80 FR 30311 - The Royal Bank of Scotland plc, et al.; Notice of Application and Temporary Order

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 101 (May 27, 2015)

[Federal Register Volume 80, Number 101 (Wednesday, May 27, 2015)]
[Notices]
[Pages 30311-30314]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-12757]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-31642; File No. 812-14469]


The Royal Bank of Scotland plc, et al.; Notice of Application and 
Temporary Order

May 20, 2015.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Temporary order and notice of application for a permanent order 
under section 9(c) of the Investment Company Act of 1940 (``Act'').

-----------------------------------------------------------------------

Summary of Application: Applicants have received a temporary order 
(``Temporary Order'') exempting them from section 9(a) of the Act, with 
respect to a guilty plea entered on May 20, 2015, by the Royal Bank of 
Scotland plc (``RBS'' or the ``Settling Firm'') in the United States 
District Court for the District of Connecticut (the ``District Court'') 
in connection with a plea agreement (``Plea Agreement'') between the 
Settling Firm and the United States Department of Justice (``DOJ''), 
until the Commission takes final action on an application for a 
permanent order (the ``Permanent Order,'' and with the Temporary Order, 
the ``Orders''). Applicants also have applied for a Permanent Order.

Applicants: RBS and Citizens Investment Advisors (``Citizens IA'') 
(each an ``Applicant'' and together, the ``Applicants'').

DATES:  Filing Date: The application was filed on May 20, 2015.

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 Applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on June 15, 2015, and should be accompanied by proof of service on 
Applicants, in the form of an affidavit, or for lawyers, a certificate 
of service. Pursuant to rule 0-5 under the 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 who wish to be notified of a hearing 
may request notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street NE., Washington, DC 20549-1090; Applicants: RBS: RBS, Gogarburn, 
P.O. Box 1000, Edinburgh, EH12 1HQ, Scotland; Citizens IA: c/o Citizens 
Bank, N.A., Mail Stop RC 03-30, One Citizens Plaza, Providence, Rhode 
Island 02903.

FOR FURTHER INFORMATION CONTACT: Parisa Haghshenas, Senior Counsel, 
Vanessa M. Meeks, Senior Counsel, or Holly Hunter-Ceci, Branch Chief, 
at (202) 551-6825 (Division of Investment Management, Chief Counsel's 
Office).

SUPPLEMENTARY INFORMATION: The following is a temporary order and a 
summary of the application. The complete application may be obtained 
via the Commission's Web site by searching for the file number, or an 
applicant using the Company name box, at http://www.sec.gov/search/search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. RBS is a company organized under the laws of Scotland and is a 
wholly-owned subsidiary of The Royal Bank of Scotland Group plc 
(``RBSG''). RBS and RBSG are international banking and financial 
services companies that provide a wide range of products and services 
to customers around the world. RBS and RBSG are both foreign banking 
organizations for purposes of Section 8 of the International Banking 
Act of 1978, as amended, and Subpart B of Regulation K, bank holding 
companies for purposes of the Bank Holding Company Act of 1956, as 
amended (the ``BHC Act'') and financial holding companies for purposes 
of the BHC Act. Citizens IA is a separately identifiable department of 
Citizens Bank, N.A., which is an indirect subsidiary of RBSG and bank 
subsidiary of Citizens Financial Group, Inc.
    2. Citizens IA is an investment adviser registered under the 
Investment Advisers Act of 1940, as amended. Citizens IA serves as 
investment sub-

[[Page 30312]]

adviser to one management investment company registered under the Act 
(the ``Fund''). No existing company of which the Settling Firm is an 
``affiliated person'' within the meaning of section 2(a)(3) of the Act 
(``Affiliated Person'') (other than Citizens IA as described above) 
currently serves as an investment adviser or depositor of any 
investment company registered under the Act (``RIC''), employees' 
securities company (``ESC'') or investment company that has elected to 
be treated as a business development company under the Act (``BDC''), 
or principal underwriter for any open-end registered investment company 
under the Act (``Open-End Fund''), unit investment trust registered 
under the Act (``UIT''), or face-amount certificate company registered 
under the Act (``FACC'') (such activities, ``Fund Service 
Activities''), Applicants request that any relief granted by the 
Commission pursuant to the application also apply to any existing 
company of which the Settling Firm is an Affiliated Person and to any 
other company of which the Settling Firm may become an Affiliated 
Person in the future (together with the Applicants, the ``Covered 
Persons'') with respect to any activity contemplated by section 9(a) of 
the Act.\1\
---------------------------------------------------------------------------

    \1\ The Applicants and other Covered Persons may, if the Orders 
are granted, in the future act in any of the capacities contemplated 
by Section 9(a) of the Act subject to the applicable conditions of 
the Orders.
---------------------------------------------------------------------------

    3. On May 20, 2015, the United States Department of Justice (the 
``Department of Justice'') filed a one-count criminal information (the 
``Information'') in the U.S. District Court for the District of 
Connecticut (the ``District Court''). The Information charges that 
between approximately December 2007 and April 2010, the Settling Firm, 
through one of its euro/U.S. dollar (``EUR/USD'') traders, entered into 
and engaged in a conspiracy to fix, stabilize, maintain, increase or 
decrease the price of, and rig bids and offers for, the EUR/USD 
currency pair exchanged in the foreign currency exchange spot market 
(``FX Spot Market'') by agreeing to eliminate competition in the 
purchase and sale of the EUR/USD currency pair in the United States and 
elsewhere (the ``Conduct'') in violation of Title 15, United States 
Code, Section 1. The Conduct involved near daily conversations, some of 
which were in code, in an exclusive electronic chat room used by 
certain EUR/USD traders, including the EUR/USD trader employed by RBS.
    4. Pursuant to the Plea Agreement, the Settling Firm entered a plea 
of guilty (the ``Guilty Plea'') on May 20, 2015 in the District Court 
to the offense charged in the Information. In the Plea Agreement, the 
Settling Firm, among other things, agreed to a fine of $395 million. 
The Applicants expect that the District Court will enter a judgment 
against the Settling Firm (the ``Judgment'') that will require remedies 
that are materially the same as set forth in the Plea Agreement. The 
individual at the Settling Firm who was identified by the Settling 
Firm, RBSG or any U.S. or non-U.S. regulatory or enforcement agencies 
as being responsible for the Conduct has left RBS as of April 2010. RBS 
and RBS Securities Inc. will also enter into a settlement with the 
Board of Governors of the Federal Reserve System to resolve certain 
findings by the Federal Reserve (the ``Federal Reserve Order''). 
Additionally, RBS entered into a settlement with the U.S. Commodity 
Futures Trading Commission on November 11, 2014 to resolve certain 
findings by the CFTC (the ``CFTC Order'') and with the U.K. Financial 
Conduct Authority (``FCA'') on November 11, 2014 to resolve certain 
findings by the FCA (the ``FCA Order'').

Applicants' Legal Analysis

    1. Section 9(a)(1) of the Act provides, in pertinent part, that a 
person may not serve or act as an investment adviser or depositor of 
any registered investment company or a principal underwriter for any 
registered open-end investment company, registered unit investment 
trust, or registered face-amount certificate company, if such person 
within ten years has been convicted of any felony or misdemeanor, 
including those arising out of such person's conduct as a bank. Section 
2(a)(10) of the Act defines the term ``convicted'' to include a plea of 
guilty. Section 9(a)(3) of the Act extends the prohibitions of section 
9(a)(1) to a company any affiliated person of which has been 
disqualified under the provisions of section 9(a)(1). Section 2(a)(3) 
of the Act defines ``affiliated person'' to include, among others, any 
person directly or indirectly controlling, controlled by, or under 
common control with, the other person. The Settling Firm is an 
Affiliated Person of Citizens IA within the meaning of section 2(a)(3) 
of the Act. Therefore, the Applicants state that the Guilty Plea would 
result in a disqualification of the Applicants for ten years under 
section 9(a)(3) were they to act in any of the capacities listed in 
section 9(a) because they would become the subject of a conviction 
described in section 9(a)(1).
    2. Section 9(c) of the Act provides that, upon application, the 
Commission shall by order grant an exemption from the disqualification 
provisions of section 9(a) of the Act, either unconditionally or on an 
appropriate temporary or other conditional basis, to any person if that 
person establishes that: (a) The prohibitions of section 9(a), as 
applied to the person, are unduly or disproportionately severe or (b) 
the conduct of the person has been such as not to make it against the 
public interest or the protection of investors to grant the exemption. 
Applicants have filed an application pursuant to section 9(c) seeking a 
Temporary Order and a Permanent Order exempting the Applicants and 
other Covered Persons from the disqualification provisions of section 
9(a) of the Act. The Applicants and other Covered Persons may, if the 
relief is granted, in the future act in any of the capacities 
contemplated by section 9(a) of the Act subject to the applicable terms 
and conditions of the Orders.
    3. Applicants believe they meet the standards for exemption 
specified in section 9(c). Applicants assert that (i) the scope of the 
misconduct was limited and did not involve the Adviser Applicant (as 
defined below) or Fund Service Activities, (ii) application of the 
statutory bar would impose significant hardships on the Fund and its 
shareholders, (iii) the prohibitions of section 9(a), if applied to the 
Adviser Applicant and other Covered Persons, would be unduly or 
disproportionately severe and (iv) the Conduct did not constitute 
conduct that would make it against the public interest or protection of 
investors to grant the exemption from section 9(a).
    4. Applicants represent that the Conduct did not involve the 
Adviser Applicant nor did it involve any of the Applicants acting in 
the capacity of investment adviser, sub-adviser or depositor to any 
RIC, or in the capacity of principal underwriter for any Open-End Fund, 
UIT or FACC. Applicants represent that the Conduct similarly did not 
involve any RIC, Open-End Fund, UIT or FACC with respect to which the 
Applicants engaged in Fund Service Activities. Instead, a single 
employee, who was not employed by the Adviser Applicant or engaged in 
Fund Service Activities, was identified as being responsible for the 
Conduct. That employee is no longer employed, and will not be employed 
in the future, by the Applicants or any other Covered Person. 
Applicants assert that, in light of the limited scope of the Conduct, 
it would be unduly and disproportionately severe to impose a section 
9(a) disqualification on the Applicants. Applicants further represent 
that depriving the Fund of the Adviser

[[Page 30313]]

Applicant as its sub-adviser because of the activities of the Settling 
Firm would be an unduly severe result, both for the Adviser Applicant's 
financial position and for the shareholders of the Fund, who would be 
deprived of the knowledge and expertise of a key service provider. 
Applicants assert that the conduct of the Applicants has not been such 
to make it against the public interest or the protection of investors 
to grant the exemption from section 9(a).
    5. Applicants assert that the inability of the Applicant, i.e., 
Citizens IA, that serves as investment sub-adviser to the Fund (the 
``Adviser Applicant'') to continue providing such services to the Fund 
would result in the Fund and its shareholders facing potential 
hardship, as outlined in the application. Applicants assert that 
neither the protection of investors nor the public interest would be 
served by permitting the section 9(a) disqualifications to apply to the 
Adviser Applicant because those disqualifications would deprive the 
Fund of the sub-advisory services that shareholders expected the Fund 
would receive when they decided to invest in the Fund. Applicants also 
assert that the prohibitions of section 9(a) could operate to the 
financial detriment of the Fund and its shareholders, which would be an 
unduly and disproportionately severe consequence given that the Adviser 
Applicant was not involved in the Conduct and that the Conduct did not 
involve Fund Service Activities.
    6. Applicants assert that if the Adviser Applicant were barred 
under section 9(a) from providing investment advisory services to the 
Fund and were unable to obtain the requested exemption, the effect on 
its business and employees would be unduly and disproportionately 
severe. Applicants state that the Adviser Applicant has committed 
substantial capital and other resources to establishing expertise in 
sub-advising RICs. Applicants further state that prohibiting the 
Adviser Applicant from engaging in Fund Service Activities would not 
only adversely affect its business, but would also adversely affect its 
employees who are involved in these activities. Many of these employees 
could experience significant difficulties in finding alternative, fund-
related employment. In addition, Applicants assert that if the 
Applicants or Covered Persons are unable to expand their businesses in 
the future because of the imposition of the section 9(a) 
disqualification, it could also have an adverse impact on their 
businesses.
    7. Applicants represent that: (i) None of the current or former 
directors, officers or employees of Citizens IA had any knowledge of, 
or had any involvement in, the Conduct; (ii) no current or former 
employee of the Settling Firm or of any other Covered Person who 
previously has been or who subsequently may be identified by the 
Settling Firm, or any U.S. or non-U.S. regulatory or enforcement 
agencies as having been responsible for the Conduct will have any 
involvement in providing Fund Service Activities on behalf of any 
Covered Person or will be an officer, director, or employee of any 
Applicants or of any other Covered Person; (iii) no employee of the 
Settling Firm or of any other Covered Person who was involved in the 
Conduct had any, or will have any future, involvement in the Covered 
Persons' activities in any capacity described in section 9(a) of the 
Act; and (iv) because the personnel of Citizens IA did not have any 
involvement in the Conduct, shareholders of the Fund were not affected 
any differently than if the Fund had received services from any other 
non-affiliated investment adviser or principal underwriter.
    8. Applicants have agreed that neither they nor any of the other 
Covered Persons will employ any of the current or former employees of 
Settling Firm or any Covered Person who previously have been or who 
subsequently may be identified by the Settling Firm, RBSG or any U.S. 
or non-U.S. regulatory or enforcement agency as having been responsible 
for the Conduct without first making a further application to the 
Commission pursuant to section 9(c).
    9. Applicants have also agreed that each Applicant (and any Covered 
Person) will adopt and implement policies and procedures reasonably 
designed to ensure compliance with the terms and conditions of the 
Orders granted under section 9(c).
    10. In addition, the Settling Firm has agreed to comply in all 
material respects with the material terms and conditions of the Plea 
Agreement, the CFTC Order, the Federal Reserve Order, the FCA Order, or 
any other orders issued by regulatory or enforcement agencies 
addressing the Conduct. Applicants further state that RBS and its 
affiliates have undertaken certain remedial measures, as described in 
greater detail in the application. These include certain remedial 
measures as required by the Plea Agreement, the CFTC Order, the Federal 
Reserve Order, and the FCA Order, including improvements to the 
oversight, internal controls, compliance, risk management and audit 
programs for FX trading. Specifically, Applicants represent that RBSG 
and RBS have taken a number of steps to enhance its internal controls, 
policies and procedures relating to its FX activities. These changes, 
include, but are not limited to the following: Restricting 
participation by traders in multi-bank chat rooms; prohibiting mobile 
communication devices on dealing floors; strengthening surveillance of 
electronic, audio and trade communications at FX desks; mandating 
regular training for all FX employees concerning appropriate trading 
behavior; enhancing policies, procedures and guidance related to market 
color, client orders and FX fix orders; and improving customer 
disclosures relating to and enhancing controls around FX fix orders.
    11. As a result, Applicants submit that granting an exemption as 
requested in the application would be consistent with the public 
interest and the protection of investors.
    12. To provide further assurance that the exemptive relief being 
requested herein would be consistent with the public interest and the 
protection of the investors, the Applicants agree that they will, as 
soon as reasonably practical, distribute to the board of trustees 
(``Board'') of the Fund written materials describing the circumstances 
that led to the Guilty Plea, any impact on the Fund and the 
application. The written materials will include an offer to discuss the 
materials at an in-person meeting with the Board of the Fund, including 
the directors who are not ``interested persons'' of the Fund as defined 
in section 2(a)(19) of the Act and their independent legal counsel as 
defined in rule 0-1(a)(6) under the Act. The Applicants undertake to 
provide the Fund's Board with all information concerning the Plea 
Agreement and the application necessary for the Fund to fulfill its 
disclosure and other obligations under the federal securities laws and 
will provide it a copy of the Judgment as entered by the District 
Court.
    13. Applicants state that certain of the Applicants and their 
affiliates have previously received an order under section 9(c) of the 
Act, as the result of conduct that triggered section 9(a), as described 
in greater detail in the application.

Applicants' Conditions

    Applicants agree that any order granted by the Commission pursuant 
to the application will be subject to the following conditions:
    1. Any temporary exemption granted pursuant to the application 
shall be without prejudice to, and shall not limit the Commission's 
rights in any manner with respect to, any Commission investigation of, 
or administrative

[[Page 30314]]

proceedings involving or against, Covered Persons, including, without 
limitation, the consideration by the Commission of a permanent 
exemption from section 9(a) of the Act requested pursuant to the 
application or the revocation or removal of any temporary exemptions 
granted under the Act in connection with the application.
    2. Neither the Applicants nor any of the other Covered Persons will 
employ any of the current or former employees of the Settling Firm or 
any Covered Person who previously has been or who subsequently may be 
identified by the Settling Firm, RBSG or any U.S. or non-U.S. 
regulatory or enforcement agency as having been responsible for the 
Conduct, without first making a further application to the Commission 
pursuant to section 9(c).
    3. Each Applicant and Covered Person will adopt and implement 
policies and procedures reasonably designed to ensure that it will 
comply with the terms and conditions of the Orders within 60 days of 
the date of the Permanent Order or, with respect to condition 4, such 
date as may be contemplated by the Plea Agreement, or the CFTC Order, 
the Federal Reserve Order, the FCA Order, or any other orders issued by 
regulatory or enforcement agencies addressing the Conduct.
    4. The Settling Firm will comply in all material respects with the 
material terms and conditions of the Plea Agreement, with the material 
terms of the CFTC Order, the Federal Reserve Order, the FCA Order or 
any other orders issued by regulatory or enforcement agencies 
addressing the Conduct.
    5. Applicants will provide written notification to the Chief 
Counsel of the Commission's Division of Investment Management with a 
copy to the Chief Counsel of the Commission's Division of Enforcement 
of a material violation of the terms and conditions of any of the 
Orders within 30 days of discovery of the material violation.

Temporary Order

    The Commission has considered the matter and finds that Applicants 
have made the necessary showing to justify granting a temporary 
exemption.
    Accordingly,
    It is hereby ordered, pursuant to section 9(c) of the Act, that the 
Applicants and any other Covered Persons are granted a temporary 
exemption from the provisions of section 9(a), solely with respect to 
the guilty plea entered into pursuant to the Plea Agreement, subject to 
the representations and conditions in the application, from May 20, 
2015 until the Commission takes final action on their application for a 
permanent order.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-12757 Filed 5-26-15; 8:45 am]
 BILLING CODE P