductory paragraph to the proposed exemption, the 
Department defines ``Nikko Tokyo'' as ``Sumitomo Mitsui Banking 
Corporation Nikko Securities, Inc.'' The Applicant states that Nikko 
Tokyo's legal name is ``SMBC Nikko Securities, Inc.''
    Department's Response: The Department acknowledges and accepts the 
Applicant's correction regarding the correct spelling of Nikko Tokyo.

II. Clarifications From the Department

Implementation of the Policies and Training

    Section III(h)(1) of the proposed exemption requires TTI to 
develop, implement, maintain, adjust (to the extent necessary), and 
follow the written policies and procedures (the Policies). Section 
III(h)(2) of the proposed exemption requires TTI to implement a 
training program (the Training) during the Exemption Period for all 
relevant TTI asset/portfolio management, trading, legal, compliance, 
and internal audit personnel.
    The Department is clarifying that TTI must develop and implement 
the Policies by a date that is six months after the effective date of 
this exemption. The Department is also clarifying that TTI must 
implement the Training by a date that is six months after the effective 
date of this exemption. The Department notes that a six-month 
development and implementation period for the Policies and Training is 
consistent with other recently granted QPAM exemptions.

Completion of the Audit Report

    Section (III)(i)(1) of the proposed exemption requires TTI to 
submit to an audit that covers the entire Exemption Period (February 
13, 2023 through February 12, 2024). The Department is clarifying that 
the associated audit report must be completed by August 12, 2024. The 
Department notes that a six-month period for completing the audit 
report is consistent with other recently granted QPAM exemptions.
    The complete application file (D-12080) is available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1515, U.S. Department of Labor, 200 
Constitution Avenue NW, Washington, DC 20210. For a more complete 
statement of the facts and representations supporting the Department's 
decision to grant this exemption, please refer to the notice of 
proposed exemption published on January 10, 2023, at 88 FR 1408.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under ERISA Section 408(a) does not relieve a fiduciary or other party 
in interest from certain requirements of other ERISA provisions, 
including but not limited to any prohibited transaction provisions to 
which the exemption does not apply and the general fiduciary 
responsibility provisions of ERISA Section 404, which, among other 
things, require a fiduciary to discharge their duties respecting the 
plan solely in the interest of the plan's participants and 
beneficiaries and in a prudent fashion in accordance with ERISA Section 
404(a)(1)(B).
    (2) As required by ERISA Section 408(a), the Department hereby 
finds that the exemption is: (a) administratively feasible; (b) in the 
interests of Covered Plans and their participants and beneficiaries; 
and (c) protective of the rights of the Covered Plan's participants and 
beneficiaries.
    (3) This exemption is supplemental to, and not in derogation of, 
any other ERISA provisions, including statutory or administrative 
exemptions and transitional rules. Furthermore, the fact that a 
transaction is subject to an administrative or statutory exemption is 
not dispositive for determining whether the transaction is in fact a 
prohibited transaction.
    (4) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describe all material terms of the transactions 
that are the subject of the exemption and are true at all times.
    Accordingly, after considering the entire record developed in 
connection with the Applicant's exemption application, the Department 
has determined to grant the following exemption under the authority of 
ERISA Section 408(a) in accordance with the

[[Page 26340]]

Department's exemption procedures set forth in 29 CFR part 2570, 
subpart B: \14\
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    \14\ 76 FR 66637, 66644 (October 27, 2011).
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Exemption

Section I. Definitions
    (a) The term ``Conviction'' means the judgment of conviction 
against SMBC Nikko Securities, Inc. (Nikko Tokyo) in Tokyo District 
Court for attempting to peg, fix or stabilize the prices of certain 
Japanese equity securities that Nikko Tokyo was attempting to place in 
a block offering that occurred on February 13, 2023.
    (b) The term ``Covered Plan'' means a plan subject to Part IV of 
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to Code 
section 4975 (an ``IRA''), in each case, with respect to which TTI 
relies on PTE 84-14, or with respect to which TTI has expressly 
represented that the manager qualifies as a QPAM or relies on the QPAM 
class exemption (PTE 84-14 or the QPAM Exemption). A Covered Plan does 
not include an ERISA-covered plan or IRA to the extent that TTI has 
expressly disclaimed reliance on QPAM status or PTE 84-14 in entering 
into a contract, arrangement, or agreement with the ERISA-covered plan 
or IRA.
    (c) The term ``Exemption Period'' means the one-year period 
beginning on the date of the Conviction.
    (d) The term ``TTI'' means TT International Asset Management Ltd, 
and does not include SMBC Nikko Securities, Inc. (Nikko Tokyo) or any 
other affiliates of TT International Asset Management Ltd.
Section II. Covered Transactions
    Under this exemption, TTI will not be precluded from relying on the 
exemptive relief provided by Prohibited Transaction Class Exemption 84-
14 (PTE 84-14 or the QPAM Exemption) notwithstanding the Conviction, as 
defined in Section I(a), during the Exemption Period, as defined in 
Section I(c) provided that the conditions set forth in Section III 
below are satisfied.
Section III. Conditions
    (a) TTI (including its officers, directors, agents other than Nikko 
Tokyo, and employees) did not know of, did not have reason to know of, 
and did not participate in the criminal conduct that is the subject of 
the Conviction. Further, any other party engaged on behalf of TTI who 
had responsibility for or exercised authority in connection with the 
management of plan assets did not know or have reason to know of and 
did not participate in the criminal conduct that is the subject of the 
Conviction. For purposes of this exemption, ``participate in'' refers 
not only to active participation in the criminal conduct of Nikko Tokyo 
that is the subject of the Conviction, but also to knowing approval of 
the criminal conduct or knowledge of such conduct without taking active 
steps to prohibit it, including reporting the conduct to such 
individual's supervisors, and Board of Directors;
    (b) TTI (including its officers, directors, employees, and agents, 
other than Nikko Tokyo) did not receive direct compensation, or 
knowingly receive indirect compensation, in connection with the 
criminal conduct that is the subject of the Conviction. Further, any 
other party engaged on behalf of TTI who had responsibility for, or 
exercised authority in connection with the management of plan assets 
did not receive direct compensation, or knowingly receive indirect 
compensation, in connection with the criminal conduct that is the 
subject of the Conviction;
    (c) TTI does not currently and will not in the future employ or 
knowingly engage any of the individuals that participated in the 
criminal conduct that is the subject of the Conviction.
    (d) At all times during the Exemption Period, TTI will not use its 
authority or influence to direct an ``investment fund'' (as defined in 
Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and 
managed by TTI in reliance on PTE 84-14, or with respect to which TTI 
has expressly represented to a Covered Plan that it qualifies as a QPAM 
or relies on the QPAM Exemption, to enter into any transaction with 
Nikko Tokyo, or to engage Nikko Tokyo to provide any service to such 
investment fund, for a direct or indirect fee borne by such investment 
fund, regardless of whether such transaction or service may otherwise 
be within the scope of relief provided by an administrative or 
statutory exemption;
    (e) Any failure of TTI to satisfy Section I(g) of PTE 84-14 arose 
solely from the Conviction;
    (f) TTI did not exercise authority over the assets of any Covered 
Plan in a manner that it knew or should have known would further the 
criminal conduct that is the subject of the Conviction or cause TTI or 
its affiliates to directly or indirectly profit from the criminal 
conduct that is the subject of the Conviction;
    (g) Other than with respect to employee benefit plans maintained or 
sponsored for its own employees or the employees of an affiliate, Nikko 
Tokyo will not act as a fiduciary within the meaning of ERISA Section 
3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) and (C), with 
respect to Covered Plan assets.
    (h)(1) By a date that is six (6) months after the effective date of 
this exemption, TTI must develop, implement, maintain, adjust (to the 
extent necessary), and follow the written policies and procedures (the 
Policies). The Policies must require and be reasonably designed to 
ensure that:
    (i) The asset management decisions of TTI are conducted 
independently of the corporate management and business activities of 
Nikko Tokyo;
    (ii) TTI fully complies with ERISA's fiduciary duties and with 
ERISA and the Code's prohibited transaction provisions, as applicable 
with respect to each Covered Plan, and does not knowingly participate 
in any violation of these duties and provisions with respect to Covered 
Plans;
    (iii) TTI does not knowingly participate in any other person's 
violation of ERISA or the Code with respect to Covered Plans;
    (iv) Any filings or statements made by TTI to regulators, 
including, but not limited to, the Department of Labor (the 
Department), the Department of the Treasury, the Department of Justice, 
and the Pension Benefit Guaranty Corporation, on behalf of or in 
relation to Covered Plans, are materially accurate and complete to the 
best of such QPAM's knowledge at that time;
    (v) To the best of TTI's knowledge at the time, TTI does not make 
material misrepresentations or omit material information in its 
communications with such regulators with respect to Covered Plans or 
make material misrepresentations or omit material information in its 
communications with Covered Plans;
    (vi) TTI complies with the terms of this exemption; and
    (vii) Any violation of or failure to comply with an item in 
subparagraphs (ii) through (vi) is corrected as soon as reasonably 
possible upon discovery or as soon after the TTI reasonably should have 
known of the noncompliance (whichever is earlier), and any such 
violation or compliance failure not so corrected is reported, upon the 
discovery of such failure to so correct, in writing, to the head of 
compliance and the general counsel (or their functional equivalent) of 
TTI, and the independent auditor responsible for reviewing compliance 
with the Policies. TTI will not be treated as having failed to develop, 
implement, maintain, or follow the Policies, provided it corrects any 
instance of noncompliance as soon as reasonably possible upon 
discovery, or as soon as reasonably possible after TTI reasonably 
should have known of

[[Page 26341]]

the noncompliance (whichever is earlier), and provided it adheres to 
the reporting requirements set forth in this subparagraph (vii);
    (2) By a date that is six (6) months after the effective date of 
this exemption, TTI must implement a training program (the Training) 
during the Exemption Period for all relevant TTI asset/portfolio 
management, trading, legal, compliance, and internal audit personnel. 
The Training required under this exemption may be conducted 
electronically and must: (a) at a minimum, cover the Policies, ERISA 
and Code compliance (including applicable fiduciary duties and the 
prohibited transaction provisions), ethical conduct, the consequences 
for not complying with the conditions of this exemption (including any 
loss of exemptive relief provided herein), and prompt reporting of 
wrongdoing; and (b) be conducted by a professional who has been 
prudently selected and who has appropriate technical training and 
proficiency with ERISA and the Code to perform the tasks required by 
this exemption;
    (i)(1) TTI must submit to an audit by an independent auditor who 
has been prudently selected and who has appropriate technical training 
and proficiency with ERISA and the Code, to evaluate the adequacy of 
and TTI's compliance with the Policies and Training conditions 
described herein. The audit requirement must be incorporated in the 
Policies. The audit must cover the entire Exemption Period and must be 
completed by August 12, 2024.
    (2) Within the scope of the audit and to the extent necessary for 
the auditor, in its sole opinion, to complete its audit and comply with 
the conditions for relief described herein, TTI will grant the auditor 
unconditional access to its businesses, including, but not limited to: 
its computer systems; business records; transactional data; workplace 
locations; training materials; and personnel. Such access will be 
provided only to the extent that it is not prevented by state or 
federal statute, or involves communications subject to attorney client 
privilege and may be limited to information relevant to the auditor's 
objectives as specified by the terms of this exemption;
    (3) The auditor's engagement must specifically require the auditor 
to determine whether TTI has developed, implemented, maintained, and 
followed the Policies in accordance with the conditions of this 
exemption, and has developed and implemented the Training, as required 
herein;
    (4) The auditor's engagement must specifically require the auditor 
to test TTI's operational compliance with the Policies and Training 
conditions. In this regard, the auditor must test, for TTI, 
transactions involving Covered Plans sufficient in size, number, and 
nature to afford the auditor a reasonable basis to determine TTI's 
operational compliance with the Policies and Training;
    (5) Before the end of the relevant period for completing the audit, 
the auditor must issue a written report (the Audit Report) to TTI that 
describes the procedures performed by the auditor during the course of 
its examination. The Audit Report must include the auditor's specific 
determinations regarding:
    (i) the adequacy of TTI's Policies and Training; TTI's compliance 
with the Policies and Training conditions; the need, if any, to 
strengthen such Policies and Training; and any instance of TTI's 
noncompliance with the written Policies and Training described in 
Section III(h) above. TTI must promptly address any noncompliance and 
promptly address or prepare a written plan of action to address any 
determination by the auditor regarding the adequacy of the Policies and 
Training and the auditor's recommendations (if any) with respect to 
strengthening the Policies and Training. Any action taken, or the plan 
of action to be taken by TTI must be included in an addendum to the 
Audit Report (and such addendum must be completed before the 
certification described in Section III(i)(7) below). In the event such 
a plan of action to address the auditor's recommendation regarding the 
adequacy of the Policies and Training is not completed by the time the 
Audit Report is submitted, the following period's Audit Report must 
state whether the plan was satisfactorily completed. Any determination 
by the auditor that TTI has implemented, maintained, and followed 
sufficient Policies and Training must not be based solely or in 
substantial part on an absence of evidence indicating noncompliance. In 
this last regard, any finding that TTI has complied with the 
requirements under this subparagraph must be based on evidence that TTI 
has actually implemented, maintained, and followed the Policies and 
Training required by this exemption. Furthermore, the auditor must not 
solely rely on the Report created by the compliance officer (the 
Compliance Officer), as described in Section III(m) below, as the basis 
for the auditor's conclusions in lieu of independent determinations and 
testing performed by the auditor, as required by Section III(i)(3) and 
(4) above; and
    (ii) The adequacy of the Review described in Section III(m);
    (6) The auditor must notify TTI of any instance of noncompliance 
identified by the auditor within five (5) business days after such 
noncompliance is identified by the auditor, regardless of whether the 
audit has been completed as of that date;
    (7) With respect to the Audit Report, the general counsel, or one 
of the three most senior executive officers of the TTI affiliate to 
which the Audit Report applies must certify in writing, under penalty 
of perjury, that the officer has reviewed the Audit Report and this 
exemption and that to the best of such officer's knowledge at the time, 
TTI has addressed, corrected or remedied any noncompliance and 
inadequacy, or has an appropriate written plan to address any 
inadequacy regarding the Policies and Training identified in the Audit 
Report. The certification must also include the signatory's 
determination that the Policies and Training in effect at the time of 
signing are adequate to ensure compliance with the conditions of this 
exemption and with the applicable provisions of ERISA and the Code. 
Notwithstanding the above, no person, including any person identified 
by Japanese authorities, who knew of, or should have known of, or 
participated in, any misconduct underlying the Conviction, by any 
party, may provide the certification required by this exemption, unless 
the person took active documented steps to stop the misconduct 
underlying the Conviction;
    (8) TTI's Board of Directors must be provided a copy of the Audit 
Report and the joint general manager of SMFG's Corporate Planning 
Department must review the Audit Report for TTI and certify in writing, 
under penalty of perjury, that such officer has reviewed the Audit 
Report. With respect to this subsection (8), such certifying joint 
general manager must not have known of, had reason to known of, or 
participated in, any misconduct underlying the Conviction, unless such 
person took active documented steps to stop the misconduct underlying 
the Conviction.
    (9) TTI must provide its certified Audit Report, by electronic mail 
to [email protected]. This delivery must take place no later than thirty 
(30) days following completion of the Audit Report. The Audit Report 
will be made part of the public record regarding this exemption. 
Furthermore, TTI must make its Audit Report unconditionally available, 
electronically or otherwise, for examination upon request by any

[[Page 26342]]

duly authorized employee or representative of the Department, other 
relevant regulators, and any fiduciary of a Covered Plan;
    (10) TTI and the auditor must submit to [email protected], any 
engagement agreement(s) entered into pursuant to the engagement of the 
auditor under this exemption no later than two (2) months after the 
execution of any such engagement agreement;
    (11) The auditor must provide the Department, upon request, access 
to all the workpapers it created and utilized in the course of the 
audit for inspection and review, provided such access and inspection is 
otherwise permitted by law; and
    (12) TTI must notify the Department of a change in the independent 
auditor no later than 60 days after the engagement of a substitute or 
subsequent auditor and must provide an explanation for the substitution 
or change including a description of any material disputes between the 
terminated auditor and TTI;
    (j) Throughout the Exemption Period, with respect to any 
arrangement, agreement, or contract between TTI and a Covered Plan, TTI 
agrees and warrants:
    (1) To comply with ERISA and the Code, as applicable with respect 
to such Covered Plan; refrain from engaging in prohibited transactions 
that are not otherwise exempt (and to promptly correct any prohibited 
transactions); and comply with the standards of prudence and loyalty 
set forth in ERISA Section 404 with respect to each such Covered Plan, 
to the extent that section is applicable;
    (2) To indemnify and hold harmless the Covered Plan for any actual 
losses resulting directly from TTI's violation of ERISA's fiduciary 
duties, as applicable, and of the prohibited transaction provisions of 
ERISA and the Code, as applicable; a breach of contract by TTI; or any 
claim arising out of the failure of TTI to qualify for the exemptive 
relief provided by PTE 84-14 as a result of a violation of Section I(g) 
of PTE 84-14, other than the Conviction. This condition applies only to 
actual losses caused by TTI's violations. Actual losses include losses 
and related costs arising from unwinding transactions with third 
parties and from transitioning Plan assets to an alternative asset 
manager as well as costs associated with any exposure to excise taxes 
under Code Section 4975 because of TTI's inability to rely upon the 
relief in the QPAM Exemption.
    (3) Not to require (or otherwise cause) the Covered Plan to waive, 
limit, or qualify the liability of TTI for violating ERISA or the Code 
or engaging in prohibited transactions;
    (4) Not to restrict the ability of the Covered Plan to terminate or 
withdraw from its arrangement with TTI with respect to any investment 
in a separately managed account or pooled fund subject to ERISA and 
managed by TTI, with the exception of reasonable restrictions, 
appropriately disclosed in advance, that are specifically designed to 
ensure equitable treatment of all investors in a pooled fund in the 
event such withdrawal or termination may have adverse consequences for 
all other investors. In connection with any of these arrangements 
involving investments in pooled funds subject to ERISA entered into 
after the effective date of this exemption, the adverse consequences 
must relate to a lack of liquidity of the underlying assets, valuation 
issues, or regulatory reasons that prevent the fund from promptly 
redeeming a Covered Plan's investment, and the restrictions must be 
applicable to all such investors and effective no longer than 
reasonably necessary to avoid the adverse consequences;
    (5) Not to impose any fees, penalties, or charges for such 
termination or withdrawal with the exception of reasonable fees, 
appropriately disclosed in advance, that are specifically designed to 
prevent generally recognized abusive investment practices or 
specifically designed to ensure equitable treatment of all investors in 
a pooled fund in the event the withdrawal or termination may have 
adverse consequences for all other investors, provided that such fees 
are applied consistently and in like manner to all such investors;
    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting the liability of TTI for a violation of such agreement's 
terms. To the extent consistent with ERISA Section 410, however, this 
provision does not prohibit disclaimers for liability caused by an 
error, misrepresentation, or misconduct of a plan fiduciary or other 
party hired by the plan fiduciary who is independent of TTI and its 
affiliates, or damages arising from acts outside the control of TTI; 
and
    (7) TTI must provide a notice of its obligations under this Section 
III(j) to each Covered Plan. For all other prospective Covered Plans, 
TTI must agree to its obligations under this Section III(j) in an 
updated investment management agreement between TTI and such clients or 
other written contractual agreement. Notwithstanding the above, TTI 
will not violate this condition solely because a Covered Plan refuses 
to sign an updated investment management agreement;
    (k) Within 60 days after the effective date of this exemption, TTI 
provides notice of the exemption as published in the Federal Register, 
along with a separate summary describing the facts that led to the 
Conviction (the Summary), which has been submitted to the Department, 
and a prominently displayed statement (the Statement) that the 
Conviction results in a failure to meet a condition in PTE 84-14 to 
each sponsor and beneficial owner of a Covered Plan that has entered 
into a written asset or investment management agreement with TTI. All 
prospective Covered Plan clients that enter into a written asset or 
investment management agreement with TTI after a date that is 60 days 
after the effective date of this exemption must receive a copy of the 
notice of the exemption, the Summary, and the Statement before, or 
contemporaneously with, the Covered Plan's receipt of a written asset 
or investment management agreement from TTI. The notices may be 
delivered electronically (including by an email that has a link to the 
exemption). Notwithstanding the above, TTI will not violate the 
condition solely because a Covered Plan refuses to sign an updated 
investment management agreement.
    (l) TTI must comply with each condition of PTE 84-14, as amended, 
with the sole exception of the violation of Section I(g) of PTE 84-14 
that is attributable to the Conviction. If an affiliate of TTI's (as 
defined in Section VI(d) of PTE 84-14) is convicted of a crime 
described in Section I(g) of PTE 84-14 (other than the Conviction) 
during the Exemption Period, relief in this exemption would terminate 
immediately;
    (m)(1) Within 60 days after the effective date of this exemption, 
TTI must designate a senior compliance officer (the Compliance Officer) 
who will be responsible for compliance with the Policies and Training 
requirements described herein. Notwithstanding the above, no person, 
including any person referenced in the indictment that gave rise to the 
Conviction, who knew of, or should have known of, or participated in, 
any misconduct described in the indictment, by any party, may be 
involved with the designation or responsibilities required by this 
condition unless the person took active documented steps to stop the 
misconduct. The Compliance Officer must conduct a review of the 
Exemption Period (the Exemption Review), to determine the adequacy and 
effectiveness of the implementation of the Policies and Training. With 
respect

[[Page 26343]]

to the Compliance Officer, the following conditions must be met:
    (i) The Compliance Officer must be a professional who has extensive 
experience with, and knowledge of, the regulation of financial services 
and products, including under ERISA and the Code; and
    (ii) The Compliance Officer must have a direct reporting line to 
the highest-ranking corporate officer in charge of legal compliance for 
asset management.
    (2) With respect to the Exemption Review, the following conditions 
must be met:
    (i) The Exemption Review includes a review of TTI's compliance with 
and effectiveness of the Policies and Training and of the following: 
any compliance matter related to the Policies or Training that was 
identified by, or reported to, the Compliance Officer or others within 
the compliance and risk control function (or its equivalent) during the 
previous year; any material change in the relevant business activities 
of TTI; and any change to ERISA, the Code, or regulations related to 
fiduciary duties and the prohibited transaction provisions that may be 
applicable to the activities of TTI;
    (ii) The Compliance Officer prepares a written report for the 
Exemption Review (an Exemption Report) that (A) summarizes their 
material activities during the Exemption Period; (B) sets forth any 
instance of noncompliance discovered during the Exemption Period, and 
any related corrective action; (C) details any change to the Policies 
or Training to guard against any similar instance of noncompliance 
occurring again; and (D) makes recommendations, as necessary, for 
additional training, procedures, monitoring, or additional and/or 
changed processes or systems, and management's actions on such 
recommendations;
    (iii) In the Exemption Report, the Compliance Officer must certify 
in writing that to the best of their knowledge at the time: (A) the 
report is accurate; (B) the Policies and Training are working in a 
manner which is reasonably designed to ensure that the Policies and 
Training requirements described herein are met; (C) any known instance 
of noncompliance during the prior year and any related correction taken 
to date have been identified in the Exemption Report; and (D) TTI 
complied with the Policies and Training, and/or corrected (or are 
correcting) any known instances of noncompliance in accordance with 
Section III(h) above;
    (iv) The Exemption Report must be provided to appropriate corporate 
officers of TTI; the head of compliance and the general counsel (or 
their functional equivalent) of TTI; and must be made unconditionally 
available to the independent auditor described in Section III(i) above;
    (v) The Exemption Review, including the Compliance Officer's 
written Report, must be completed within 90 days following the end of 
the period to which it relates.
    (n) TTI imposes internal procedures, controls, and protocols to 
reduce the likelihood of any recurrence of conduct that is the subject 
of the Conviction;
    (o) Nikko Tokyo complies in all material respects with any 
requirements imposed by a U.S. regulatory authority in connection with 
the Conviction;
    (p) TTI maintains records necessary to demonstrate that the 
conditions of this exemption have been met for six (6) years following 
the date of any transaction for which TTI relies upon the relief in 
this exemption;
    (q) During the Exemption Period, TTI must: (1) immediately disclose 
to the Department any Deferred Prosecution Agreement (a DPA) or Non-
Prosecution Agreement (an NPA) with the U.S. Department of Justice, 
entered into by TTI or any of its affiliates (as defined in Section 
VI(d) of PTE 84-14) in connection with conduct described in Section 
I(g) of PTE 84-14 or ERISA Section 411; and (2) immediately provide the 
Department with any information requested by the Department, as 
permitted by law, regarding the agreement and/or conduct and 
allegations that led to the agreement;
    (r) Within 60 days after the effective date of this exemption, TTI, 
in its agreements with, or in other written disclosures provided to 
Covered Plans, will clearly and prominently inform Covered Plan clients 
of their right to obtain a copy of the Policies or a description 
(Summary Policies) which accurately summarizes key components of TTI's 
written Policies developed in connection with this exemption. If the 
Policies are thereafter changed, each Covered Plan client must receive 
a new disclosure within 180 days following the end of the calendar year 
during which the Policies were changed. If TTI meets this disclosure 
requirement through Summary Policies, changes to the Policies shall not 
result in the requirement for a new disclosure unless, as a result of 
changes to the Policies, the Summary Policies are no longer accurate. 
With respect to this requirement, the description may be continuously 
maintained on a website, provided that such website link to the 
Policies or Summary Policies is clearly and prominently disclosed to 
each Covered Plan; and
    (s) All the material facts and representations set forth in the 
Summary of Facts and Representations are true and accurate.
    Exemption Date: This exemption is in effect for a period of one 
year, beginning on February 13, 2023, and ending on February 12, 2024.

    Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-08941 Filed 4-27-23; 8:45 am]
BILLING CODE 4510-29-P