Deutsche Asset & Wealth Management was granted a temporary exemption by the Department of Labor on Friday, allowing it to continue serving pension fund clients while its Deutsche Securities Korea Co. affiliate awaits sentencing in a market manipulation criminal case.
Such exemptions are required whenever a money manager’s affiliates or parent are convicted on criminal charges.
The nine-month exemption allows DeAWM, which ran $11.5 billion in U.S. institutional tax-exempt assets as of Dec. 31, to continue serving as a qualified professional asset manager, or QPAM, for ERISA-covered assets for nine months following the entering of the DSK judgment in South Korea, a date for which has not been set.
DeAWM would need another exemption after nine months.
On July 16, the Department of Labor tentatively denied Deutsche Bank AG’s QPAM request in a separate criminal case involving Deutsche Bank affiliate DB Group Services UK Ltd. for manipulating benchmark interest rates. If that denial is made permanent, Deutsche Bank will no longer have a QPAM exemption once the DSK-related one ends after nine months. DOL and Deutsche officials are meeting to address concerns raised in the second request related to the U.K. affiliate.
In a Friday Federal Register notice, DOL’s Employee Benefits Security Administration said that without the temporary exemption, “plans and IRAs with assets managed by the DB QPAMs may incur substantial costs in being forced to liquidate and reinvest their portfolios, and hire new investment managers on short notice. This exemption insulates these plans and IRAs from such sudden costs and/or losses, in a manner that is protective of the plans and IRAs.”
The exemption contains several conditions, including an independent audit and “rigorous training” on fiduciary duties and ethical conduct. DeAWM must permit plans to transfer their assets to another manager without additional fees or charges.
EBSA officials stressed in the notice that plan fiduciaries are “under a continuing duty to monitor the service provider’s performance at reasonable intervals. … Such review may cause the appointing fiduciary to reconsider the prudence of employing the fiduciary as a service provider to its ERISA-covered plan.”
Deutsche Bank spokeswoman Catherine Wooters declined to comment on the temporary exemption.