PNC Capital Advisors, LLC; Notice of Application, 58659-58662 [2017-26885]

Download as PDF Federal Register / Vol. 82, No. 238 / Wednesday, December 13, 2017 / Notices the person identified in the FOR FURTHER INFORMATION CONTACT section by telephone for advice on filing alternatives. FOR FURTHER INFORMATION CONTACT: David A. Trissell, General Counsel, at 202–789–6820. SUPPLEMENTARY INFORMATION: Table of Contents sradovich on DSK3GMQ082PROD with NOTICES I. Introduction II. Docketed Proceeding(s) I. Introduction The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the market dominant or the competitive product list, or the modification of an existing product currently appearing on the market dominant or the competitive product list. Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request’s acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request. The public portions of the Postal Service’s request(s) can be accessed via the Commission’s website (http:// www.prc.gov). Non-public portions of the Postal Service’s request(s), if any, can be accessed through compliance with the requirements of 39 CFR 3007.40. The Commission invites comments on whether the Postal Service’s request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern market dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3010, and 39 CFR part 3020, subpart B. For request(s) that the Postal Service states concern competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comment deadline(s) for each request appear in section II. II. Docketed Proceeding(s) 1. Docket No(s).: CP2018–79; Filing Title: Notice of United States Postal VerDate Sep<11>2014 18:53 Dec 12, 2017 Jkt 244001 Service of Filing a Functionally Equivalent Global Expedited Package Services 7 Negotiated Service Agreement and Application for NonPublic Treatment of Materials Filed Under Seal; Filing Acceptance Date: December 7, 2017; Filing Authority: 39 CFR 3015.5; Public Representative: Timothy J. Schwuchow; Comments Due: December 15, 2017. This notice will be published in the Federal Register. 58659 Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of application for an exemptive order under Section 206A of the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’) and Rule 206(4)– 5(e). personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on January 2, 2018, and should be accompanied by proof of service on Applicant, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to Rule 0–5 under the Advisers Act, hearing requests should state the nature of the writer’s interest, any facts bearing upon the desirability of a hearing on the matter, the reason for the request, and the issues contested. Persons may request notification of a hearing by writing to the Commission’s Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549–1090. Applicant: PNC Capital Advisors, LLC, One East Pratt Street, Baltimore, MD 21202. FOR FURTHER INFORMATION CONTACT: Kyle R. Ahlgren, Senior Counsel, at (202) 551–6857 or Holly L. Hunter-Ceci, Assistant Chief Counsel, at (202) 551– 6825 (Division of Investment Management, Chief Counsel’s Office). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained via the Commission’s website at http://www.sec.gov/rules/ iareleases.shtml or by calling (202) 551– 8090. PNC Capital Advisors, LLC (‘‘Applicant’’ or ‘‘Adviser’’). RELEVANT ADVISERS ACT SECTIONS: Exemption requested under Section 206A of the Advisers Act and Rule 206(4)–5(e) from Rule 206(4)–5(a)(1) under the Advisers Act. SUMMARY OF APPLICATION: Applicant requests that the Commission issue an order under Section 206A of the Advisers Act and Rule 206(4)–5(e) exempting it from Rule 206(4)–5(a)(1) under the Advisers Act to permit Applicant to receive compensation from certain government entities for investment advisory services provided to the government entities within the two-year period following a contribution by a covered associate of the Applicant to an official of the government entities. FILING DATES: The application was filed on April 18, 2017, and an amended and restated application was filed on October 10, 2017. HEARING OR NOTIFICATION OF HEARING: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission’s Secretary and serving Applicant with a copy of the request, Applicant’s Representations 1. Applicant is a financial services firm registered with the Commission as an investment adviser pursuant to the Advisers Act. Applicant provides discretionary investment advisory services to a wide variety of investors. Applicant is a wholly-owned subsidiary of PNC Bank, National Association (the ‘‘Bank’’), and the Bank is a whollyowned subsidiary of PNC Financial Services Group, Inc. (‘‘PNC’’). 2. Certain Ohio government entities have established separately managed accounts to which the Adviser provides investment advisory services (each such government entity, a ‘‘Client’’ and collectively, the ‘‘Clients’’). Each Client is a ‘‘government entity’’ within the meaning of Rule 206(4)–5(f)(5). 3. The individual who made the campaign contribution (the ‘‘Contributor’’) that triggered the twoyear compensation ban (the ‘‘Contribution’’) is a dual-hatted employee of the Bank and the Adviser. In his role as a business development officer of both the Adviser and the Bank, he solicited and continues to solicit business for the Adviser and the Bank from private corporations and non-profit entities in Pennsylvania, West Virginia, California and Texas. The Contributor Stacy L. Ruble, Secretary. [FR Doc. 2017–26883 Filed 12–12–17; 8:45 am] BILLING CODE 7710–FW–P SECURITIES AND EXCHANGE COMMISSION [Investment Advisers Act Release No. 4825/ 803–00241] PNC Capital Advisors, LLC; Notice of Application December 8, 2017. AGENCY: APPLICANT: PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 E:\FR\FM\13DEN1.SGM 13DEN1 sradovich on DSK3GMQ082PROD with NOTICES 58660 Federal Register / Vol. 82, No. 238 / Wednesday, December 13, 2017 / Notices has never solicited business in Ohio, whether for the Adviser or for the Bank. The Adviser listed the Contributor as a covered associate in its records maintained under Rule 204–2 under the Advisers Act, and subjected him to its policies for a covered associates. 4. In June 2016, the Bank began to contemplate promoting the Contributor to Market Director, a position that has oversight over all sales operations in parts of Pennsylvania for investment advisory services business. In anticipation of this promotion, in December 2016 the Contributor solicited a government entity for investment advisory services for the first time (a local government entity in Pennsylvania). However, after the PNC Corporate Ethics Department’s discovery of the Contribution, a hold was placed on the Contributor’s promotion. The hold remains in effect. 5. The Contributor was at the time of the Contribution a ‘‘covered associate’’ within the meaning of Rule 206(4)– 5(f)(2), and the Contribution triggers the compensation ban under the two-year lookback provision in Rule 206(4)– 5(b)(2). At no time has the Contributor been involved in soliciting the Clients, and has never communicated with the Clients. The Contributor has never solicited any other state or local Ohio government entity. The Contributor has never made presentations for, or met with, any representatives of any Client or with any other Ohio government entities, or supervised any person who met with any Client or other Ohio government entity. If promoted to Market Director, the Contributor will neither meet with any Ohio government entities personally, nor supervise any person who solicits investment advisory services business from Ohio government entities. 6. The recipient of the Contribution was John Kasich (the ‘‘Official’’), Governor of Ohio, in his campaign for President of the United States. The Clients are overseen by boards of trustees or directors to which the Governor appoints certain members and which have influence over selecting an investment adviser. Due to the power of appointment, the Governor is, and at the time of the Contribution was, an ‘‘official’’ of each Client within the meaning of Rule 206(4)–5(f)(6). 7. The Contributor, a long-time Republican, attended an April 2016 fundraiser for Governor Kasich’s presidential campaign in Pittsburgh, Pennsylvania. Governor Kasich spoke at the fundraiser, and the Contributor made a $1,000 donation to the Kasich campaign. The Contribution was reported by the campaign as received on VerDate Sep<11>2014 18:53 Dec 12, 2017 Jkt 244001 April 22, 2016, according to a report filed with, and made available online by, the Federal Election Commission. Other than being an attendee at the event, the Contributor has had no interactions with the Official, his staff, or any other Ohio official regarding the Contribution or any other matter. 8. The Contributor made the Contribution without pre-clearance from PNC’s Corporate Ethics Department, and without disclosing the Contribution in his quarterly certification (as clearly required by PNC’s policies, procedures and annual training). The Contributor did not appreciate that both Rule 206(4)–5 (the ‘‘Rule’’) and the Adviser’s policy required him to pre-clear and disclose the Contribution because the Contributor was focused on the Official in his capacity as a candidate for President of the United States. At no time did any employee of PNC or the Adviser or the Bank (other than the Contributor) have any knowledge that the Contribution had been made prior to its discovery on February 17, 2017. Applicant represents that the Contribution was not motivated by a desire to influence the award of investment advisory business. 9. The Contribution was discovered by PNC’s Corporate Ethics Department on February 17, 2017 through the controls built into its compliance procedures. As part of PNC’s required background check for his promotion to Market Director, the Contributor disclosed the Contribution in the political contribution lookback form, in which any individual who is about to take a covered associate position must disclose any contribution he or she made during the prior two years. Upon discovery of the Contribution, PNC immediately notified the Contributor that the Contribution was against PNC policy and a violation of the Rule, and a refund was requested from the campaign on March 8, 2017. The Contributor received the refund on May 3, 2017. All compensation earned that is attributable to the Clients’ investments since the Contribution Date has been placed in escrow. Absent exemptive relief from the Commission, Applicant undertakes to refund the escrowed compensation consistent with applicable laws and the Rule. 10. The initial selection process pursuant to which the various Clients decided to establish a separate account with the Adviser, or enter into a separate account that is sub-advised by the Adviser, was completed between 1996 and 2010. One Client opened two accounts with the Adviser after the Contribution Date pursuant to the Client’s pre-existing relationship with PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 the Adviser where the Client would, as it had done in prior years, open an account when it issues debt in order to manage the proceeds of such issuance. While some Clients have added funds to their accounts post-Contribution, Clients on the whole have withdrawn more funds than they have added, resulting in a net decrease in assets under management across all Clients combined. 11. PNC’s pay-to-play policies and procedures (the ‘‘Policy’’) apply to PNC’s subsidiaries (including the Adviser) and were adopted and implemented on March 14, 2011, well before the Contribution was made. The Policy requires that all contributions to any person (including any election committee for such person) who was, at the time of the contribution, an incumbent, candidate or successful candidate for elective office of a government entity, including a state or local official running for federal office, must be pre-cleared. There is no de minimis exemption from this preclearance requirement. The Adviser’s employees must complete PNC’s annual ethics training, which includes a segment on ethics requirements for personal political contributions. Employees who are subject to the Policy are sent multiple compliance alerts reminding them of the Policy and the need to pre-clear political contributions. Employees subject to the Policy must submit a quarterly certification confirming that they have disclosed all political contributions made in the prior quarter. The Contributor submitted a certification for the quarter covering April 2016 confirming that he had done so, but in fact he had not pre-cleared or disclosed the Contribution. 12. PNC has amended the quarterly certification for covered associates to specifically explain that the requirement to report ‘‘all’’ contributions includes contributions to federal candidates who are state or local officials at the time of the contribution. This amended quarterly certification has been rolled out to covered associates for the quarter ending September 30, 2017. Applicant’s Legal Analysis 1. Rule 206(4)–5 under the Advisers Act prohibits a registered investment adviser from providing ‘‘investment advisory services for compensation to a government entity within two years after a contribution to an official of the government entity is made by the investment adviser or any covered associate of the investment adviser.’’ Each Client is a ‘‘government entity’’ within the meaning of Rule 206(4)– 5(f)(5), the Contributor was at the time E:\FR\FM\13DEN1.SGM 13DEN1 sradovich on DSK3GMQ082PROD with NOTICES Federal Register / Vol. 82, No. 238 / Wednesday, December 13, 2017 / Notices of the Contribution a ‘‘covered associate’’ within the meaning of Rule 206(4)–5(f)(2), and the Official was at the time of the Contribution an ‘‘official’’ within the meaning of Rule 206(4)–5(f)(6). The Contribution therefore triggered the Rule’s ban under the two-year lookback provision in Rule 206(4)–5(b)(2). 2. Section 206A of the Advisers Act authorizes the Commission to ‘‘conditionally or unconditionally exempt any person or transaction . . . from any provision or provisions of [the Act] or of any rule or regulation thereunder, if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of [the Act].’’ 3. Rule 206(4)–5(e) provides that the Commission may exempt an investment adviser from the prohibition under Rule 206(4)–5(a)(1) upon consideration of the factors listed below, among others: (1) Whether the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Advisers Act; (2) Whether the investment adviser: (i) Before the contribution resulting in the prohibition was made, adopted and implemented policies and procedures reasonably designed to prevent violations of the Rule; and (ii) prior to or at the time the contribution which resulted in such prohibition was made, had no actual knowledge of the contribution; and (iii) after learning of the contribution: (A) Has taken all available steps to cause the contributor involved in making the contribution which resulted in such prohibition to obtain a return of the contribution; and (B) has taken such other remedial or preventive measures as may be appropriate under the circumstances; (3) Whether, at the time of the contribution, the contributor was a covered associate or otherwise an employee of the investment adviser, or was seeking such employment; (4) The timing and amount of the contribution which resulted in the prohibition; (5) The nature of the election (e.g., federal, state or local); and (6) The contributor’s apparent intent or motive in making the contribution which resulted in the prohibition, as evidenced by the facts and circumstances surrounding such contribution. 4. Applicant requests an order pursuant to Section 206A and Rule VerDate Sep<11>2014 18:53 Dec 12, 2017 Jkt 244001 206(4)–5(e), exempting it from the twoyear prohibition on compensation imposed by Rule 206(4)–5(a)(1) with respect to investment advisory services provided to the Clients within the twoyear period following the Contribution. 5. Applicant contends that given the nature of the Contribution, and the lack of any evidence that the Adviser or the Contributor intended to, or actually did, interfere with the Clients’ merit-based process for the selection or retention of advisory services, the Clients’ interests are best served by allowing the Adviser and its Clients to continue their relationships uninterrupted. Applicant states that causing the Adviser to serve without compensation for a two- year period could result in a financial loss of approximately $700,000, or 700 times the amount of the Contribution. Applicant contends that the policy underlying the Rule is served by ensuring that no improper influence is exercised over investment decisions by governmental entities as a result of campaign contributions, and not by withholding compensation as a result of unintentional violations. 6. Applicant submits that the exemption is necessary and appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Advisers Act. As summarized below and detailed in the Application, Applicant further submits that the other factors set forth in Rule 206(4)–5(e) similarly weigh in favor of granting an exemption to the Applicant to avoid consequences disproportionate to the violation. 7. Applicant states that the Adviser adopted and implemented the Policy, which is fully compliant with and more rigorous than the Rule’s requirements, on March 14, 2011, well before the Contribution Date. 8. Applicant states that aside from the Contributor, no executives, employees or covered associates of the Adviser knew of the Contribution until it was self-reported by the Contributor as a result of the multiple controls PNC uses in connection with promotions and transfers. 9. Applicant states that after learning of the Contribution, the Adviser, through its outside counsel, immediately requested a full refund of the Contribution, which was subsequently received. Applicant further states that the Adviser then established escrow accounts and moved all monies impacted by the two-year compensation ban into those escrow accounts. 10. Applicant states that in response to the Contribution, the Adviser PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 58661 reviewed and assessed the continued effectiveness of its Policy and determined that while the Policy was strong and robust, it undertook to enhance the employees’ understanding of the Policy through additional education, training, and clarification to the wording of the covered associates’ quarterly certification form. 11. Applicant states that the Contributor did not solicit a government entity until December 2016 (in Pennsylvania, not Ohio), that his geographic area for soliciting clients or supervising others does not include Ohio, and that he has never solicited or otherwise communicated with the Clients. 12. Applicant states that the Clients’ initial investments with the Adviser substantially pre-date the Contribution and were made on at arm’s length basis, and neither the Contributor nor the Adviser took any action to have the Official influence those investments, directly or indirectly. Applicant further states that the Contributor did not solicit or supervise anyone who solicited the Clients with respect to these investments, and any new investments were made in the ordinary course of business and had nothing to do with the Contribution. 13. Applicant states that the Contributor’s intent in making the Contribution was not to influence the selection or retention of the Adviser, and that the Contributor is a long-time Republican who was spontaneously motivated to make the Contribution solely because of his personal political beliefs. Applicant’s Conditions The Applicant agrees that any order of the Commission granting the requested relief will be subject to the following conditions: 1. The Contributor will be prohibited from soliciting investment from any ‘‘government entity’’ client or prospective client for which the Official is an ‘‘official’’ as defined in Rule 206(4)–5(f) until April 22, 2018. 2. The Contributor will receive a written notification of this condition and will provide a quarterly certification of compliance until April 22, 2018. Copies of the certifications will be maintained and preserved in an easily accessible place for a period of not less than five years, the first two years in an appropriate office of the Adviser, and be available for inspection by the staff of the Commission. 3. The Adviser will conduct testing reasonably designed to prevent violations of the conditions of the Order and maintain records regarding such E:\FR\FM\13DEN1.SGM 13DEN1 58662 Federal Register / Vol. 82, No. 238 / Wednesday, December 13, 2017 / Notices testing, which will be maintained and preserved in an easily accessible place for a period of not less than five years, the first two years in an appropriate office of the Adviser, and be available for inspection by the staff of the Commission. For the Commission, by the Division of Investment Management, under delegated authority. Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–26885 Filed 12–12–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–82232; File No. SR–OCC– 2017–005] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving Proposed Rule Change Related to a Comprehensive Risk Management Framework December 7, 2017. On October 10, 2017, The Options Clearing Corporation (‘‘OCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–OCC–2017– 005 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 thereunder.2 The proposed rule change was published for comment in the Federal Register on October 25, 2017.3 The Commission did not receive any comment letters on the proposed rule change. For the reasons discussed below, this order approves the proposed rule change. sradovich on DSK3GMQ082PROD with NOTICES I. Description of the Proposed Rule Change 4 OCC proposes to adopt a new Risk Management Framework (‘‘RMF’’) document. The purpose of the RMF is to describe OCC’s framework for comprehensive risk management, including OCC’s framework to identify, measure, monitor, and manage all risks faced by OCC in the provision of clearing, settlement, and risk management services. More specifically, the RMF would establish the context for OCC’s risk management framework, outline OCC’s risk management 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–81909 (Oct. 19, 2017), 82 FR 49456 (Oct. 25, 2017) (File No. SR–OCC–2017–005) (‘‘Notice’’). 4 The subsequent description of the proposed rule change is substantially excerpted from OCC’s description in the Notice. See Notice, 82 FR at 49456–49461. 2 17 VerDate Sep<11>2014 18:53 Dec 12, 2017 Jkt 244001 philosophy, describe OCC’s Risk Appetite Framework and use of Risk Tolerances,5 describe the governance arrangements that implement risk management, outline OCC’s identification of Key Risks,6 and describe OCC’s program for enterprisewide risk management, including the ‘‘three lines of defense’’ structure (discussed below), and describe OCC’s approach to risk monitoring, assessment, and reporting. As a single risk management framework addressing risks across all facets of OCC’s business, OCC believes that the RMF would foster its compliance with the requirements of the CCA rules,7 and in particular the requirement of Rule 17Ad–22(e)(3) 8 that it maintain a sound framework for comprehensively managing risks. A. Context of OCC’s Risk Management Framework The RMF would begin by establishing the context for OCC’s risk management framework. More specifically, OCC is a Systemically Important Financial Market Utility (‘‘SIFMU’’) 9 that serves a critical role in financial markets as the sole central counterparty (‘‘CCP’’) that provides clearance and settlement services for U.S. listed options and guarantees the obligations associated with the contracts that it clears. OCC acknowledges its role as a SIFMU in promoting financial stability for market participants, investors, and the economy and that it must therefore maintain a sound risk management framework for comprehensively managing the risks that it presents. B. OCC’s Risk Management Philosophy OCC states that the proposed RMF would describe its risk management philosophy. As a SIFMU, OCC must be mindful of the public interest and its 5 Under the proposed RMF, ‘‘Risk Tolerances’’ would be defined as the application of risk appetite to a specific sub-category or aspect of a Key Risk, typically in quantitative form, used to set an acceptable level of risk. 6 OCC’s Key Risks are described below in the discussion covering OCC’s identification of its material risks. 7 On September 28, 2016, the Commission adopted amendments to Exchange Act Rule 17Ad– 22 and added new Exchange Act Rule 17Ab2–2 pursuant to Section 17A of the Act and the Payment, Clearing and Settlement Supervision Act of 2010 (‘‘Clearing Supervision Act’’) to establish enhanced standards for the operation and governance of those clearing agencies registered with the Commission that meet the definition of a ‘‘covered clearing agency,’’ as defined by Exchange Act Rule 17Ad–22(a)(5) (collectively, the new and amended rules are herein referred to as the ‘‘CCA rules’’). 8 17 CFR 240.17Ad–22(e)(3). 9 The Financial Stability Oversight Council designated OCC a SIFMU on July 18, 2012 pursuant to the Clearing Supervision Act. See 12 U.S.C. 5463. PO 00000 Frm 00075 Fmt 4703 Sfmt 4703 obligation to promote financial stability, reduce the potential for systemic contagion, and support the smooth functioning of the U.S. financial markets. Furthermore, as a CCP, OCC concentrates financial risks for the markets it serves by acting as the CCP for all of the transactions that it clears. As a result of this concentration, OCC’s primary objective is to ensure that it properly manages the financial risks associated with functioning as a CCP, which primarily relate to potential clearing member default scenarios. As a CCP, OCC’s daily operations, among other things, involve managing financial, operational, and business risks. In managing these risks, OCC’s daily operations—which are guided by policies, procedures, and controls—are designed to ensure that financial exposures and service disruptions are within acceptable limits set by OCC as part of its Risk Appetite Framework (‘‘RAF’’) as described below. C. Risk Appetite Framework The proposed RMF would describe OCC’s RAF and use of Risk Tolerances. The purpose of the RAF is to establish OCC’s overall approach to managing risks at the enterprise level in an effective and integrated fashion. The RAF establishes the level and types of Key Risks, described in further detail below, that OCC is willing and able to assume in accordance with OCC’s mission as a SIFMU. Under the RAF, Risk Appetite Statements 10 would be used to express OCC’s judgment, for each of OCC’s Key Risks, regarding the level of risk that OCC is willing to accept related to the provision of CCP services. These statements would be qualitative indications of appetite that set the tone for OCC’s approach to risk taking, and are indicative of the level of resources or effort OCC puts forth to prevent or mitigate the impact of a Key Risk. Under the RMF, Risk Appetite Statements would be set annually by each department associated with a Key Risk in cooperation with OCC’s Enterprise Risk Management department (‘‘ERM’’) according to applicable procedures. OCC’s risk appetite levels would be classified into four categories: 1. No appetite: OCC is unwilling to deliberately accept any level of risk. 2. Low appetite: OCC devotes significant resources to managing risk but may choose to accept certain risks 10 Under the proposed RMF, ‘‘Risk Appetite Statement’’ would be defined as a statement that expresses OCC’s judgment, for each of OCC’s Key Risks, regarding the level of risk OCC is willing to accept related to the provision of CCP services. E:\FR\FM\13DEN1.SGM 13DEN1

Agencies

[Federal Register Volume 82, Number 238 (Wednesday, December 13, 2017)]
[Notices]
[Pages 58659-58662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26885]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Advisers Act Release No. 4825/803-00241]


PNC Capital Advisors, LLC; Notice of Application

December 8, 2017.
AGENCY:  Securities and Exchange Commission (``Commission'').

ACTION:  Notice of application for an exemptive order under Section 
206A of the Investment Advisers Act of 1940 (the ``Advisers Act'') and 
Rule 206(4)-5(e).

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Applicant:  PNC Capital Advisors, LLC (``Applicant'' or ``Adviser'').

Relevant Advisers Act Sections:  Exemption requested under Section 206A 
of the Advisers Act and Rule 206(4)-5(e) from Rule 206(4)-5(a)(1) under 
the Advisers Act.

Summary of Application:  Applicant requests that the Commission issue 
an order under Section 206A of the Advisers Act and Rule 206(4)-5(e) 
exempting it from Rule 206(4)-5(a)(1) under the Advisers Act to permit 
Applicant to receive compensation from certain government entities for 
investment advisory services provided to the government entities within 
the two-year period following a contribution by a covered associate of 
the Applicant to an official of the government entities.

Filing Dates:  The application was filed on April 18, 2017, and an 
amended and restated application was filed on October 10, 2017.

Hearing or Notification of Hearing:  An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving Applicant with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on January 2, 2018, and should be accompanied by proof of service 
on Applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Pursuant to Rule 0-5 under the Advisers Act, 
hearing requests should state the nature of the writer's interest, any 
facts bearing upon the desirability of a hearing on the matter, the 
reason for the request, and the issues contested. Persons may request 
notification of a hearing by writing to the Commission's Secretary.

ADDRESSES:  Secretary, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-1090. Applicant: PNC Capital Advisors, LLC, 
One East Pratt Street, Baltimore, MD 21202.

FOR FURTHER INFORMATION CONTACT:  Kyle R. Ahlgren, Senior Counsel, at 
(202) 551-6857 or Holly L. Hunter-Ceci, Assistant Chief Counsel, at 
(202) 551-6825 (Division of Investment Management, Chief Counsel's 
Office).

SUPPLEMENTARY INFORMATION:  The following is a summary of the 
application. The complete application may be obtained via the 
Commission's website at http://www.sec.gov/rules/iareleases.shtml or by 
calling (202) 551-8090.

Applicant's Representations

    1. Applicant is a financial services firm registered with the 
Commission as an investment adviser pursuant to the Advisers Act. 
Applicant provides discretionary investment advisory services to a wide 
variety of investors. Applicant is a wholly-owned subsidiary of PNC 
Bank, National Association (the ``Bank''), and the Bank is a wholly-
owned subsidiary of PNC Financial Services Group, Inc. (``PNC'').
    2. Certain Ohio government entities have established separately 
managed accounts to which the Adviser provides investment advisory 
services (each such government entity, a ``Client'' and collectively, 
the ``Clients''). Each Client is a ``government entity'' within the 
meaning of Rule 206(4)-5(f)(5).
    3. The individual who made the campaign contribution (the 
``Contributor'') that triggered the two-year compensation ban (the 
``Contribution'') is a dual-hatted employee of the Bank and the 
Adviser. In his role as a business development officer of both the 
Adviser and the Bank, he solicited and continues to solicit business 
for the Adviser and the Bank from private corporations and non-profit 
entities in Pennsylvania, West Virginia, California and Texas. The 
Contributor

[[Page 58660]]

has never solicited business in Ohio, whether for the Adviser or for 
the Bank. The Adviser listed the Contributor as a covered associate in 
its records maintained under Rule 204-2 under the Advisers Act, and 
subjected him to its policies for a covered associates.
    4. In June 2016, the Bank began to contemplate promoting the 
Contributor to Market Director, a position that has oversight over all 
sales operations in parts of Pennsylvania for investment advisory 
services business. In anticipation of this promotion, in December 2016 
the Contributor solicited a government entity for investment advisory 
services for the first time (a local government entity in 
Pennsylvania). However, after the PNC Corporate Ethics Department's 
discovery of the Contribution, a hold was placed on the Contributor's 
promotion. The hold remains in effect.
    5. The Contributor was at the time of the Contribution a ``covered 
associate'' within the meaning of Rule 206(4)-5(f)(2), and the 
Contribution triggers the compensation ban under the two-year lookback 
provision in Rule 206(4)-5(b)(2). At no time has the Contributor been 
involved in soliciting the Clients, and has never communicated with the 
Clients. The Contributor has never solicited any other state or local 
Ohio government entity. The Contributor has never made presentations 
for, or met with, any representatives of any Client or with any other 
Ohio government entities, or supervised any person who met with any 
Client or other Ohio government entity. If promoted to Market Director, 
the Contributor will neither meet with any Ohio government entities 
personally, nor supervise any person who solicits investment advisory 
services business from Ohio government entities.
    6. The recipient of the Contribution was John Kasich (the 
``Official''), Governor of Ohio, in his campaign for President of the 
United States. The Clients are overseen by boards of trustees or 
directors to which the Governor appoints certain members and which have 
influence over selecting an investment adviser. Due to the power of 
appointment, the Governor is, and at the time of the Contribution was, 
an ``official'' of each Client within the meaning of Rule 206(4)-
5(f)(6).
    7. The Contributor, a long-time Republican, attended an April 2016 
fundraiser for Governor Kasich's presidential campaign in Pittsburgh, 
Pennsylvania. Governor Kasich spoke at the fundraiser, and the 
Contributor made a $1,000 donation to the Kasich campaign. The 
Contribution was reported by the campaign as received on April 22, 
2016, according to a report filed with, and made available online by, 
the Federal Election Commission. Other than being an attendee at the 
event, the Contributor has had no interactions with the Official, his 
staff, or any other Ohio official regarding the Contribution or any 
other matter.
    8. The Contributor made the Contribution without pre-clearance from 
PNC's Corporate Ethics Department, and without disclosing the 
Contribution in his quarterly certification (as clearly required by 
PNC's policies, procedures and annual training). The Contributor did 
not appreciate that both Rule 206(4)-5 (the ``Rule'') and the Adviser's 
policy required him to pre-clear and disclose the Contribution because 
the Contributor was focused on the Official in his capacity as a 
candidate for President of the United States. At no time did any 
employee of PNC or the Adviser or the Bank (other than the Contributor) 
have any knowledge that the Contribution had been made prior to its 
discovery on February 17, 2017. Applicant represents that the 
Contribution was not motivated by a desire to influence the award of 
investment advisory business.
    9. The Contribution was discovered by PNC's Corporate Ethics 
Department on February 17, 2017 through the controls built into its 
compliance procedures. As part of PNC's required background check for 
his promotion to Market Director, the Contributor disclosed the 
Contribution in the political contribution lookback form, in which any 
individual who is about to take a covered associate position must 
disclose any contribution he or she made during the prior two years. 
Upon discovery of the Contribution, PNC immediately notified the 
Contributor that the Contribution was against PNC policy and a 
violation of the Rule, and a refund was requested from the campaign on 
March 8, 2017. The Contributor received the refund on May 3, 2017. All 
compensation earned that is attributable to the Clients' investments 
since the Contribution Date has been placed in escrow. Absent exemptive 
relief from the Commission, Applicant undertakes to refund the escrowed 
compensation consistent with applicable laws and the Rule.
    10. The initial selection process pursuant to which the various 
Clients decided to establish a separate account with the Adviser, or 
enter into a separate account that is sub-advised by the Adviser, was 
completed between 1996 and 2010. One Client opened two accounts with 
the Adviser after the Contribution Date pursuant to the Client's pre-
existing relationship with the Adviser where the Client would, as it 
had done in prior years, open an account when it issues debt in order 
to manage the proceeds of such issuance. While some Clients have added 
funds to their accounts post-Contribution, Clients on the whole have 
withdrawn more funds than they have added, resulting in a net decrease 
in assets under management across all Clients combined.
    11. PNC's pay-to-play policies and procedures (the ``Policy'') 
apply to PNC's subsidiaries (including the Adviser) and were adopted 
and implemented on March 14, 2011, well before the Contribution was 
made. The Policy requires that all contributions to any person 
(including any election committee for such person) who was, at the time 
of the contribution, an incumbent, candidate or successful candidate 
for elective office of a government entity, including a state or local 
official running for federal office, must be pre-cleared. There is no 
de minimis exemption from this pre-clearance requirement. The Adviser's 
employees must complete PNC's annual ethics training, which includes a 
segment on ethics requirements for personal political contributions. 
Employees who are subject to the Policy are sent multiple compliance 
alerts reminding them of the Policy and the need to pre-clear political 
contributions. Employees subject to the Policy must submit a quarterly 
certification confirming that they have disclosed all political 
contributions made in the prior quarter. The Contributor submitted a 
certification for the quarter covering April 2016 confirming that he 
had done so, but in fact he had not pre-cleared or disclosed the 
Contribution.
    12. PNC has amended the quarterly certification for covered 
associates to specifically explain that the requirement to report 
``all'' contributions includes contributions to federal candidates who 
are state or local officials at the time of the contribution. This 
amended quarterly certification has been rolled out to covered 
associates for the quarter ending September 30, 2017.

Applicant's Legal Analysis

    1. Rule 206(4)-5 under the Advisers Act prohibits a registered 
investment adviser from providing ``investment advisory services for 
compensation to a government entity within two years after a 
contribution to an official of the government entity is made by the 
investment adviser or any covered associate of the investment 
adviser.'' Each Client is a ``government entity'' within the meaning of 
Rule 206(4)-5(f)(5), the Contributor was at the time

[[Page 58661]]

of the Contribution a ``covered associate'' within the meaning of Rule 
206(4)-5(f)(2), and the Official was at the time of the Contribution an 
``official'' within the meaning of Rule 206(4)-5(f)(6). The 
Contribution therefore triggered the Rule's ban under the two-year 
lookback provision in Rule 206(4)-5(b)(2).
    2. Section 206A of the Advisers Act authorizes the Commission to 
``conditionally or unconditionally exempt any person or transaction . . 
. from any provision or provisions of [the Act] or of any rule or 
regulation thereunder, if and to the extent that such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of [the Act].''
    3. Rule 206(4)-5(e) provides that the Commission may exempt an 
investment adviser from the prohibition under Rule 206(4)-5(a)(1) upon 
consideration of the factors listed below, among others:
    (1) Whether the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Advisers 
Act;
    (2) Whether the investment adviser: (i) Before the contribution 
resulting in the prohibition was made, adopted and implemented policies 
and procedures reasonably designed to prevent violations of the Rule; 
and (ii) prior to or at the time the contribution which resulted in 
such prohibition was made, had no actual knowledge of the contribution; 
and (iii) after learning of the contribution: (A) Has taken all 
available steps to cause the contributor involved in making the 
contribution which resulted in such prohibition to obtain a return of 
the contribution; and (B) has taken such other remedial or preventive 
measures as may be appropriate under the circumstances;
    (3) Whether, at the time of the contribution, the contributor was a 
covered associate or otherwise an employee of the investment adviser, 
or was seeking such employment;
    (4) The timing and amount of the contribution which resulted in the 
prohibition;
    (5) The nature of the election (e.g., federal, state or local); and
    (6) The contributor's apparent intent or motive in making the 
contribution which resulted in the prohibition, as evidenced by the 
facts and circumstances surrounding such contribution.
    4. Applicant requests an order pursuant to Section 206A and Rule 
206(4)-5(e), exempting it from the two-year prohibition on compensation 
imposed by Rule 206(4)-5(a)(1) with respect to investment advisory 
services provided to the Clients within the two-year period following 
the Contribution.
    5. Applicant contends that given the nature of the Contribution, 
and the lack of any evidence that the Adviser or the Contributor 
intended to, or actually did, interfere with the Clients' merit-based 
process for the selection or retention of advisory services, the 
Clients' interests are best served by allowing the Adviser and its 
Clients to continue their relationships uninterrupted. Applicant states 
that causing the Adviser to serve without compensation for a two- year 
period could result in a financial loss of approximately $700,000, or 
700 times the amount of the Contribution. Applicant contends that the 
policy underlying the Rule is served by ensuring that no improper 
influence is exercised over investment decisions by governmental 
entities as a result of campaign contributions, and not by withholding 
compensation as a result of unintentional violations.
    6. Applicant submits that the exemption is necessary and 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Advisers Act. As summarized below and detailed in the 
Application, Applicant further submits that the other factors set forth 
in Rule 206(4)-5(e) similarly weigh in favor of granting an exemption 
to the Applicant to avoid consequences disproportionate to the 
violation.
    7. Applicant states that the Adviser adopted and implemented the 
Policy, which is fully compliant with and more rigorous than the Rule's 
requirements, on March 14, 2011, well before the Contribution Date.
    8. Applicant states that aside from the Contributor, no executives, 
employees or covered associates of the Adviser knew of the Contribution 
until it was self-reported by the Contributor as a result of the 
multiple controls PNC uses in connection with promotions and transfers.
    9. Applicant states that after learning of the Contribution, the 
Adviser, through its outside counsel, immediately requested a full 
refund of the Contribution, which was subsequently received. Applicant 
further states that the Adviser then established escrow accounts and 
moved all monies impacted by the two-year compensation ban into those 
escrow accounts.
    10. Applicant states that in response to the Contribution, the 
Adviser reviewed and assessed the continued effectiveness of its Policy 
and determined that while the Policy was strong and robust, it 
undertook to enhance the employees' understanding of the Policy through 
additional education, training, and clarification to the wording of the 
covered associates' quarterly certification form.
    11. Applicant states that the Contributor did not solicit a 
government entity until December 2016 (in Pennsylvania, not Ohio), that 
his geographic area for soliciting clients or supervising others does 
not include Ohio, and that he has never solicited or otherwise 
communicated with the Clients.
    12. Applicant states that the Clients' initial investments with the 
Adviser substantially pre-date the Contribution and were made on at 
arm's length basis, and neither the Contributor nor the Adviser took 
any action to have the Official influence those investments, directly 
or indirectly. Applicant further states that the Contributor did not 
solicit or supervise anyone who solicited the Clients with respect to 
these investments, and any new investments were made in the ordinary 
course of business and had nothing to do with the Contribution.
    13. Applicant states that the Contributor's intent in making the 
Contribution was not to influence the selection or retention of the 
Adviser, and that the Contributor is a long-time Republican who was 
spontaneously motivated to make the Contribution solely because of his 
personal political beliefs.

Applicant's Conditions

    The Applicant agrees that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The Contributor will be prohibited from soliciting investment 
from any ``government entity'' client or prospective client for which 
the Official is an ``official'' as defined in Rule 206(4)-5(f) until 
April 22, 2018.
    2. The Contributor will receive a written notification of this 
condition and will provide a quarterly certification of compliance 
until April 22, 2018. Copies of the certifications will be maintained 
and preserved in an easily accessible place for a period of not less 
than five years, the first two years in an appropriate office of the 
Adviser, and be available for inspection by the staff of the 
Commission.
    3. The Adviser will conduct testing reasonably designed to prevent 
violations of the conditions of the Order and maintain records 
regarding such

[[Page 58662]]

testing, which will be maintained and preserved in an easily accessible 
place for a period of not less than five years, the first two years in 
an appropriate office of the Adviser, and be available for inspection 
by the staff of the Commission.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26885 Filed 12-12-17; 8:45 am]
 BILLING CODE 8011-01-P