The Department of Labor’s final revised fiduciary regulation will become applicable on April 10, 2017. Those affected by the revised regulation will include banks and other financial institutions that negotiate investment transactions with US employee benefit plans, including swap transactions. Under the revised regulation, a financial institution that makes a “recommendation” to a plan regarding a proposed investment transaction may become a fiduciary subject to ERISA’s fiduciary duties and prohibited transaction rules. “Recommendation” is broadly defined, and can encompass even a suggestion that a plan engage in a transaction.
The regulation contains a number of exceptions and carveouts, including a specific carveout for swap transactions, if certain conditions are satisfied. Another, more general, exception applies if the plan is represented in the transaction by a sophisticated fiduciary, if certain representations are obtained from the sophisticated fiduciary.
ISDA has considered whether to provide sample language or other guidance to swap participants to address the requirements of the final regulation. In a call on September 23, the ISDA legal department announced that, based on input from swap participants and their advisers, they have decided not to issue any sample language or other guidance on this topic.
Commenters had advised ISDA that each institution would likely want to devise its own approach to compliance, and that it was unlikely that any common language could cover the diverse needs of institutions in different industries with varying business models. There was also a concern that issuing sample language would create a negative inference for any institution that desired to tailor a provision to its particular situation.
We will continue to follow developments regarding the revised DOL fiduciary regulation.
Find out more by contacting either of the authors.