PNC Capital Advisors, LLC; Notice of Application, 58659-58662 [2017-26885]
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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
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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 (https://
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
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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 https://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:
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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
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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
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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
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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
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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
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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
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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
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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.
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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 https://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
