[Federal Register Volume 90, Number 11 (Friday, January 17, 2025)]
[Notices]
[Pages 6013-6028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-01067]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-12102]
Proposed Exemption for the Royal Bank of Canada and Its Current
and Future Affiliates (Collectively, RBC or the Applicant) Located in
Toronto, Ontario, Canada
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document provides notice of the pendency before the
Department of Labor (the Department) of a proposed individual exemption
from certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and the
Internal Revenue Code of 1986 (the Code). This proposed exemption would
permit certain qualified professional asset managers with specified
relationships to Royal Bank of Canada Trust Company (Bahamas) Limited,
and certain current and future affiliates of the Royal Bank of Canada
(collectively, the RBC QPAMs), to continue to rely on the class
exemptive relief granted in Prohibited Transaction Exemption (PTE) 84-
14 (PTE 84-14, or the QPAM Exemption), notwithstanding the March 5,
2024 judgment of conviction against Royal Bank of Canada Trust Company
(Bahamas) Limited (RBCTC Bahamas) for aiding and abetting tax fraud,
entered in France in the Paris Court of Appeal.
DATES:
Exemption date: This proposed exemption would be in effect
beginning on March 5, 2025, and ending on March 4, 2030 (the Exemption
Period).
Comments due: Written comments and requests for a public hearing on
the proposed exemption should be submitted to the Department by March
3, 2025.
ADDRESSES: All written comments and requests for a hearing should be
submitted to the Employee Benefits Security Administration (EBSA),
Office of Exemption Determinations, Attention: Application No. D-12102
via email to [email protected] or online through https://www.regulations.gov. Any such comments or requests should be sent by
the end of the scheduled comment period. The application for exemption
and the comments received will be available for public inspection in
the Public Disclosure Room of the Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1515, 200 Constitution
Avenue NW, Washington, DC 20210 (202) 693-8673). See SUPPLEMENTARY
INFORMATION below for additional information regarding comments.
FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji-Keefe of the
Department at (202) 693-8567. (This is not a toll-free number).
SUPPLEMENTARY INFORMATION:
Comments: Persons are encouraged to submit all comments
electronically and not to submit paper copies. Comments should state
the nature of the person's interest in the proposed exemption and how
the person would be adversely affected by the exemption, if granted.
Any person who may be adversely affected by an exemption can request a
hearing on the exemption. A request for a hearing must state: (1) the
name, address, telephone number, and email address of the person making
the request; (2) the nature of the person's interest in the exemption,
and the manner in which the person would be adversely affected by the
exemption; and (3) a statement of the issues to be addressed and a
general description of the evidence to be presented at the hearing. The
Department will grant a request for a hearing made in accordance with
the requirements above where a hearing is necessary to fully explore
material factual issues identified by the person requesting the
hearing. A notice of such hearing shall be published by the Department
in the Federal Register. The Department may decline to hold a hearing
if:
(1) the request for the hearing does not meet the requirements
above; (2) the only issues identified for exploration at the hearing
are matters of law; or (3) the factual issues identified can be fully
explored through the submission of evidence in written (including
electronic) form.
Warning: All comments received will be included in the public
record without change and may be made available online at https://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 a Social Security number or an unlisted phone
number) or confidential business information that you do not
[[Page 6014]]
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 https://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 https://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.
Proposed Exemption
The Department is considering granting the exemption pursuant to
its authority under ERISA section 408(a) and Code section 4975(c)(2),
and in accordance with the Department's exemption procedures.\1\ If the
Department grants a final exemption, the RBC QPAMs will be allowed to
continue their reliance on the QPAM Exemption) \2\ notwithstanding the
March 5, 2024 judgment of conviction against Royal Bank of Canada Trust
Company (Bahamas) Limited (RBCTC Bahamas) for aiding and abetting tax
fraud, as described in more detail below (the Conviction), provided the
conditions set forth in the exemption are met. The terms of this
proposed exemption have been specifically designed to permit plans 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 plan to terminate its relationship with an
entity covered by the exemption.
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\1\ 29 CFR part 2570, subpart B (75 FR 66637, 66644, October 27,
2011).
\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), as
amended at 75 FR 38837 (July 6, 2010), and as amended at 89 FR 23090
(April 3, 2024).
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This proposed exemption would provide relief from certain
restrictions set forth in ERISA sections 406 and 407.\3\ It would not,
however, provide relief from any other violation of law. Furthermore,
the Department cautions that the relief in the exemption would
terminate immediately if, among other things, RBC or an affiliate of
RBC (as defined in section VI(d) of PTE 84-14) \4\ is convicted of a
crime covered by, or otherwise violates, section I(g) of PTE 84-14
(other than the Conviction) during the Exemption Period.\5\ Although
RBC could apply for a new exemption in that circumstance, the
Department would not be obligated to grant the exemption.\6\
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\3\ For purposes of this proposed exemption, references to
specific provisions of ERISA Title I, unless otherwise specified,
should be read to refer as well to the corresponding provisions of
Code section 4975.
\4\ PTE 84-14 section VI(d) 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 Code section 4975(e)(2)(H)) 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.'' For purposes of this definition, section VI(e) defines the
terms ``Controlling,'' ``Controlled by,'' ``under Common Control
with,'' and ``Controls'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
\5\ See 89 FR 23090 at 23138 through 23140 (April 4, 2024).
\6\ Id.
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Summary of Facts and Representations \7\
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\7\ The Department notes that availability of this exemption
would be subject to the express condition that the material facts
and representations made by the Applicant in Application D-12102 are
true and complete at all times and accurately describe all material
terms of the transaction(s) covered by the exemption. If there is
any material change in a transaction covered by the exemption, or in
a material fact or representation described in the application, the
exemption will cease to apply as of the date of the change.
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The Royal Bank of Canada
1. The Royal Bank of Canada (RBC) is a Canadian corporation
headquartered in Toronto, Ontario, Canada and is Canada's largest bank.
RBC provides personal and commercial banking, wealth management
services, insurance, investor services and capital markets products and
services on a global basis. As of October 31, 2024, RBC had more than
CAD$1.342 trillion (more than $932 billion in U.S. dollars) \8\ in
assets under management, CAD$4.965 trillion (approximately $3.45
trillion in U.S. dollars) \9\ in assets under administration, and
equity attributable to shareholders of CAD$127 billion (approximately
$88.3 billion in U.S. dollars).
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\8\ The conversion amounts are current as of January 10, 2025.
\9\ The figures included in this application are dated as of
October 31, 2024, unless otherwise noted. Assets under management
for U.S. managers are expressed in U.S. dollars.
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The Convicted Entity
2. RBCTC Bahamas is a wholly-owned subsidiary of RBC located in the
Bahamas and regulated by the Central Bank of the Bahamas. RBCTC Bahamas
once provided trust and company management services in all major
currencies to international clients. Currently, RBCTC Bahamas is not
engaged in asset management activities and does not act as a fiduciary
of any plans subject to part 4 of title I of ERISA or Internal Revenue
Code (Code) section 4975.
3. Over the last several years, RBCTC Bahamas's operations have
been reduced in scope. In September 2014, RBCTC Bahamas ceased taking
on new trust business. On November 4, 2015, RBCTC Bahamas announced
that it had entered into a purchase and sale agreement with SMP
Partners Group to sell its Trust, Custody and Fund Administration
businesses in the Caribbean. This follows the announcement in November
2014 that RBC would be exiting a number of its Wealth Management
businesses in the Caribbean. On November 18, 2016, RBC completed the
sale of the assets of RBCTC Bahamas to another financial institution,
but did not sell the assets relating to the servicing of the Bahamian
trust (the Delta Trust) that is connected to the allegations at issue
in the criminal case and for which RBCTC Bahamas has served as
successor trustee since 2004 (the Delta Trust).
The RBC QPAMs
4. Certain current and future ``affiliates'' of RBCTC Bahamas, as
that term is defined in section VI(d) of PTE 84-14, may manage the
assets of ERISA-covered plans and individual retirement accounts
subject to the Internal Revenue Code (collectively, Covered Plans) as
RBC QPAMs in reliance on PTE 84-14.\10\ The primary U.S. bank and U.S.
registered investment adviser affiliates in which RBC owns a
significant interest, directly or indirectly, include the following:
(1) RBC Global Asset Management (U.S.) Inc.; \11\ (2) RBC Global Asset
Management (UK)
[[Page 6015]]
Limited; \12\ (3) RBC Capital Markets, LLC; \13\ (4) City National
Bank; \14\ (5) City National Securities, Inc.; \15\ (6) City National
Rochdale, LLC; \16\ and (7) Symphonic Financial Advisors, LLC.\17\
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\10\ 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
RBC relies on PTE 84-14, or with respect to which RBC has expressly
represented that the manager qualifies as a QPAM or relies on PTE
84-14. A Covered Plan does not include an ERISA-covered plan or IRA
to the extent that RBC 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.
\11\ In its most recent (at the time of the application) Form
ADV Part I(A) reported assets of almost $80 billion managed on a
discretionary basis, including ERISA assets including approximately
$4.7 billion in public pension assets for state and local plans,
which may by law or contract require it to comply with the
prohibited transaction rules under ERISA.
\12\ At the time of the application, managed assets of nearly
$122 billion on a discretionary basis, including ERISA assets and
approximately $993 million in public pension assets for state and
local plans, which may by law or contract require it to comply with
the prohibited transaction rules under ERISA.
\13\ At the time of the application, this entity managed assets
of approximately $149 billion managed on a discretionary basis,
including ERISA and IRA assets.
\14\ At the time of the application, this entity managed assets
of approximately $24.2 billion on a discretionary basis, including
ERISA and IRA assets.
\15\ At the time of the application, this entity managed assets
of nearly $1.5 billion on a discretionary basis, including ERISA and
IRA assets.
\16\ At the time of the application, this entity managed assets
of over $60 billion on a discretionary basis, including ERISA and
IRA assets, and including $29 million in public pension assets for
state and local plans, which may by law or contract require it to
comply with the prohibited transaction rules under ERISA.
\17\ At the time of the application managed assets of over $125
million on a discretionary basis, including ERISA and IRA assets.
Symphonic is in the process of being dissolved, which process is
expected to be completed in the second quarter of 2024.
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5. RBC explains that the RBC QPAMs provide asset management
services to thousands of Covered Plans. In managing these assets, the
RBC QPAMs regularly rely on PTE 84-14 for, among other things, global
fixed income, global equities, futures, options, swaps and other
derivatives, alternative funds, including hedge funds, and similar
instruments and strategies. The issuing documents for many instruments
state that the investment manager is deemed to represent that it is
relying, at least partially, on PTE 84-14.
6. According to the Applicant, the investment management businesses
that are operated out of the RBC QPAMs are separate from RBCTC Bahamas,
and from the non-investment management business activities of RBCTC
Bahamas that are the subject of criminal charges under French law. The
Applicant states that RBC QPAMs have dedicated systems, management,
risk and compliance officers. In this regard, the Applicant represents
that the RBC QPAMs are insulated from RBCTC Bahamas. The RBC QPAMs use
their own, separate systems for trade management, employee supervision,
client management, surveillance, risk management, and accounting, which
are only accessible by authorized QPAM employees. RBC also represents
that the investment management businesses of the RBC QPAMs are subject
to policies and procedures, and RBC QPAM personnel engage in training,
designed to ensure that such businesses understand and abide by their
fiduciary duties in accordance with applicable law.
7. According to RBC, the RBC QPAMs' policies and procedures create
information barriers designed to prevent employees of the RBC QPAMs
from gaining access to inside information that an affiliate may have
acquired or developed in connection with the investment banking,
treasury services or other investor services business activities. These
policies and procedures apply to employees, officers, and directors of
the RBC QPAMs. The Applicant also maintains an employee hotline for
employees to express anonymously any concerns of wrongdoing.
ERISA and Code Prohibited Transactions and PTE 84-14
8. The rules set forth in ERISA section 406 and Code section
4975(c) proscribe certain ``prohibited transactions'' between plans and
parties in interest with respect to those plans. ERISA section 3(14)
defines parties in interest with respect to a plan to include, among
others, the plan fiduciary, a sponsoring employer of the plan, a union
whose members are covered by the plan, service providers with respect
to the plan, and certain of their affiliates.\18\ The transactions
prohibited by ERISA section 406(a) that are relevant to this proposed
exemption are (1) sales, leases, loans, or the provision of services
between a party in interest and a plan (or an entity whose assets are
deemed to constitute the assets of a plan), (2) the use of plan assets
by or for the benefit of a party in interest, or (3) a transfer of plan
assets to a party in interest.\19\
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\18\ Under the Code, such parties, or similar parties, are
referred to as ``disqualified persons.''
\19\ The prohibited transaction provisions also include certain
fiduciary prohibited transactions under ERISA section 406(b). These
include transactions involving fiduciary self-dealing, fiduciary
conflicts of interest, and kickbacks to fiduciaries.
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9. ERISA section 408(a) gives the Department authority to grant an
exemption from such ``prohibited transactions'' if the Department finds
an exemption is: (a) administratively feasible for the Department; (b)
in the interests of the plan and of its participants and beneficiaries;
and (c) protective of the rights of participants and beneficiaries.
10. PTE 84-14 exempts certain prohibited transactions between a
party in interest and an ``investment fund'' (as defined in section
VI(b) of PTE 84-14) in which a plan has an interest if the investment
manager satisfies the definition of ``qualified professional asset
manager'' (QPAM) and satisfies additional conditions of the
exemption.\20\ PTE 84-14 was developed and granted based on the 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.\21\
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\20\ PTE 84-14 was recently amended, effective June 17, 2024 to,
among other things, (1) require a QPAM to provide a one-time notice
to the Department that the QPAM is relying upon the exemption; (2)
update the list of crimes enumerated under section I(g) to
explicitly include foreign crimes that are substantially equivalent
to the listed crimes; (3) expand the circumstances that may lead to
ineligibility; and (4) provide a one-year transition period to help
Covered Plans avoid or minimize possible negative impacts of
terminating or switching QPAMs or adjusting asset management
arrangements when a QPAM becomes ineligible pursuant to section I(g)
and allow QPAMs a reasonable period of time to seek an individual
exemption, if appropriate. See 89 FR 23090 (April 3, 2024).
\21\ See 75 FR 38837, 38839 (July 6, 2010).
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11. section I(g) of PTE 84-14 prevents an entity that may otherwise
meet the definition of QPAM from utilizing the exemptive relief
provided by the QPAM Exemption for itself and its client plans if that
entity, an ``affiliate'' thereof,\22\ or any direct or indirect five
percent or more owner of the QPAM has been either convicted or released
from imprisonment, whichever is later, because of criminal activity
described in section I(g), or otherwise violates section I(g), within
the 10 years immediately preceding a transaction. section I(g) was
included in PTE 84-14, in part, based on the Department's expectation
that QPAMs, and those who may be in a position to influence the QPAM's
policies, must maintain a high standard of integrity.\23\
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\22\ 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.''
\23\ See 47 FR 56947 (December 21, 1982).
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Investigation for Tax Fraud
12. The Applicant has applied for an exemption in connection with
the judgment of Conviction rendered on
[[Page 6016]]
March 5, 2024, by the French Court of Appeal against RBCTC Bahamas. The
facts forming the basis of the Conviction reach back to 1998, when
Daniel Wildenstein established the Delta Trust. In January 2012, RBCTC
Bahamas was summoned to appear before a French Judge of Instruction
(the Investigative Judge) concerning an investigation into nonpayment
of French inheritance taxes by Guy Wildenstein and Alec Daniel Armand
Wildenstein (the Wildensteins) following the death in 2001 of family
patriarch Daniel Wildenstein. RBCTC Bahamas was placed under judicial
investigation,\24\ and in December 2013, the Investigative Judge
referred the case to the French national prosecutor of financial crimes
(the Special Prosecutor) for a review and recommendation. In January
2015, the Special Prosecutor submitted a recommendation that RBCTC
Bahamas and several others be charged with complicity in the
Wildensteins' alleged tax fraud and money laundering.
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\24\ A judicial investigation in France is a proceeding run by
an investigative judge that is required by French law to take place
prior to a decision made by a prosecutor to charge a defendant. At
the end of the investigation, the Prosecutor decides whether there
is enough evidence against the identified suspect(s) and, in case
there is, whether the suspect(s) should be judged by a criminal
court. Babonneau et Associes: https://www.sba-avocats.com/Criminal-defense-attorney-paris-criminal-investigation-in-france.html.
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13. On April 9, 2015, the Paris Court of Appeal for the District
Court of Paris (the Court) issued an Order of Dismissal and Referral
before the Criminal Court (the Referral Order). In the Referral Order,
RBCTC Bahamas was charged with complicity in the Wildenstein's tax
fraud involving taxes owed to France on assets held in the Delta
Trust.\25\ Specifically, the Court found that the investigation
produced sufficient evidence against RBCTC Bahamas for having, in the
Bahamas, beginning on November 19, 2004, aided and abetted tax fraud
committed in Paris by Daniel Wildenstein's heirs by deliberately
concealing a portion of the sums subject to French taxation on Daniel
Wildenstein's estate, in particular the works of art placed in the
Delta Trust and deeds that are governed by and punishable under
Articles 121-2, 121-6, 121-7, 321-1, 321-3, 321-12 of the French
Criminal Code and Articles 1741 et 1745 of the French General Tax Code.
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\25\ The Referral Order charges both of the Wildensteins with
multiple counts of tax fraud, notably for failing to disclose and
pay taxes on assets held in various trusts following the death of
Daniel Wildenstein. The Wildensteins both were among the
beneficiaries of the Delta Trust and have been charged with failing
to report and pay inheritance taxes on the assets held in the Delta
Trust following the death in 2001 of Daniel Wildenstein.
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14. The pertinent facts that underlie these charges as set out in
the Referral Order are as follows: on November 2, 1998, Daniel
Wildenstein created a discretionary trust in the Bahamas called the
Delta Trust. The Delta Trust was designed to be revocable up to the
point of Daniel Wildenstein's death, then irrevocable thereafter. Upon
the formation of the Delta Trust, Daniel Wildenstein contributed
various works of art to be held as assets of the trust. Royal Bank of
Scotland was the initial trustee of the Delta Trust. In early 2001,
Royal Bank of Scotland was replaced as trustee by Coutts Trust Holdings
Limited, which was succeeded by Coutts Trustees (Bahamas) Limited. On
October 21, 2001, Daniel Wildenstein died in Paris. On April 28, 2002,
Guy Wildenstein and his brother, Alec Wildenstein Sr., filed an
inheritance tax statement in relation to the estate of their father,
Daniel Wildenstein, as required by French tax laws. Guy Wildenstein and
Alec Wildenstein Sr. did not disclose in this inheritance tax
statement, the existence of the Delta Trust or the existence of the
assets therein. At this point, RBCTC Bahamas was appointed trustee of
the Delta Trust in November 2004, three years after Daniel
Wildenstein's death and more than two years after Guy Wildenstein and
Alec Wildenstein Sr. had filed their inheritance tax statement.
15. The Applicant represents that according to the French
authorities, the existence of the Delta Trust as well as the assets of
the Delta Trust should have been disclosed to the French authorities by
Guy Wildenstein and by Alec Wildenstein Sr. when they filed their
inheritance tax statement in 2002 because an inheritance tax would have
applied in relation to these assets. \26\
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\26\ The authorities allege that this disclosure should have
occurred because the assets in the Delta Trust were initially
revocable (i.e., the assets in trust could be revoked by Daniel
Wildenstein up to the time of his death). As such, the authorities
state that the assets in the Delta Trust belonged to Daniel
Wildenstein's estate and were therefore taxable under French tax
laws.
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16. The Referral Order provides that RBCTC Bahamas actually knew,
or should have known, that Daniel Wildenstein was of French
nationality, and that he died in France. The Referral Order also
provides that, at the least, RBCTC should have investigated in greater
detail the facts in relation to Daniel Wildenstein's residency and,
likewise, the tax consequences of that residency. In addition, the
Referral Order provides that the Delta Trust did not operate as a
discretionary trust for purposes of French tax law, which would have
generally required the trustee to have control over the management of
the trust's assets. Further, among other things, the Referral Order
points out that RBCTC Bahamas filed an amended declaration with the
Internal Revenue Service to declare the paintings in the Delta Trust
which were present on U.S. territory at the time of Daniel
Wildenstein's death, even though the Delta Trust was purportedly
discretionary and irrevocable.
PTE 2016-10
17. In 2016, the Applicant submitted an application for an
exemption to continue to rely upon the relief in PTE 84-14
notwithstanding a conviction of RBCTC Bahamas in the District Court of
Paris in connection with the criminal activity described in the
Referral Order. After a review of the application and the public
record, on October 28, 2016, the Department granted PTE 2016-10,\27\ in
order to protect Covered Plans from the costs and/or investment losses
RBC asserted could arise if RBC QPAMs became ineligible to rely on PTE
84-14 due to the conviction of RBCTC Bahamas.\28\ The effective period
was limited to one year from the date of the anticipated conviction in
order to provide the Department ``more time to consider whether longer-
term relief is warranted.'' \29\
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\27\ 81 FR 75147 (October 28, 2016).
\28\ Id. at 75149.
\29\ Id.
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18. RBCTC Bahamas contested the charges in the French court and was
acquitted, although further litigation ensued. Over the next few years,
the French authorities appealed the case, and a new proceeding was
scheduled. RBC requested that the Department confirm that PTE 2016-10
would still apply in the event that RBCTC Bahamas was ultimately
convicted of the same crime based on the same underlying facts. In
response, on December 11, 2023 the Department issued a ``Technical
Correction'' to PTE 2016-10 that revised the definition of
``Conviction'' in PTE 2016-10 to refer to ``the potential judgment of
conviction against RBCTC Bahamas for aiding and abetting tax fraud to
be entered in France in the Court of Appeal, French Special Prosecutor
No. 1120392066, French Investigative Judge No. JIRSIF/11/12 or another
court of competent jurisdiction.''\30\
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\30\ See 88 FR 85931 (December 11, 2023).
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19. On March 5, 2024, the French Court of Appeal rendered its
judgment of conviction against RBCTC Bahamas
[[Page 6017]]
and the other defendants. RBCTC Bahamas was ordered by the Court of
Appeal to pay a fine of [euro]5,000 ($5,350.95 in U.S. dollars) in
connection with the Conviction and held RBCTC Bahamas jointly and
severally liable with the Wildensteins and Northern Trust Fiduciary
Services (Guernsey) Limited, another trustee of separate trusts, for
the unpaid inheritance taxes owing, plus penalties and interest (such
aggregate amount will be determined in a separate proceeding before the
tax courts).\31\ Pursuant to the Technical Correction, the relief in
PTE 2016-10 became effective on March 5, 2024, and will expire on March
4, 2025.
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\31\ On March 7, 2024, RBCTC Bahamas appealed the decision to
the French Supreme Court. The appeal is currently pending. The
Department notes that a disqualifying ``Conviction'' under section
I(g) of PTE 84-14 occurs as of the date of judgment of the trial
court, regardless of whether that judgment is appealed. See also
section I(h)(1) of PTE 84-14 at 89 FR 23090, 23139 (April 3, 2024).
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The Exemption Request
20. The Applicant requests exemptive relief that would permit the
RBC QPAMs to continue to rely on the relief provided by the QPAM
Exemption, notwithstanding the disqualifying conviction, for the
remaining nine-year period of disqualification upon the expiration of
PTE 2016-10. The Department has determined to propose relief for five
years, beginning on March 5, 2025, and ending on March 4, 2030, so that
after five years, it may reevaluate the effectiveness of the protective
conditions for relief as well as whether the QPAMs, and those in
position to influence them, have continued to maintain a high standard
of integrity. The Applicant represents that the conduct that is the
subject of the potential conviction did not involve any of the RBC
QPAMs acting in its role as an investment manager of any Covered Plan
or otherwise relate to the asset management services provided by the
RBC QPAMs. Furthermore, the asset management businesses of the RBC
QPAMs did not know or have reason to know of the conduct underlying the
charges and did not participate in or receive compensation in
connection with the conduct underlying the charges. The convicted
entity, RBCTC Bahamas, did not provide any fiduciary services to or act
as a QPAM for ERISA plans or IRAs and RBCTC Bahamas does not provide
investment management services to ERISA plans or IRAs or otherwise
exercise discretionary control over ERISA plan or IRA assets.
Hardship to Covered Plans
21. Overview of loss of QPAM. The Applicant represents that the
requested exemption is in the interest of affected plans and their
participants and beneficiaries, because it will enable the plans to
continue their current investment strategy with their current
investment manager or trustee. If the Department denies the requested
exemption, the Applicant asserts that the many clients that depend on
RBC's ability to engage in transactions in reliance on QPAM status
would be forced to find another asset manager to remain invested in
their preferred strategies. The Applicant explains that clients with
strategies dependent upon the RBC QPAMs' ability to rely on PTE 84-14
would likely terminate all of their contracts with RBC (even ones not
dependent on PTE 84-14), and plan consultants likely would move their
clients' assets away from RBC.\32\
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\32\ The Applicant states that many of RBC's asset management
clients are advised by the same relatively small group of
consultants, magnifying the effect of any recommendation to
terminate an RBC manager.
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22. The Applicant further represents that pension plans, including
non-ERISA plans such as governmental plans, union plans, corporate
plans and others, tend to treat an entity's eligibility to rely on PTE
84-14 as a threshold prerequisite for entrusting an investment manager
to manage plan assets. In the Applicant's view, this could lead
participants and regulators to view remaining with a manager that
becomes ineligible to rely on PTE 84-14 as a breach of fiduciary
duties. As such, pension plans (ERISA and non-ERISA) could terminate
their relationship with any manager that becomes ineligible to rely on
the QPAM exemption, even if the plans do not technically require the
entity to maintain its QPAM qualification to execute their investment
strategies.\33\
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\33\ For example, public plans that, like the Nebraska Public
Employees Retirement System (NPERS), are not subject to ERISA have
over $5.7 billion in assets invested through RBC. While such public
plans are not subject to ERISA, some state and local laws are
substantially similar to ERISA, and RBC has contractually agreed to
treat certain public plans as if they were subject to ERISA.
According to the applicant, if even some of these plans were to pull
their business in the event RBC loses its QPAM status, the impact on
plans would be substantial.
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23. The Applicant states further that it is disruptive and
expensive to cause plan fiduciaries to reconsider their arrangements
with their chosen investment manager because of uncertainties relating
to the QPAM Exemption. This uncertainty is disruptive to investment
strategies and could result in significant redemptions from pooled
funds, which would frustrate efforts to manage effectively the pooled
funds' assets, harm remaining plan investors, and increase the expense
ratios of the investment funds.
Department's Request for More Information: The Department notes the
Applicant's representations that denial of relief could have negative
impacts on pooled funds but is unable to fully consider these comments
due to a lack of supporting data. In order to properly weigh these
costs as potential harms to plan in the event the Department denies
exemptive relief, the Department requests additional information from
the Applicant in its comment letter substantiating harms to pooled
funds, including estimates of the costs and any assumptions relied upon
in making the estimate.
24. Transaction Costs/Harm to Plans. According to the Applicant,
the transaction costs to plans of changing managers are significant,
especially considering some of the investment strategies employed by
the RBC QPAMs. For example, according to the Applicant, the cost of
liquidating assets, identifying and selecting new managers, and
reinvesting those assets would be borne by the plans and their
participants. The Applicant represents that transactions that currently
depend on the QPAM Exemption, or in which the counterparty relied on
the QPAM exemption as the expected source of exemptive relief, could
default and be terminated at a significant cost to the plans.
Transaction costs may be higher in times of significant market
volatility, especially with respect to certain strategies. Furthermore,
the request for proposal process for transitioning to a new manager
typically is lengthy and likely would involve numerous steps each of
which could last several months--including retaining a consultant,
reviewing request for proposals, negotiating contracts, and ultimately
transitioning assets, as well as incurring additional transaction-
related expenses incurred in connection with the purchase of
securities.
Department's Request for More Information: The Department notes the
Applicant's representations that the request for proposal process for
transitioning to a new manager involves additional costs such as
retaining a consultant, reviewing requests for proposal, negotiating
contracts, etc. In order to properly weigh these costs as potential
harms to plan in the event the Department denies exemptive relief, the
Department requests additional information from the Applicant in its
[[Page 6018]]
comment letter substantiating these costs, including estimates of the
costs and any assumptions relied upon.
25. The Applicant states that the RBC QPAMs may rely on PTE 84-14
when investing in various securities and financial instruments on
behalf of ERISA clients. For example, the RBC QPAMs may rely on PTE 84-
14 when buying and selling fixed income products. Many counterparties
in such transactions specifically require a representation that PTE 84-
14 applies, and those contracts could be in default if the requested
exemption were not granted. Accounts managed by the RBC QPAMs invest in
fixed income products, with a total portfolio of ERISA and public plan
assets valued at over $18.5 billion. Fixed income securities and
instruments in which those accounts are invested generally include
corporate bonds, U.S. Treasury and agency-backed securities, asset-
backed securities, emerging market sovereign and corporate debt,
convertible bonds, term loans, repurchase agreements, swaps, futures,
options and foreign exchange transactions. The Applicant represents
that if the RBC QPAMs become ineligible to rely on PTE 84-14, its plan
clients could suffer additional transactions costs associated with
liquidating fixed income securities depending on the strategy. The
Applicants representations about these liquidation costs are further
discussed below for each investment strategy.
26. Liquidation Costs. According to the Applicant, if RBC QPAMs
were required to liquidate investments because a Covered Plan opted to
find another manager, the underlying investments of the following
investment strategies could incur the following estimated transaction
costs:
a. Multi-Asset Credit: The multi-asset credit strategy invests in
the following kinds of instruments: corporate bonds, government bonds,
asset-backed securities, convertible bonds, mortgage-backed securities,
loans, structured credit, contingent convertible bonds, convertible
bonds, swaps, futures, options and foreign exchange transactions. These
instruments are generally traded on the primary and secondary fixed
income markets, over-the-counter or centrally cleared. The Applicant
represents that if the RBC QPAMs were no longer able to rely on the
QPAM Exemption, the estimated transaction costs associated with selling
such instruments could range from 35 to 65 basis points.
RBC QPAMs currently manage approximately $400,000,000 of ERISA plan
assets that are invested in multi-asset credit investments. If PTE 84-
14 were lost, ERISA plan clients of the RBC QPAMs invested in this
strategy could suffer liquidation costs of between 35 and 65 basis
points, which equates to between $1,400,000 and $2,600,000, not
including reinvestment costs.
b. Core Fixed Income: The core fixed income strategies invest in
the following kinds of instruments: corporate bonds, government bonds,
asset-backed securities, mortgage-backed securities, municipal bonds,
loans, swaps, futures, options, and foreign exchange transactions.
These instruments are generally traded on the primary and secondary
markets (including fixed income trading venues), over-the-counter or
centrally cleared. If the RBC QPAMs become ineligible to rely on PTE
84-14, the Applicant estimates the transaction costs on such
instruments could range from 20 to 25 basis points.
RBC QPAMs currently manage approximately $1.5 billion in market
value of ERISA plan assets that are invested in core fixed income
investments. If the RBC QPAMs become ineligible to rely on PTE 84-14,
the Applicant represents that ERISA plan clients of the RBC QPAMs
invested in this strategy could suffer liquidation costs of between 20
and 25 basis points, which equates to between $3,000,000 and
$3,750,000, not including reinvestment costs.
c. Impact Investing: The impact investing strategies invest in the
following kinds of instruments: U.S. Treasury securities, U.S. agency-
backed securities, mortgage-backed securities, Small Business
Administration loans and pools, municipal bonds, corporate bonds,
certificates of deposit (CDs), commercial paper, foreign sovereign
debt, private placements and derivatives. These instruments are
generally traded on primary and secondary fixed income trading markets
(including via fixed income trading venues), over-the-counter or
centrally cleared. If the RBC QPAMs become ineligible to rely on PTE
84-14, the estimated transaction costs on such instruments could range
from 15 to 25 basis points.
RBC QPAMs currently manage approximately $36,000,000 in market
value of ERISA plan assets that are engaged in impact investing. The
Applicant represents that if it became ineligible to rely on PTE 84-14,
the RBC QPAMs' ERISA plan clients invested in this strategy could
suffer liquidation costs of between 15 and 25 basis points, which
equates to between $54,000 and $90,000, not including reinvestment
costs.
d. Community Investing: The community investing strategy invests in
the following kinds of instruments: U.S. Treasury securities, U.S.
agency-backed securities, agency and non-agency mortgage-backed
securities, SBA loans and pools, municipal bonds, corporate bonds,
certificates of deposit (CDs), commercial paper, foreign sovereign
debt, private placements and derivatives. These instruments are
generally traded on primary and secondary fixed income trading markets
(including via fixed income trading venues), over-the-counter or
centrally cleared. If the RBC QPAMs became ineligible to rely on PTE
84-14, the estimated transaction costs on such instruments could range
from 10 to 20 basis points.
RBC QPAMs currently manage approximately $450,000,000 in market
value of ERISA and public plan assets that are invested in community
investing. If the RBC QPAMs become ineligible to rely on PTE 84-14, the
Applicant represents that their ERISA plan clients invested in this
strategy could suffer liquidation costs of between 10 and 20 basis
points, which equates to between $450,000 and $900,000, not including
reinvestment costs.
e. Emerging Markets Equity: The emerging markets strategies invest
in the following kinds of instruments: common stock, real estate
investment trusts (REITS), American depository receipts (ADRs),
exchange-traded funds (ETFs) and certain derivatives. These instruments
are generally traded on global stock exchanges, equity trading venues,
over-the-counter or centrally cleared. If the RBC QPAMs were ineligible
to rely on PTE 84-14, the estimated transaction costs on such
instruments could range from 48 to 64 basis points.
RBC QPAMs currently manage approximately $2.35 billion in ERISA
plan assets that are invested in emerging markets equity. According to
the Applicant, if RBC QPAMs were ineligible to rely on PTE 84-14, ERISA
plan clients of the RBC QPAMs invested in this strategy could suffer
liquidation costs of between 48 and 64 basis points, which equates to
between $11,280,000 and over $15,000,000, not including reinvestment
costs.
f. Small and Mid-Cap Growth Equity: The small and mid-cap equity
strategy invests in the following kinds of instruments: equity
securities, REITS, ADRs and ETFs. These instruments are generally
traded on national exchanges and equity trading venues. If the RBC
QPAMs were no longer eligible to rely on PTE 84-14, the estimated
transaction costs on such instruments could range from 34 to 85 basis
points.
[[Page 6019]]
RBC QPAMs currently manage approximately $9.6 million of ERISA and
public plan assets that are invested in small and mid-cap equity. The
Applicant represents that if the RBC QPAMs were ineligible to rely on
PTE 84-14, its ERISA plan clients invested in this strategy could
suffer liquidation costs of between 34 and 85 basis points, which
equates to between $32,640 and $81,600, not including reinvestment
costs.
g. International Equity: The international equity strategy invests
in the following kinds of instruments: common stock, REITs, ADRs, and
ETFs. These instruments are generally traded on global stock exchanges
or equity trading venues. The applicant represents that if the RBC
QPAMs were no longer able to rely on PTE 84-14, the estimated
transaction costs on such instruments could range from 30 to 60 basis
points. RBC QPAMs currently manage approximately $292,000,000 of ERISA
plan assets that are invested in international equity. If the RBC QPAMs
were ineligible to rely on PTE 84-14, the Applicant represents that
their ERISA plan clients invested in this strategy could suffer
liquidation costs of between 30 and 60 basis points, which equates to
between $876,000 and nearly $1,800,000, not including reinvestment
costs.
h. Small Cap Growth Equity: The small cap growth equity strategy
invests primarily in the following kinds of instruments: equity
securities, REITs, ADRs, and ETFs. These instruments are generally
traded on national exchanges or equity trading venues. If the RBC QPAMs
were ineligible to rely on PTE 84-14, the Applicant represents that the
estimated transaction costs on such instruments could range from 34 to
85 basis points.
RBC QPAMs currently manage approximately $1.23 billion in market
value of ERISA plan assets that are invested in small cap growth
equity. If the RBC QPAMs become ineligible to rely on PTE 84-14, the
Applicant represents that their ERISA plan clients invested in this
strategy could suffer liquidation costs of between 34 and 85 basis
points, which equates to between $4,200,000 and over $10,500,000, not
including reinvestment costs.
i. Emerging Markets Credit: The emerging markets credit strategies
invest in the following kinds of instruments: government bonds,
corporate bonds, loans, swaps, futures, foreign exchange transactions,
options and repurchase transactions. These instruments are generally
traded on the primary and secondary fixed income markets (including via
fixed income trading venues), over-the-counter or centrally cleared. If
the RBC QPAMs were ineligible to rely on PTE 84-14, the Applicant
represents that the estimated transaction costs on such instruments
could range from 35 to 70 basis points.
RBC QPAMs currently manage approximately $510,000,000 in market
value of ERISA assets that are invested in emerging markets credit. If
the RBC QPAMs were ineligible to rely on PTE 84-14, the Applicant
maintains that their ERISA plan clients of the RBC QPAMs invested in
this strategy could suffer liquidation costs of between 35 and 70 basis
points, which equates to between $1,800,000 and over $3,500,000, not
including reinvestment costs.
j. Cash Management: The cash management strategies invest in the
following kinds of instruments: U.S. Treasury securities, U.S. agency-
backed securities, agency and non-agency mortgage-backed securities,
municipal bonds, repurchase agreements, bank deposits, corporate bonds,
certificates of deposit (CDs), commercial paper and foreign sovereign
debt. These instruments are generally traded on primary and secondary
market fixed income trading markets (including via fixed income trading
venues). If the RBC QPAMs were ineligible to rely on PTE 84-14, the
Applicant represents that the estimated transaction costs on such
instruments could range from 10 to 20 basis points.
RBC QPAMs manage approximately $1.12 billion of ERISA and public
plan assets that are invested in cash management strategies. If the RBC
QPAMs become ineligible to rely on PTE 84-14, the Applicant represents
that ERISA plan clients of the RBC QPAMs invested in this strategy
could suffer liquidation costs of between 10 and 20 basis points, which
equates to between $1,120,000 and $2,240,000, not including
reinvestment costs.
k. Short Duration: The short duration strategy invests in the
following kinds of instruments: U.S. Treasury securities, U.S. agency-
backed securities, agency and non-agency mortgage-backed securities,
municipal bonds, corporate bonds, certificates of deposit (CDs),
commercial paper, foreign sovereign debt, futures, private placements
and derivatives. These instruments are generally traded on primary and
secondary fixed income trading markets (including via fixed income
trading venues) or centrally cleared. If the RBC QPAMs were ineligible
to rely on PTE 84-14, the Applicant represents that the estimated
transaction costs on such instruments could range from 10 to 20 basis
points.
RBC QPAMs manage a total portfolio of over $1.3 billion in market
value of public plans that invest in short duration strategies.
According to the Applicant, if the RBC QPAMs were ineligible to rely on
PTE 84-14, the RBC QPAMs' ERISA plan clients invested in this strategy
could suffer liquidation costs of between 10 and 20 basis points, which
equates to between $1,300,000 and $2,600,000, not including
reinvestment costs.
l. Ultra Short Duration: The ultra short duration strategy invests
in the following kinds of instruments: U.S. Treasury securities, U.S.
agency-backed securities, agency and non-agency mortgage-backed
securities, municipal bonds, corporate bonds, certificates of deposit
(CDs), commercial paper, foreign sovereign debt, private placements,
and futures. These instruments are generally traded on primary and
secondary fixed income trading markets (including via fixed income
trading venues), over-the-counter or centrally cleared. If the RBC
QPAMs were ineligible to rely on PTE 84-14, the Applicant represents
that the estimated transaction costs on such instruments could range
from 15 to 25 basis points.
RBC QPAMs manage public plan assets with a total portfolio of
almost $374,000,000 in market value that are invested in ultra short
duration strategies. If the RBC QPAMs were ineligible to rely on PTE
84-14, the Applicant represents that ERISA plan clients of the RBC
QPAMs invested in this strategy could suffer liquidation costs of
between 15 and 25 basis points, which equates to between $561,000 and
$935,000, not including reinvestment costs.
Department's Request for Comment and Notes Regarding Harms to Plans in
Paragraphs 21 through 26
The Department requests the Applicant to provide a clear
description regarding their estimates of costs to Covered Plans in its
comment letter. In this regard, the Applicant must provide:
(1) a description, in itemized form, how the basis point range
described above was derived by the Applicant, including the assumptions
or methodologies relied upon.
(2) an explanation of the amount of Covered Plan assets that are
likely to be subject to the costs described above and an explanation of
the Applicant's assumptions or methodologies in connection with such
figures. For example: 50% of the Covered Plan assets will be likely to
incur such costs because. . . .
[[Page 6020]]
(3) an explanation of the likelihood of the costs occurring, for
each of the transition costs described above. For example: with respect
to violating representations as to QPAM status in an offering document,
the Applicant should provide information regarding how likely that is
to occur; etc.
(4) an explanation of the circumstances under which the transition
costs described above are being incurred (e.g., are these transition
costs that the Applicant contends would be incurred by Covered Plans to
remedy contractual violations due to loss of QPAM status, costs due to
Covered Plans seeking to use a different investment manager that can
rely on QPAM, costs, etc.).
(5) a description of the extent to which any of the asserted costs
reflect the QPAMs' imposition of additional charges or fees on Covered
Plans resulting from the loss of QPAM status, and the cause of such
additional charges or fees.
(6) an explanation of the extent to which the costs described
herein are not likely to be covered by the QPAMs indemnification
obligations under section III(j)(2), described in more detail below,
and an explanation why such costs are not attributable to the
Applicant's violation of exemption conditions.
The Department notes that Condition (j)(2) of the proposed
exemption requires RBC QPAMs to ``indemnify and hold harmless'' Covered
Plans for ``actual losses resulting directly from the RBC QPAM's
violation of any conditions of this exemption, an RBC QPAM's violation
of ERISA's fiduciary duties, as applicable, and of the prohibited
transaction provisions of ERISA and the Code, as applicable; a breach
of contract by the RBC QPAM; or any claim arising out of the failure of
such RBC QPAM to qualify for the exemptive relief provided by PTE 84-14
as a result of a violation of section I(g) of PTE 84-14 other than the
Conviction.'' \34\ Furthermore, the Department notes that, to the
extent Covered Plans ``feel forced'' to transition to new asset
managers because the RBC QPAMs can no longer rely on PTE 84-14, the
liquidation and additional costs arising from the transition constitute
actual losses resulting directly from the failure of such QPAM to
qualify for the exemptive relief provided by PTE 84-14 as a result of
violation of section I(g) of PTE 84-14. If a plan's fiduciary is
compelled to replace an RBC asset manager as a result of a violation of
section I(g) and the asset manager's loss of QPAM status, the affected
plan is entitled to indemnification of its associated losses, including
the transitional expenses necessary to effectuate the switch to a
qualified QPAM.
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\34\ Section I(i)(7) of PTE 2016-10, under which RBC QPAMs are
currently operating for the ability to rely on PTE 84-14, contains
substantially similar language. In that regard, section I(i)(7) of
PTE 2016-10 requires the RBC QPAMs to ``. . .indemnify and hold
harmless the ERISA-covered plan or IRA for any damages resulting
from a violation of applicable laws, a breach of contract, or any
claim arising out of the failure of such RBC QPAM to qualify for the
exemptive relief provided by PTE 84-14 as a result of a violation of
section I(g) of PTE 84-14 other than the Conviction.''
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The Exemption's Protective Conditions
27. In order to avail themselves of the relief provided under this
proposed exemption, the RBC QPAMs will be required to meet the
conditions described in this proposed exemption at all times. The first
group of conditions for relief underscores the Department's expectation
that the affected RBC QPAMs were not involved in the misconduct engaged
in RBCTC Bahamas that is the subject of the Conviction or otherwise
tainted by such misconduct. For example, relief under this proposed
exemption only will be available to the extent that: (1) RBC QPAMs,
including their officers, directors, agents other than RBCTC, and
employees, did not know of, have reason to know of, or participate in
the criminal conduct of RBCTC Bahamas that is the subject of the
Conviction (here and throughout, ``participated in'' includes the
knowing or tacit approval of the misconduct underlying the Conviction);
\35\ (2) any failure of the RBC QPAMs to satisfy section I(g) of PTE
84-14 arose solely from the Conviction; (3) the RBC QPAMs (including
their officers, directors, agents other than RBCTC, and employees of
such RBC QPAMs) did not receive direct compensation, or knowingly
receive indirect compensation, in connection with the criminal
misconduct that is the subject of the Conviction; and (4) no other
party engaged on behalf of the RBC QPAMs who had responsibility for or
exercised authority in connection with the management of plan assets
knew or had reason to know of the criminal misconduct that is the
subject of the Conviction nor did they participate in such misconduct.
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\35\ The Applicant represents that, while certain other entities
in the RBC corporate family were generally aware of RBCTC Bahamas's
responsibilities, including the administration of various trusts, no
such entity was involved in the day-to-day operations of the trusts
and the alleged misconduct did not relate to the asset management
services provided by the RBC QPAMs.
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28. The Department expects the RBC QPAMs to rigorously ensure that
the individuals associated with the criminal misconduct of RBCTC
Bahamas will not be employed or knowingly engaged by such QPAMs. In
this regard, the proposed exemption mandates that the RBC QPAMs will
not employ or knowingly engage any of the individuals that participated
in criminal misconduct that is the subject of the Conviction. Further,
the RBC QPAMs will not use their 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 RBC QPAMs, to enter
into any transaction with RBCTC Bahamas or engage RBCTC Bahamas 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.
29. The RBC QPAMs must comply with each condition of PTE 84-14, as
amended, with the sole exceptions of the violation of section I(g) of
PTE 84-14 that is attributable to the Conviction. Furthermore, this
exemption will terminate immediately if an affiliate of the RBC QPAMs
(as defined in section VI(d) of PTE 84-14) violates section I(g) of PTE
84-14 (other than with respect to the Conviction). The Department notes
that PTE 84-14 was amended effective June 17, 2024 to, among other
things, explicitly broaden the disqualifying circumstances under
section I(g) to include (1) convictions in foreign courts for crimes
that are substantially equivalent to the disqualifying convictions in
U.S. federal or state courts (with the exception of certain foreign
countries denominated as ``foreign adversaries'' by the U.S. Department
of Commerce); (2) the execution of a non-prosecution agreement or
deferred prosecution agreement with U.S. federal or state prosecutors
or regulatory agencies; and (3) final judgments or court-approved
settlements by a federal or state criminal or civil court in a
proceeding brought by certain U.S. regulatory agencies, state
regulators, or state attorneys general involving participation in
certain categories of conduct.\36\ The Applicant
[[Page 6021]]
represents that RBC currently does not have a reasonable basis to
believe that there are any pending criminal investigations involving
RBC or any of its affiliated companies that would cause a reasonable
plan or IRA customer not to hire or retain the institution as a QPAM.
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\36\ See 89 FR 23090, 23143 (April 3, 2024). The amendment also
provides a one-year transition period to help Covered Plans avoid or
minimize possible negative impacts of terminating or switching QPAMs
or adjusting asset management arrangements when a QPAM becomes
ineligible pursuant to section I(g) and allow QPAMs a reasonable
period of time to seek an individual exemption, if appropriate. Id.
at 23139-140.
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30. No relief will be provided by the exemption if any entities
holding assets that constitute the assets of a Covered Plan were
involved in the criminal misconduct that is the subject of the
Conviction. Further, no relief will be provided to the extent RBCTC
Bahamas provides any discretionary asset management services to Covered
Plans or otherwise acts as a fiduciary with respect to Covered Plans.
31. The second set of conditions underscores the Department's
intent to ensure that RBC QPAMs adhere to their ERISA-mandated
fiduciary duties and the conditions of this proposed exemption. In this
regard, the Department believes that robust policies and training are
warranted where, as here, alleged criminal misconduct has occurred
within a corporate organization that is affiliated with one or more
QPAMs managing plan investments in reliance on PTE 84-14. Therefore,
this proposed exemption requires each RBC QPAM to immediately develop,
implement, maintain, and follow written policies (the Policies)
requiring and reasonably designed to ensure that: (i) the asset
management decisions of the RBC QPAM are conducted independently of the
management and business activities of RBC, including RBCTC Bahamas;
(ii) the RBC QPAM fully complies with ERISA's fiduciary duties and with
ERISA and the Code's prohibited transaction provisions, and does not
knowingly participate in any violations of these duties and provisions
with respect to Covered Plans; (iii) the RBC QPAM does not knowingly
participate in any other person's violation of ERISA or the Code with
respect to Covered Plans; any filings or statements made by the RBC
QPAM to regulators, including but not limited to, the Department of
Labor, the Department of the Treasury, the Department of Justice, and
the Pension Benefit Guaranty Corporation, on behalf of Covered Plans
are materially accurate and complete, to the best of such QPAM's
knowledge at that time; (iv) the RBC 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 Plan clients; and (v) the RBC QPAMs comply with the terms
of this exemption, if granted. Any violation of or failure to comply
with these items must be corrected promptly upon discovery and if any
such violation or compliance failure is not promptly corrected, then
upon discovering the failure to promptly correct, the failure must be
reported in writing to appropriate corporate officers, the head of
compliance and the General Counsel (or their functional equivalent) of
the relevant RBC QPAM, and an appropriate fiduciary of any affected
Covered Plan that is independent of RBC.
32. The Department has also included a provision in the proposed
exemption that would require each RBC QPAM to immediately develop and
implement a training program (the Training) for its asset and portfolio
management, trading, legal, compliance, and internal audit personnel.
The Training must be set forth in the Policies and 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,
if granted (including any loss of exemptive relief provided herein),
and prompt reporting of wrongdoing.
33. The proposed exemption requires the RBC QPAMs to submit to an
audit conducted every two years by an independent auditor that has been
prudently selected and who has appropriate technical training and
proficiency with ERISA and the Code. Each biennial audit must cover a
consecutive 12-month period starting with the 24-month period that
begins on the Conviction Date.
34. The proposed exemption requires the RBC QPAMs to enter into
certain contractual obligations in connection with the provision of
services to their clients. For example, section III(j) of the proposed
exemption requires any arrangement, agreement, or contract between a
RBC QPAM and a Covered Plan for which a RBC QPAM provides asset
management or other discretionary fiduciary services to provide that
such RBC QPAM agrees to: (i) comply with ERISA and the Code, as
applicable with respect to such Covered Plan and refrain from engaging
in non-exempt prohibited transactions (and to promptly correct any
inadvertent prohibited transactions); (ii) comply with the standards of
prudence and loyalty set forth in ERISA section 404 with respect to
each Covered Plan; (iii) indemnify and hold harmless the Covered Plan
for any damages resulting from a violation of applicable laws, a breach
of contract, or any claim arising out of the failure of such RBC QPAM
to be eligible 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; (iv) not require (or otherwise cause) the Covered Plan to
waive, limit, or qualify the liability of the RBC QPAM for violating
ERISA or the Code or engaging in prohibited transactions; (v) not
require the Covered Plan (or sponsor of such Covered Plan) to indemnify
the RBC QPAM for violating ERISA or engaging in prohibited
transactions, except for violations or prohibited transactions caused
by an error, misrepresentation, or misconduct of a plan fiduciary or
other party hired by the plan fiduciary who is independent of RBC; (vi)
not restrict the ability of such Covered Plan to terminate or withdraw
from its arrangement with the RBC QPAM (including 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 as a result of an actual lack of liquidity of the
underlying assets, provided that such restrictions are applied
consistently and in like manner to all such investors; and (vii) not
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.
Furthermore, any contract, agreement or arrangement between an RBC QPAM
and its Covered Plan client must not contain exculpatory provisions
disclaiming or otherwise limiting liability of the RBC QPAM for a
violation of such agreement's terms.
35. Within six (6) months after the publication of a notice of
final exemption in the Federal Register each RBC QPAM must: (i) provide
a notice of its obligations under section III(j) to each Covered Plan
for which the RBC QPAM provides asset management or other discretionary
fiduciary services;
[[Page 6022]]
and (ii) separately warrant in writing to each such Covered Plan its
obligations under subparagraph (1) of section III(j).
36. The last set of conditions is intended to, among other things,
ensure accountability on behalf of the RBC QPAMs for compliance with
the conditions for relief and to provide Covered Plans, the Department,
and other external stakeholders transparency regarding the RBC QPAMs
compliance with the conditions for this exemption. Among other things,
RBC must designate a senior compliance officer who is generally
responsible for an annual review for each 12-month period of the
effective period under the exemption, that determines the effectiveness
of the Policies and the Training, reports on instances of noncompliance
and their remediation, and makes recommendations to improve compliance
activities. The RBC QPAMs must inform Covered Plan clients of their
right to obtain a copy of the Policies or a summary thereof, and each
RBC QPAM must maintain records necessary to demonstrate that the
conditions of this exemption, if granted, have been met for six (6)
years following the date of any transaction for which such RBC QPAM
relies upon the relief in the exemption and must provide the Department
with the records necessary to demonstrate that each condition of this
exemption has been met within 30 days of a request.\37\
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\37\ The Department notes that section I(l) of PTE 2016-10
required RBC to: (i) disclose to the Department any Deferred
Prosecution Agreement (DPA) or a Non-Prosecution Agreement (NPA)
with the U.S. Department of Justice, entered into by RBC or any of
its affiliates in connection with conduct described in section I(g)
of PTE 84-14 and/or ERISA section 411; and (ii) provide the
Department with any information it requests as permitted by law. The
Department has determined not to include the same condition in this
proposed exemption, because entering into DPAs and NPAs now is
included in the list of disqualifying events under section I(g) of
PTE 84-14, effective as of June 17, 2024.
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37. The Applicant must impose its internal procedures, controls,
and systems to prevent a recurrence of the misconduct; comply with any
remedial measures required by other regulators designed to address the
misconduct underlying the Conviction; all the material facts and
representations made by the Applicant in connection with the
application, must be true and accurate.
Statutory Findings
38. Based on the conditions included in this proposed exemption,
the Department has tentatively determined that the relief sought by the
Applicant would satisfy the statutory requirements for an exemption
under ERISA section 408(a) for the reasons set forth below.
39. The Proposed Exemption is ``Administratively Feasible.'' The
Department has tentatively determined that the proposed exemption is
administratively feasible because, among other things, a qualified
independent auditor will be required to perform in-depth audit(s)
covering, each RBC QPAM's compliance with the exemption, and a
corresponding written audit report will be provided to the Department
and be available to the public. The Department notes that the
independent audit will provide an incentive for, and a measure of,
compliance with the exemption conditions, while reducing the immediate
need for review and oversight by the Department.
40. ``The Proposed Exemption is ``In the Interest of the Covered
Plans.'' The Department has tentatively determined that the proposed
exemption is in the interests of the participants and beneficiaries of
each affected Covered Plan because of the potential costs that Covered
Plans would incur if the RBC QPAMs ability to rely on PTE 84-14 lapsed
and the benefits plans would receive due to the RBC QPAMs' continued
eligibility to rely on PTE 84-14 subject to the additional protective
conditions set forth in this proposed exemption.\38\
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\38\ The Department notes that, as requested above, in order to
make its findings under ERISA section 408(a), it has requested
specific information from the Applicant regarding the size and scope
of the costs that Covered Plans are likely to incur and that are not
subject to the hold harmless provision in section III(j)(2) of the
exemption.
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41. ``The Proposed Exemption is ``Protective of the Plans.'' The
Department has tentatively determined that the proposed exemption is
protective of Covered Plans. The Department has imposed protective
conditions that it has used in the most recent exemptions for relief
from section I(g), and the Department has determined that those
conditions would be protective of the rights of participants and
beneficiaries of covered Plans. In addition, the relief provided under
this proposed exemption is limited to five (5) years, so that the
Department can reassess the RBC QPAMs' compliance with the exemption
conditions and confirm that the exemption remains protective of the
rights of participants and beneficiaries of Covered Plans. Finally, the
Applicant's representation that it maintains a hotline for employees
who wish to report any concerns about wrongdoing anonymously also will
help ensure that this proposed exemption is protective of the rights of
participants and beneficiaries of Covered Plans.
Summary
42. Considering the revised and new conditions described above, the
Department has tentatively determined that the relief sought by the
Applicants in this proposed exemption satisfies the statutory
requirements for an exemption under section 408(a) of ERISA. The
proposed exemption provides relief from certain of the restrictions set
forth in section 406 and 407 of ERISA. The proposed exemption does not
provide relief from any other violation of law, including any criminal
conviction not expressly described herein. Any criminal conviction not
expressly described herein, or other violation of section I(g) of PTE
84-14 that is attributable to the Applicant would result in the
applicant's loss of this exemption.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within fifteen (15) days of the publication of the notice of
proposed exemption in the Federal Register. The Applicant must provide
notice of the proposed exemption as published in the Federal Register,
along with a separate summary describing the facts that led to the
Conviction (the Summary), which have been submitted to the Department,
and a prominently displayed statement (the Statement) that the
Conviction results in a failure to meet a condition in PTE 84-14, to
each sponsor and beneficial owner of a Covered Plan, or the sponsor of
an investment fund in any case where a RBC QPAM acts only as a sub-
advisor to the investment fund in which such Covered Plan invests and a
supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2).
The supplemental statement will inform interested persons of their
right to comment on and request a hearing with respect to the proposed
exemption. All written comments and/or requests for a hearing must be
received by the Department within forty-five (45) days of the date of
publication of this proposed exemption in the Federal Register and will
be made available to the public.
Warning: If you submit a comment, please 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
[[Page 6023]]
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 ERISA section 408(a) and/or Code section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain other provisions of ERISA and/or the Code, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of ERISA section
404, which, among other things, require a fiduciary to discharge their
duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with ERISA section 404(a)(1)(b); nor does it affect the requirement of
Code section 401(a) that the plan must operate for the exclusive
benefit of the employees of the employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be granted under ERISA section 408(a)
and/or Code section 4975(c)(2), the Department must find that the
exemption is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(3) The proposed exemption would be supplemental to, and not in
derogation of, any other provisions of ERISA and/or the Code, including
statutory or administrative exemptions and transitional rules.
Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption would be subject to the express
condition that the material facts and representations contained in each
application are true and complete at all times, and that each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Proposed Exemption
The Department is considering granting an exemption under the
authority of ERISA section 408(a) and Code section 4975(c)(2) in
accordance with the procedures set forth in 29 CFR part 2570, subpart B
(76 FR 66637, 66644, October 27, 2011). Effective December 31, 1978,
section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. app. 1
(1996), transferred the authority of the Secretary of the Treasury to
issue exemptions of the type requested by the Applicant to the
Secretary of Labor. Therefore, this notice of proposed exemption is
issued solely by the Department.
Section I: Definitions
(a) The term ``Conviction'' means the judgment of conviction
against RBCTC Bahamas, an RBC ``affiliate'' (as defined in PTE 84-14,
section VI(d)), entered on March 5, 2024, for aiding and abetting tax
fraud in France in the Paris Court of Appeal, French Special Prosecutor
No. 11203092066.
(b) The term ``RBC QPAM'' means a ``qualified professional asset
manager'' (as defined in section VI(a) 5 of PTE 84-14) that relies on
the relief provided by PTE 84-14 and with respect to which RBCTC
Bahamas is a current or future ``affiliate'' (as defined in section
VI(d) of PTE 84-14). The RBC QPAMs do not and must not include RBCTC
Bahamas.
(c) The term ``RBC'' means Royal Bank of Canada, together with its
current and future affiliates.
(d) The term ``RBCTC Bahamas'' means Royal Bank of Canada Trust
Company (Bahamas) Limited, a Bahamian ``affiliate'' of RBC (as defined
in section VI(c) of PTE 84-14).
(e) The term ``Covered Plan'' means a plan subject to ERISA title
I, part 4 (an ERISA Plan) or a plan subject to Code section 4975 (an
IRA), in each case, with respect to which a RBC QPAM relies on PTE 84-
14, or with respect to which an RBC QPAM (or any RBC affiliate) has
expressly represented that the manager qualifies as a QPAM or relies on
PTE 84-14 (the QPAM Exemption). A ``Covered Plan'' does not include an
ERISA Plan or IRA to the extent the RBC QPAM has expressly disclaimed
reliance on QPAM status or PTE 84-14 in entering into its contract,
arrangement, or agreement with the Covered Plan. Notwithstanding the
above, an RBC QPAM may disclaim reliance on QPAM status or PTE 84-14 in
a written modification of a contract, arrangement, or agreement with a
Covered Plan where: the modification is made in a bilateral document
signed by the client; the client's attention is specifically directed
toward the disclaimer; and the client is advised in writing that, with
respect to any transaction involving the client's assets, the RBC QPAM
will not represent that it is a QPAM and will not rely on the relief
described in PTE 84-14.
(f) The term ``Exemption Period'' means the period of time
beginning on March 5, 2025, and ending on March 4, 2030.
(g) Wherever found, any reference in this exemption to ``the best
knowledge'' of a party, ``best of [a party's] knowledge,'' and similar
formulations of the ``best knowledge'' standard, will be deemed to mean
the actual knowledge of the party and the knowledge which they would
have had if they had conducted their reasonable due diligence required
under the circumstances into the relevant subject matter. If a
condition of the exemption requires an individual to provide
certification pursuant to their ``best knowledge,'' then such
individual, in order to make such certification, must perform their
reasonable due diligence required under the circumstances to determine
whether the information such individual is certifying is complete and
accurate in all respects. Furthermore, with respect to an entity other
than a natural person, the ``best knowledge'' of the entity includes
matters that are known to the directors and officers of the entity or
should be known to such individuals upon the exercise of such
individuals' due diligence required under the circumstances.
(h) The terms ``participate,'' and ``participate in,'' when used to
describe a person's role in the criminal conduct described in this
exemption, refer not only to a person's active participation in the
misconduct of RBCTC that is the subject of the Conviction, but also
includes the knowing or tacit approval of the misconduct underlying the
Conviction or knowledge of such conduct without taking active steps to
prohibit it, including reporting the conduct to such individual's
supervisors, and to RBC's board of directors.
Section II: Transactions
The RBC QPAMs will not be precluded from relying on the exemptive
relief provided by Prohibited Transaction Exemption 84-14 (PTE 84-14)
\39\ notwithstanding the Conviction (as defined above) \40\ during the
Exemption Period, provided that the conditions in section III are
satisfied.
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\39\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), as
amended at 75 FR 38837 (July 6, 2010), and as amended at 89 FR 23090
(April 3, 2024).
\40\ 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 felonies including income tax evasion, and
aiding and abetting tax evasion.''
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[[Page 6024]]
Section III: Conditions
(a) The RBC QPAMs (including their officers, directors, agents
other than RBCTC, and employees of such RBC QPAMs) did not know of,
have reason to know of, and did not participate in the criminal
misconduct of RBCTC Bahamas that is the subject of the Conviction.
Further, any other party engaged on behalf of the RBC QPAMs who had
responsibility for or exercised authority in connection with the
management of plan assets did not know or have reason to know of and
did not participate in the criminal misconduct that is the subject of
the Conviction.
(b) The RBC QPAMs (including their officers, directors, agents
other than RBCTC, and employees of such RBC QPAMs) did not receive any
direct compensation or knowingly receive any indirect compensation in
connection with the criminal misconduct that is the subject of the
Conviction. Further, any other party engaged on behalf of the RBC QPAMs
who had responsibility for or exercised authority in connection with
the management of plan assets did not receive any direct compensation
or knowingly receive any indirect compensation in connection with the
criminal misconduct that is the subject of the Conviction;
(c) The RBC QPAMs will not employ or knowingly engage any of the
individuals that participated in the criminal misconduct that is the
subject of the Conviction;
(d) At all times during the Exemption Period, no RBC QPAM will use
its authority or influence to direct an ``investment fund,'' (as
defined in section VI(b) of PTE 84-14) that is subject to ERISA or the
Code and managed by an RBC QPAM in reliance of PTE 84-14, or with
respect to which an RBC QPAM has expressly represented to a Covered
Plan that it qualifies as a QPAM or relies on PTE 84-14, to enter into
any transaction with RBCTC Bahamas or engage RBCTC Bahamas to provide
any service to such Covered Plan for a direct or indirect fee borne by
such Covered Plan regardless of whether such transaction or service may
otherwise be within the scope of relief provided by an administrative
or statutory exemption;
(e) Any failure of the RBC QPAMs to satisfy PTE 84-14, section I(g)
arose solely from the Conviction;
(f) A RBC QPAM did not exercise authority over the assets of any
Covered Plan in a manner that it knew or should have known would: (i)
further the criminal misconduct that is the subject of the Conviction;
or (ii) cause the RBC QPAM or its affiliates to directly or indirectly
profit from the criminal misconduct that is the subject of the
Conviction;
(g) Other than with respect to employee benefit plans maintained or
sponsored for its own employees or the employees of an affiliate, RBCTC
Bahamas will not act as a fiduciary within the meaning of ERISA
sections 3(21)(A)(i) or (iii) or Code sections 4975(e)(3)(A) and (C)
with respect to Covered Plan assets; provided, however, that RBCTC
Bahamas will not be treated as violating the conditions of this
exemption solely because they acted as investment advice fiduciaries
within the meaning of ERISA section 3(21)(A)(ii) or Code section
4975(e)(3)(B);
(h)(1) Each RBC QPAM must continue to maintain, adjust (to the
extent necessary), implement, and follow written policies and
procedures (the Policies). The Policies must require and be reasonably
designed to ensure that:
(i) the asset management decisions of the RBC QPAM are conducted
independently of the management and business activities of RBC,
including RBCTC Bahamas;
(ii) the RBC QPAM fully complies with ERISA's fiduciary duties and
with ERISA and the Code's prohibited transaction provisions as
applicable with respect to each Covered Plan and does not knowingly
participate in any violations of these duties and provisions with
respect to Covered Plans;
(iii) the RBC QPAM does not knowingly participate in any other
person's violation of ERISA or the Code with respect to Covered Plans;
(iv) any filings or statements made by the RBC QPAM to regulators,
including but not limited to, the Department of Labor, the Department
of the Treasury, the Department of Justice, and the Pension Benefit
Guaranty Corporation, on behalf of or in relation to Covered Plans are
materially accurate and complete to the best of such QPAM's knowledge
at that time;
(v) to the best of the RBC QPAM's knowledge at the time, the RBC
QPAM does not make material misrepresentations or omit material
information in its communications with such regulators with respect to
Covered Plans or make material misrepresentations or omit material
information in its communications with Covered Plans;
(vi) the RBC QPAM complies with the terms of the exemption;
(vii) any violation of or failure to comply with a requirement set
forth in subparagraphs (h)(1)(ii) through (h)(1)(vi), is corrected
promptly upon discovery or as soon after the RBC QPAM reasonably should
have known of the noncompliance (whichever is earlier) and any such
violation or compliance failure not promptly corrected is reported,
upon discovering the failure to promptly correct, in writing, to
appropriate corporate officers, the head of compliance and the General
Counsel (or their functional equivalent) of the relevant RBC QPAM that
engaged in the violation or failure, and the independent auditor
responsible for reviewing compliance with the Policies. An RBC QPAM
will not be treated as having failed to develop, implement, maintain,
or follow the Policies, provided that it corrects any instance of
noncompliance promptly when discovered or when it reasonably should
have known of the noncompliance (whichever is earlier), and provided
that it adheres to the reporting requirements set forth in this
subparagraph (vii);
(2) Each RBC QPAM must maintain, adjust (to the extent necessary)
and implement a training program (the Training) that is conducted at
least annually for all relevant RBC QPAM asset/portfolio management,
trading, legal, compliance, and internal audit personnel. The Training
must:
(i) At a minimum, cover the Policies, ERISA and Code compliance
(including applicable fiduciary duties and the prohibited transaction
provisions), ethical conduct, the consequences for not complying with
the conditions of this exemption (including any loss of exemptive
relief provided herein), and prompt reporting of wrongdoing;
(ii) Be conducted in-person, electronically or via a website by a
professional who has been prudently selected and who has appropriate
technical training and proficiency with ERISA and the Code to perform
the tasks required by this exemption; and
(iii) Be verified, through in-training knowledge checks,
``graduation'' tests, and/or other technological tools designed to
confirm that personnel fully and in good faith participate in the
Training;
(i)(1) The RBC QPAMs must submit to a 12-month audit conducted
every two years by an independent auditor who has been prudently
selected and has appropriate technical training and proficiency with
ERISA and the Code to evaluate the adequacy of each RBC QPAM's
compliance with the Policies and Training conditions described herein.
The audit requirement must be incorporated in the Policies, and the
first audit must cover a consecutive 12-month period starting on March
5, 2025. The second audit must cover the consecutive 12-month period
starting on
[[Page 6025]]
March 5, 2027, and the third audit must cover the consecutive 12-month
period starting on March 5, 2029. Each audit must be completed no later
than six (6) months after the corresponding audit's ending period;
(2) Within the scope of the audit and to the extent necessary for
the auditor, in its sole opinion, to complete its audit and comply with
the conditions described herein, and only to the extent such disclosure
is not prevented by state or federal statute, or involves
communications subject to attorney client privilege, the RBC QPAMs and,
if applicable, RBC, will grant the auditor unconditional access to its
business, including, but not limited to: its computer systems; business
records; transactional data; workplace locations; training materials;
and personnel. Such access is limited to information relevant to the
auditor's objectives, as specified by the terms of this exemption;
(3) The auditor's engagement must specifically require the auditor
to determine whether the RBC QPAMs have developed, implemented,
maintained, and followed the Policies in accordance with the conditions
of this exemption and have developed and implemented the Training, as
required herein;
(4) The auditor's engagement must specifically require the auditor
to test the RBC QPAMs operational compliance with the Policies and
Training. In this regard, the auditor must test a sample of each QPAM's
transactions involving Covered Plans that are sufficient in size and
nature to afford the auditor a reasonable basis to determine such RBC
QPAM's operational compliance with the Policies and Training;
(5) For each audit, the auditor must issue a written report (the
Audit Report) to RBC and the RBC QPAM to which the audit applies that
describes the procedures performed by the auditor in connection with
its examination on or before the end of the relevant period described
in section III(i)(1) for completing the audit. The auditor, at its
discretion, may issue a single consolidated Audit Report that covers
all of the RBC QPAMs. The Audit Report must include the auditor's
specific determinations regarding:
(i) The adequacy of each RBC QPAM's Policies and Training; each RBC
QPAM's compliance with the Policies and Training; the need, if any, to
strengthen such Policies and Training; and any instance of the
respective RBC QPAM's noncompliance with the written Policies and
Training. The non-compliant RBC QPAM must promptly address any
noncompliance and prepare a written plan of action to address any
determination by the auditor regarding the adequacy of the Policies and
Training and the auditor's recommendations (if any) with respect to
strengthening the Policies and Training of the respective RBC QPAM. Any
action taken or the plan of action to be taken by the respective RBC
QPAM must be included in an addendum to the Audit Report (and such
addendum must be completed before the certification described in
section III(i)(7) below). In the event such a plan of action to address
the auditor's recommendation regarding the adequacy of the Policies and
Training is not completed by the time the Audit Report is submitted,
the following period's Audit Report must state whether the plan was
satisfactorily completed. Any determination by the auditor that the
respective RBC QPAM has implemented, maintained, and followed
sufficient Policies and Training must not be based solely or in
substantial part on an absence of evidence indicating noncompliance. In
this last regard, any finding that an RBC QPAM has complied with the
requirements under this subparagraph must be based on evidence that the
particular RBC QPAM has actually implemented, maintained, and followed
the Policies and Training required by this exemption. Furthermore, the
auditor must not rely solely on the Annual Report created by the
compliance officer (the Compliance Officer) as described in section
III(m) below, as the basis for the auditor's conclusions in lieu of
independent determinations and testing performed by the auditor as
required by section III(i)(3) and (4) above; and
(ii) The adequacy of the most recent Annual Review described in
section III(m);
(6) The auditor must notify the respective RBC QPAM of any instance
of noncompliance identified by the auditor within five (5) business
days after such noncompliance is identified by the auditor, regardless
of whether the audit has been completed as of that date;
(7) With respect to each Audit Report, the RBC QPAM's general
counsel, or one of the three most senior executive officers of the line
of business engaged in discretionary asset management services through
the RBC QPAM with respect to which the Audit Report applies, must
certify in writing, under penalty of perjury, that such signatory has
reviewed the Audit Report and this exemption and that to the best of
such signatory's knowledge at the time, such RBC QPAM has addressed,
corrected, or remedied any noncompliance and inadequacy or has an
appropriate written plan to address any inadequacy regarding the
Policies and Training identified in the Audit Report. Such
certification must also include the signatory's determination that, to
the best of such signatory's knowledge at the time, the Policies and
Training in effect at the time of signing are adequate to ensure
compliance with the conditions of this proposed exemption, and with the
applicable provisions of ERISA and the Code. Notwithstanding the above,
no person who knew of, or should have known of, or participated in the
criminal conduct that is the subject of the Conviction, by any party,
may provide the certification required by this exemption, unless the
person took active documented steps to stop the misconduct underlying
the Conviction;
(8) The Audit Committee of RBC's Supervisory Board is provided a
copy of each Audit Report, and a senior executive officer with a direct
reporting line to the highest-ranking compliance officer of RBC must
review the Audit Report for each RBC QPAM and certify in writing and
under penalty of perjury that such officer has reviewed each Audit
Report. RBC must provide notice to the Department if there is a switch
in the committee to which the Audit Report will be provided. With
respect to this subsection (8), such certifying executive officer must
not have known of, had reason to know of, or participated in, the
criminal conduct that is the subject of the Conviction, unless such
person took active documented steps to stop the misconduct underlying
the Conviction;
(9) Each RBC QPAM provides its certified Audit Report by electronic
mail to: [email protected]. This delivery must take place no later than
forty-five (45) days following completion of the Audit Report. The
Audit Report will be made part of the public record regarding this
exemption. Furthermore, each RBC QPAM must make its Audit Report
unconditionally available, electronically or otherwise, for examination
upon request by any duly authorized employee or representative of the
Department, other relevant regulators, and any fiduciary of a Covered
Plan;
(10) Each RBC QPAM and the auditor must submit the following
document(s) to OED via electronic mail to [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, for
[[Page 6026]]
inspection and review, access to all the workpapers created and
utilized in the course of the audit, provided such access and
inspection is otherwise permitted by law; and
(12) RBC must notify the Department of a change in the independent
auditor no later than two (2) months after the engagement of a
substitute or subsequent auditor and must provide an explanation for
the substitution or change including a description of any material
disputes between the terminated auditor, and RBC or any of its
affiliates;
(j) Throughout the Exemption Period, with respect to any
arrangement, agreement, or contract between an RBC QPAM and a Covered
Plan, the RBC QPAM agrees and warrants:
(1) To comply with ERISA and the Code, as applicable with respect
to such Covered Plan; to refrain from engaging in prohibited
transactions that are not otherwise exempt (and to promptly correct any
prohibited transactions in accordance with applicable rules under ERISA
and the Code); and to comply with the standards of prudence and loyalty
set forth in ERISA section 404 with respect to each such Covered Plan
to the extent that section is applicable;
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from the RBC QPAM's violation of any
conditions of this exemption, an RBC QPAM's violation of ERISA's
fiduciary duties, as applicable, and of the prohibited transaction
provisions of ERISA and the Code, as applicable; a breach of contract
by the RBC QPAM; or any claim arising out of the failure of such RBC
QPAM to qualify for the exemptive relief provided by PTE 84-14 as a
result of a violation of section I(g) of PTE 84-14 other than the
Conviction. Actual losses include, but are not limited to, losses and
related costs arising from unwinding transactions with third parties
and from transitioning Plan assets to an alternative asset manager as
well as costs associated with any exposure to excise taxes under Code
section 4975 as a result of a QPAM's inability to rely upon the relief
in the QPAM Exemption.
(3) Not to require or otherwise cause the Covered Plan to waive,
limit, or qualify the liability of the RBC QPAM for violating ERISA or
the Code or engaging in prohibited transactions;
(4) Not to restrict the ability of such Covered Plan to terminate
or withdraw from its arrangement with the RBC QPAM with respect to any
investment in a separately managed account or pooled fund subject to
ERISA and managed by such QPAM, with the exception of reasonable
restrictions, appropriately disclosed in advance, that are specifically
designed to ensure equitable treatment of all investors in a pooled
fund in the event such withdrawal or termination may have adverse
consequences for all other investors. In connection with any of these
arrangements involving investments in pooled funds subject to ERISA
entered into after the effective date of this exemption, the adverse
consequences must relate to a lack of liquidity of the underlying
assets, valuation issues, or regulatory reasons that prevent the fund
from promptly redeeming a Covered Plan's investment, and such
restrictions must be applicable to all investors in the pooled fund on
equal terms and effective no longer than reasonably necessary to avoid
the adverse consequences;
(5) Not to impose any fees, penalties, or charges for such
termination or withdrawal with the exception of reasonable fees,
appropriately disclosed in advance, that are specifically designed to
prevent generally recognized abusive investment practices or
specifically designed to ensure equitable treatment of all investors in
a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in like manner to all such investors;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting liability of the RBC QPAM for a violation of such agreement's
terms. To the extent consistent with ERISA section 410, however, this
provision does not prohibit disclaimers for liability caused by an
error, misrepresentation, or misconduct of a plan fiduciary or other
party hired by the plan fiduciary who is independent of RBC and its
affiliates, or damages arising from acts outside the control of the RBC
QPAM; and
(7) Within 60 calendar days after this exemption's effective date,
each RBC QPAM must provide a notice of its obligations under this
section III(j) to each Covered Plan. For Covered Plans that enter into
a written asset or investment management agreement with an RBC QPAM on
or after 60 calendar days from this exemption's effective date, the RBC
QPAM must agree to its obligations under this section III(j) in an
updated investment management agreement between the RBC QPAM and such
clients or other written contractual agreement. This condition will be
deemed met for each Covered Plan that received a notice pursuant to PTE
2016-10 that meets the terms of this condition. This condition will
also be met where the RBC QPAM has already agreed to the same
obligations required by this section III(j) in an updated investment
management agreement between the RBC QPAM and a Covered Plan.
Notwithstanding the above, an RBC QPAM will not violate the condition
solely because a Covered Plan client refuses to sign an updated
investment management agreement;
(k) Within 60 days after the effective date of this exemption, each
RBC QPAM provides notice of the exemption as published in the Federal
Register, along with a separate summary describing the facts that led
to the Conviction (the Summary), which have been submitted to the
Department, and a prominently displayed statement (the Statement) that
the Conviction results in a failure to meet a condition in PTE 84-14,
to each sponsor and beneficial owner of a Covered Plan, or the sponsor
of an investment fund in any case where an RBC QPAM acts only as a sub-
advisor to the investment fund in which such Covered Plan invests. All
prospective Covered Plan clients that enter into a written asset or
investment management agreement with an RBC QPAM (including a
participation or subscription agreement in a pooled fund managed by an
RBC QPAM) after the date that is sixty days after the effective date of
this exemption must receive the proposed and final exemptions with the
Summary and the Statement prior to, or contemporaneously with, the
client's receipt of a written asset management agreement from the RBC
QPAM (for avoidance of doubt, all Covered Plan clients of an RBC QPAM
during the Exemption Period must receive the disclosures described in
this section by the later of (i) 60 days after the effective date of
the exemption or (ii) the date that a Covered Plan client enters into a
written asset or investment management agreement with an RBC QPAM).
Disclosures required under this paragraph (k) may be delivered
electronically (including by an email that has a link to this
exemption). Notwithstanding the above paragraph, an RBC QPAM will not
violate the condition solely because a Covered Plan client refuses to
sign an updated investment management agreement;
(l) The RBC QPAMs must comply with each condition of PTE 84-14, as
amended, with the sole exception of the violation of PTE 84-14 section
I(g) that is attributable to the Conviction. If, during the Exemption
Period, an affiliate of an RBC QPAM (as defined in section VI(d) of PTE
84-14) violates section I(g) of PTE 84-14 (other than with respect to
the Conviction), relief
[[Page 6027]]
provided in this exemption would terminate immediately;
(m)(1) Within 60 days after the date of publication of the
exemption, each RBC QPAM designates a senior compliance officer (the
Compliance Officer) who will be responsible for compliance with the
Policies and Training requirements described herein. No person who
participated in the criminal conduct that is the subject of the
Conviction may be involved with the designation or responsibilities
required by this condition, unless the person took active documented
steps to stop the criminal conduct that is subject of the Conviction.
The Compliance Officer must conduct a review of each twelve-month
period comprising the Exemption Period (each, an Exemption Review) to
determine the adequacy and effectiveness of the implementation of the
Policies and Training. With respect to the Compliance Officer, the
following conditions must be met:
(i) The Compliance Officer must be a professional who has extensive
experience with, and knowledge of, the regulation of financial services
and products, including under ERISA and the Code; and
(ii) The Compliance Officer must have a direct reporting line to
the highest-ranking corporate officer in charge of compliance for asset
management;
(2) With respect to each Exemption Review, the following conditions
must be met:
(i) The Exemption Review includes a review of the RBC QPAM's
compliance with and effectiveness of the Policies and Training and of
the following: any compliance matter related to the Policies or
Training that was identified by, or reported to, the Compliance Officer
or others within the compliance and risk control function (or its
equivalent) the twelve-month period under review; the most recent Audit
Report issued pursuant to this exemption; the most recent Audit Report
issued in connection with this exemption; (B) any material change in
the relevant business activities of the RBC QPAMs; and (C) any change
to ERISA, the Code, or regulations related to fiduciary duties and the
prohibited transaction provisions that may be applicable to the
activities of the RBC QPAMs;
(ii) The Compliance Officer prepares a written report for each
Exemption Review (each, an Exemption Report) that: (A) summarizes their
material activities during the twelve-month period under review; (B)
sets forth any instance of noncompliance discovered during the twelve-
month period under review, and any related corrective action; (C)
details any change to the Policies or Training to guard against any
similar instance of noncompliance occurring again; and (D) makes
recommendations, as necessary, for additional training, procedures,
monitoring, or additional and/or changed processes or systems, and
management's actions on such recommendations;
(iii) In each Exemption Report, the Compliance Officer must certify
in writing that to the best of their knowledge at the time: (A) the
report is accurate; (B) the Policies and Training are working in a
manner which is reasonably designed to ensure that the Policies and
Training requirements described herein are met; (C) any known instance
of noncompliance during the twelve-month period under review and any
prior period and any related correction taken to date have been
identified in the Exemption Report; and (D) the RBC QPAMs have complied
with the Policies and Training and/or corrected (or is correcting) any
known instances of noncompliance in accordance with section III(h)
above;
(iv) Each Exemption Report must be provided to: (A) the appropriate
corporate officers of RBC and each RBC QPAM to which such report
relates, and (B) the head of compliance and the RBC QPAM's general
counsel (or their functional equivalent) of the relevant RBC QPAM; and
must be made unconditionally available to the independent auditor
described in section III(i) above;
(v) Each Exemption Review, including the Compliance Officer's
written Exemption Report, must be completed within three (3) months
following the end of the period to which it relates;
(n) Each RBC QPAM will maintain records necessary to demonstrate
that the conditions of this exemption have been met for six (6) years
following the date of any transaction for which the RBC QPAM relies
upon the relief in the exemption;
(o) Within 60 days after the effective date of this exemption, each
RBC QPAM, in its agreements with, or in other written disclosures
provided to Covered Plans, clearly and prominently informs Covered Plan
clients of the Covered Plan's right to obtain a copy of the Policies or
a description (Summary Policies), which accurately summarizes key
components of the QPAM's written Policies developed in connection with
this exemption. 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. If the Applicant meets this disclosure requirement through
Summary Policies, changes to the Policies shall not result in the
requirement for a new disclosure unless, as a result of changes to the
Policies, the Summary Policies are no longer accurate. With respect to
this requirement, the description may be continuously maintained on a
website, provided that such website link to the Policies or the Summary
Policies is clearly and prominently disclosed to each Covered Plan;
(p) An RBC QPAM will not fail to meet the terms of this exemption,
solely because a different RBC QPAM fails to satisfy a condition for
relief described in sections III(c), (d), (h), (i), (j), (k), (l), (m),
(n),(o), and (u) or if the independent auditor described in section
III(i) fails to comply with a provision of the exemption, other than
the requirement described in section III(i)(11), provided that such
failure did not result from any actions or inactions of RBC or its
affiliates;
(q) RBC imposes its internal procedures, controls, and protocols to
reduce the likelihood of any recurrence of conduct that is the subject
of the Conviction;
(r) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate;
(s) With respect to an asset manager that becomes an RBC QPAM after
the effective date of the exemption by virtue of being acquired (in
whole or in part) by RBC or a subsidiary or affiliate of RBC (a
``newly-acquired RBC QPAM''), the newly-acquired RBC QPAM would not be
precluded from relying on the exemptive relief provided by PTE 84-14
notwithstanding the Conviction as of the closing date for the
acquisition; however, the operative terms of the exemption shall not
apply to the newly-acquired RBC QPAM until a date that is six (6)
months after the closing date for the acquisition. To that end, the
newly acquired RBC QPAM will initially submit to an audit pursuant to
section III(i) of this exemption as of the first audit period that
begins following the closing date for the acquisition. The period
covered by the audit must begin on the acquisition date of the newly-
acquired RBC QPAM;
(t) Relief in this exemption will terminate on the date that is 12
months after the date a U.S. regulatory authority makes a final
decision that RBC or an affiliate failed to comply in all material
respects with any requirement imposed by such regulatory authority in
connection with the Conviction; and
(u) The RBC QPAM(s) must provide the Department with the records
[[Page 6028]]
necessary to demonstrate that each condition of this exemption has been
met within 30 days after a request for the records by the Department.
Exemption Date: This exemption will be in effect beginning on March
5, 2025, and ending on March 4, 2030.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor
[FR Doc. 2025-01067 Filed 1-16-25; 8:45 am]
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