Exemptions from Certain Prohibited Transaction Restrictions

Federal RegisterDec 29, 2017

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

Exemptions from Certain Prohibited Transaction Restrictions

AGENCY:

Employee Benefits Security Administration, Labor.

ACTION:

Grant of individual exemptions.

SUMMARY:

This document contains exemptions issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). This notice includes the following: 2017-03, JPMorgan Chase & Co., D-11906; 2017-04, Deutsche Investment Management Americas Inc. (DIMA) and Certain Current and Future Asset Management Affiliates of Deutsche Bank AG, D-11908; 2017-05, Citigroup Inc., D-11909; 2017-06, Barclays Capital Inc., D-11910; 2017-07, UBS Assets Management (Americas) Inc.; UBS Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC; and Certain Future Affiliates in UBS's Asset Management and Wealth Management Americas Divisions, D-11907.

SUPPLEMENTARY INFORMATION:

A notice was published in the

Federal Register

of the pendency before the Department of a proposal to grant such exemption. The notice set forth a summary of facts and representations contained in the application for exemption and referred interested persons to the application for a complete statement of the facts and representations. The application has been available for public inspection at the Department in Washington, DC. The notice also invited interested persons to submit comments on the requested exemption to the Department. In addition the notice stated that any interested person might submit a written request that a public hearing be held (where appropriate). The applicant has represented that it has complied with the requirements of the notification to interested persons. One request for a hearing was received by the Department. Public comments were received by the Department as described in the granted exemption.

The notice of proposed exemption was issued and the exemption is being granted solely by the Department because, 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 proposed to the Secretary of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section 4975(c)(2) of the Code and the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011)

and based upon the entire record, the Department makes the following findings:

The Department has considered exemption applications received prior to December 27, 2011 under the exemption procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).

(a) The exemption is administratively feasible;

(b) The exemption is in the interests of the plan and its participants and beneficiaries; and

JPMorgan Chase Co. (JPMC or the Applicant) Located in New York, New York

[Prohibited Transaction Exemption 2017-03; Exemption Application No. D-11906]

Discussion

On November 21, 2016, the Department of Labor (the Department) published a notice of proposed exemption in the

Federal Register

at 81 FR 83372, for certain entities with specified relationships to JPMC to continue to rely upon the relief provided by PTE 84-14 for a period of five years,

notwithstanding JPMC's criminal conviction, as described herein. The Department is granting this exemption in order to ensure that Covered Plans

whose assets are managed by a JPMC Affiliated QPAM or JPMC Related QPAM may continue to benefit from the relief provided by PTE 84-14. The exemption is effective from January 10, 2018 through January 9, 2023 (the Exemption Period).

49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 (October 10, 1985), as amended at 70 FR 49305 (August 23, 2005) and as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as PTE 84-14 or the QPAM exemption.

The term “Covered Plan” is a plan subject to Part 4 of Title 1 of ERISA (“ERISA-covered plan”) or a plan subject to Section 4975 of the Code (“IRA”) with respect to which a JPMC Affiliated QPAM relies on PTE 84-14, or with respect to which a JPMC Affiliated QPAM (or any JPMC affiliate) has expressly represented that the manager qualifies as a QPAM or relies on the QPAM class exemption (PTE 84-14). A Covered Plan does not include an ERISA-covered Plan or IRA to the extent the JPMC Affiliated QPAM has expressly disclaimed reliance on QPAM status or PTE 84-14 in entering into its contract, arrangement, or agreement with the ERISA-covered plan or IRA. See further discussion in this Preamble under the heading Comment 8—Policies and Procedures Relating to Compliance with ERISA and the Code—Section I(h)(1)(ii)-(v).

No relief from a violation of any other law is provided by this exemption, including any criminal conviction described in the proposed exemption. Furthermore, the Department cautions that the relief in this exemption will terminate immediately if, among other things, an entity within the JPMC corporate structure is convicted of a crime described in Section I(g) of PTE 84-14 (other than the Conviction) during the Exemption Period. The terms of this exemption have been specifically designed to promote conduct that adheres to basic fiduciary standards under ERISA and the Code. The exemption also aims to ensure that plans and IRAs can terminate relationships in an orderly and cost effective fashion in the event a plan or IRA fiduciary determines it is prudent for the plan or IRA to sever its relationship with an entity covered by the exemption.

Written Comments

The Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the notice of proposed exemption, published in the

Federal Register

at 81 FR 83372 on November 21, 2016. All comments and requests for a hearing were due by January 20, 2017.

The Department received written comments from the Applicant, members of the U.S. Congress, and a number of plan and IRA clients of JPMC. After considering these submissions, the Department has determined to grant the exemption, with revisions, as described below.

The Department received additional comments from Applicant after the close of the comment period.

Comment 1—Term of the Exemption

The Applicant requests that the Department extend the term of the exemption from five years to nine years from the Conviction Date. The Applicant states that the five year term is inconsistent with precedent and “appears punitive.” The Applicant further states that “exemptions should reflect the underlying facts that necessitated the exemption [and] [h]ere, those facts are as follows: JPMC was convicted of a single crime, based solely on the misconduct of a single individual who was not employed by the Applicant's asset management businesses and who has been terminated by a firm that has dedicated and continues to dedicate significant resources to enhancing the relevant

controls to prevent future instances of similar misconduct.” The Applicant states that “the exemption imposes additional and burdensome requirements on the asset management businesses of the applicant-businesses entirely uninvolved with the criminal conduct.”

Although the Applicant characterizes the conduct as involving the isolated actions of one individual, the Department does not agree with the apparent suggestion that the Applicant bears little or no responsibility for the criminal conduct. For example, JPMC's Plea Agreement contains the following statement, under the heading Other Relevant Conduct: “the defendant [JPMC], through its currency traders and sales staff, also engaged in other currency trading and sales practices in conducting FX Spot Market transactions with customers via telephone, email, and/or electronic chat, to wit: (i) Intentionally working customers' limit orders one or more levels, or `pips,' away from the price confirmed with the customer; (ii) including sales markups, through the use of live hand signals or undisclosed prior internal arrangements or communications, to prices given to customers that communicated with sales staff on open phone lines; (iii) accepting limit orders from customers and then informing those customers that their orders could not be filled, in whole or in part, when in fact the defendant was able to fill the order but decided not to do so because the defendant expected it would be more profitable not to do so; and (iv) disclosing non-public information regarding the identity and trading activity of the defendant's customers to other banks or other market participants, in order to generate revenue for the defendant at the expense of its customers.”

In developing this exemption, the Department also considered statements made by other regulators. The Financial Conduct Authority's (FCA) Final Notice states: “[d]uring the Relevant Period, JPMorgan did not exercise adequate and effective control over its G10 spot FX trading business. . . . The front office failed adequately to discharge these responsibilities with regard to obvious risks associated with confidentiality, conflicts of interest and trading conduct.” The Notice further states: “These failings occurred in circumstances where certain of those responsible for managing front office matters were aware of and/or at times involved in behaviors described above.”

By way of further example, the Consent Order of the Office of the Comptroller of the Currency (OCC) states: “[t]he OCC's examination findings established that the Bank [the Applicant's Corporate and Investment Banking line of business] had deficiencies in its internal controls and had engaged in unsafe or unsound banking practices with respect to the oversight and governance of the Bank's FX trading business such that the Bank failed to detect and prevent the conduct set forth in paragraph twelve (12). The deficiencies and unsafe or unsound practices include the following: (a) The Bank's oversight and governance of its FX trading business were weak and lacked adequate formal guidance to mitigate and manage risks related to market conduct in FX Trading with respect to sales, trading and supervisory employees in that business . . . .”

The Department also notes the size of relevant fines imposed by various regulators: The Department of Justice imposed a $550 million fine; The Board of Governors of the Federal Reserve Board imposed a $342 million fine; and the OCC, the Commodity Futures Trading Commission, and the FCA imposed fines of $350 million, $310 million, and £222,166,000, respectively.

This exemption is not punitive; instead, its five-year term and protective conditions reflect the Department's intent to protect Covered Plans that entrust substantial assets to a JPMC Affiliated QPAM, despite the serious misconduct and supervisory failures described above. The limited term of this exemption gives the Department the opportunity to review the adherence by the JPMC Affiliated QPAMs to the conditions set out herein. If the Applicant seeks an extension of this exemption, the Department will examine whether the compliance and oversight changes mandated by various regulatory authorities are having the desired effect on JPMC entities.

The relationship between the JPMC Affiliated QPAMs and the Applicant's Corporate and Investment Banking line of business (CIB) is substantial. The Applicant states, “As of the date of the Applicant's application, JPMC Affiliated QPAMs managed approximately $100 billion in plan assets through collective investment trusts that use the custody and administration services of the Applicant's Corporate and Investment Banking line of business (CIB), operating through the Bank. Similarly, certain plans managed by JPMC Affiliated QPAMs through separate accounts have independently selected CIB (operating through the Bank) as their trustee and/or custodian, and transactions directed by JPMC Affiliated QPAMs on behalf of such plans would necessarily require the trustee/custodian to provide services for a direct or indirect fee.” The Applicant also states, “Because of all of the services CIB necessarily provides to client accounts, the wording of this proposed exemption [that excludes the business line from providing services to funds managed by the Affiliated QPAMs] is tantamount to a denial.”

Notwithstanding the above, as noted below, the Department has determined to revise this exemption to permit CIB to continue to provide services to funds managed by JPMC Affiliated QPAMs, based on the Department's determination that the conditions set forth herein are sufficiently protective of the Covered Plans, and given the type of transactions covered by this exemption and the Applicant's representations regarding the types of services provided by CIB. The Department notes that the JPMC Affiliated QPAMs' substantial and substantive dependency on the JPMC CIB when managing plan and IRA assets also supports the Department's conclusion that the conditions of the exemption are necessary and appropriate.

Comment 2—Description of Criminal Conduct—Section I

The prefatory language to Section I of the proposed exemption provides, “

If the proposed five-year exemption is granted, certain asset managers with specified relationships to JPMC (the JPMC Affiliated QPAMs and the JPMC Related QPAMs, as defined further in Sections II(a) and II(b), respectively) will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the judgment of conviction against JPMC (the Conviction), as defined in Section II(e)), for engaging in a conspiracy to: (1) fix the price of, or (2) eliminate competition in the purchase or sale of the Euro/U.S. dollar currency pair exchanged in the Foreign Exchange (FX) Spot Market, for a period of five years beginning on the date the exemption is granted.”

The Applicant requests that the description of the charged conduct—the clause beginning “for engaging in a conspiracy”—be omitted. The Applicant states that this description is inaccurate and incomplete, will lead to disputes with counterparties to the detriment of plans, and will make it unlikely that plans will benefit from or be protected by this exemption.

After consideration of the Applicant's comment, the Department has revised the exemption in the manner requested by the Applicant.

Comment 3—Knowing or Tacit Approval—Sections I(a) and I(c)

Section I(a) of the proposed five-year exemption provides,

“(a) Other than a single individual who worked for a non-fiduciary business within JPMorgan Chase Bank and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, agents other than JPMC, and employees of such QPAMs who had responsibility for, or exercised authority in connection with the management of plan assets) did not know of, did not have reason to know of, or participate in the criminal conduct that is the subject of the Conviction. For purposes of this paragraph (a), `participate in' includes the knowing or tacit approval of the misconduct underlying the Conviction;”

Section I(c) of the proposed exemption provides,

“(c) The JPMC Affiliated QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Conviction. For the purposes of this paragraph (c), `participated in' includes the knowing or tacit approval of the misconduct underlying Conviction;”

The Applicant requests that the words “or tacit” in the phrase “knowing or tacit approval” be deleted in Sections I(a) and I(c). The Applicant states that the term tacit approval “is undefined and ambiguous, and potentially encompasses a broad range of conduct that could become the subject of disputes with counterparties.”

After consideration of the Applicant's comment, the Department has revised the condition in the manner requested by the Applicant.

Comment 4—Receipt of Compensation—Section I(b)

Section I(b) of the proposed five-year exemption provides, “(b)

Other than a single individual who worked for a non-fiduciary business within JPMorgan Chase Bank and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, and agents other than JPMC, and employees of such JPMC QPAMs) did not receive direct compensation, or knowingly receive indirect compensation in connection with the criminal conduct that is the subject of the Conviction.”

The Applicant states that Section I(b) is not practically workable because an individual can receive compensation only if the entity he or she works for receives funds. The Applicant requests that this condition be modified to reflect that, although undefinable, a non-fiduciary business within JPMorgan Chase Bank may have indirectly received funds in connection with the criminal conduct that is the subject of the Conviction. The Applicant requests that the Department modify this condition as follows:

The JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, and agents other than JPMC, and employees of such JPMC QPAMs who had responsibility for, or exercised authority in connection with the management of plan assets) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Conviction, other than a non-fiduciary line of business within JPMorgan Chase Bank.

The Department has revised the condition in the manner requested by the Applicant. As revised, the condition precludes relief if any asset management personnel of JPMC received direct compensation, or knowingly received indirect compensation, in connection with the criminal conduct that is the subject of the Conviction.

Comment 5—Inclusion of “Investment Banking Division of JPMorgan Chase Bank”—Sections I(d), I(g), and I(h)(1)(i)

Section I(d)of the proposed five-year exemption provides,

“(d) A JPMC Affiliated QPAM will not use its authority or influence to direct an 'investment fund' (as defined in Section VI(b) of PTE 84-14), that is subject to ERISA or the Code and managed by such JPMC Affiliated QPAM, to enter into any transaction with JPMC or the Investment Banking Division of JPMorgan Chase Bank, or engage JPMC or the Investment Banking Division of JPMorgan Chase Bank 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; ”

Section I(g)of the proposed five-year exemption provides,

“(g) JPMC and the Investment Banking Division of JPMorgan Chase Bank will not provide discretionary asset management services to ERISA-covered plans or IRAs, and will not otherwise act as a fiduciary with respect to ERISA-covered plan or IRA assets; ”

Section I(h)(1)(i) of the proposed five-year exemption provides,

“(h)(1)(i) The asset management decisions of the JPMC Affiliated QPAM are conducted independently of JPMC's management and business activities, including the corporate management and business activities of the Investment Banking Division of JPMorgan Chase Bank; ”

The Applicant requests that these sections be revised to allow the Investment Banking Division of JPMorgan Chase Bank to provide services, including the following services, to investment funds managed by the JPMC Affiliated QPAMs: Safekeeping; settlement; administration; full service class action filing service; overdraft protection; sweep and deposit services; portfolio accounting and reporting services; payment processing services; and foreign custodial services. The Applicant states that not allowing the Investment Banking Division of JPMorgan Chase Bank to provide, or to continue to provide, these services would be harmful to more than a thousand plans.

After considering the Applicant's comment, the Department has revised the exemption in the manner requested by the Applicant such that the condition does not apply to the Investment Banking Division of JPMorgan Chase Bank. In addition, the Department has clarified that Section I(d) applies to an “investment fund” that is subject to ERISA or the Code and managed by such JPMC Affiliated QPAM with respect to Covered Plans. Finally, as requested by the Applicant, Section I(g) has been modified to clarify that JPMC will not violate this condition in the event that it inadvertently becomes an investment advice fiduciary and that JPMC can act as a fiduciary for plans that it sponsors for its own employees or employees of an affiliate.

Comment 6—Exercising Authority Over Plan Assets—Section I(f)

Section I(f)of the proposed five-year exemption provides,

“(f) A JPMC Affiliated QPAM or a JPMC Related QPAM did not exercise authority over the assets of any plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or section 4975 of the Code (an IRA) in a manner that it knew or should have known would: Further the criminal conduct that is the subject of the Conviction; or cause the JPMC QPAM or its affiliates or related parties to directly or indirectly profit from the criminal conduct that is the subject of the Conviction.”

The Applicant requests that Section I(f) be deleted, stating that it is duplicative of Section I(b), ambiguous,

and not administrable or in the interests of plans. The Applicant states that the first clause of the condition does not differ in any material way from the very first and most basic condition of the exemption: That the asset management businesses of the Affiliated QPAMs did not know of or participate in the conduct that is the subject of the Conviction. The Applicant also states that the second clause of the condition which states, “

or cause the JPMC QPAM or its affiliates or related parties to directly or indirectly profit from the criminal conduct,”

is confusing and repetitive of the condition in section I(b).

The Department declines to make the Applicant's requested revisions. The Department does not view Condition I(f) (which relates to exercising authority) as ambiguous or duplicative of Section I(b) (which relates to compensation). Further, Condition I(f) is consistent with the Applicant's prior representation that, “other than a single individual who worked for a nonfiduciary business within JPMorgan Chase Bank and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the Affiliated QPAMs did not participate in the Conduct and (ii) no current or former employee of JPMC or of any Affiliated QPAM who previously has been or who subsequently may be identified by JPMC, or any U.S. or non-U.S. regulatory or enforcement agencies, as having been responsible for the Conduct will have any involvement in providing asset management services to plans and IRAs or will be an officer, director, or employee of the Applicant or of any Affiliated QPAM.” However, for clarity, the Department has deleted the term “related parties.”

See JPMC Exemption Application (May 20, 2015) at page 11.

Comment 7—Time to Implement Policies and Training—Section I(h)(1)-(2)

Section I(h) of the proposed five-year exemption provides,

“(h)(1) Within four (4) months of the Conviction, each JPMC Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies). . . (2) Within four (4) months of the date of the Conviction, each JPMC Affiliated QPAM must develop and implement a program of training (the Training), conducted at least annually, for all relevant JPMC Affiliated QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel . . .”

The Applicant requests that the Department increase the development period associated with the Policies and Training Requirement (the Development Period) from four (4) months to six (6) months. The Applicant also seeks confirmation that, following the Development Period, it will have twelve (12) months to complete the Training for all relevant employees, and that it must do so again in every succeeding twelve (12) month period. In support of this request, the Applicant represents that JPMC Affiliated QPAMs manage assets for hundreds of ERISA-covered plans, through separate accounts; over a thousand plans, through collective investment trusts; and more than 160,000 IRAs, through various lines of business. The Applicant states that it may take up to six (6) months for all of these asset management staffs to satisfy the conditions set out in subparagraph(h) and then an additional twelve (12) months to accomplish all of the training. The Applicant further requests that Section I(h) be streamlined to match the requirements of PTE 2016-15.

The Department emphasizes that the JPMC QPAMs must comply with the Policies and Training requirements within both PTE 2016-15 and this exemption. To this end, the Department has revised the policies and training requirements of Section I(h) to conform with PTE 2016-15. The two exemptions now follow this timeline: (i) Each JPMC Affiliated QPAM must have developed the Policies and Training required by PTE 2016-15 by July 9, 2017; (ii) the first annual Training under PTE 2016-15 must be completed by July 9, 2018; (iii) each JPMC Affiliated QPAM must develop the Policies and Training required by this exemption, as necessary, by July 9, 2018; and (iv) the first Training under this exemption must be completed by July 9, 2019. By the end of this 30-month period, asset/portfolio management, trading, legal, compliance, and internal audit personnel who were employed from the start to the end of the period must have been trained twice.

Comment 8—Policies and Procedures Relating to Compliance With ERISA and the Code—Section I(h)(1)(ii)-(v)

Section I(h)(1)(ii)-(v) of the proposed five-year exemption provides,

“(h)(1) Within four (4) months of the Conviction, each JPMC Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that:

. . .

(ii) The JPMC Affiliated 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 violation of these duties and provisions with respect to ERISA-covered plans and IRAs;

(iii) The JPMC Affiliated QPAM does not knowingly participate in any other person's violation of ERISA or the Code with respect to ERISA-covered plans and IRAs;

(iv) Any filings or statements made by the JPMC Affiliated QPAM to regulators including, but not limited to, the Department, the Department of the Treasury, the Department of Justice, and the Pension Benefit Guaranty Corporation, on behalf of ERISA-covered plans or IRAs, are materially accurate and complete, to the best of such QPAM's knowledge at that time; [and]

(v) The JPMC Affiliated QPAM does not make material misrepresentations or omit material information in its communications with such regulators with respect to ERISA-covered plans or IRAs, or make material misrepresentations or omit material information in its communications with ERISA-covered plans and IRA clients.”

The Applicant requests that these subparagraphs be stricken as duplicative and already mandated by statute. The Applicant states that these conditions could be read to apply the fiduciary duties of ERISA to IRAs, which it claims would be overly broad, punitive, and not rationally related to asset management under the exemption. In the event the Department declines to strike the above subsections, the Applicant requests the following revisions to subsections (ii)-(v):

Subsection (ii):

The Applicant requests that JPMC Affiliated QPAMs be required to comply with ERISA's fiduciary duties, “with respect to ERISA-covered plans managed in reliance on PTE 84-14,” and with ERISA and the Code's prohibited transaction provisions, “as applicable, with respect to ERISA-covered plans and IRAs managed in reliance on PTE 84-14.”

Subsection (iii):

The Applicant requests the removal of “or the Code,” and “IRAs.” With the Applicant's requested revision, subsection (iii) would read, “The JPMC Affiliated QPAM does not knowingly participate in any other person's violation of ERISA with respect to ERISA-covered plans.”

Subsection (iv):

The Applicant requests that the phrase, “on behalf of ERISA-covered plans or IRAs,” be changed to, “on behalf of ERISA-covered plans or IRAs for which a JPMC Affiliated QPAM provides asset

management or other discretionary fiduciary services in reliance on PTE 84-14.”

Subsection (v):

The Applicant requests that the subparagraph be revised to, “(v) The JPMC Affiliated QPAM does not intentionally make material misrepresentations or omit material information, to the best of such QPAM's knowledge at that time, in its communications with ERISA-covered plans and IRA clients, the assets of which are managed by such JPMC Affiliated QPAM in reliance on PTE 84-14.”

In response to the Applicant's comments, the Department has modified the Policies' requirement of adherence to the fiduciary and prohibited transaction provisions of ERISA and the Code so that the Policies expressly focus on the provisions only to the extent “applicable” under ERISA and the Code. In general, however, the Department has otherwise retained the stringency and breadth of the Policies requirement, which is more than justified by the compliance and oversight failures exhibited by JPMC throughout the long period of time during which the criminal misconduct persisted.

The specific elements of the Policies requirement as set forth in this exemption are essential to its protective purposes. In approving this exemption, the Department significantly relies upon conditions designed to ensure that those relying upon its terms for prohibited transaction relief will adopt a culture of compliance centered on basic fiduciary norms and standards of fair dealing, as reflected in the Policies. These standards are core protections of this exemption.

The Department has made some additional changes, however, which should not detract from the Policies' protective purpose. Thus, as requested by the Applicant, subsection (v) has been revised to contain the “to the best of QPAM's knowledge at the time” concept found in subsection (iv); and the applicability of subsections (iv) and (v) has been narrowed to ERISA-covered plans and IRAs with respect to which a JPMC Affiliated QPAM relies on PTE 84-14, or with respect to which a JPMC Affiliated QPAM has expressly represented that the manager qualifies as a QPAM or relies on the QPAM class exemption in its dealings with the ERISA-covered plan or IRA (hereinafter, a Covered Plan). To the extent a JPMC QPAM would prefer not to be subject to this provision, however, it may expressly disclaim reliance on QPAM status or PTE 84-14 in entering into its contract with the Covered Plan. This revision is consistent with the Department's intent to protect ERISA-covered plans and IRAs that may have hired a JPMC Affiliated QPAM based on the manager's express representation that it relies on or qualifies under PTE 84-14.

As explained in more detail below, the Department will not strike a condition merely because it is also a statutory requirement. It is the express intent of the Department to preclude relief for a JPMC affiliated QPAM that fails to meet the requirements of this exemption, including those derived from basic standards codified in statute, as applicable.

Comment 9—Correction of Violations and Failures To Comply—Section I(h)(1)(vii)

Section I(h)(1)(vii) of the proposed five-year exemption provides,

“Any violation of, or failure to comply with an item in subparagraphs (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon the discovery of such 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 JPMC Affiliated QPAM, the independent auditor responsible for reviewing compliance with the Policies, and an appropriate fiduciary of any affected ERISA-covered plan or IRA that is independent of JPMC; however, with respect to any ERISA-covered plan or IRA sponsored by an ‘affiliate’ (as defined in Section VI(d) of PTE 84-14) of JPMC or beneficially owned by an employee of JPMC or its affiliates, such fiduciary does not need to be independent of JPMC. A JPMC Affiliated 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).”

The Applicant cites this condition as an example of how the Department made the proposed exemption “inexplicably” and “arbitrarily” more burdensome and onerous than other such exemptions it has granted previously. More specifically, the Applicant seeks several revisions to Section I(h)(vii), stating that its notification requirements are overbroad, and that terms such as “appropriate corporate officers” and “corrected promptly” are either vague or undefined. The Applicant requests that “subparagraphs (ii) through (vi)” be revised to read “subparagraphs (i) through (vi).” The Applicant also requests that the last sentence of the subparagraph (h) be revised, because it is “overly broad and does not meaningfully provide relief in instances where a violation or compliance failure is corrected.” The Applicant suggests the subparagraph (h) be revised to read, “Within sixty (60) days of discovery of any violation of, or failure to comply with, an item in subparagraphs (i) through (vi), the JPMC QPAM will formulate, in writing, a plan to address such violation or failure (a Correction Plan). To the extent any such Correction Plan is not formulated within sixty (60) days of discovery, the JPMC Affiliated QPAM will report in writing such violation of, or failure to comply with, the item in subparagraphs (i) through (vi) to the head of compliance . . . .”

In response to the Applicant's general comment, the Department has based the conditions of this exemption on both the particular facts of this case and its experience over time with previous exemptions. For the reasons set out herein, the Department has concluded that the specific conditions of this exemption are appropriate and give the Department a reasonable basis for concluding that the exemptions are appropriately protective of affected plans and IRAs. As noted above, a central aim of the exemption is to ensure that those relying upon the exemption for relief from the prohibited transaction rules will consistently act to promote a culture of fiduciary compliance, notwithstanding the conduct that violated Section I(g) of PTE 84-14.

After considering the Applicant's specific requests for revisions, however, the Department has replaced “appropriate corporate officers” with “the head of compliance and the General Counsel (or their functional equivalent) of the relevant line of business that engaged in the violation or failure.” The Department also will not condition the exemption on a requirement for notification of violations to an appropriate fiduciary of any affected ERISA-covered plan or IRA that is independent of JPMC.

However, the Department is not revising the “subparagraphs (ii) through (vi)” reference to include “subparagraph (i)” because the Department intends to preclude relief to the extent a JPMC Affiliated QPAM fails to develop, implement, maintain, and follow written policies and procedures. Clearly, it is not enough merely to develop policies and procedures,

without also implementing, maintaining, and following the terms of those policies and procedures. Covered Plans do not benefit from the creation of strong policies and procedures, unless they are actually followed.

The Department has revised the term “corrected promptly” for consistency with the Department's intent that violations or compliance failures be corrected “as soon as reasonably possible upon discovery or as soon after the QPAM reasonably should have known of the noncompliance (whichever is earlier).” However, contrary to the Applicant's suggestion, the Department intends to preclude relief to the extent violations or failures are not corrected as required by the exemption. Therefore, the Department has not adopted the Applicant's proposed subparagraph (vii), which requires little more than the formulation of a correction plan, without any corresponding obligation to actually implement the plan.

Comment 10—Training Incorporated in Policies—Section I(h)(2)(i)

Section I(h)(2)(i) of the proposed five-year exemption provides,

“. . . The Training must: (i) 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 five-year exemption (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing.”

The Applicant states that the requirement in Section I(h)(2)(i) that the Training must be “set forth in” the Policies is impracticable and may cause significant logistical challenges over time. Accordingly, the Applicant requests that Section I(h)(2)(i) be revised as follows:

“. . . The Training must, 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 permanent exemption (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing.”

After considering this comment, the Department has revised the condition as requested by the Applicant.

Comment 11—Training by Independent Professional—Section I(h)(2)(ii)

Section I(h)(2)(ii) of the proposed five-year exemption provides, “. . . The Training must: . . . (ii) Be conducted by an independent professional who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code.”

The Applicant requests that Section I(h)(2)(ii) be deleted, stating that requiring an independent professional is likely to be “counterproductive, a waste of time and resources, and less effective than using internal personnel who are familiar with Applicant's processes and staff . . . .”

Although the Department does not agree with the Applicant's characterization that hiring an appropriate independent professional, prudently-selected, would be counterproductive and a waste of resources, the Department is persuaded that appropriate JPMC personnel, prudently selected, should be allowed to conduct the training, and has revised the condition accordingly.

Comment 12—Audit—Section I(i)(1)

Section I(i)(1) of the proposed five-year exemption requires that each

JPMC Affiliated QPAM “

submits to an audit conducted annually by an independent auditor, who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code, to evaluate the adequacy of, and the JPMC Affiliated QPAM's compliance with, the Policies and Training described herein. The audit requirement must be incorporated in the Policies. Each annual audit must cover a consecutive twelve (12) month period starting with the twelve (12) month period that begins on the effective date of the five-year exemption, and each annual audit must be completed no later than six (6) months after the period to which the audit applies;”

The Applicant requests that the audit requirement be deleted from the exemption in its entirety. The Applicant states that requiring the audit of asset management units that were not accused of wrongdoing is unnecessary and essentially seeks to punish businesses that have not been convicted of a crime. The Applicant requests that, if the audit condition is not omitted, the annual audit should be performed by the Applicant's Internal Audit function. The Applicant also requests the removal of the requirement mandating incorporation of the audit conditions into the Policies, as the Applicant believes such inclusion serves no purpose and does not further the interest of plans. Additionally, the Applicant requests the removal of the phrase “technical training and proficiency,” because it is redundant and undefined.

The Department declines to delete the audit requirement in its entirety. A recurring, independent, and prudently conducted audit of the JPMC Affiliated QPAMs is critical to ensuring the QPAMs' compliance with the Policies and Training mandated by this exemption, and the adequacy of the Policies and Training. The required discipline of regular audits underpins the Department's finding that the exemption should help prevent the sort of compliance failures that led to the Conviction and is protective of Covered Plans and their participants, beneficiaries, and beneficial owners, as applicable.

The Department views the audit requirement as an integral component of the exemption, without which the Department would be unable to make its finding that the exemption is protective of Covered Plans and their participants, beneficiaries, and beneficial owners, as applicable. A recurring, independent audit of the JPMC Affiliated QPAMs is a critical means by which to verify the adequacy of, and compliance with, the Policies and Training mandated by this exemption.

This exemption's conditions are based, in part, on the Department's assessment of the seriousness and duration of the misconduct that resulted in the violation of Section I(g) of PTE 84-14, as well as the apparent inadequacy of the controls and oversight mechanisms at JPMC to prevent the misconduct. The FCA's Final Notice states: “[d]uring the Relevant Period, JPMorgan did not exercise adequate and effective control over its G10 spot FX trading business,” and that, “[t]he front office failed adequately to discharge these responsibilities with regard to obvious risks associated with confidentiality, conflicts of interest and trading conduct.” The OCC states: “the Bank had deficiencies in its internal controls and had engaged in unsafe or unsound banking practices with respect to the oversight and governance of the Bank's FX trading business . . . .” Accordingly, the Department declines to delete the audit requirement in its entirety.

The Department, however, recognizes that, notwithstanding JPMC's oversight failures, only a small number of individuals at JPMC directly engaged in the misconduct at issue. Thus, the United States District Court for the District of Connecticut stated, in connection with the sentencing of JP Morgan Chase & Co., that “the conduct at issue here was engaged in by a very small number of individuals” and “we do not have banks who appear to have condoned conduct at any high-ranking

level.”

Accordingly, the Department has determined to change the audit interval under this exemption, from annual to biennial. Section I(i)(1) of the exemption, therefore, now requires that each JPMC Affiliated QPAM

“submits

an audit conducted every two years by an independent auditor.”

Each audit must cover the preceding consecutive twelve (12) month period. The first audit must cover the period from July 10, 2018 through July 9, 2019, and must be completed by January 9, 2020. The second audit must cover the period from July 10, 2020 through July 9, 2021, and must be completed by January 9, 2022. In the event that the Exemption Period is extended or a new exemption is granted, the third audit would cover the period from July 10, 2022 through July 9, 2023, and would be completed by January 9, 2024, unless the Department chose to alter the audit requirement in the new or extended exemption;

See

TRANSCRIPT of Proceedings: as to JP Morgan Chase & Co. (January 5, 2017 at pages 29-30).

The third audit referenced above would not have to be completed until after the Exemption Period expires. If the Department ultimately decides to grant relief for an additional period, it could decide to alter the terms of the exemption, including the audit conditions (and the timing of the audit requirements). Nevertheless, the Applicant should anticipate that the Department will insist on strict compliance with the audit terms and schedule set forth above. As it considers any new exemption application, the Department may also contact the auditor for any information relevant to its determination.

The Department declines to revise Section I(i)(1) to permit the Applicant's Internal Audit Department to carry out this exemption's required audit functions, as such a revision would not be protective of Covered Plans. Auditor independence is essential to this exemption, as it allows for an impartial analysis of the JPMC Affiliated QPAMs. Permitting the Applicant's Internal Audit Department to carry out this exemption's required audit functions would be insufficiently protective of Covered Plans. The independence of the auditor is the cornerstone of the integrity of the audit process and is of primary importance to avoid conflicts of interest and any inappropriate influence on the auditor's findings. The fundamental importance of auditor independence to the integrity of the audit process is well established. For example, the United States Securities and Exchange Commission (SEC) promulgated regulations at 17 CFR 210.2-01 to ensure auditors are independent of their clients, and under 17 CFR 240.10A-2, it is unlawful for an auditor not to be independent in certain circumstances. Likewise, the Public Company Accounting Oversight Board's (PCAOB) Rule 3520 states that a public accounting firm and its associated persons must be independent of the firm's audit client. When working on an audit or attest engagement, the Association of Independent Certified Public Accountants' (AICPA) Code of Professional Conduct, Objectivity and Independence Principle (AICPA, Professional Standards, ET section 0.300.050.01) states that members should be independent in fact and appearance. Moreover, ERISA section 103(a)(3)(A) requires an accountant hired by an employee benefit plan to examine the plan's financial statements to be independent. Notwithstanding the Applicant's representations regarding the staff size and internal policies of JPMC's Internal Audit Department, serious misconduct occurred over an extended period of time at a JPMC entity.

The Department also disagrees with the Applicant's assertion that the phrase “technical training and proficiency” is redundant. The two terms are not synonymous, as a person may have taken technical training in a given subject matter but may not be proficient in that subject matter. The exemption requires that the auditor be both technically trained and proficient in ERISA as well as the Code. Accordingly, the Department declines to change the phrase “technical training and proficiency” as used in Section I(i)(1).

The Department also declines to delete the requirement that the audit conditions be incorporated in the Policies. The audit requirement provides a critical independent check on compliance with this exemption's conditions, and helps ensure that the basic protections set forth in the Policies are taken seriously. Accordingly, the specifics of the audit requirement are important components of the Policies. Their inclusion in the Policies promotes compliance and sends an important message to the institutions' employees and agents, as well as to Covered Plan clients, that compliance with the policies and procedures will be subject to careful independent review.

After consideration of the Applicant's concerns regarding the annual audit, the Department is revising the audit condition to require an audit on at least a biennial basis. The Departments notes that if the audit uncovers material deficiencies with JPMC's compliance with this exemption, then the Applicant should consider conducting an additional audit after making corrections to ensure that it remains in compliance with the exemption. In any event, the Department emphasizes that it retains the right to conduct its own investigation of compliance based on any such indicators of problems.

Comment 13—Access to Business—Section I(i)(2)

Section I(i)(2) of the proposed five-year exemption requires that

“as permitted by law, each JPMC Affiliated QPAM and, if applicable JPMC, will grant the auditor unconditional access to its business . . .”

The Applicant requests that the access granted by Section I(i)(2) be limited to: (1) Relevant materials reasonably necessary to conduct the audit; and (2) non-privileged materials that do not contain trade secrets. The Applicant argues that the “unconditional access” required by this condition is too broad and that the absence of specific exclusions could lead to confusion, dispute, and infringement on the JPMC Affiliated QPAMs' right to protect privileged communications, confidential supervisory information with other regulators (for which the privilege is held by others), irrelevant materials, and trade secrets.

In the Department's view, to ensure a thorough and robust audit, the independent auditor must be granted access to information it deems necessary to make sound conclusions. Access to such information must be within the scope of the audit engagement and denied only to the extent any disclosure is not permitted by state or federal statute. Enumerating specific restrictions on the accessibility of certain information may have a dampening effect on the auditor's ability to perform the procedures necessary to make valid conclusions and therefore undermine the effectiveness of the audit. The auditor's access to such information, however, is limited to information relevant to the auditor's objectives as specified by the terms of this exemption and to the extent disclosure is not prevented by state or federal statute, or involves communications subject to attorney client privilege. In this regard, the Department has modified Section I(i)(2) accordingly.

Comment 14—Engagement Letter—Section I(i)(3)

Section I(i)(3) of the proposed five-year exemption requires the auditor's engagement to

“specifically require the auditor to determine whether each JPMC Affiliated QPAM has developed, implemented, maintained, and followed the Policies . . . and has developed and implemented the Training, as required herein.”

The Applicant requests that Section I(i)(3) be deleted in its entirety, stating

that it is unnecessarily duplicative of the substantive requirements of the exemption and that the Applicant will be bound by the conditions of the exemption, whether or not they also appear in the auditor's engagement letter.

The Department does not concur with the Applicant's request. By including a statement of the audit's intended purpose and required determinations in the auditor's agreement, the Applicant ensures that both the auditor and the JPMC Affiliated QPAMs a have clear understanding of the purpose and expectations of the audit process. Therefore, the Department declines to omit Section I(i)(3) from the exemption.

Comment 15—Auditor's Test of Operational Compliance—Section I(i)(4)

Section I(i)(4) of the proposed five-year exemption provides that,

“[t]he auditor's engagement must specifically require the auditor to test each JPMC Affiliated QPAM's operational compliance with the Policies and Training” and “the auditor must test a sample of each QPAM's transactions involving ERISA-covered Plans and IRAs sufficient in size and nature to afford the auditor a reasonable basis to determine operational compliance with the Policies and Training.”

The Applicant requests that Section I(i)(4) be deleted in its entirety. The Applicant argues that this Section is unnecessarily duplicative, as other conditions of the exemption govern the audit's scope, the auditor's technical skill, and the prudence of the selection process. The Applicant also argues that the second sentence of Section I(i)(4) unnecessarily intrudes upon the auditor's function and independence. Additionally, the Applicant states that auditors should be granted discretion as to when to sample transactions, as an auditor may not have the capacity to test significant data within the time periods required under this exemption.

The Department declines to make the Applicant's requested revisions with respect to Section I(i)(4). The inclusion of written audit parameters in the auditor's engagement letter is necessary both to document expectations regarding the audit work and to ensure that the auditor can responsibly perform its important work. As stated above, clearly defined audit parameters will minimize any potential for dispute between the Applicant and the auditor. It is appropriate and necessary for the exemption to require a certain amount, and type, of audit work to be performed. Similarly, given the scope and number of relevant transactions, proper sampling is necessary for the auditor to reach reasonable and reliable conclusions. Although the Department has declined to delete this section in its entirety, as requested by the Applicant, the Department has revised this condition for consistency with other conditions of this exemption which are tailored to the Department's interest in protecting Covered Plans. Therefore, the condition now applies to Covered Plans (

i.e.,

ERISA-covered plans and IRAs with respect to which the JPMC Affiliated QPAM relies on PTE 84-14 or has expressly represented that it qualifies as a QPAM or relies on the QPAM class exemption in its dealings with the ERISA-covered plan or IRA).

The Department notes that Section I(i)(4) does not specify the number of transactions that the auditor must test, but rather requires, for each QPAM, that the auditor test a sample of each such QPAM's transactions involving Covered Plans, “sufficient in size and nature to afford the auditor a reasonable basis to determine operational compliance with the Policies and Training.”

Comment 16—Draft of the Audit Report—Section I(i)(5)

Section I(i)(5) of the proposed five-year exemption requires that

“. . . on or before the end of the relevant period described in Section I(i)(1) for completing the audit, the auditor must issue a written report (the Audit Report) to JPMC and the JPMC Affiliated QPAM . . .”

The Applicant requests a modification of Section I(i)(5) that would allow the Applicant sufficient time to correct any findings of noncompliance by the auditor before the issuance of the final Audit Report and its provision to the Department. The Applicant states that permitting it to review a draft of the Audit Report well in advance of its submission to the Department would allow the Applicant to implement plans to correct any violations or findings of noncompliance identified by the auditor. The Applicant states that communication with the audited entity is an appropriate audit procedure which ensures that the auditor's factual premises are correct. The Applicant also states that the time required to review the audit should be in advance of the Audit Report's submission and should not take away from the six (6) months given to complete the audit and the thirty (30) days to submit the Audit Report to the Department. The Applicant therefore requests that Section I(i)(5) contain a provision: (1) Requiring the auditor to issue a draft Audit Report to the Applicant and the JPMC Affiliated QPAMs at the end of the period for the completion of the audit, as described in Section I(i)(1); and (2) providing the Applicant and the JPMC Affiliated QPAM thirty (30) days to review such draft Audit Report. Additionally, the Applicant requests that the exemption allow the auditor to issue one consolidated Audit Report covering all the JPMC Affiliated QPAMs.

The Department agrees that it is appropriate and beneficial for the auditor and the entity being audited to communicate during the audit process. Such communication allows for a dialog regarding, among other things, factual premises, findings, and conclusions. With regard to issues of noncompliance, communication should take place as soon as possible, but in no case later than five (5) days following the discovery of such noncompliance (see Section I(i)(6)) to allow time for the Applicant to provide additional information to the auditor and correct the noncompliance. However, the Department considers a requirement directing the auditor to provide a draft Audit Report to the audited entity in all cases to be inappropriate, as it is a matter best determined by the Applicant and the auditor. The Department notes that, while contemplating the time frames for completion and submission of the Audit Report, it did take into account the auditor's procedural work and communications with the Applicant. The Applicant has not demonstrated the need for additional time to complete and submit the Audit Report. The Department therefore declines to modify Section I(i)(5) as requested by the Applicant.

Lastly, the Department has accepted the Applicant's recommendation that the auditor be allowed to issue one consolidated Audit Report and has modified Section I(i)(5) accordingly.

Comment 17—Auditor's Determination of Compliance—I(i)(5)(i)

Section I(i)(5)(i) of the proposed five-year exemption provides, in part:

“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 JPMC Affiliated QPAM must be promptly addressed by such JPMC Affiliated QPAM, and any action taken by such JPMC Affiliated QPAM to address such recommendations must be included in an addendum to the Audit Report (which addendum is completed prior to the certification described in Section I(i)(7) below).”

The Applicant asserts that Section I(i)(5)(i) is arbitrary, capricious, and

ambiguous and requests that the term “promptly” be omitted from the condition because it will cause disputes over its meaning. The Applicant argues that this perceived ambiguity is problematic in this context because addressing the auditor's recommendation could be a lengthy process.

In addition, Section I(i)(5)(i) states:

“Furthermore, the auditor must not rely on the Annual Report created by the compliance officer (the Compliance Officer) as described in Section I(m) below in lieu of independent determinations and testing performed by the auditor as required by Section I(i)(3) and (4) above.”

The Applicant requests that this provision of Section I(i)(5) be deleted, as it imposes a counterproductive limitation on the auditor's use of the Annual Review and usurps the auditor's judgment regarding how to perform its role, and whether and when to rely upon any and all resources. The Applicant further states, that denying the auditor the opportunity to fully use its judgment as to which resources it will rely upon contradicts the underlying purpose of this exemption's broader audit condition, especially in light of the requirements relating to the auditor's selection and qualifications. Moreover, the Applicant states that the language of this condition will interfere with the workability of the exemption and its use by plans. To that end, the Applicant states that if counterparties cannot determine whether this requirement has been complied with, the exemption will not be used, to the detriment of plans.

The Department acknowledges that the Applicant's efforts to address the auditor's recommendations regarding any inadequacy in the Policies and Training identified by the auditor, may take longer to implement than the time limits mandated by the proposed exemption. Accordingly, the Department is modifying Section I(i)(5)(i) to reflect the possibility that the JPMC Affiliated QPAMs' efforts to address the auditor's recommendations regarding inadequacies in the Policies and Training identified by the auditor, may not be completed by the submission date of the Audit Report and may require a written plan to address such items. However, any noncompliance identified by the auditor must be promptly addressed. The Department does not agree that the word “promptly” creates inappropriate ambiguity in the condition and declines to remove the word.

The final sentence of Section I(i)(5)(i) expresses the Department's intent that the auditor not rely solely on the work of the Compliance Officer and the contents of the Annual Report in formulating its conclusions or findings. The auditor must perform its own independent testing to formulate its conclusions. This exemption does not prohibit the auditor from considering the Compliance Officer's Annual Report in carrying out its audit function, including the formulation of an audit plan. This exemption, however, does prohibit the auditor from reaching conclusions that are exclusively based upon the contents of the Compliance Officer's Annual Report. The Department has modified Section I(i)(5)(i) to more clearly reflect these views.

Included with its comment on Section I(i)(5)(i), the Applicant requests the deletion of the Compliance Officer and Annual Review requirements set out in Section I(m). The Department's response to this request is discussed below.

Comment 18—Adequacy of the Annual Review—Section I(i)(5)(ii)

Section I(i)(5)(ii) of the proposed five-year exemption provides that

“[t]he Audit Report must include the auditor's specific determinations regarding: . . . (ii) The adequacy of the Annual Review described in Section I(m) and the resources provided to the Compliance Officer in connection with such Annual Review.”

The Applicant asserts that requiring the auditor to assess the adequacy of the resources provided to the Compliance Officer is overreaching and should be deleted. The Applicant states that, while the auditor function requires proficiency in ERISA, it does not require sophistication or expertise on resource allocation. According to the Applicant, the question of whether the Compliance Officer has met its obligations under this exemption will be subject to the auditor's review. The Applicant states that if the auditor finds any deficiencies in the review, the Applicant will address such issues including any allocation of resources.

As discussed in detail below, the Department views the Compliance Officer and the Annual Review as integral to ensuring compliance with the exemption. An independent assessment by the auditor of the adequacy of the Annual Review is essential to providing the Department with the assurance that the Applicant and the JPMC Affiliated QPAMs have given these matters the utmost priority and have taken the actions necessary to comply with the exemption. However, the Department agrees that the QPAMs need not require the auditor to opine on the adequacy of the resources allocated to the Compliance Officer and has modified Section I(i)(5)(ii) accordingly. If, however, the auditor observes compliance issues related to the Compliance Officer or available resources, it would be appropriate for the auditor to opine on those problems.

Comment 19—Certification of the Audit—Section I(i)(7)

Section I(i)(7) of the proposed five-year exemption provides, in part, that

“. . . the General Counsel, or one of the three most senior executive officers of the JPMC Affiliated QPAM to which the Audit Report applies, must certify in writing, under penalties of perjury, that the officer has reviewed that Audit Report and this exemption; addressed, corrected, or remedied any inadequacy identified in the Audit Report . . .”

The Applicant requests that this condition be modified to remove ambiguity, enhance workability, and avoid aspects that could be interpreted as punitive. The Applicant claims that the requirements of Section I(i)(7) should take into account JPMC's business structure and allow the Applicant to determine which senior officers will review the Audit Report. The Applicant states that it would be preferable that an executive related to an asset/investment management business operating through the QPAM review the Audit Report. In this regard, the Applicant requests Section I(i)(7) be modified in part as follows: “the General Counsel or one of the three most senior executives of the line of business engaged in discretionary assets management activities through the JPMC Affiliated QPAM with respect to which the Audit Report applies . . .”.

The Department concurs that a senior executive officer with knowledge of the asset management business within the QPAM should be allowed to review the Audit Report, and has modified the language of Section I(i)(7), accordingly.

The Applicant also requests that the timing of Section I(i)(7) be clarified. In this regard, the Applicant states that compliance with this condition would be impossible if, for example, a recommendation takes longer to implement than the 30-day period contemplated in Section I(i)(9) for the Audit Report to be certified and provided to the Department.

While the Department does not view Section I(i)(7) as ambiguous, the Department is aware, as stated above, that the Applicant's efforts to address the auditor's recommendations regarding inadequacies in the Policies and Training identified by the auditor may take longer to implement than the

timeframe to submit the certified Audit Report. With respect to this issue, the Department did not intend to limit corrective actions to those that could only be completed prior to the submission of the Audit Report. Therefore, the Department has modified Section I(i)(7) to reflect that the senior officer may certify that a written plan to address the inadequacies regarding the Policies and Training identified in the auditor's Report is in place.

The Applicant also states that this condition should clarify that it may appropriately “address” an inadequacy by noting that an alternative action to the auditor's recommendation, or even no action, is a preferable means of protecting ERISA plan clients and IRAs. The Applicant states that this condition is intrusive, as it invites the auditor, through its conclusions and recommendations, to micromanage the business of the relevant JPMC QPAM. The Applicant claims that, with broad access to a JPMC Affiliated QPAM's records, the auditor could identify any number of potential inadequacies, all of which the JPM Affiliated QPAM should not be required to accept unconditionally.

As mentioned above, the Department has determined that it is necessary for the auditor to be afforded unfettered access to JPMC Affiliated QPAM records, to the extent that the analysis of such records falls within the twelve month period to which the audit relates. For the first audit required by this exemption, that period runs from January 10, 2018 through January 9, 2019. The conditions of this exemption do not prohibit the Applicant from disagreeing with the auditor with respect to whether certain practices fail to comply with the terms of this exemption. However, in those circumstances where the auditor is not persuaded to change its position on a matter the auditor considers noncompliant, the Applicant will be responsible to correct such matters. Nor do the conditions of this exemption prohibit the Applicant from disagreeing with the auditor with respect to the appropriate method for correcting or addressing issues of noncompliance. The Department would expect the Applicant and the auditor to have meaningful communications on such differences of opinion. In the event the Applicant chooses to apply a corrective method that differs from that recommended by the auditor, the Audit Report and the Addendum attached thereto should explain in detail the noncompliance, the auditor's recommended action, the corrective method chosen, and, if applicable, why the Applicant chose a corrective method different from that recommended by the auditor.

Lastly, the Applicant requests deletion of the requirement in Section I(i)(7) for certification by the senior executive officer under penalties of perjury. The Applicant argues that this requirement is unnecessary and inappropriate as this exemption already requires accuracy in communications with regulators and clients.

The Department declines to remove this requirement, which makes clear the importance of the correction process and creates a strong incentive going forward to take seriously the audit process—and compliance generally.

Comment 20—Review and Certification of Audit Report—Section I(i)(8)

Section I(i)(8) the proposed five-year exemption provides that

“[t]he Risk Committee of JPMC's Board of Directors is provided a copy of each Audit Report; and a senior executive officer with a direct reporting line to the highest ranking legal officer of JPMC must review the Audit Report for each JPMC Affiliated QPAM . . .”

The Applicant requests that the requirement to provide the Audit Report to the Risk Committee of JPMC's Board of Directors be omitted. The Applicant states that the Department, in imposing this condition, is acting beyond the scope of its authority. The Applicant also represents that this condition constitutes micromanaging by the Department and is inappropriate and unnecessary. The Applicant further states that this requirement does not protect plans and participants and is duplicative of other conditions contained in this exemption. The Applicant argues that a mandate by the Department concerning JPMC's internal processes for handling information is outside the scope of the exemption and does not further the statutory goal of protecting plans.

The Applicant requests that the exemption provide that the certifying reviewer be a senior executive officer. The Applicant further states that the exemption should not mandate that the certifying reviewer be a senior executive officer in the direct reporting line to the highest ranking legal officer of JPMC.

Finally, the Applicant requests the requirement in Section I(i)(8) that the certification by the senior executive officer be made under penalty of perjury be deleted, as it is unnecessary.

The Department notes that in its application and related materials, the Applicant has represented that it has established, or is in the process of establishing comprehensive changes to processes and procedures that are, in part, intended to change the culture at JPMC from the top down. As represented by the Applicant, these changes are focused on enhancements in: (1) Supervision, controls, and governance; (2) compliance risk assessment; (3) transaction monitoring and communications surveillance; (4) compliance testing; and (5) internal audit.

See JPMC Exemption Application (May 20, 2015) at page 12.

The Department has developed this exemption to ensure that the highest levels of management are aware of on-going matters concerning JPMC, the JPMC Affiliated QPAMs, and compliance with this exemption. Requiring the provision of the Audit Report to the Board of Directors and certification by a senior executive officer in the reporting line of the highest legal compliance officer provides assurance that the highest levels of management within JPMC stay informed about JPMC's and the JPMC Affiliated QPAMs' compliance with the terms of this exemption. In the Department's view, such officials are in the best position to ensure that any inadequacy identified by the auditor is appropriately addressed and that necessary changes to corporate policy are effectuated if and where necessary. Requiring certification under penalty of perjury is consistent with the Department's longstanding view that basic requirements of compliance and integrity are fundamental to an entity's ability to qualify as a QPAM.

Comment 21—Availability of the Audit Report—Section I(i)(9)

The Applicant claims that the requirements in Section I(i)(9) that

“each JPMC Affiliated QPAM must make its Audit Report unconditionally available for examination by any duly authorized employee or representative of the Department, other relevant regulators, and any fiduciary of an ERISA-covered plan or IRA, the assets of which are managed by such JPMC Affiliated QPAM”

is outside the scope of the exemption and is unnecessary. The Applicant states that the availability of the Audit Report should be limited to ERISA-covered plans and IRAs for which the Applicant relies on PTE 84-14. The Applicant argues that it is overly-broad, punitive and not related to the relief provided in the exemption to extend this condition to plans and IRAs for which the Affiliated JPMC QPAMs do not rely on PTE 84-14. Additionally, the Applicant requests that the Audit Report should be made

available upon request and that any such provision of the Audit Report may be facilitated via electronic delivery.

The Department does not agree that the condition in Section I(i)(9) is punitive. As the Applicant recognized in its application, ERISA-covered plans, IRAs, and counterparties routinely rely on QPAM status before entering into agreements with financial institutions, even if those institutions do not believe compliance with PTE 84-14 is strictly necessary for any particular transaction. Accordingly, the Department has an interest in ensuring that the conditions of this exemption broadly protect ERISA-covered plans and IRAs that have relied on QPAM status in deciding to enter into an agreement with the Applicant or the Affiliated JPMC QPAMs.

Nevertheless, the Department has revised Section I(i)(9) to clarify that the JPMC Affiliated QPAMs are required to make the documents available to any fiduciary of a Covered Plan. The Audit Report, in any event, will be incorporated into the public record attributable to this exemption, under Exemption Application Number D-11906, and, therefore, independently accessible by members of the public. Accordingly, the Department has determined to revise the condition by replacing the phrase “an ERISA-covered plan or IRA, the assets of which are managed by such JPMC Affiliated QPAM” with the term “Covered Plan” (as defined in Section II(c)). Lastly, the Department agrees that access to the Audit Report need only be upon request and such access can be electronic, and has revised the exemption accordingly.

Comment 22—Engagement Agreements—Section I(i)(10)

The Applicant claims that the requirement under Section I(i)(10)(B) which provides, “

[e]ach JPMC Affiliated QPAM and the auditor must submit to OED . . . (B) any engagement agreement entered into with any other entity retained in connection with such QPAM's compliance with the Training or Policies conditions of this five-year exemption, no later than six (6) months after the Conviction Date (and one month after the execution of any agreement thereafter)

” should be omitted as it is unnecessary, punitive, and not in the interest of plans or their participants. The Applicant states that the terms of engagement between the JPMC Affiliated QPAMS and the auditor and trainer should be left to the discretion of the parties to such engagement agreements. The Applicant maintains that it is intrusive to mandate that every service provider contract that relates to the Policies and the Training be provided to the Department. Additionally, the Applicant requests that the timeframe for provision of the auditor's engagement be modified to no later than six (6) months after execution of such engagement agreement.

In coordination with the Department's modification of Section I(h)(2)(ii) to remove the requirement that the Training must be conducted by an independent professional, the Department has determined to remove the requirement in Section I(i)(10)(B) to provide to the Department the engagement agreements entered into with entities retained in connection with compliance with the Training or Policies conditions. Furthermore, to remove any confusion and uncertainty regarding the timing of the submission of the auditor's engagement agreement, the Department has modified Section I(i)(10) to require that the auditor's engagement agreement be submitted to the Office of Exemption Determinations no later than two (2) months after the engagement agreement is entered into by the Applicant and the independent auditor.

Comment 23—Auditor's Workpapers—Section I(i)(11)

Section I(i)(11) the proposed five-year exemption provides that the “

auditor must provide OED, upon request, all of the workpapers created and utilized in the course of the audit, including, but not limited to: The audit plan; audit testing; identification of any instance of noncompliance by the relevant JPMC Affiliated QPAM; and an explanation of any corrective or remedial action taken by the applicable JPMC Affiliated QPAM

.” The Applicant states that Section I(i)(11) is duplicative and could cause the Applicant to lose the exemption due to the auditor's actions or inaction. Additionally, the Applicant notes that this condition should account for workpapers which the auditor does not want to submit to the public file on the basis of confidentiality or privacy of information. The Applicant argues that such workpapers may contain information such as client data, employee personal information, and other sensitive information. The Applicant therefore requests that the Department exempt such workpapers in a manner that does not compromise the Department's ability to review such workpapers. Finally, the Applicant claims that by stating “all of the workpapers” and then providing list of what “all” might encompass, the Department is being overzealous and duplicative.

The Department acknowledges that certain information contained in the workpapers may be confidential and proprietary, and having that information in a public file may create needless or avoidable disclosure issues. The Department has determined to modify Section I(i)(11) to remove the requirement that the auditor provide the workpapers to OED,

and instead require that the auditor provide access to the workpapers for the Department's review and inspection. However, given the importance of the workpapers to the Department's own review and the Applicant's contractual relationship with the auditor, the Department declines to include, as requested by the Applicant, a statement in Section I(i)(11) that a failure on behalf of the auditor to meet this condition will not violate the exemption.

OED is the Office of Exemption Determinations within the Employee Benefits Security Administration agency of the United States Department of Labor.

Comment 24—Replacement of Auditor—Section I(i)(12)

Section I(i)(12) of the proposed five-year exemption states that: “

JPMC must notify the Department at least thirty (30) days prior to any substitution of an auditor . . . and that JPMC demonstrate[e] to the Department's satisfaction that such new auditor is independent of JPMC, experienced in the matters that are the subject of the exemption, and capable of making the determination required by [the] exemption

.”

The Applicant requests that this Section I(i)(12) be deleted as it is inconsistent with the condition for the initial selection of an auditor and duplicative of other substantive terms of the exemption. Initially, the Applicant notes that permitting JPMC's internal audit department to perform the audit functions required under this exemption would render this condition unnecessary. The Applicant states that requiring JPMC to demonstrate the independence and qualifications of the auditor prior to a substitution serves no useful purpose, given the audit process timeline laid out under this exemption. The Applicant states that, since the exemption does not grant the Department the authority to approve the initial auditor selection, likewise the Department should not have the authority to approve the selection of a subsequent auditor. The Applicant states that many circumstances which could necessitate an auditor change would not relate to compliance with the terms of the exemption. The Applicant

states that if the Department's concern is the removal of a critical auditor, this condition is not rationally related to such an issue.

As explained above, the Department does not agree that the internal audit department of JPMC is the appropriate entity to perform the audit. The auditor's independence is critical to the Department's determination that the exemption protects Covered Plans. This exemption is not unique in requiring the Department be notified of changes to service providers (see,

e.g.,

the requirement of Schedule C of the Form 5500 Annual Return/Report for the Plan Administrator of certain plans to report to the Department a termination of the plan's auditor and/or enrolled actuary and to provide an explanation of the reasons for the termination, including a description of any material disputes or matters of disagreement concerning the termination). Furthermore, requiring the Applicant to notify the Department of the substitution of an auditor serves to ensure that the JPMC Affiliated QPAMs are attentive to the audit process and the protections it provides; and that the Department has the information it needs to review compliance. The Department has determined to modify Section I(i)(12) to remove the requirement for JPMC to demonstrate the independence and qualifications of the auditor, however, and requires instead that JPMC, no later than two months from the engagement of the replacement auditor, notify the Department of a change in auditor and of the reason(s) for the substitution including any material disputes between the terminated auditor and JPMC. JPMC's fiduciary obligations with respect to the selection of the auditor, as well as the significant role a credible selection plays in reducing the need for more extensive oversight by the Department, should be sufficient to safeguard the selection process.

Comments 25-26—Contracts With Plans and IRAs—Section I(j)

Section I(j) of the proposed five-year exemption provides: “

Effective as of the effective date of this five-year exemption, with respect to any arrangement, agreement, or contract between a JPMC Affiliated QPAM and an ERISA-covered plan or IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services, each JPMC Affiliated QPAM agrees and warrants:

(1) To comply with ERISA and the Code, as applicable with respect to such ERISA-covered plan or IRA; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA-covered plan and IRA;

(2) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a JPMC Affiliated QPAM's violation of applicable laws, a JPMC Affiliated QPAM's breach of contract, or any claim brought in connection with the failure of such JPMC Affiliated 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;

(3) Not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the JPMC Affiliated QPAM for violating ERISA or the Code or engaging in prohibited transactions;

(4) Not to require the ERISA-covered plan or IRA (or sponsor of such ERISA-covered plan or beneficial owner of such IRA) to indemnify the JPMC Affiliated 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 JPMC, and its affiliates;

(5) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the JPMC Affiliated 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;

(6) Not to impose any fees, penalties, or charges for such termination or withdrawal with the exception of reasonable fees, appropriately disclosed in advance, that are specifically designed to prevent generally recognized abusive investment practices or specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors, provided that such fees are applied consistently and in like manner to all such investors; and

(7) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the JPMC Affiliated QPAM for a violation of such agreement's terms, except 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 JPMC, and its affiliates;

(8) Within four (4) months of the date of the Conviction, each JPMC Affiliated QPAM must provide a notice of its obligations under this Section I(j) to each ERISA-covered plan and IRA for which an JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services. For all other prospective ERISA-covered plan and IRA clients for which a JPMC Affiliated QPAM provides asset management or other discretionary services, the JPMC Affiliated QPAM will agree in writing to its obligations under this Section I(j) in an updated investment management agreement between the JPMC Affiliated QPAM and such clients or other written contractual agreement

”.

The Applicant states that Section I(j) of the proposed exemption is overbroad, entirely inappropriate, not rationally-related to asset management, inconsistent with the Administrative Procedure Act (the APA), an attempt to create a private right of action for IRAs, and punitive; that it should be limited to ERISA-covered plans and IRAs with respect to which the Applicant relies on the QPAM Exemption; and that it is not reasonably designed to protect plans or their participants. The Applicant also requests that the condition clarify that it supersedes the analogous condition in PTE 2016-15, so as not to impose duplicative requirements, and also be modified to read as follows: “

This subparagraph supersedes Section I(i) of PTE 2016-15, as of the date of the exemption's publication in the

Federal Register

Effective as of the publication date, with respect to any arrangement, agreement, or contract between a JPMC Affiliated QPAM and an ERISA-covered plan or IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services in reliance on PTE 84-14 . . . .

”

As explained above, ERISA-covered plans and IRAs routinely rely on QPAM status as a condition of entering into transactions with financial institutions, even with respect to transactions that do not require adherence to PTE 84-14. Indeed, the Applicant recognized this fact in its application (see,

e.g.,

Applicant's statement that “[w]hile

equity strategies rarely rely on the QPAM Exemption, plans invested in such strategies could decide to find other managers or pooled funds if the affiliated investment managers were no longer QPAMs”). In addition, it may not always be clear whether the JPMC Affiliated QPAM intends to rely upon PTE 84-14 for any particular transaction. Accordingly, it is critical to ensure that protective conditions are in place to safeguard the interests of ERISA-covered plans and IRAs that are acting in reliance on the availability of this exemption, particularly those who may not have entered into the transaction in the first place, but for the Department's grant of this exemption.

The Department has a clear interest in protecting such Covered Plans that enter into an asset management agreement with a JPMC Affiliated QPAM in reliance on the manager's qualification as a QPAM. Moreover, when a Covered Plan terminates its relationship with an asset manager, it may incur significant costs and expenses as its investments are unwound and in connection with finding a new asset manager. The Department rejects the view that it acts outside its authority by protecting ERISA-covered plans and IRAs that rely on JPMC's asset managers' eligibility for this exemption, and reemphasizes the seriousness of the criminal misconduct that caused JPMC to need this exemption. The Department may grant an exemption under Section 408(a) of ERISA or Section 4975(c)(2)(C) of the Code only to the extent the Secretary finds, among other things, that the exemption is protective of the affected plan(s) or IRA(s). As noted by regulators, personnel at JPMorgan Chase Bank, a QPAM, engaged in serious misconduct over an extended period of time at the expense of their own clients. This misconduct appears to have stemmed, in part, from deficiencies in control and oversight.

Notwithstanding the misconduct, which resulted in violation of Section I(g) of PTE 84-14, the Department has granted this exemption based, in significant part, upon the inclusion of Section I(j)(1) in the exemption, which protects Covered Plans by, among other things, requiring JPMC Affiliated QPAMs to make an express commitment to their customers to adhere to the requirements of ERISA and the Code, as applicable. As previously indicated, the Department has concluded that a culture of compliance, centered on adherence to basic standards of fair dealing as set forth in this exemption, gives the Department a compelling basis for making the required statutory findings that the exemption is in the interests of plan and IRA investors and protective of their rights. Absent such findings, the exemption would have been denied.

In response to the Applicant's comments, however, the Department has required an express commitment to comply with the fiduciary standards and prohibited transaction rules only to the extent these provisions are “applicable” under ERISA and the Code. This section, as modified, should serve its salutary purposes of promoting a culture of compliance and enhancing the ability of plans and IRA customers to sever their relationships with minimal injury in the event of non-compliance. This conclusion is reinforced, as well, by the limited nature of the relief granted by this exemption, which generally does not extend to transactions that involve self-dealing.

In response to the Applicant's comments, the Department also notes that nothing in ERISA or the Code prevents the Department from conditioning relief on express contractual commitments to adhere to the requirements set out herein. The QPAMs remain free to disclaim reliance on the exemption and to avoid such express contractual commitments. To the extent, however, that they hold themselves out as fiduciary QPAMs, they should be prepared to make an express commitment to their customers to adhere to the requirements of this exemption. This commitment strengthens and reinforces the likelihood of compliance, and helps ensure that, in the event of noncompliance, customers—particularly IRA customers—will be insulated from injuries caused by non-compliance. These protections also ensure that customers will be able to extricate themselves from transactions that become prohibited as a result of the QPAMs' misconduct, without fear of sustaining additional losses as a result of the QPAMs' actions. In this connection, however, the Department emphasizes that the only claims available to the QPAMs' customers pursuant to these contractual commitments are those separately provided by ERISA or other state and federal laws that are not preempted by ERISA. As before, private litigants have only those causes of action specifically authorized by laws that exist independent of this exemption.

Comment 27—Indemnity Provision—Section I(j)(2).

Section I(j)(2) of the proposed five-year exemption provides that “

[e]ffective as of the effective date of this five-year exemption, with respect to any arrangement, agreement, or contract between a JPMC Affiliated QPAM and an ERISA covered plan or IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services, each JPMC Affiliated QPAM agrees and warrants: . . . (2) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a JPMC Affiliated QPAM's violation of applicable laws, a JPMC Affiliated QPAM's breach of contract, or any claim brought in connection with the failure of such JPMC Affiliated 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

.”

The Applicant requests that this condition be deleted because it is punitive, beyond the Department's authority, and provides for damages that are excessive and/or not reasonably related to any conduct of the JPMC Affiliated QPAMs. In addition, the Applicant represents that the condition may operate in a manner that is fundamentally unfair because it is not limited to clients who are harmed through a direct, causal link to the loss of exemptive relief provided by PTE 84-14.

Also with respect to section I(j)(2), the Applicant requests clarifying language stating that the JPMC Affiliated QPAM indemnification obligations under this exemption do not extend to damages resulting from, or caused by forces beyond the control of JPMC, including certain acts of government authorities and acts of God.

In this regard, the Applicant requests a revision of section I(j)(2) such that each JPMC Affiliated QPAM must agree and warrant to indemnify and hold harmless the ERISA-covered plan or IRA, “

for any reasonable losses involving such arrangement, agreement or contract and resulting directly from a JPMC Affiliated QPAM's violation of ERISA, or, to the extent the JPMC Affiliated QPAM relies on the exemptive relief provided by PTE 84-14 under the arrangement, agreement or contract for any explicit transactional exit costs of any instrument with respect to which PTE 84-14 was expressly relied upon and for which no other exemption is available, resulting directly and solely from the failure of such JPMC Affiliated 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 as a result of the Conviction

.”

As explained above, the intended purpose of this exemption is to protect

ERISA-covered plans and IRAs who entrust the JPMC Affiliated QPAMs with the management of their retirement assets. To this end, the Department believes that the protective purpose of this exemption is furthered by Section I(j)(2). The Department emphasizes that this condition is not punitive, but rather ensures that, when an ERISA-covered plan or IRA enters into an asset management agreement with a JPMC Affiliated QPAM in reliance on the manager's qualification as a QPAM, it may expect adherence to basic fiduciary norms and standards of fair dealing, notwithstanding the prior conviction. The condition also ensures that the ERISA-covered plan or IRA will be able to disengage from that relationship in the event that the terms of this exemption are violated without undue injury. Accordingly, the Department has revised the applicability of this condition to more closely reflect this interest. In particular, the condition applies only to Covered Plans. As indicated above, if the asset manager would prefer not to be subject to these provisions as exemption conditions, it may expressly disclaim reliance on QPAM status or PTE 84-14 in entering into its contract with the ERISA-covered plan or IRA (in that case, however, it could not rely on the exemption for relief). The Department has made certain further changes to this condition upon consideration of the Applicant's comment. These changes include: renumbering the condition for clarity; replacing “applicable laws” with clarifying language that conforms to the one-year exemption; and replacing “any damages” with “actual losses resulting directly from” certain acts or omissions of the JPMC Affiliated QPAMs. Because I(j)(2) extends only to actual losses resulting directly from the actions of the JPMC Affiliated QPAMs, it does not encompass losses solely caused by other parties, events, or acts of God.

Comment 28—Limits on Liability—Section I(j)(3) and I(j)(7).

The Department has determined that subsection (4) is duplicative of the exemption's prohibition on exculpatory clauses, described below. Thus, the subsection has been deleted.

Sections I(j)(3) and I(j)(7) of the proposed five-year exemption provide that “

[e]ffective as of the effective date of this five-year exemption, with respect to any arrangement, agreement, or contract between a JPMC Affiliated QPAM and an ERISA-covered plan or IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services, each JPMC Affiliated QPAM agrees and warrants:

. . . (3) Not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the JPMC Affiliated QPAM for violating ERISA or the Code or engaging in prohibited transactions; [and] . . . (7) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the JPMC Affiliated QPAM for a violation of such agreement's terms, except 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 JPMC, and its affiliates

.”

The Applicant requests that these conditions be deleted because they: duplicate the statutory requirements in ERISA and the Code, which ensure that the JPMC Affiliated QPAMs remain liable to their plan or IRA clients for the asset manager's violations of the law; do not afford plans and IRAs any greater protection; and amount to unnecessary overregulation. To the extent there is a violation of a contract, the Applicant represents that adequate causes of action exist to remedy the issue.

Alternatively, the Applicant requests that, if the Department declines to amend Section I(j)(7) as requested, this Section be revised to clarify that losses caused by counterparties, trading venues, or acts of terrorism, war, etc., are carved out of the QPAM's liability.

The Department declines to delete Section I(j)(3) from the final exemption. As the Applicant points out, ERISA already precludes ERISA fiduciaries from disclaiming obligations under ERISA. See ERISA section 410 (prohibiting exculpatory clauses as void against public policy). To the extent the exemption condition prevents the JPMC Affiliated QPAMs from including contractual provisions that are void as against public policy there is no legitimate basis for objection. Such exculpatory language should not be in the governing documents in the first place and is potentially misleading because it suggests disclaimer of obligations that may not be disclaimed.

Outside the context of ERISA section 410, the provision's requirement that the JPMC Affiliated QPAMs retain accountability for adherence to the basic obligations set forth in this exemption is justified by the misconduct that led to the Conviction as discussed above, and by the need to ensure that ERISA-covered plan and IRA customers may readily obtain redress and exit contracts with JPMC Affiliated QPAMs without harm in the event of violations.

The Department has determined that Section I(j)(4), as proposed, is duplicative of the exemption's prohibition on exculpatory clauses, described below. Thus, that subsection has been deleted. Accordingly, the subsections in Section I(j) have been renumbered.

The Department has modified Section I(j)(6) (formerly (j)(7)) to clarify that the prohibition on exculpatory provisions does not extend to losses that arise from an act or event not caused by JPMC. Nothing in this section alters the prohibition on exculpatory provisions set forth in ERISA Section 410.

Comment 29—Termination and Withdrawal Restriction

Under Sections I(j)(5) and I(j)(6) of the proposed five-year exemption, the JPMC Affiliated QPAMs agree: “

. . . (5) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the JPMC Affiliated 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] . . . (6) 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

.”

The Applicant represents that these conditions should be deleted because they are harmful to ERISA-covered plans and IRAs and their participants and beneficiaries, and are punitive to the Applicant. Withdrawal provisions, according to the Applicant, should be designed to protect all investors in a pooled fund or in a particular strategy. The Applicant states that the proposed restrictions here would disrupt the JPMC Affiliated QPAMs' existing relationships with and contractual obligations to their clients, notwithstanding the fact that plans and IRAs have determined that such

relationships are in their best interests. The Applicant represents that lockup provisions are commonly used, designed to protect all investors in a pooled fund, and applied evenly to all investors. If conditions relating to withdrawal are not permitted, the Applicant asserts that ERISA-covered plans and IRAs will not be able to invest in their desired alternatives or strategies.

The Applicant requests that, should these conditions be retained, they be modified as follows: Under renumbered Sections I(j)(4) and (j)(5), the JPMC Affiliated QPAMs agree: “

. . . (4) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the JPMC Affiliated 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; [and] . . . (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

.”

The Department has revised renumbered Section I(j)(4) in partial satisfaction of the Applicant's request. This section now provides, ”Not to restrict the ability of such Covered Plan to terminate or withdraw from its arrangement with the JPMC Affiliated QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the effective date of this exemption, the adverse consequences must relate to of a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from promptly redeeming Covered Plan's investment, and such restrictions must be applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences.”

Renumbered Section I(j)(5) is consistent with the Applicant's request.

Comment 30—Updated Investment Management Agreement

Section I(j)(8) of the proposed five-year exemption provides that

“[w]ithin four (4) months of the date of the Conviction, each JPMC Affiliated QPAM must provide a notice of its obligations under this Section I(j) to each ERISA-covered plan and IRA for which an JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services. For all other prospective ERISA-covered plan and IRA clients for which a JPMC Affiliated QPAM provides asset management or other discretionary services, the JPMC Affiliated QPAM will agree in writing to its obligations under this Section I(j) in an updated investment management agreement between the JPMC Affiliated QPAM and such clients or other written contractual agreement.”

The Applicant represents that this condition is duplicative and “potentially inconsistent” with PTE 2016-15, and could cause the Applicant to lose the exemption through the actions of another. The Applicant requests that the Department publish a notice of technical correction to PTE 2016-15 to eliminate the notice to clients under that exemption so that only one notice with the final obligations will be provided to clients. The Applicant states that it should not be required to issue two sets of potentially inconsistent notices to clients. Instead, once the final exemption is published in the

Federal Register

, the Applicant suggests that the condition be modified to require that the notices, and the proposed and final exemptions, be sent to clients within six (6) months. The Applicant asserts that this request will alleviate client confusion. Alternatively, the Applicant requests that the Department modify renumbered Section I(j)(7) so that it will deem any notices and mailings under PTE 2016-15 to meet the requirements of the final exemption. In addition, the Applicant requests that the Department modify renumbered Section I(j)(7) to clarify that it is limited to agreements, arrangements, or contracts in which a JPMC Affiliated QPAM provides services in reliance on PTE 84-14, and where the Applicant has a direct contractual relationship with the plan or IRA. Finally, the Applicant represents that a bilateral investment management agreement containing the obligations under Section I(j) should not be required. If the client refuses to sign an updated agreement, the Applicant states that the JPMC Affiliated QPAM unintentionally may be in violation of this condition even where it has met the substantive requirements of Section I(j). The Applicant represents that its compliance with the exemption should not depend on action by its clients. Therefore, the Applicant requests that this requirement be eliminated, and that renumbered Section I(j)(7) be revised as follows to reflect the Applicant's aforementioned changes:

“Within six (6) months of the date of this exemption's publication in the

Federal Register

each JPMC Affiliated QPAM will provide a notice of its obligations under this Section I(j) to each ERISA-covered plan and IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services in a direct contractual relationship and in reliance on PTE 84-14 as of the date of the notice. The Applicant shall be deemed to have met this condition if, with respect to any plan or IRA client, the Applicant met the requirements of PTE 2016-15. For all other ERISA-covered plan and IRA clients (i.e., those plans and IRAs that become direct contractual clients after the time the notice described in PTE 2016-15 is provided to existing clients) for which a JPMC Affiliated QPAM provides asset management or other discretionary services in reliance on PTE 84-14, the JPMC Affiliated QPAM will provide a notice of its obligations under this Section I(j) to such clients within six (6) months after the date of publication of this exemption.”

In a letter to the Department dated March 7, 2017, the Applicant expresses similar concerns about the perceived inconsistencies, duplicative nature, and administrative challenges created by the client notification requirement in Section I(i) of PTE 2016-15 as well as in the proposed exemption. In the letter, the Applicant recommends that the notice be provided to clients

only after

the final exemption has been granted. This is consistent with the Applicant's proposed revisions to renumbered Section I(j)(7).

The Department declines to make a change to PTE 2016-15, since, among other things, the change the Applicant seeks is not a technical correction, but rather would require amending that exemption. Accordingly, the Applicant must fully comply with the terms of PTE 2016-15, including Section I(j). However, the Department has modified renumbered Section I(j)(7) for better coordination with PTE 2016-15. As modified, the exemption's text now

provides that a notice that satisfies Section I(i)(2) of that exemption will satisfy renumbered Section I(j)(7) of this exemption, unless the notice contains any language that limits, or is inconsistent with, the scope of this exemption.

As noted above, the Department has an interest in protecting an ERISA-covered plan or IRA that enters into an asset management agreement with a JPMC Affiliated QPAM in reliance on the manager's qualification as a QPAM, regardless of whether the QPAM relies on the class exemption when managing the ERISA-covered plan's or IRA's assets. The Department has revised the applicability of this condition to more closely reflect this interest, and the condition now applies to Covered Plans. The Department has also modified the condition so that a JPMC Affiliated QPAM will not violate the condition solely because a Covered Plan refuses to sign an updated investment management agreement. In addition, the JPMC Affiliated QPAM must give notice of its obligations under Section I(j) to each Covered Plan by July 9, 2018, consistent with the applicant's request for additional time to provide the notice.

Comment 31—Notice to Plan Clients—Section I(k)(1)

The Department has renumbered this condition as section I(k) in this exemption.

Section I(k)(1) of the proposed five-year exemption provides that

“[w]ithin thirty (30) days of the publication of this proposed five-year exemption in the

Federal Register

each JPMC Affiliated QPAM will provide a notice of the proposed five-year exemption, along with a separate summary describing the facts that led to the Conviction (the Summary), which have been submitted to the Department, and a prominently displayed statement (the Statement) that the Conviction results in a failure to meet a condition in PTE 84-14, to each sponsor of an ERISA-covered plan and each beneficial owner of an IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary services, or the sponsor of an investment fund in any case where a JPMC Affiliated QPAM acts only as a sub-advisor to the investment fund in which such ERISA-covered plan and IRA invests. In the event that this proposed five-year exemption is granted, the

Federal Register

copy of the notice of final five-year exemption must be delivered to such clients within sixty (60) days of its publication in the

Federal Register

and may be delivered electronically (including by an email that has a link to the exemption). Any prospective clients for which a JPMC Affiliated QPAM provides asset management or other discretionary services must receive the proposed and final five-year exemptions with the Summary and the Statement prior to, or contemporaneously with, the client's receipt of a written asset management agreement from the JPMC Affiliated QPAM.”

The Applicant requests that (k)(1) be changed to require each existing and prospective client with respect to which the Applicant has a direct contractual relationship and relies on the QPAM exemption, to be provided with a link to the proposed and final exemption within six (6) months after publication; and prospective clients after six (6) months should receive the proposed and final exemptions through any reasonable delivery method (such as a written notice of the applicable website where the exemptions can be found). The Applicant asserts that the provision, as proposed, is overbroad and punitive and not rationally related to the use of the QPAM Exemption. The Applicant also states that, for prospective clients, it is duplicative to provide the Summary and the copies of the proposal and final grant, which both state the same facts and will be burdensome to prospective clients due to the size of the asset management agreement.

The Department notes that the proposed exemption provides details of the facts and circumstances underlying the Conviction not found in the Summary or this exemption. One of the purposes of such a complete disclosure is to ensure that all interested parties are aware of and attentive to the complete facts and circumstances surrounding JPMC's application for exemption. Requiring the disclosure of the Summary, proposal, and grant provides the opportunity for all parties to have knowledge of these facts and circumstance. Notwithstanding this, the Department has modified the condition to clarify that disclosures may be provided electronically. Further, the notice requirement has been narrowed to ERISA-covered plans and IRAs that would benefit from this knowledge (

i.e.,

Covered Plans).

Comment 32—Notice to Non-Plan Clients—Section I(k)(2)

Section I(k)(2) of the proposed five-year exemption provides, “

[e]ach JPMC Affiliated QPAM will provide a

Federal Register

copy of the proposed five-year exemption, a

Federal Register

copy of the final five-year exemption; the Summary; and the Statement to each: (A) Current Non-Plan Client within four (4) months of the effective date, if any, of a final five-year exemption; and (B) Future Non-Plan Client prior to, or contemporaneously with, the client's receipt of a written asset management agreement from the JPMC Affiliated QPAM. For purposes of this subparagraph (2), a Current Non-Plan Client means a client of a JPMC Affiliated QPAM that: is neither an ERISA-covered plan nor an IRA; has assets managed by the JPMC Affiliated QPAM as of the effective date, if any, of a final five-year exemption; and has received a written representation (qualified or otherwise) from the JPMC Affiliated QPAM that such JPMC Affiliated QPAM qualifies as a QPAM or qualifies for the relief provided by PTE 84-14 . . . .”

The Applicant requests that Section (I)(k)(2) be deleted in its entirety because, in its opinion, the provision is punitive and beyond the Department's authority. The Applicant requests that any notice requirement be limited to ERISA-covered plans and IRAs that have a direct contractual relationship with a JPMC Affiliated QPAM and actually rely on PTE 84-14.

Given the breadth of the notice requirements otherwise mandated by the exemption, and its decision to restrict the requirements to those arrangements for which QPAM status plays an integral role (

i.e.,

the QPAM represents or relies upon its QPAM status), the Department has determined to delete this provision.

Comment 33—Compliance Officer—Section I(m)

Section I(m) of the proposed five-year exemption provides, in part, “

JPMC designates a senior compliance officer (the Compliance Officer) who will be responsible for compliance with the Policies and Training requirements describe herein. The Compliance Officer must conduct an annual review (the Annual Review) to determine the adequacy and effectiveness of the implementation of the Policies and Training . . . .”

The Applicant requests that the conditions relating to the Compliance Officer be deleted because they are punitive, inconsistent with precedent, and inconsistent with the APA. The Applicant states that the criminal conduct that necessitated the exemption did not involve in any way JPMC's asset management business, and that the QPAMs already have very robust compliance departments. The Applicant states that it is duplicative to have another layer of compliance and the condition substitutes the Department's

judgment for that of the Applicant and its many other regulators. Furthermore, the Applicant states that the criminal conduct was the result of one single former FX trader, and that the inclusion of this condition is without any precedent, and is arbitrary and capricious. Finally, the Applicant states that every compliance officer is not a lawyer, and that the condition's time frames are inconsistent, and not practicable.

The Department is removing the requirement that the Compliance Officer be a legal professional (

i.e.,

a lawyer), but declines to make the Applicant's other requested changes. JPMC personnel engaged in serious misconduct that was not limited to one trader and that was caused, at least in part, by serious failures of compliance and oversight. The misconduct relevant to the development of this exemption spanned multiple years and involved repeated failures by JPMC personnel, in supervisory and oversight positions. The Department's determination to grant this exemption is based in part on the Department's view that an internal compliance officer with responsibility for the policies and procedures mandated by this exemption will provide the level of oversight necessary to ensure that such Policies and Training are properly implemented.

Comment 34—Deferred Prosecution Agreement/Non-Prosecution Agreement—Section I(o)

Section I(o) of the proposed five-year exemption provides, with respect to any Deferred Prosecution Agreement or Non-Prosecution Agreement: “

During the effective period of the five-year exemption JPMC: (1) Immediately discloses to the Department any Deferred Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) with the U.S. Department of Justice, entered into by JPMC or any of its affiliates in connection with conduct described in Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) Immediately provides the Department any information requested by the Department, as permitted by law, regarding the agreement and/or conduct and allegations that led to the agreement. After review of the information, the Department may require JPMC, its affiliates, or related parties, as specified by the Department, to submit a new application for the continued availability of relief as a condition of continuing to rely on this exemption. If the Department denies the relief requested in the new application, or does not grant such relief within twelve months of application, the relief described herein is revoked as of the date of denial or as of the expiration of the twelve month period, whichever date is earlier.”

The Applicant requests that this condition be deleted because it is punitive, and is inconsistent with the APA, statutory authority, and the Department's own regulatory authority. The Applicant states that the condition contravenes the DOL's exemption procedure regulation at 29 CFR part 2570, which requires that the Department propose a notice of termination of an exemption for public comment. The Applicant also states that the provision could create risk and uncertainty, including uncertainty for counterparties, with respect to the very transactions that this exemption is designed to prevent from suddenly expiring. According to the Applicant, the condition itself could have the effect of causing plans to terminate such transactions at significant cost. The Applicant also suggests that parties could enter into an NPA or a DPA for investigations where a bank is not convicted, and in some cases, not even charged with, a felony. The Applicant states further that the timing and factual basis of the NPA/DPA could be distant in time or place from the current plan management operations that should be the Department's concern. Finally, the Applicant states that the provision is inconsistent with the anti-criminal provisions of Section I(g) of PTE 84-14 or section 411 of ERISA, which both require actual convictions, whereas an NPA/DPA is related to a decision by the DOJ not to prosecute.

The Department in no way intended that this condition be read as providing for an automatic revocation of this exemption, and in light of the Applicant's comments, has revised the condition accordingly. As revised, the condition simply requires that the Applicant notify the Department if and when it or any of its affiliates enter into a DPA or NPA with the U.S. Department of Justice for conduct described in section I(g) of PTE 84-14 or ERISA Section 411 and immediately provide the Department with any information requested by the Department, as permitted by law, regarding the agreement and/or conduct and allegations that led to the agreement. The Department retains the right to propose a withdrawal of the exemption pursuant to its procedures contained at 29 CFR 2570.50, should the circumstances warrant such action.

Comment 35—Right to Copies of Policies and Procedures—Section I(p)

Section I(p) of the proposed five-year exemption provides that, “

[e]ach JPMC Affiliated QPAM, in its agreements with ERISA-covered plan and IRA clients, or in other written disclosures provided to ERISA-covered plan and IRA clients, within 60 days prior to the initial transaction upon which relief hereunder is relied, and then at least once annually, will clearly and prominently: Inform the ERISA-covered plan and IRA client that the client has the right to obtain copies of the QPAM's written Policies adopted in accordance with the exemption.”

The Applicant requests that this condition be deleted because it is impracticable, duplicative, and punitive, and not reasonably designed to be protective of plans and their participants. The Applicant states that it has over 300 policies and procedures that touch on ERISA and the Code and it is not reasonable to require the disclosure and provision of all the policies. Furthermore, the Applicant states that it cannot provide notice sixty (60) days prior to the time that the exemption is used because that date will precede the final exemption. Finally, the Applicant states that the number of notices required to be provided to clients is overly burdensome and excessive, and will lead to confusion and clients ignoring the mailings.

The Department disagrees, in part, with the Applicant's comment. Affording ERISA covered-plan and IRA clients a means by which to review and understand the Policies implemented in connection with this exemption is a vital protection that is fundamental to this exemption's purpose. However, the Department has modified the condition so that the QPAMs, at their election, may instead provide Covered Plans disclosure that accurately describes or summarizes key components of the Policies, rather than provide the Policies in their entirety. The Department has also determined that such disclosure may be continuously maintained on a website, provided that the website link to the summary of the written Policies is clearly and prominently disclosed to those Covered Plan clients to whom this section applies. The Department also agrees with the Applicant that the timing requirement for disclosure should be revised and, accordingly, has modified the condition of Section I(p) to require notice regarding the information on the website within six months of the initial effective date of this exemption, and thereafter to the extent certain

material changes are made to the Policies.

Comment 36—No-Fault Provision—Section I(q)

Section I(q) of the proposed five-year exemption provides that, “[a]

JPMC Affiliated QPAM or a JPMC Related QPAM will not fail to meet the terms of this exemption solely because a different JPMC Affiliated QPAM or JPMC Related QPAM fails to satisfy a condition for relief described in Sections I(c), (d), (h), (i), (j), (k), (l), (n) and (p).”

The Applicant requests that the relief provided under Section I(q) be extended to cover Sections I(e), (f), (g), and (m). The Applicant states that the failure of one JPMC Affiliated QPAM to meet these conditions should not disqualify all other JPMC Affiliated QPAMs from reliance on this exemption. The Applicant also states that the auditor's failure to fulfill its requirements under this exemption should not disqualify the JPMC Affiliated QPAMs from relying on the exemption.

The Department declines to extend the relief provided under Section I(q) to Sections I(e), (f), (g), and (m).

Section I(e) provides that any failure of a JPMC Affiliated QPAM or JPMC Related QPAM to comply with Section I(g) of PTE 84-14 arose solely from the Conviction. As set forth in the Applicant's materials, the Conviction is the sole reason a new exemption is necessary for the JPMC Affiliated QPAMs. If there were a new or additional conviction of a crime described in Section I(g) of PTE 84-14, the Department would need to assess the misconduct, its scope, and its significance. Without such an assessment, the Department could not be confident of the adequacy of the conditions set forth herein with respect to the JPMC Affiliated QPAMs and Related QPAMs. Indeed, depending on the particular facts, a subsequent criminal conviction could be strong evidence of the inadequacy of this exemption's conditions to protect Covered Plans. Further, as stated above, the Department is not obligated to grant further relief to the extent such a conviction occurs.

Section I(f) provides that no JPMC Affiliated QPAM or JPMC Related QPAM exercised authority over the assets of any ERISA-covered plan or IRA in a manner that it knew or should have known would: further the criminal conduct that is the subject of the Conviction; or cause the JPMC QPAM or its affiliates or related parties to directly or indirectly profit from the criminal conduct that is the subject of the Conviction. The Applicant has, in its application and in its response to questions raised by the Department, provided statements under penalty of perjury, that they are in compliance with this condition, and the Department relied upon those statements in granting this relief. Based on these statements, the Department determines that there is no reason to include relief from Section I(f) in Section I(q).

Section I(g) requires two specific entities, JPMC and the Investment Bank of JPMorgan Chase Bank, refrain from providing investment management services to plans. Section I(m) requires JPMC to install a Compliance Officer to undertake various compliance and reporting obligations. Thus, with respect to Sections I(g) and (m), the obligations imposed extend exclusively to JPMC and the Investment Bank of JPMorgan Chase Bank. Consequently, if the relief under I(q) were extended to Sections I(g) and I(m), it would render them virtually meaningless. There would be little or no effective penalty for the failure to comply with the conditions, as the Affiliated and Related QPAMs would remain free to rely on the exemption's terms. The Department also believes that the potential for disqualification of all JPMC Affiliated QPAMs under this agreement will serve as additional incentive for JPMC and JPMorgan Chase Bank to comply in good-faith with the provisions of Sections I(g) and (m).

Finally, except as noted in Comment 23 above, the Department accepts the Applicant's comment that failure of the auditor to comply with any of the conditions of the exemption, should not be treated as a failure by the JPMC Affiliated QPAMs to comply with the conditions of the exemption provided that such failure was not due to the actions or inactions of JPMC or its affiliates, and Section I(q) is amended, accordingly.

Comment 37—Definition of Affiliated QPAM—Section II(a)

Section II(a) of the proposed five-year exemption provides: “

(a) The term “JPMC Affiliated QPAM” means a “qualified professional asset manager”(as defined in Section VI(a) of PTE 84-14) that relies on the relief provided by PTE 84-14 and with respect to which JPMC is a current or future “affiliate” (as defined in Section VI(d)(1) of PTE 84-14). The term “JPMC Affiliated QPAM” excludes the parent entity, JPMC, the division implicated in the criminal conduct that is the subject of the Conviction.”

The Applicant states that the last sentence of proposed Section II(a) contains an unintended error, as JPMC is not a division but is the parent company in the affiliated group.

The Department agrees with this comment and has modified the Section accordingly. The Department has reordered Section II, as described below.

Comment 38—Definition of Conviction—Section II(e)

Section II(e) of the proposed five-year exemption provides: “

The term `Conviction' means the judgment of conviction against JPMC for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court) (Case Number 3:15-cr-79-SRU), in connection with JPMC, through one of its euro/U.S. dollar (EUR/USD) traders, entering into and engaging in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for, the EUR/USD currency pair exchanged in the FX spot market by agreeing to eliminate competition in the purchase and sale of the EUR/USD currency pair in the United States and elsewhere. For all purposes under this exemption, `conduct' of any person or entity that is the

subject of [a] Conviction' encompasses any conduct of JPMC and/or their personnel, that is described in the Plea Agreement, (including the Factual Statement), and other official regulatory or judicial factual findings that are a part of this record.”

The Applicant states that this definition inaccurately paraphrases the Plea Agreement and significantly expands the conduct to which JPMC was charged and pleaded guilty. The Applicant states that it is neither appropriate nor accurate for the Department to expand the definition beyond the charge that was the subject of the Plea Agreement.

After considering this comment, the Department has revised the definition accordingly.

Comment 39—Notice to Interested Persons

The Applicant requests that the Department confirm, and the Department so confirms, that the Applicant had 30 days after

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publication of the proposal to notify interested persons.

Comment 40—Summary of Facts and Representations

The Applicant seeks certain clarifications to the Summary of Facts and Representations that the Department does not view as relevant to its determination whether to grant this exemption. Those requested

clarifications may be found as part of the public record for Application No. D-11906, in a letter to the Department, dated January 20, 2017.

Comment of John Williams (December 7, 2016)

Mr. Williams comments that it is unclear “how an entity which has been convicted of wrong-doing should be granted a 5-year exemption from regulations that it has already violated.”

The Applicant responds that Mr. Williams' statement is based on an erroneous view that the Applicant has entered into a guilty plea with the Department. With regard to the notice to interested persons, the Applicant states that Mr. Williams' comment misconstrues, and improperly conflates, the criminal proceedings and the purpose of the proposed exemption. The Applicant states that it is not seeking, and the proposed exemption does not grant, relief from regulations that have already been violated. The Applicant further states that, although the JPMC Affiliated QPAMs did not participate in or know of the misconduct, the conviction of the non-asset manager affiliate would nevertheless disqualify the uninvolved asset managers from relying on the QPAM exemption. The Department reiterates that it determined that this exemption is protective of, and in the interest of, Covered Plans given the enhanced compliance and oversight requirements it imposes on JPMC Affiliated QPAMs.

Comment of Lauri Robinson (December 12, 2016)

Ms. Robinson states that it “is very difficult for laypersons to understand how I can be adversely affected by this,” and requests that the Department “make it easier to understand or elaborate on how it effects [sic] current IRAs.” Ms. Robinson believes that the Applicant “should have informed customers of the violation and 550 million dollar fine.”

In response, the Applicant states that, among other things, the conviction was a matter of public record as of the date on which the plea agreement was entered, and that Ms. Robinson was notified, as an interested person, in accordance with the terms of the proposed exemption.

The Department notes that each JPMC Affiliated QPAM must provide a notice of the exemption, along with a separate summary describing the facts that led to the Conviction, and a prominently displayed statement that the Conviction results in a failure to meet a condition in PTE 84-14, to each sponsor or beneficial owner of a Covered Plan, or the sponsor of an investment fund in any case where a JPMC Affiliated QPAM acts only as a sub-advisor to the investment fund in which such ERISA-covered plan and IRA invests.

Comment of Mark Levy (December 20, 2016)

Mr. Levy, who states that he owns a Chase investment account, urges the Department not to “grant[ the Applicant] a `pass' for their wrong doing [sic],” because “[n]o institution should be considered `too big' to pay its share of imposed fines/penalties.”

In response, the Applicant states that, among other things, JPMC is liable for approximately $1.9 billion in monetary penalties imposed by the Department of Justice and other regulators; and that the asset management businesses of the JPMC affiliated QPAMs had no involvement in, or knowledge of, the misconduct. The Department reiterates that this exemption is not punitive and is instead designed to protect Covered Plans.

Comment of Dan Cable (December 22, 2016)

Mr. Cable objects to the exemption in general by stating he does not believe that: (i) The Applicant is taking its criminal behavior seriously, (ii) the QPAM exemption is not customarily and routinely used, and (iii) the Applicant has not adequately demonstrated harm to clients if the exemption is not granted.

In response, the Applicant states that, among other things, the Department of Justice, the District Court, and other applicable regulators already have imposed upon the Applicant certain monetary penalties and other sanctions intended to punish the Applicant and deter future wrongdoing. The Applicant states that it has taken responsibility for the conduct that was the basis of the plea agreement, that the JPMC Affiliated QPAMs had no involvement in the conduct, and that such conduct violated neither ERISA nor the Department's regulations. As such, the Applicant states that Department should not use the exemption process to further punish these uninvolved asset managers, and that to do so would only harm the plan and IRA clients of the uninvolved JPMC Affiliated QPAMs.

The commenter also expresses concern that the training and audit requirements of the proposed exemption are inadequate. In response, the Applicant disagrees and states that these proposed requirements are imposed on entities that had no involvement in the criminal conduct and that these requirements add to pre-existing robust and comprehensive training, audit, and compliance functions — both firm-wide and specific to the asset management businesses.

The commenter also expresses concern that the JPMC Affiliated QPAMs benefited from the criminal conduct that is the subject of the Conviction. In response, the Applicant notes that the proposed exemption contains the following condition: “(b) Other than a single individual who worked for a non-fiduciary business within JPMorgan Chase Bank and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, agents other than JPMC, and employees of such JPMC QPAMs) did not receive direct compensation, or knowingly receive indirect compensation in connection with the criminal conduct that is the subject of the Conviction.” The Applicant states that it is able to and will comply with this condition.

The commenter expresses skepticism that the JPMC Affiliated QPAMs will not “hire any of the crooks.” In response, the Applicant states that the proposed exemption contains the following condition: “The JPMC Affiliated QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Conviction.” The Applicant states that it is able to and will comply with this condition.

The commenter states that the QPAM exemption is not routinely relied upon by the Applicant. According to the Applicant, practically all retirement plans expect their asset managers to use the QPAM exemption, and many counterparties expect representations from the Applicant that it applies.

Finally, the commenter states that it is unclear how a client of the JPMC Affiliated QPAMs would be harmed in the event that the Department does not grant the requested exemption. In response, the Applicant states that the loss of QPAM status for the JPMC Affiliated QPAMs would have a very substantial impact, affecting a significant number of ERISA plans and IRAs. The Applicant notes that, as of the time its application was filed, the Applicant managed approximately $65.5 billion in assets for ERISA plans, and over $12 billion in IRA assets for over 32,000 IRAs.

Comment of Sharon Bushman (December 26, 2016)

The commenter, who states she is the holder of an IRA managed by the

Applicant, states that she does not understand the notice to interested persons, and requests that no action be taken on the exemption until a full explanation is provided regarding the implications for individual clients. In response, the Applicant states that the Department fully explained the purpose and effect of the exemption in the preamble to the

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notice.

As noted above, each JPMC Affiliated QPAM must provide a notice of the exemption, along with a separate summary describing the facts that led to the Conviction, and a prominently displayed statement that the Conviction results in a failure to meet a condition in PTE 84-14, to each sponsor or beneficial owner of a Covered Plan, or the sponsor of an investment fund in any case where a JPMC Affiliated QPAM acts only as a sub-advisor to the investment fund in which such ERISA-covered plan and IRA invests.

Comment of Cynthia Beaver (January 18, 2017)

The commenter states that she does not understand the notice to interested persons and requests clarification regarding whether she will be required to move her account if the exemption is not granted. If the exemption is granted, the commenter asks whether there will be adequate “outside oversight” to ensure that her account is safe.

In response, the Applicant expresses the view that the proposed exemption's conditions (taking into account the Applicant's comments with respect to the proposal) are sufficient and are designed to protect clients such as the commenter from the any adverse effects of the JPMC Affiliated QPAMs losing the QPAM exemption.

The Department notes that the exemption requires an extensive audit every two years by a qualified auditor who is independent of JPMC.

Comment—Letter From House Committee on Financial Services

The Department also received a comment letter from certain members of Congress (the Members) regarding this exemption, as well as regarding other QPAM-related proposed one year exemptions. In the letter, the Members stated that certain conditions contained in these proposed exemptions are crucial to protecting the investments of our nation's workers and retirees, referring to proposed conditions which require each bank to: (a) Indemnify and hold harmless ERISA-covered plans and IRAs for any damages resulting from the future misconduct of such bank; and (b) disclose to the Department any Deferred Prosecution Agreement or a Non-Prosecution Agreement with the U.S. Department of Justice. The Members also requested that the Department hold hearings in connection with the proposed exemptions.

The Department acknowledges the Members' concerns regarding the need for public discourse regarding proposed exemptions. To this end, the Department's procedures regarding prohibited transaction exemption requests under ERISA (the Exemption Procedures) afford interested persons the opportunity to request a hearing. Specifically, section 2570.46(a) of the Exemption Procedures provides that, “[a]ny interested person who may be adversely affected by an exemption which the Department proposes to grant from the restrictions of section 406(b) of ERISA, section 4975(c)(1)(E) or (F) of the Code, or section 8477(c)(2) of FERSA may request a hearing before the Department within the period of time specified in the

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notice of the proposed exemption.” The Exemption Procedures provide that “[t]he Department will grant a request for a hearing made in accordance with paragraph (a) of this section where a hearing is necessary to fully explore material factual issues identified by the person requesting the hearing.” The Exemption Procedures also provide that “[t]he Department may decline to hold a hearing where: (1) The request for the hearing does not meet the requirements of paragraph (a) of this section; (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.”

29 CFR part 2570, published at 76 FR 66653 (October 27, 2011).

While the Members' letter raises important policy issues, it does not appear to raise specific material factual issues. The Department previously explored a wide range of legal and policy issues regarding Section I(g) of the QPAM Exemption during a public hearing held on January 15, 2015 in connection with the Department's proposed exemption involving Credit Suisse AG, and has determined that an additional hearing on these issues is not necessary.

After giving full consideration to the record, the Department has decided to grant the exemption, as described above. The complete application file (Application No. D-11906) is available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, Room N-1515, U.S. Department of Labor, 200 Constitution Avenue NW, Washington, DC 20210.

For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the notice of proposed exemption published on November 21, 2016 at 81 FR 83372.

Exemption

Section I: Covered Transactions

Certain entities with specified relationships to JPMC (hereinafter, the JPMC Affiliated QPAMs and the JPMC Related QPAMs, as defined in Sections II(g) and II(h), respectively) will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the Conviction, as defined in Section II(a), during the Exemption Period,

provided that the following conditions are satisfied:

Section I(g) of PTE 84-14 generally provides relief only if “[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 violation of the Sherman Antitrust Act, Title 15 United States Code, Section 1.

(a) Other than a single individual who worked for a non-fiduciary business within JPMorgan Chase Bank and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, agents other than JPMC, and employees of such QPAMs who had responsibility for, or exercised authority in connection with the management of plan assets) did not know of, did not have reason to know of, or participate in the criminal conduct that is the subject of the Conviction. For purposes of this paragraph (a), “participate in” means the knowing approval of the misconduct underlying the Conviction;

(b) Apart from a non-fiduciary line of business within JPMorgan Chase Bank, the JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, and agents other than JPMC, and employees of such JPMC QPAMs who had responsibility for, or exercised authority in connection with the management of plan assets) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Conviction;

the individuals that participated in the criminal conduct that is the subject of the Conviction. For the purposes of this paragraph (c), “participated in” means the knowing approval of the misconduct underlying the Conviction;

(d) At all times during the Exemption Period, no JPMC Affiliated QPAM will use its authority or influence to direct an “investment fund” (as defined in Section VI(b) of PTE 84-14), that is subject to ERISA or the Code and managed by such JPMC Affiliated QPAM with respect to one or more Covered Plans, to enter into any transaction with JPMC, or to engage JPMC to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption;

(e) Any failure of a JPMC Affiliated QPAM or a JPMC Related QPAM to satisfy Section I(g) of PTE 84-14 arose solely from the Conviction;

(f) A JPMC Affiliated QPAM or a JPMC Related QPAM did not exercise authority over the assets of any plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or section 4975 of the Code (an IRA) in a manner that it knew or should have known would: further the criminal conduct that is the subject of the Conviction; or cause the JPMC Affiliated QPAM, the JPMC Related QPAM, or their affiliates to directly or indirectly profit from the criminal conduct that is the subject of the Conviction;

(g) Other than with respect to employee benefit plans maintained or sponsored for its own employees or the employees of an affiliate, JPMC will not act as a fiduciary within the meaning of section 3(21)(A)(i) or (iii) of ERISA, or section 4975(e)(3)(A) and (C) of the Code, with respect to ERISA-covered plan and IRA assets; provided, however, that JPMC will not be treated as violating the conditions of this exemption solely because it acted as an investment advice fiduciary within the meaning of section 3(21)(A)(ii) or section 4975(e)(3)(B) of the Code;

(h)(1) By July 9, 2018, each JPMC Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies). The Policies must require, and must be reasonably designed to ensure that:

(i) The asset management decisions of the JPMC Affiliated QPAM are conducted independently of the corporate management and business activities of JPMC;

(ii) The JPMC Affiliated 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 violation of these duties and provisions with respect to Covered Plans;

(iii) The JPMC Affiliated 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 JPMC Affiliated QPAM to regulators, including, but not limited to, the Department, the Department of the Treasury, the Department of Justice, and the Pension Benefit Guaranty Corporation, on behalf of or in relation to Covered Plans are materially accurate and complete, to the best of such QPAM's knowledge at that time;

(v) To the best of the JPMC Affiliated QPAM's knowledge at the time, the JPMC Affiliated QPAM does not make material misrepresentations or omit material information in its communications with such regulators with respect to Covered Plans;

(vi) The JPMC Affiliated QPAM complies with the terms of this exemption; and

(vii) Any violation of, or failure to comply with an item in subparagraphs (ii) through (vi), is corrected as soon as reasonably possible upon discovery, or as soon after the QPAM reasonably should have known of the noncompliance (whichever is earlier), and any such violation or compliance failure not so corrected is reported, upon the discovery of such failure to so correct, in writing, to the head of compliance and the General Counsel (or their functional equivalent) of the relevant line of business that engaged in the violation or failure, and the independent auditor responsible for reviewing compliance with the Policies. A JPMC Affiliated QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, provided that it corrects any instance of noncompliance as soon as reasonably possible upon discovery, or as soon as reasonably possible after the QPAM reasonably should have known of the noncompliance (whichever is earlier), and provided that it adheres to the reporting requirements set forth in this subparagraph (vii);

(2) By July 9, 2018, each JPMC Affiliated QPAM must develop a program of training (the Training), to be conducted at least annually, for all relevant JPMC Affiliated QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The first Training under this Final Exemption must be completed by all relevant JPMC Affiliated QPAM personnel by July 9, 2019 (by the end of this 30-month period, asset/portfolio management, trading, legal, compliance, and internal audit personnel who were employed from the start to the end of the period must have been trained twice: the first time under PTE 2016-15; and the second time under this exemption). The Training must:

(i) At a minimum, cover the Policies, ERISA and Code compliance (including applicable fiduciary duties and the prohibited transaction provisions), ethical conduct, the consequences for not complying with the conditions of this exemption (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing; and

(ii) Be conducted by a professional who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code;

(i)(1) Each JPMC Affiliated QPAM submits to an audit conducted every two years by an independent auditor who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code, to evaluate the adequacy of, and each JPMC Affiliated QPAM's compliance with, the Policies and Training described herein. The audit requirement must be incorporated in the Policies. Each audit must cover the preceding consecutive twelve (12) month period. The first audit must cover the period from July 10, 2018 through July 9, 2019, and must be completed by January 9, 2020. The second audit must cover the period from July 10, 2020 through July 9, 2021, and must be completed by January 9, 2022. In the event that the Exemption Period is extended or a new exemption is granted, the third audit would cover the period from July 10, 2022 through July 9, 2023, and would have to be completed by January 9, 2024 (unless the Department chooses to alter the biennial audit requirement in the new or extended exemption);”

(2) Within the scope of the audit and to the extent necessary for the auditor,

in its sole opinion, to complete its audit and comply with the conditions for relief described herein, and only to the extent such disclosure is not prevented by state or federal statute, or involves communications subject to attorney client privilege, each JPMC Affiliated QPAM and, if applicable, JPMC, will grant the auditor unconditional access to its business, including, but not limited to: its computer systems; business records; transactional data; workplace locations; training materials; and personnel. Such access is limited to information relevant to the auditor's objectives as specified by the terms of this exemption;

(3) The auditor's engagement must specifically require the auditor to determine whether each JPMC Affiliated QPAM has developed, implemented, maintained, and followed the Policies in accordance with the conditions of this exemption, and has developed and implemented the Training, as required herein;

(4) The auditor's engagement must specifically require the auditor to test each JPMC Affiliated QPAM's operational compliance with the Policies and Training. In this regard, the auditor must test, for each QPAM, a sample of such QPAM's transactions involving Covered Plans, sufficient in size and nature to afford the auditor a reasonable basis to determine such QPAM's operational compliance with the Policies and Training;

(5) For each audit, on or before the end of the relevant period described in Section I(i)(1) for completing the audit, the auditor must issue a written report (the Audit Report) to JPMC and the JPMC Affiliated QPAM to which the audit applies that describes the procedures performed by the auditor during the course of its examination. The auditor, at its discretion, may issue a single consolidated Audit Report that covers all the JPMC Affiliated QPAMs. The Audit Report must include the auditor's specific determinations regarding:

(i) The adequacy of each JPMC Affiliated QPAM's Policies and Training; each JPMC Affiliated QPAM's compliance with the Policies and Training; the need, if any, to strengthen such Policies and Training; and any instance of the respective JPMC Affiliated QPAM's noncompliance with the written Policies and Training described in Section I(h) above. The JPMC Affiliated QPAM must promptly address any noncompliance. The JPMC Affiliated QPAM must promptly address or prepare a written plan of action to address any determination by the auditor regarding the adequacy of the Policies and Training and the auditor's recommendations (if any) with respect to strengthening the Policies and Training of the respective Affiliated QPAM. Any action taken or the plan of action to be taken by the respective JPMC Affiliated QPAM must be included in an addendum to the Audit Report (such addendum must be completed prior to the certification described in Section I(i)(7) below). In the event such a plan of action to address the auditor's recommendation regarding the adequacy of the Policies and Training is not completed by the time of submission of the Audit Report, the following period's Audit Report must state whether the plan was satisfactorily completed. Any determination by the auditor that the respective JPMC Affiliated QPAM has implemented, maintained, and followed sufficient Policies and Training must not be based solely or in substantial part on an absence of evidence indicating noncompliance. In this last regard, any finding that a JPMC Affiliated QPAM has complied with the requirements under this subparagraph must be based on evidence that the particular JPMC Affiliated QPAM has actually implemented, maintained, and followed the Policies and Training required by this exemption. Furthermore, the auditor must not solely rely on the Annual Report created by the compliance officer (the Compliance Officer), as described in Section I(m) below, as the basis for the auditor's conclusions in lieu of independent determinations and testing performed by the auditor, as required by Section I(i)(3) and (4) above; and

(ii) The adequacy of the most recent Annual Review described in Section I(m);

(6) The auditor must notify the respective JPMC Affiliated QPAM of any instance of noncompliance identified by the audit

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