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Item 1. Business

2022-02-25 compared with 2021-02-26 · 809 added, 465 removed, 293 unchanged (81% of the section changed)

ITEM 1 – BUSINESS

Federated Hermes, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries, including Hermes Fund Managers Limited (HFML) beginning July 1, 2018 (collectively, Federated Hermes), was formerly known as Federated Investors, Inc.

Federated Hermes, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, Federated Hermes), was formerly known as Federated Investors, Inc.

Effective January 31, 2020, Federated Investors, Inc.'s name was changed to Federated Hermes, Inc.

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In addition, Federated Hermes markets and provides stewardship and real estate development services to various domestic and international companies.

Federated Hermes' principal source of revenue is investment advisory fees earned by various domestic and/or foreign subsidiaries pursuant to investment advisory contracts and based primarily upon the AUM of the investment products and strategies.

Federated Hermes' principal source of revenue is investment advisory fees earned by various domestic and foreign subsidiaries pursuant to investment advisory contracts and based primarily upon the AUM of the investment products and strategies.

Domestic advisory subsidiaries are registered as investment advisors under the Investment Advisers Act of 1940 (Advisers Act), while foreign advisory subsidiaries are registered in the U.S.

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Federated Hermes provides investment advisory services to 168 Federated Hermes Funds as of December 31, 2021.

Federated Hermes markets these funds to institutional customers and banks, broker/dealers and other financial intermediaries who use them to meet the needs of customers and/or clients (collectively, customers), including, among others, retail investors, corporations and retirement plans.

The Federated Hermes Funds are domiciled in the U.S., as well as Ireland, the United Kingdom (UK), Luxembourg, Guernsey, Jersey, the Cayman Islands and Canada.

Federated Hermes markets these funds to institutional customers and banks, broker/dealers and other financial intermediaries who use them to meet the needs of customers and/or clients (collectively including intermediaries, customers), including, among others, retail investors, corporations and retirement plans.

The Federated Hermes Funds are domiciled in the U.S., as well as Ireland, the United Kingdom (UK), Luxembourg, Guernsey, Jersey and the Cayman Islands.

Most of Federated Hermes' U.S.-domiciled funds are registered under the Investment Company Act of 1940 (1940 Act) and under other applicable federal laws.

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These advisory agreements are generally terminable upon 60 days' notice to the investment advisor.

See Item 1A - Risk Factors under the caption Specific Risk Factors - Potential Adverse Effects of Termination or Failure to Renew Advisory Agreements for additional information on Federated Hermes' advisory agreements.

Of the 163 Federated Hermes Funds as of December 31, 2020, Federated Hermes' investment advisory subsidiaries managed 27 money market funds totaling $301.9 billion in AUM, 49 fixed-income funds with $53.6 billion in AUM, 43 equity funds with $54.3 billion in AUM, 39 alternative/private markets funds with $12.1 billion in AUM and five multi-asset funds with $3.7 billion in AUM.

See Item 1A - Risk Factors - Specific Risk Factors - Potential Adverse Effects of Termination or Failure to Renew Advisory Agreements for additional information on Federated Hermes' advisory agreements.

Of the 168 Federated Hermes Funds as of December 31, 2021, Federated Hermes' investment advisory subsidiaries managed 23 money market funds with $312.8 billion in AUM, 55 fixed-income funds with $59.9 billion in AUM, 42 equity funds with $57.0 billion in AUM, 43 alternative/private markets funds with $14.8 billion in AUM and five multi-asset funds with $3.6 billion in AUM.

As of December 31, 2021, Federated Hermes provided investment advisory services to $220.7 billion in Separate Account assets.

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These services, for which Federated Hermes receives fees pursuant to agreements with the Federated Hermes Funds, include administrative services and shareholder servicing.

On July 2, 2018, Federated Hermes completed, effective as of July 1, 2018, the acquisition of a controlling interest in HFML (HFML Acquisition).

On July 2, 2018, Federated Hermes completed, effective as of July 1, 2018, the acquisition of a 60% controlling interest in Hermes Fund Managers Limited (HFML) from BT Pension Scheme (BTPS) (2018 HFML Acquisition).

On August 31, 2021, Federated Hermes completed the acquisition of the 29.5% noncontrolling interests in HFML from BTPS (2021 Acquisition of HFML Noncontrolling Interests).

As a result of the 2018 HFML Acquisition, Federated Hermes provides stewardship services and environmental, social and governance (ESG) integrated investment strategies.

Through the stewardship services, Federated Hermes offers customers a range of solutions for engagement, advocacy, active ownership and impact and delivers effective engagement with the companies in which its customers may invest.

In 2020, to seek and enhance long-term performance for its customers and clients, Federated Hermes took further steps to integrate the proprietary insights from fundamental ESG factors and engagement research into nearly all of its investment strategies.

On March 5, 2020, Federated Hermes acquired, effective as of March 1, 2020, 100 percent ownership of HGPE Capital Limited for £15.9 million ($20.4 million) (HCL Acquisition).

In order to continue to seek and enhance long-term performance for its customers and clients, Federated Hermes continues to take steps to integrate the proprietary insights from fundamental ESG factors and engagement research into nearly all of its investment strategies.

On March 5, 2020, Federated Hermes acquired, effective as of March 1, 2020, 100 percent ownership of HGPE Capital Limited (HCL Acquisition).

The principal activity of HGPE Capital Limited is that of a holding company for an infrastructure and private equity investment management business.

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Alternative / Private Markets 22,920 19,084 20

19,084 18,102 5

Multi-Asset 3,780 3,948 (4)

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Total Managed Assets $ 668,873 $ 619,430 8 %

1 The balance at December 31, 2019 includes $8.2 billion of fund assets managed by a previously non-consolidated entity, HGPE, in w hich Federated Hermes h eld an equity method investment.

Effective March 1, 2020, HGPE became a consolidated subsidiary.

See Note (3) to the Consolidated Financial Statements for additional information.

Average managed assets represent the average balance of AUM during a period of time.

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Total Average Managed Assets $ 632,799 $ 613,908 $ 509,180 3 % 21 %

1 The average balance for the year ended December 31, 2019 and December 31, 2018 includes $8.2 billion and $4.1 billion, respectively, of average fund assets managed by a previously non-consolidated entity, HGPE, in wh ich Federated Hermes held an equity method investment.

1 The average balance for the year ended December 31, 2019 includes $8.2 billion of fund assets managed by a previously non-consolidated entity, HGPE, in wh ich Federated Hermes held an equity method investment.

Effective March 1, 2020, HGPE became a consolidated subsidiary.

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Year Ended December 31, 2021

2019 2019 vs.

dollars in thousands 2021 2020 2019

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real estate ($8.7 billion);

infrastructure ($4.3 billion);

private equity ($5.3 billion);

other alternative ($2.4 billion) and bear market ($0.2 billion).

other alternative ($4.6 billion);

infrastructure ($4.0 billion);

bear market ($0.2 billion);

and market neutral ($0.1 billion).

Investment products are generally managed by a team of portfolio managers supported by fundamental and quantitative research analysts.

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Financial intermediaries use Federated Hermes' products to meet the needs of their customers, who are often retail investors.

Federated Hermes offers a full range of products to these customers, including mutual funds, Separate Accounts and private funds.

Federated Hermes offers a full range of products to these customers, including Federated Hermes Funds, Separate Accounts and private funds.

As of December 31, 2021, managed assets in the U.S.

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institutional and financial intermediary customers through subsidiaries focused on gathering assets in Europe, the Middle East, Canada, Latin America and the Asia Pacific region.

The 2018 HFML Acquisition and the 2020 HCL Acquisition expanded the distribution footprint of Federated Hermes outside of the U.S.

As of December 31, 2021, managed assets in the international market included $33.7 billion in equity assets, $22.2 billion in alternative/private markets assets, $14.8 billion in money market assets and $7.1 billion in fixed-income assets.

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According to the Investment Company Institute (ICI), at the end of 2021, there were over 7,000 open-end mutual funds and over 2,500 ETFs of varying sizes and investment objectives whose shares are currently being offered.

In addition to competition from other mutual fund managers, ETF providers and investment advisors, Federated Hermes competes with investment alternatives offered by insurance companies, commercial banks, broker/dealers, deposit brokers, other financial institutions and hedge funds.

Competition for sales of investment products and strategies is influenced by various factors, including investment performance, attainment of stated objectives, yields and total returns, fees and expenses, advertising and sales promotional efforts, investor confidence and preference, relationships with intermediaries and type and quality of services.

Federated Hermes launched its first ETFs - two fixed-income, fully transparent ETFs - in mid-December 2021.

Regulatory Matters

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and foreign laws, regulations or other rules promulgated by foreign regulatory or other authorities.

See Item 1A - Risk Factors under the caption General Risk Factors - Regulatory and Legal Risks - Potential Adverse Effects of Changes in Laws, Regulations and Other Rules for additional information.

See Item 1A - Risk Factors - General Risk Factors - Regulatory and Legal Risks - Potential Adverse Effects of Changes in Laws, Regulations and Other Rules for additional information.

Current Regulatory Environment - Domestic

In 2020, the outbreak of a novel coronavirus (Covid-19) shifted the regulatory environment in the U.S.

and globally, toward the adoption of measures intended to provide regulatory flexibility and market stabilization.

See Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) for a discussion of the risks posed by Covid-19.

The SEC (among other regulatory authorities, self-regulatory organizations or exchanges) is continuing to implement "physical distancing" requirements for its personnel, including continuing in a full telework posture with limited exceptions at least through March 28, 2021.

The SEC has stated that it is focused on:

(1) maintaining the continuity of its operations;

(2) monitoring market functions and systemic risks;

(3) providing prompt, targeted regulatory relief and guidance to issuers, investment advisors and other registrants impacted by Covid-19 to facilitate continuing operations, including in connection with the execution of their business continuity plans;

and (4) maintaining enforcement and investor protection efforts, particularly with regard to the protection of critical market systems and what the SEC deems to be the most vulnerable investors.

The SEC also has indicated that under its current operating posture, in addition to its Covid-19 focused efforts, it continues to advance rulemaking initiatives, conduct risk-based examinations, bring enforcement actions, and review and comment on issuer and fund filings.

As 2021 begins, the impact of Covid-19 on the regulatory environment in the U.S.

and globally, remains uncertain.

It is possible that the impact of Covid-19 could slowly decrease (but not completely dissipate) as 2021 progresses due to the planned distribution of vaccines, continued, but lessened, market intervention from the U.S.

Federal Reserve Board (Fed), and the additional stimulus package passed by Congress in late December 2020 and potential for additional stimulus packages under the current President's administration.

and global regulators also have begun to focus on the impact of Covid-19 on the markets, re-examine existing laws, rules and regulations, and promulgate new proposed and final laws, rules and regulations.

Despite the uncertainty created by the temporary regulatory freeze imposed by the new administration and the potential for action by Congress under the Congressional Review Act as discussed below, regulatory activity is expected to increase in 2021.

The regulatory actions to address Covid-19, any other laws and regulations that have or are expected to be re-examined, modified or reversed, or that become effective, and any new proposed laws, rule and regulations, continue to impact the investment management industry (collectively, both domestically and abroad, as applicable, Regulatory Developments).

As of February 1, 2021, the Fed's balance sheet remained just under $7.4 trillion.

Facilities such as the Secondary Market Corporate Credit Facility (SMCCF), Commercial Paper Funding Facility (CPFF), Money Market Mutual Fund Liquidity Facility (MMLF) and Term Asset-Backed Securities Loan Facility (TALF) established by the Fed in March 2020 expired on December 31, 2020 or are currently set to expire on March 31, 2021 (unless extended).

These facilities, among others, were established in order to address market inefficiencies and provide financial backstops totaling more than $2.3 trillion.

As of January 31, 2021, the Federal Reserve Bank of New York had approximately $14.1 billion in loans outstanding under the SMCCF, which ceased purchasing eligible assets on December 31, 2020, approximately $3.4 billion in loans outstanding under the TALF, which ceased extending credit on December 31, 2020, and no loans outstanding under the CPFF.

As of January 31, 2021, the Federal Reserve Bank of Boston had approximately $1.9 billion in loans outstanding under the MMLF.

According to a report entitled "Experiences of US Money Market Funds During the Covid-19 Crisis" published by the ICI in November 2020 (ICI MMF Report), prime money market funds' use of the MMLF in 2020 (peaking at approximately $53 billion) was much less than a similar facility that was created and utilized during the financial crisis in 2008 (peaking at approximately $152 billion).

In March 2020, in response to disrupted economic activity as a result of Covid-19, the Federal Open Markets Committee within the Federal Reserve System (FOMC) also decreased the federal funds target rate range to 0% - 0.25%.

In 2021, as the Pandemic continued, the regulatory environment in the U.S.

and globally shifted away from the adoption of measures intended to provide regulatory flexibility.

Despite the Pandemic, the SEC (among other regulatory authorities, self-regulatory organizations or exchanges) continued to advance rulemaking initiatives, conduct risk-based examinations, bring enforcement actions, and review and comment on issuer and fund filings.

In the fourth quarter of 2021, the SEC issued five final, and nine proposed, rules or regulations, including a final rule on performance-based advisory fees and proposed rules on money market fund reforms, share repurchase disclosure modernization, securities lending disclosure and insider trading.

As 2022 begins, the impact of the continuing Pandemic on the regulatory environment in the U.S., and globally, remains uncertain.

It is possible that the impact of the Pandemic could continue to decrease (but likely not completely dissipate) as 2022 progresses due to the continued distribution of vaccines on a larger scale, the potential for continued, but lessened, market intervention from the U.S.

Federal Reserve Board (Fed), and the possibility of additional stimulus packages, similar to the $900 billion Consolidated Appropriations Act, 2021, passed by Congress in December 2020 and the $1.9 trillion American Rescue Plan Act of 2021 passed by Congress in March 2021.

and global regulators continued in 2021, and continue in 2022, to focus on the impact of the Pandemic on the markets.

As of December 31, 2021, the Fed's balance sheet was approaching $8.76 trillion.

With several facilities established by the Fed in 2020 winding down, on July 28, 2021, the Federal Open Market Committee (FOMC) announced the establishment of two standing repurchase agreement (repo) facilities—a domestic repo facility against Treasury securities, agency debt securities, and agency mortgage-backed securities with a $500 billion daily limit, and a repo facility for foreign and international monetary authorities against their holdings of Treasury securities maintained in custody at the Federal Reserve Bank of New York with a $60 billion per counterparty limit.

Primary dealers are counterparties to the domestic facility and depository institutions began to be added as counterparties in the fourth quarter of 2021.

These facilities, among others, were adopted to address market inefficiencies and provide financial backstops.

In March 2020, in response to disrupted economic activity as a result of the Pandemic, the FOMC also decreased the federal funds target rate range to 0% - 0.25%.

The federal funds target rate drives short-term interest rates.

The FOMC has indicated that the federal funds rate would likely stay at near zero at least through 2022.

These low interest rates, and the possibility of negative interest rates, have caused the investment management industry to engage with the SEC (and other regulators globally) to discuss regulatory guidance permitting the implementation of reverse distribution mechanisms or share cancellation methodologies, reverse stock splits, and other tools to maintain the stability of money market fund NAVs in a negative rate environment.

Any solution to the difficulties presented by a negative interest rate environment can require significant internal and external resources to implement necessary changes, including system programming, both for money market funds and their service providers or vendors (service providers).

Following its passage of stimulus packages (such as the $2 trillion Coronavirus Aid, Relief, and Economic Security Act, and $484 billion Paycheck Protection Program) in March and April 2020, on December 27, 2020, Congress approved the Consolidated Appropriations Act, 2021, which includes $900 billion in further Covid-19-related stimulus relief.

The law, among other things, provides additional funds for testing, vaccines, distribution, medical care, and unemployment benefits, as well as money for schools, small businesses, hotels, restaurants, airlines and other industries.

and global regulators are focusing on the market conditions that existed in March 2020, and their impact on open-end funds, including institutional prime and municipal money market funds.

The President's Working Group on Financial Markets (PWG) published a report on December 22, 2020 providing an "Overview of Recent Events and Potential Reform Options for Money Market Funds" (PWG Report).

The PWG Report reviews the effects of Covid-19 on the short-term funding markets, including institutional prime and municipal (or tax-exempt) money market funds which participate in those markets, and outlines ten possible reforms.

The potential reforms outlined in the PWG Report include:

(1) removing the tie between the 30% weekly liquid asset threshold for money market fund liquidity and redemption gates and liquidity fees;

(2) reforming the conditions for imposing redemption gates;

(3) utilizing a minimum balance at risk mechanism for shareholder accounts;

(4) requiring certain liquidity management changes, such as an additional weekly liquid asset threshold;

(5) permitting weekly liquid asset requirements the flexibility to automatically decline in certain circumstances, such as when redemptions are large;

(6) requiring a floating NAV for all prime and municipal (or tax-exempt) money market funds, including retail funds;

(7) requiring swing pricing;

(8) imposing capital buffer requirements;

(9) requiring membership in a private liquidity exchange bank capitalized by the money market funds and their sponsors;

and (10) establishing requirements for fund sponsor support to a money market fund.

On December 23, 2020, the SEC's Division of Investment Management released a statement on the PWG Report requesting comments to assist the Staff in providing recommendations to the SEC.

The Staff requested comment in regard to three specific areas:

(1) potential stress points for funds and short-term funding markets;

(2) measures that can enhance the resilience and function of short-term funding markets;

and (3) measures that can reduce the likelihood of future official sector interventions.

Contrary to the focus placed by the PWG Report on money market funds as a cause of the market turmoil in March 2020, the ICI MMF Report supports the view that the Treasury securities markets, rather than money market funds, triggered the market turmoil.

The ICI MMF Report rebukes suggestions that money market funds, particularly institutional prime money market funds, were a primary, if not the sole, cause of market distress in March 2020, noting that "[t]hese suggestions are inconsistent with the data and early press reports." The ICI MMF Report points to the fact that the market dislocations were widespread, including in markets in which institutional prime money market funds are not significant players, such as the U.S.

These low interest rates, and the possibility of negative interest rates, caused the investment management industry to engage with the SEC (and other regulators globally) to discuss ways to address a negative interest rate environment.

In its December 15, 2021 proposed rule on money market fund reforms, the SEC refused to allow the implementation of reverse distribution mechanisms or share cancellation methodologies to maintain the stability of stable net asset value (NAV) money market funds in a negative rate environment.

Any solution to the difficulties presented by a potential negative interest rate environment can require significant internal and external resources to implement necessary changes, including system programming and implementing disclosure changes, both for money market funds and their service providers or vendors (service providers).

and global regulators also continue to re-examine existing and propose new laws, rules, and regulations.

With the SEC's aggressive 54 item rulemaking schedule announced in its Fall 2021 Unified Agenda of Regulatory and Declaratory Actions (Fall Reg Flex Agenda), the expectation is that the pace of new proposed and final laws, rules and regulations and other regulatory activity will increase in 2022.

For example, the SEC's Fall Reg Flex Agenda signals upcoming proposals on Rule 35d-1 under the 1940 Act (Names Rule), climate change disclosures, human capital management disclosures, corporate board diversity, reporting of proxy votes on executive compensation, special purpose acquisition companies (SPACs), and proxy voting advice, among other proposals.

The regulatory actions to address the Pandemic, any other laws and regulations that have or are expected to be re-examined, modified or reversed, or that become effective, and any new proposed laws, rules and regulations, continue to impact the investment management industry (collectively, both domestically and internationally, as applicable, Regulatory Developments).

and global regulators also continue to focus on the market conditions that existed in March 2020, and their impact on open-end funds, including institutional prime and municipal (or tax-exempt) money market funds.

On October 5, 2021, while testifying before the House Financial Services Committee, SEC Chair Gensler indicated that he had asked SEC staff for recommendations to address the challenges to money market funds experienced in the spring of 2020, and stated that he believes "it is time to reflect upon the reforms of 2014 and 2010 to see if we can further improve resiliency, particularly in times of stress." It has been reported that Financial Stability Oversight Council (FSOC) Chairperson Yellen fully supported the SEC's reform efforts.

In the FSOC's Statement on Money Market Fund Reform, the FSOC indicated that "the [FSOC] is encouraged by the SEC's engagement on this critical issue" and, "[g]iven the interconnectedness of financial institutions and markets, the [FSOC] will continue to monitor this initiative in the broader context of efforts by financial regulators to strengthen short-term funding markets and support orderly market functioning, including during periods of heightened market stress."

Building on the December 22, 2020 report by the President's Working Group on Financial Markets (PWG) entitled, "Overview of Recent Events and Potential Reform Options for Money Market Funds" (PWG Report), on April 15, 2021, the SEC Division of Investment Management's Analytics Office issued an article, "Prime MMFs at the Onset of the Pandemic:

Asset Flows, Liquidity Buffers, and NAVs," which concluded (among other things) that March 2020 outflows reduced prime money market funds' liquidity buffers and that volatility of prime money market funds' NAV per share increased at the onset of the Pandemic.

Contrary to the focus placed by the PWG Report and regulators on money market funds as a cause of the market turmoil in March 2020, the Investment Company Institute (ICI) had issued a report entitled, "Experiences of U.S.

Money Market Funds During the Covid-19 Crisis" (ICI MMF Report), in November 2020 that supports the view that the Treasury securities markets, rather than money market funds, triggered the market turmoil.

The ICI MMF Report rebuked suggestions that money market funds, particularly institutional prime money market funds, were a primary, if not the sole, cause of market distress in March 2020, noting that, "[t]hese suggestions are inconsistent with the data and early press reports." The ICI MMF Report points to the fact that the market dislocations were widespread, including in markets in which institutional prime money market funds are not significant players, such as the U.S.

Treasury bonds, longer-term U.S.

agency securities, municipal securities, corporate bonds, and foreign exchange markets.

The ICI MMF Report also studies institutional prime money market fund asset flows and spreads in the Treasury bond market, concluding "by March 11 these spreads had widened substantially, yet prime money market funds had seen virtually no outflows." The ICI MMF Report also notes that "press reports do not support the theory that money market funds were at the forefront of the market stress" and that "Treasury markets were in the news several days before any real mention of money market funds .

As discussed above, one of the proposed reforms included in the PWG Report is to eliminate the requirement for a fund's board to consider imposing redemption gates and liquidity fees if weekly liquid assets drop below 30% of the fund's total assets.

The ICI MMF Report also studied institutional prime money market fund asset flows and spreads in the Treasury bond market, concluding, "by March 11[, 2020] these spreads had widened substantially, yet prime money market funds had seen virtually no outflows." The ICI MMF Report also noted that, "press reports do not support the theory that money market funds were at the forefront of the market stress" and that, "Treasury markets were in the news several days before any real mention of money market funds .

In response to requests for comments by the SEC's Division of Investment Management regarding aspects of the PWG Report and potential money market fund reforms, Federated Hermes, along with the ICI and other industry participants, submitted comment letters that strongly disagree with the conclusions reached in the PWG Report.

In its first comment letter, dated April 12, 2021, Federated Hermes emphasized, among other points, that money market funds did not cause or exacerbate the turmoil in the financial markets in March 2020, and money market funds have no "structural vulnerabilities" warranting the more significant policy options outlined in the PWG Report, such as capital buffers and holdbacks.

Federated Hermes stressed that the market turmoil in March 2020 was created by the Pandemic and the unprecedented global government response and economic shut-down to stem the spread of the coronavirus.

In its comment letter, Federated Hermes supported the SEC in eliminating the requirement for a fund's board to consider imposing redemption gates and liquidity fees if weekly liquid assets drop below 30% of the fund's total assets.

This is one of the requirements that was imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance).

Compliance with the 2014 Money Fund Rules and Guidance was required on October 14, 2016.

Management believes money market funds provide a more attractive investment opportunity than other products, such as insured deposit account alternatives.

Management also believes that money market funds are resilient investment products that have proven their resiliency during Covid-19.

Compliance with the 2014 Money Fund Rules and Guidance was required by October 14, 2016.

In its second comment letter, dated June 1, 2021, Federated Hermes recommended certain structural reforms that address the root causes of the failure of critical funding markets in March 2020 and the consequent systematic risks, including:

(1) the provision of liquidity in stressed markets, as well as reforms to promote market-making in stressed conditions;

(2) amendments to rule 2a-7 to delink the consideration of redemption gates and liquidity fees from the 30% of a fund's total assets threshold;

(3) reforms to the short-term market structure itself to improve liquidity in times of stress;

and (4) considerations for balancing the SEC's statutory mandate with liquidity and financial stability concerns.

In a third comment letter, dated September 21, 2021, Federated Hermes expressed its belief that the combination of delinking the potential imposition of redemption gates and liquidity fees with a money market fund's weekly liquid asset requirements, adoption of certain liquidity fee procedures, and enhancements to money market funds' ability to "know their customer" via an amendment to Rule 22c-2 under the 1940 Act, when combined with consideration of, and improvements in, the short-term markets generally, can address the concerns identified in the PWG Report without adversely impacting the viability of money market funds and their benefits to investors, issuers and capital formation.

On December 15, 2021, the SEC Commissioners voted to propose new amendments to money market fund rules.

In his statement announcing the proposals, SEC Chair Gensler cited the PWG Report, international regulatory concern, the prior FSOC statements, SEC comments and public responses to the SEC's requests for comment, as evidence for the systemic risk posed by money market funds.

According to the SEC, the proposed amendments would improve the resilience and transparency of money market funds by:

(1) increasing minimum liquidity requirements for daily and weekly liquid assets to 25% and 50%, respectively, to provide a more substantial buffer in the event of rapid redemptions;

(2) removing the ability of money market funds to impose liquidity fees and redemption gates when they fall below certain liquidity thresholds, which would eliminate an incentive for preemptive redemptions;

(3) requiring certain money market funds ( e.g.

, institutional prime and institutional municipal (or tax-exempt) money market funds) to implement swing pricing, which involves a process of adjusting a fund's current NAV such that the transaction price effectively passes on costs stemming from shareholder redemptions to redeeming shareholders, so that they bear the liquidity costs of their redemptions;

(4) enhancing certain reporting requirements ( e.g.

, Form N-MFP and Form N-CR) to improve the SEC's ability to monitor and analyze money market fund data;

and (5) requiring stable

NAV money market funds to convert to a floating NAV if future market conditions result in negative money market fund yields.

The comment period on the SEC's proposed rule will end on April 11, 2022.

At its February 4, 2022 meeting, the FSOC recognized that open-end funds were not the sole or primary cause of market turmoil in 2020, but mistakenly noted that the size of their asset liquidations indicates that they were one of the significant contributors to the market stress.

At the same meeting, the FSOC reviewed the SEC's proposed money market fund reforms and indicated that the FSOC supports the SEC's efforts to reform money market funds and to strengthen short-term funding markets.

FSOC's conclusion that open-end funds were significant contributors to the March 2020 turmoil contradicts the conclusion of the ICI MMF Report, as well as Federated Hermes' April 12, 2021 comment letter, (each discussed above) which demonstrate that the March 2020 market turmoil was caused by the Pandemic and the unprecedented global response and economic shut-down, not open-end funds.

Federated Hermes is currently reviewing the proposed rule to assess any potential impact to Federated Hermes' business, and intends to participate in the comment process.

Federated Hermes believes that swing pricing is not a workable alternative for institutional prime and municipal (or tax-exempt) money market funds because it creates uncertainty around redemption proceeds and requires significant system changes for money market funds, investors and their respective service providers.

Federated Hermes also opposes increasing the liquidity requirements for daily and weekly assets because of the negative effect such increased requirements will have on money market fund yields.

Federated Hermes also opposes the elimination of liquidity fees and redemption gates, and believes money market funds should have a choice between imposing liquidity fees and redemption gates and implementing swing pricing.

Finally, Federated Hermes disagrees with the SEC's refusal to permit money market funds to use reverse distribution mechanisms or share cancellation methodologies to maintain a stable NAV in a negative rate environment.

If swing pricing and the other money market fund reforms proposed by the SEC are adopted as proposed, Federated Hermes believes that they could result in a shift of assets from institutional prime and municipal (or tax-exempt) money market funds to government money market funds.

The comment period ends 60 days after the proposed rule is published in the Federal Register.

Federated Hermes has expended, and will continue to expend, significant internal and external resources to engage with regulators on potential money market fund reforms, including through additional comment letters and meetings with U.S.

and global regulators and legislators, the ICI and other industry participants.

Management believes money market funds provide a more attractive investment opportunity than other competing products, such as insured deposit account alternatives.

Management also believes that money market funds are resilient investment products that have proven their resiliency during the Pandemic.

While Federated Hermes believes that some regulations could be improved, such improvements should be measured and appropriate, preserving investors' ability to invest in all types of money market funds.

Federated Hermes believes that regulators should look closely at the redemption gates and liquidity fee requirement from the 2014 Money Fund Rules and Guidance and supports efforts to reduce regulation, including the PWG's recommendation to eliminate the redemption gates and liquidity fee requirement.

Federated Hermes believes that regulators should look closely at the 2014 Money Fund Rules and Guidance and supports efforts to reduce regulation, including the PWG Report's recommendation, and the SEC's proposal, to eliminate the link between the 30 percent liquid asset requirement and redemption gates and liquidity fees.

Federated Hermes also continues to support efforts to permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements imposed under the 2014 Money Fund Rules and Guidance for, institutional and municipal (or tax-exempt) money market funds.

Legislation has been introduced in both the Senate and the House of Representatives in a continuing effort to get these revisions to money market fund reform regarding the use of amortized cost passed and signed into law.

With the pending transition of Presidential administrations, regulatory activity increased in the fourth quarter of 2020.

The SEC issued three proposed rules and 17 final rules, five of which (relating to investment advisor advertising, valuation, derivatives, auditor independence and fund of funds) directly affect mutual funds and the investment management industry.

The Department of Labor (DOL) also issued its new final fiduciary rule on December 15, 2020 (Final DOL Fiduciary Rule), its proxy voting and shareholder rights rule on December 11, 2020 (Final DOL Proxy Voting Rule) and its investment duty amendments on October 30, 2020 (Final DOL Investment Duty Amendments), each of which is discussed in more detail below.

With the transition of Presidential administrations, and new SEC leadership, it has been reported that certain regulations promulgated by the SEC in 2020 could be re-examined or reversed, such as the SEC's proxy advisor rule and Regulation Best Interest and the DOL's Final DOL Proxy Voting Rule and Final DOL Investment Duty Amendments.

On January 20, 2021, the

new administration issued a number of regulatory directives freezing regulatory rulemaking, rescinding various executive orders concerning the regulatory process issued by the previous administration and establishing a framework for modernizing the review of regulatory actions.

Among other things, for regulations that were not yet effective, the regulatory freeze asks covered agencies to consider postponing the regulations' effective dates for 60 days, rather than mandating a 60 day delay.

It also is unclear whether independent federal agencies, such as the SEC, are subject to the regulatory freeze imposed by the current administration.

Congress also could take action regarding regulations recently submitted to Congress under the Congressional Review Act.

Under the Congressional Review Act, Congress has a period of time (generally 60 working days) to pass a joint resolution disapproving the regulation.

The SEC also has been adjusting the targeted, temporary Covid-19-related relief and assistance it provided to the investment management industry.

For example, the SEC declined to extend certain previously-issued relief, such as the relief relating to the filing deadlines for public company reporting, investment company prospectus delivery, transmittal of annual and semi-annual shareholder reports, and Form N-CEN, Form N-PORT, Form ADV and FORM PF.

The SEC extended until further notice, among certain other relief, the relief from the requirements to hold in-person board of directors/trustees meetings under the 1940 Act.

In opening remarks at the November 5, 2020 Meeting of the Asset Management Advisory Committee (AMAC), representatives of the SEC urged the AMAC to recommend making permanent certain temporary Covid-19 relief granted to funds and investment advisors.

In his statements to the AMAC, then SEC Chairman Clayton advocated for updated guidance to enable broader use of electronic delivery of disclosure documents and indicated support for related issues such as remote work, e-authorization and dematerialization of physical security certificates.

SEC Commissioner Peirce expressed the desire that the recommendations of the AMAC concerning electronic delivery, remote work, e-authorization, and dematerialization will "lay the foundation for a more flexible, technology-based regulatory structure." Federated Hermes supports many of these recommended actions, particularly allowing for increased use of electronic delivery of disclosure documents.

On January 5, 2021, among other Covid-19 relief updates posted on its website, the SEC also confirmed that the two no-action letters issued by the SEC to the ICI, providing no-action relief for affiliates to make certain purchases of debt securities from open-end investment companies that would otherwise be prohibited under Section 17(a) of, or Rule 17a-9 under, the 1940 Act, and its positions on issuers registered under Section 12 of the Exchange Act conducting virtual or hybrid annual shareholder meetings in light of Covid-19 through the internet or other electronic means in lieu of in-person meetings, remain in effect.

The proposed or adopted new rules and guidance issued by the SEC and DOL in the fourth quarter 2020, among other regulatory authorities, self-regulatory organizations or exchanges, impact U.S.

Legislation has been re-introduced in the Senate and in the House of Representatives in a continuing effort to get these revisions to money market fund reform regarding the use of amortized cost passed and signed into law.

The SEC also has been adjusting, or terminating, the targeted, temporary Pandemic-related relief and assistance it provided to the investment management industry.

The SEC staff is considering issuing updated guidance to enable broader use of electronic delivery of disclosure documents and indicated support for related issues such as remote work, e-authorization and dematerialization of physical security certificates.

Federated Hermes supports many of these recommended actions, particularly allowing for increased use of electronic delivery of disclosure documents.

In addition to the anticipated proposed regulations included in the SEC's Fall Reg Flex Agenda discussed above, the SEC has also increased its focus on ESG-related disclosure.

On March 4, 2021, the SEC announced the creation of a Climate Change and ESG Task Force in the SEC's Division of Enforcement (DOE) to develop initiatives to proactively identify ESG-related misconduct, with an initial focus on identifying any material gaps or misstatements in issuers' disclosure of climate risks under existing rules.

The task force will also analyze disclosure and compliance issues relating to investment advisors' and funds' ESG strategies.

On April 9, 2021, the SEC's Division of Examinations issued a risk alert to highlight observations from recent exams of investment advisors, registered investment companies, and private funds offering ESG products and services.

On March 15, 2021, SEC Commissioner and then acting SEC Chair Allison Herren Lee issued a statement reminding issuers of the SEC's 2010 climate change disclosure guidance and soliciting public comment on the SEC's disclosure rules and guidance as they apply to climate change and other ESG-related disclosures.

In its June 4, 2021 comment letter, the ICI called on the SEC to mandate disclosure of greenhouse gas emissions and workforce diversity to give fund managers the consistent, comparable, and reliable data they need to better assess current and future sustainability-related risks.

However, the ICI also warned against an overly prescriptive approach to ESG disclosure, stating that the SEC should develop a regulatory framework that is flexible

enough to allow disclosure practices to develop organically over time.

In its June 14, 2021 comment letter, Federated Hermes urged the SEC to:

(1) supplement, not replace, its principles-based disclosure regime with prescriptive metrics;

(2) focus on material disclosures;

and (3) maintain the global competitiveness of U.S.

capital markets.

Hermes Equity Ownership Services (d/b/a EOS at Federated Hermes), a subsidiary of HFML, also submitted a comment letter that supported the SEC requiring companies to report on material climate-related information that may impact the long-term value of companies to allow investors the ability to access timely, accurate, comprehensive, consistent and comparable information.

In a July 28, 2021 speech, SEC Chair Gensler outlined his views on likely components of the SEC's forthcoming climate disclosure rulemaking proposal.

Chair Gensler discussed that the proposal could include:

(1) mandatory climate risk disclosure;

(2) qualitative and quantitative data disclosures;

(3) climate-related risk management and strategy disclosures;

and (4) disclosure of metrics related to greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals.

Chair Gensler indicated that he asked the SEC staff to consider recommendations regarding emission disclosures, industry-specific disclosures, whether fund managers should disclose the criteria and underlying data they use to make ESG-related claims about their products, and whether the SEC should review the Names Rule holistically.

Chair Gensler also indicated that the proposal may consider which data or metrics companies might use to inform investors about how they are meeting their climate-related pledges.

He also noted that the SEC will likely develop its own disclosure requirements rather than rely on external standard setters, and may look to existing frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) for guidance.

On September 1, 2021, Chair Gensler stated that he has instructed SEC staff to prepare a "proposal for climate risk disclosure requirements" and that the proposal should be informed by other frameworks, including the TCFD.

On September 14, 2021, Chair Gensler reiterated that "[t]oday's investors are looking for consistent, comparable, and decision-useful disclosures around climate risk," and that the SEC should "step in" when there is high demand for relevant information.

Chair Gensler further noted that proposals developed by the SEC will be "informed by economic analysis" and will be available for public comment.

On September 22, 2021, the SEC's Division of Corporation Finance published a sample comment letter that the SEC staff intends to issue to public companies regarding their climate change disclosures in SEC filings.

In his remarks to the House Financial Services Committee at the October 5, 2021 SEC oversight hearing, SEC Chair Gensler signaled a phased-in climate disclosure approach that would take into account company size and the types of disclosure required.

In his fireside chat on October 19, 2021, SEC Chair Gensler reaffirmed his previous remarks to the UN Principles for Responsible Investment that the SEC may look to international standard setters when setting climate change disclosure requirements, but will promulgate US-specific disclosure requirements.

On October 20, 2021, in remarks at the PRI/LSEG Investor Action on Climate Webinar, SEC Commissioner Allison Herren Lee indicated that the forthcoming climate disclosure rule proposal would be built upon prior and existing disclosure regimes, and that the SEC would seek consistency with other jurisdictions in climate-related disclosure.

As noted above, climate change disclosure is on the SEC' s 2021 Fall Reg Flex Agenda.

On October 21, 2021, the FSOC released a report on climate-related risks to financial stability in which it recognized that climate change is an emerging and increasing threat to U.S.

financial stability and, among other recommendations, recommended that the FSOC's members issuing requirements for climate-related disclosures consider whether such disclosures should include disclosure of greenhouse gas emissions, as appropriate and practicable, to help determine exposure to material climate-related financial risks.

On December 17, 2021, the Chair of the House Committee on Financial Services issued a statement in response to the Office of the Comptroller of the Currency's releasing principles on climate-related financial risk and the FSOC establishing a Climate-related Financial Risk Committee within the FSOC, in which she emphasized that the FSOC report recommended that all of its members and their agencies take action to guard against climate risk.

On that same date, the FSOC issued its 2021 Annual Report in which, among other things, it highlighted both the physical risks to institutions and collateral risks associated with weather patterns, natural disasters and climate conditions, and the transition risk associated with shifts to new technologies or changes in public policy, as well as elevated risks relating to corporate debt, vulnerabilities in short-term wholesale funding markets, real estate and the transition away from the London Interbank Offered Rate (LIBOR).

In addition to the SEC and the FSOC, regulations adopted, and actions taken, by the Department of Labor (DOL) impact the investment management industry, including Federated Hermes.

The DOL's April 2016 fiduciary rule was vacated in June 2018 by the United States Court of Appeals for the Fifth Circuit.

On December 15, 2020, the DOL issued the final version of a re-proposed fiduciary rule to regulate "investment advice fiduciaries" (Final DOL Fiduciary Rule), which became effective on February 16, 2021.

With the transition of Presidential administrations, and new agency leadership, certain regulations promulgated by the SEC or DOL prior to 2021 are being re-examined.

On February 12, 2021, the DOL announced that its temporary enforcement policy, under which the DOL will not pursue prohibited transaction claims against investment advice fiduciaries who are working diligently on compliance with relevant components of the Final DOL Fiduciary Rule, would remain in place until December 20, 2021.

In Field Assistance Bulletin No.

2021-02, the DOL provided further transition relief by extending its position on pursuing prohibited transaction claims through January 31, 2022.

The DOL also stated that it would

not enforce the specific documentation and disclosure requirements for individual retirement account rollovers through June 30, 2022, but that all other requirements of the Final DOL Fiduciary Rule would be subject to full enforcement as of February 1, 2022.

In its Fall Reg Flex Agenda, the DOL indicated that it would be proposing another new fiduciary rule.

According to the DOL's Fall Reg Flex Agenda, the new proposed fiduciary rule will amend the regulatory definition of the term "fiduciary" to more appropriately define when persons who render investment advice for a fee to employee benefit plans and individual retirement accounts are fiduciaries for purposes of ERISA and the Internal Revenue Code.

As of December 31, 2021, a new fiduciary rule has not yet been proposed.

It has been reported that a proposed new fiduciary rule will be issued following the appointment of a new Assistant Secretary of Labor for the Employee Benefits Security Administration.

In January 2022, President Biden's nominee for the position advanced through the Senate Health, Education, Labor, and Pensions Committee.

As of February 25, 2022 the nominee has not yet been approved by a full Senate vote.

On October 13, 2021, the DOL issued for comment, its proposed "Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights" rule (New DOL Proposed ESG/Proxy Voting Rule), which would replace the DOL's final proxy voting and shareholder rights rule (Final DOL Proxy Voting Rule), which was issued on December 11, 2020, and its final rule restricting fiduciaries from selecting plan investments on the basis of non-pecuniary factors, such as ESG factors (Final DOL ESG Rule), which was issued on October 30, 2020.

Previously, on March 10, 2021, the DOL issued an indefinite non-enforcement policy with respect to the Final DOL ESG Rule and the Final DOL Proxy Voting Rule.

The New DOL Proposed ESG/Proxy Voting Rule would amend the "Investment Duties" regulation, which addresses the duties of prudence and loyalty in selecting plan investments and exercising of shareholder rights, including proxy voting.

The New DOL Proposed ESG/Proxy Voting Rule would retain the core principle that the duties of prudence and loyalty require ERISA plan fiduciaries to focus on material risk-return factors and not subordinate the interests of participants and beneficiaries to objectives unrelated to the provision of benefits under the plan, but clarify that, when considering investment returns, a fiduciary's duty of prudence may require an evaluation of the economic effects of climate change and other ESG factors on a particular investment or investment course of action.

The New DOL Proposed ESG/Proxy Voting Rule also would apply the same standards to qualified default investment alternatives as apply to other investments.

In a change from the Final DOL ESG Rule, the New DOL Proposed ESG/Proxy Voting Rule also would amend the "tie-breaker" standard by:

(1) imposing a standard that would require a fiduciary to conclude prudently that competing investments, or competing investment courses of action, equally serve the financial interests of the plan over the appropriate time horizon;

and (2) permitting a fiduciary to select an investment, or an investment course of action, based on economic or non-economic benefits other than investment returns.

The New DOL Proposed ESG/Proxy Voting Rule also would adjust the Final DOL Proxy Voting Rule's requirements for the exercise of shareholder rights, including proxy voting, by:

(1) removing from the current regulation the statement that "the fiduciary duty to manage shareholder rights appurtenant to shares of stock does not require the voting of every proxy or the exercise of every shareholder right";

(2) removing from the current regulation safe harbors relating to proxy voting that permit (a) a policy to limit voting resources to particular types of proposals that a fiduciary has prudently determined are substantially related to the issuer's business activities or are expected to have a material effect on the value of the investment and (b) a policy of refraining from voting on proposals or particular types of proposals when a plan's holding in a single issuer relative to the plan's total investment assets is below a quantitative threshold;

and (3) eliminating from the current regulation the requirement that, when deciding whether to exercise, and in exercising, shareholder rights, a plan fiduciary must maintain records on proxy voting activities and other exercises of shareholder rights.

In a December 10, 2021 comment letter, Federated Hermes commented on the New DOL Proposed ESG/Proxy Voting Rule with respect to, among other points, the interrelationship between the Final DOL Fiduciary Rule and New DOL Proposed ESG/Proxy Voting Rule and the exclusive benefit rule under relevant fiduciary law in the U.S.

In its comment letter, Federated Hermes generally supported the DOL's proposal but suggested modifications to certain language that could be read to require ERISA fiduciaries to consider ESG factors independent of the fiduciary's own prudent analysis, which in Federated Hermes' view would unnecessarily subject fiduciaries to regulatory and litigation risk and expose any final rulemaking to further scrutiny over time.

Since the beginning of the fourth quarter 2021, other proposed rules, new guidance and other actions have been issued or taken that impact U.S.

investment management industry participants, including Federated Hermes.

• On December 22, 2020, the SEC adopted amendments under the Advisers Act to its investment advisor advertising and cash solicitation rules.

The amendments are intended to update and modernize the advertising and cash solicitation rules under the Advisers Act to recognize the increasing use of electronic media and mobile communications, and to seek to improve the quality of information available to investors.

The amendments broaden the definition of "advertisement" to include both advertising and solicitation activities.

They prohibit certain advertising practices, such as, among others, discussing potential benefits without providing a fair and balanced treatment of associated risks and presenting performance in a manner that is not fair and balanced.

They also require certain disclosure, promoter agreement and compliance conditions to be met for an investment advisor to use testimonials and endorsements in advertisements, prohibit the use of third-party ratings in an advertisement, unless the investment advisor provides disclosures and satisfies certain criteria pertaining to the preparation of the rating, and impose various restrictions and conditions on the use of performance information.

The amendments also address certain recordkeeping requirements.

The SEC also intends to withdraw previously issued no-action letters that have been incorporated into the amendments.

Subject to the uncertainty regarding the timing of new regulations discussed above, the amendments will be effective 60 days after publication in the Federal Register, and compliance will be required by the date that is 18 months after the effective date to give investment advisors a transition period to comply with the amendments.

Federated Hermes is reviewing the amendments and their potential impact.

• On December 15, 2020, the DOL issued its Final DOL Fiduciary Rule, which provides a new prohibited transaction exemption for investment advice fiduciaries.

The new prohibited transaction class exemption is based on an existing temporary policy adopted by the DOL after the United States Court of Appeals for the Fifth Circuit vacated the DOL's original 2016 fiduciary rule (Vacated DOL Fiduciary Rule) in March of 2018.

The exemption allows investment advice fiduciaries to offer a wide array of investment advice services in compliance with the DOL's Impartial Conduct Standards, which include a best interest standard, a reasonable compensation standard and a requirement to make no materially misleading statements.

The DOL has indicated that it intended the standard embodied in the exemption to align with standards of other regulators, including the SEC.

The exemption notice also expresses the Department's views on when rollover advice could be considered fiduciary advice under the Employee Retirement Income Security Act (ERISA) and the

Internal Revenue Code.

Subject to the uncertainty regarding the timing of new regulation discussed above, the Final DOL Fiduciary Rule provides that the exemption became effective on February 16, 2021.

• On December 11, 2020, the DOL issued its Final DOL Proxy Voting Rule.

The final rule establishes a regulatory framework for private employee benefit plans' fiduciaries to follow when they exercise shareholder rights, including proxy voting, and select and monitor proxy advisory firms.

Among other requirements, the Final DOL Proxy Voting Rule confirms that proxy voting decisions and other exercises of shareholder rights must be solely in the interest of, and for the exclusive purpose of, providing plan benefits to participants and beneficiaries considering the impact of any costs involved.

Subject to the uncertainty regarding the timing of new regulation discussed above, the final rule provides that it became effective on January 15, 2021, applies to exercises of shareholder rights after that date, and includes delayed compliance dates to January 31, 2022, for certain recordkeeping and proxy voting policy requirements, subject to certain conditions being met.

Federated Hermes is reviewing the final rule requirements with delayed compliance dates and their potential impact.

• On December 3, 2020, the SEC adopted a new rule, Rule 2a-5, under the 1940 Act that establishes an updated regulatory framework for fund valuation practices by establishing requirements for determining fair value in good faith for purposes of the 1940 Act.

The rule expressly permits boards, subject to board oversight and certain other conditions, to designate certain parties, such as fund investment advisors, to perform the fair value determinations.

The rule also defines when market quotations are "readily available" for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security.

This definition contradicts common practices for cross-trades between affiliated funds under Rule 17a-7 under the 1940 Act, and the investment management industry is engaging with the SEC staff to clarify this definition and its interplay with Rule 17a-7.

The SEC also adopted new recordkeeping requirements associated with fair value determinations.

The SEC also is rescinding previously issued guidance on related issues, including the role of the board of directors in determining fair value and the accounting and auditing of fund investments.

Subject to the uncertainty regarding the timing of new regulation discussed above, Rule 2a-5 and the new recordkeeping requirements provide that they become effective on March 8, 2021, and require compliance by August 8, 2022.

A fund can voluntarily comply with the rules after the effective date, and in advance of the compliance date, under certain conditions.

Federated Hermes is reviewing new Rule 2a-5 and the new recordkeeping requirements, and their potential impact.

• On November 12, 2020, President Trump signed Executive Order 13959, "Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies" (Executive Order), and signed an "Executive Order Amending Executive Order 13959 – Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies" on January 13, 2021 (collectively, the Executive Orders).

Under the Executive Orders, beginning on January 11, 2021 at 9:30 a.m.

persons, which includes both individuals and entities, generally are prohibited from transacting in certain securities and derivatives of Communist China military companies (CCMCs), unless such transactions are for purposes of divestment and occur through November 11, 2021.

The Treasury Department's Office of Foreign Asset Control has published guidance concerning the Executive Orders on several occasions, which guidance clarifies the requirements of the Executive Orders.

The SEC staff issued a Risk Alert on the Executive Order on January 6, 2021.

Federated Hermes is taking steps to comply with the Executive Orders, and related guidance, and is assessing their impact.

• On November 2, 2020, the SEC adopted a re-proposed Rule 18f-4 under the 1940 Act (the Derivatives Rule), to regulate the use of derivatives by mutual funds, closed-end funds, ETFs, and other investment companies, among other requirements.

New Rule 18f-4 permits mutual funds (other than money market funds), ETFs, registered closed-end funds, and business development companies (BDCs) to enter into derivatives transactions and certain other transactions notwithstanding the restrictions under Section 18 of the 1940 Act, subject to certain conditions.

The conditions include the adoption of a derivatives risk management program and compliance with certain limits on fund leverage risk, among others.

The rule provides an exception from the derivatives risk management program and leverage risk limits provided that a fund adopts and implements written policies and procedures reasonably designed to manage its derivatives risks and the fund's derivatives exposure is limited to 10% of its net assets, excluding certain currency and interest rate hedging transactions.

The rule also provides an exception from the leverage limits for leveraged or inverse funds currently in operation that seek an investment return above 200% of the return (or inverse of the return) of the fund's underlying index and that satisfy certain conditions.

The rule permits a fund to enter into reverse repurchase agreements and similar financing transactions, as well as "unfunded commitments" to make certain loans or investments, subject to conditions tailored to these transactions.

The rule permits funds, as well as money market funds, to invest in securities on a when-issued or forward-settling basis, or with a non-standard settlement cycle, subject to certain conditions.

The rule also requires that a fund comply with certain recordkeeping requirements, including reporting confidentially to the SEC on a current basis on Form N-RN if the fund is out of compliance with the leverage limits for more than five business days.

Funds currently required to file reports on Form N-PORT and Form N-CEN will be required to provide certain information regarding the fund's derivatives use.

The SEC also adopted amendments to Rule 6c-11 under the 1940 Act to permit leveraged or inverse ETFs to rely on Rule 6c-11 if they comply with all applicable provisions of Rule 18f-4.

The SEC also is withdrawing certain previously issued guidance and no-action letters addressing how funds engage in certain trading practices in light of the restrictions in Section 18 of the 1940 Act and funds' use of derivatives and other transactions covered by Rule 18f-4.

Subject to the uncertainty regarding the timing of new regulation discussed above, Rule 18f-4 provides that it became effective on February 19, 2021, and compliance will be required by August 19, 2022.

Federated Hermes is reviewing new Rule 18f-4 and its potential impact.

• On October 30, 2020, the DOL issued its Final DOL Investment Duty Amendments.

The DOL has indicated that these amendments update and clarify its investment duties regulation by providing regulatory guideposts for fiduciaries of private-sector retirement and other employee benefit plans in light of recent trends involving ESG investing.

The amendments require plan fiduciaries to select investments and investment courses of action based on pecuniary factors – i.e.

, any factor that the responsible fiduciary prudently determines is expected to have a material effect on risk and/or return of an investment based on appropriate investment horizons consistent with the plan's investment objectives and funding policy.

The rule became effective on January 12, 2021.

Unless the Final DOL Investment Duty Amendments are delayed or designated to be reviewed, plans have until April 30, 2022, to make any changes to certain qualified default investment alternatives, where necessary to comply with the final rule.

Federated Hermes is reviewing the amendments and their potential impact.

In response to the Final DOL Investment Duty Amendments, on December 14, 2020, two bills were introduced into the House of Representatives that would require investment advisors and retirement plan fiduciaries to divulge how they incorporate ESG factors into investment decisions.

• On October 16, 2020, the SEC issued a final rule adopting amendments to Rule 2-01 of Regulation S-X that seek to focus the SEC's auditor independence rules on relationships and services that are more likely to jeopardize the objectivity and impartiality of auditors.

The final amendments, among other things:

(1) amend the definitions of "affiliate of the audit client" and "investment company complex" to address certain affiliate relationships, including entities under common control;

(2) amend the auditor independence rule to add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships;

(3) amend the auditor independence rules to replace the reference to "substantial stockholders" in the business relationships rule with the concept of "beneficial owners with significant influence" and (4) replace the transition provision in the auditor independence rules to introduce a transition framework to address inadvertent independence violations that only arise as a result of a merger or acquisition transaction.

Subject to the uncertainty surrounding the timing of new regulation discussed above, the amendments provide for a June 9, 2021 effective date.

Voluntary early compliance is permitted after December 11, 2020 provided that the final amendments are applied in their entirety from the date of early compliance.

• On October 7, 2020, the SEC adopted Rule 12d1-4 under the 1940 Act regarding fund of funds arrangements, simultaneously rescinding Rule 12d1-2 under the 1940 Act, which permits funds that primarily invest in funds within the same fund group to invest in unaffiliated funds and non-fund assets.

Rule 12d1-4 will permit a registered investment company or BDC (referred to as "acquiring funds") to acquire the securities of any other registered investment company or BDC (referred to as "acquired funds") in excess of the limits in Section 12(d)(1) of the 1940 Act, subject to certain limits on control and voting of acquired fund shares by the acquiring fund, required evaluations and findings as to the lack of duplicative fees and certain other matters, and limits on complex structures.

In addition, the rule will require funds that do not share the same investment advisor to enter into a fund of funds investment agreement memorializing the terms of the arrangement.

This requirement and the evaluation and finding requirements replace a proposed requirement that would have prohibited an acquiring fund that acquires more than 3% of an acquired fund's outstanding shares from redeeming more than 3% of the acquired fund's total outstanding shares in any 30-day period.

The SEC is also rescinding most exemptive orders granting relief from Sections 12(d)(1)(A), (B), (C) and (G) of the 1940 Act.

The SEC also adopted related amendments to Rule 12d1-1 under the 1940 Act to allow funds that primarily invest in funds within the same fund group to continue to invest in unaffiliated money market funds, and amendments to Form N-CEN to require funds to report whether they relied on Rule 12d1-4 or the statutory exception in Section 12(d)(1)(G) of the 1940 Act during an applicable reporting period.

Federated Hermes is evaluating the impact of the rule on its current fund structures.

Subject to the uncertainty surrounding the timing of new regulation discussed above, the final rule provides that Rule 12d1-4 became effective on January 19, 2021, requires compliance with the amendments to Form N-CEN by March 20, 2022 and provides that the rescission of Rule 12d1-2 and the SEC's exemptive orders will be effective on January 19, 2022.

• On February 14, 2022, the DOL published a Request for Information (RFI), in furtherance of the Executive Order on Climate-Related Financial Risk, to solicit public comment on the DOL's future work relating to retirement savings and climate-related financial risk.

The request contains 22 questions, including whether the DOL should publish research to improve data and analytics that ERISA plan fiduciaries could use to evaluate climate-related financial risks and

whether ERISA plan administrators should be required to publicly report on the steps they take to manage climate-related financial risks.

The comment period will end on May 16, 2022.

• On February 9, 2022, the SEC proposed new Rule 206(4)-9 under the Advisers Act and new Rule 38a-2 under the 1940 Act, as well as other amendments, which constitute new cybersecurity risk management rules and amendments that purport to enhance cybersecurity preparedness and improve the resilience of investment advisors and investment management companies against cybersecurity threats and attacks.

The new rules and amendments would:

(1) require investment advisors and funds to adopt and implement written policies and procedures that are reasonably designed to address cybersecurity risks;

(2) require investment advisors to report significant cybersecurity incidents to the SEC on proposed Form ADV-C;

(3) enhance investment advisor and fund disclosures related to cybersecurity risks and incidents;

and (4) require investment advisors and funds to maintain, make, and retain certain cybersecurity-related books and records.

The comment period will end 30 days after the proposed rules are published in the Federal Register or on April 11, 2022 (which is 60 days after issuance by the SEC), whichever is later.

• On February 9, 2022, the SEC proposed new rules and amendments under the Advisers Act intended to enhance the regulation of private fund advisors.

The proposed new rules would:

(1) require private fund advisors registered with the SEC to provide investors with quarterly statements detailing information about private fund performance, fees and expenses;

(2) require registered private fund advisors to obtain an annual audit for each private fund and cause the private fund's auditor to notify the SEC upon certain events occurring;

(3) require registered private fund advisors, in connection with an advisor-led secondary transaction, to distribute to investors a fairness opinion and a written summary of certain material business relationships between the advisor and the opinion provider;

(4) prohibit all private fund advisors, including those that are not registered, from engaging in certain activities and practices that are contrary to the public interest and the protection of investors;

and (5) prohibit all private fund advisors from providing certain types of preferential treatment that have a material negative effect on other investors, while also prohibiting all other types of preferential treatment unless disclosed to current and prospective investors.

The SEC is also proposing to require all registered advisors, including those that do not advise private funds, to document the annual review of their compliance policies and procedures in writing.

The comment period will end 30 days after the proposed rules and amendments are published in the Federal Register or on April 11, 2022 (which is 60 days after issuance by the SEC), whichever is later.

• On February 9, 2022, the SEC proposed to reduce risks in the clearance and settlement of securities.

The proposed changes would:

(1) shorten the standard settlement cycle for securities transactions from two business days after trade date (T+2) to one business day after trade date (T+1);

(2) eliminate the separate T+4 settlement cycle for firm commitment offerings priced after 4:30 p.m.;

(3) improve the processing of institutional trades by proposing new requirements for broker-dealers and registered investment advisors intended to improve the rate of same-day affirmations;

and (4) facilitate straight-through processing by proposing new requirements applicable to clearing agencies that are central matching service providers.

The comment period will end 30 days after publication in the Federal Register or on April 11, 2022 (which is 60 days after issuance by the SEC), whichever is later.

• On January 27, 2022, the SEC reopened the comment period for the pay versus performance proposing release, which was issued in 2015.

The proposed rule would amend Item 402 of Regulation S-K to implement Section 14(i) of the Exchange Act, as added by Section 953 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

Section 14(i) of the Exchange Act requires the SEC to adopt rules relating to how executive compensation actually paid by a registrant relates to the financial performance of the registrant.

The comment period will end on March 4, 2022.

• On January 25, 2022, the SEC proposed amendments to Form PF, which is a confidential reporting form for certain SEC-registered investment advisors that manage private funds.

The proposed amendments would:

(1) require new current reporting of certain events for large hedge fund advisors and advisors to private equity funds;

(2) decrease the reporting threshold for large private equity advisors;

and (3) revise reporting requirements for large private equity advisors and large liquidity fund advisors.

The comment period will end on March 21, 2022.

• On January 15, 2022, the SEC proposed amendments to Rule 10b-5 under the Exchange Act that would:

(1) add new conditions to the availability of the affirmative defense under Exchange Act Rule 10b5-1(c)(1) which allows trading on behalf of a director, officer or issuer while in possession of material nonpublic information provided certain conditions are satisfied;

(2) creates new disclosure requirements regarding issuers' insider trading policies and regarding the adoption, modification and termination of Rule 10b5-1 and certain other trading arrangements by directors, officers and issuers;

(3) creates new disclosure requirements for executive and director compensation

regarding the timing of certain equity compensation awards;

and (4) updates Form 4 and Form 5 to require corporate insiders subject to Section 16 of the Exchange Act to identify transactions made pursuant to Rule 10b5-1(c)(1) trading arrangements and to disclose all gifts of securities on Form 4 (rather than on Form 5).

The comment period will end on April 1, 2022.

• On December 15, 2021, the SEC proposed amendments to its share repurchase disclosure rules that would require an issuer (such as Federated Hermes) to provide disclosure on a new Form SR regarding repurchases of the issuer's equity securities for each day that the issuer, or an affiliate, makes a share repurchase.

The proposed amendments also would enhance the existing periodic disclosure requirements about share repurchases in an issuer's annual report on Form 10-K and periodic (quarterly) Form 10-Q.

Federated Hermes believes that daily reporting of share repurchases is excessive and burdensome.

The comment period will end on April 1, 2022.

• On November 18, 2021, the SEC proposed a new rule that would require lenders of securities to provide the material terms of securities lending transactions within 15 minutes of "being effected" or modified.

The terms must be reported to a registered national securities association, such as FINRA, which would then make the data available publicly.

On January 7, 2022, Federated Hermes submitted a comment letter to the SEC in which it expressed concern that the proposed rule imposes impractical reporting requirements that are likely to increase transaction costs and undermine an important source of potential fund income ( i.e.

, securities lending).

The comment period ended on January 7, 2022.

• On November 17, 2021, the SEC proposed amendments to its rules governing proxy voting advice in an effort to enhance proxy advisory firms' ability to deliver independent proxy voting advice to their clients in a timely manner.

The proposed amendments would rescind two rules applicable to proxy advisory firms that the SEC adopted in 2020.

The proposed amendments rescind conditions to the availability of two exemptions from the proxy rules' informational and filing requirements on which proxy advisory firms often rely.

Those conditions require that:

(1) registrants that are the subject of proxy voting advice have such advice made available to them at or before the time proxy advisory firms make the advice available to their clients, and (2) clients of proxy advisory firms are provided with a means of becoming aware of any written responses by registrants to proxy voting advice.

The proposed amendments also would rescind the 2020 changes made to the proxy rules' liability provisions.

The comment period ended on December 27, 2021.

• On November 4, 2021, the SEC issued a final rule amending Rule 205-3 under the Advisers Act, which addresses performance-based advisor compensation, to streamline the process relating to the adjustment of the assets under management and net worth tests for "qualified client" status, and ensure that the rule's text remains at all times consistent with the inflation adjustment orders periodically issued by the SEC.

• On October 14, 2021, the SEC re-opened the comment period for its proposal to implement the provisions of Section 954 of the Dodd-Frank Act.

The proposed rule and rule amendments would direct the national securities exchanges and national securities associations to establish listing standards that would require each issuer to develop and implement a policy providing for the recovery (or claw back), under certain circumstances, of incentive-based compensation that is received by current or former executive officers based on financial information required to be reported under the securities laws, and require disclosure of the policy.

The proposal was initially issued by the SEC in 2015.

The comment period ended on November 22, 2021.

Investment management industry participants, such as Federated Hermes, also continued, and will continue, to monitor, plan for and implement certain changes in response to previously-issued, new, proposed or adopted rules and guidance.

Other proposed and final rules and guidance included, among others:

(1) final rules and amendments that permit registered closed-end funds

and BDCs to use the registration, offering and communications reforms the SEC had previously adopted for operating companies under the 1933 Act;

(2) further changes or guidance in response to the SEC's July 22, 2020 amendments to the rules governing proxy solicitations;

(3) proposed extensive changes to shareholder report and other fund disclosure documents;

and (4) a package of new rules ( i.e.

, Regulation Best Interest), amendments and interpretations intended to enhance the quality of retail investors' relationships with broker/dealers and investment advisors and to enhance investor protections while preserving retail investor access and choice.

On October 26, 2020, the SEC held a virtual roundtable where SEC and the Financial Industry Regulatory Authority (FINRA) staff discussed initial observations on Regulation Best Interest and Form CRS implementation.

The SEC also has requested comment on Rule 35d-1 under the 1940 Act (Names Rule) to determine whether the Names Rule can be improved to help ensure that fund names inform and do not mislead investors.

It remains uncertain whether regulators will consider revisiting, or Congress will require regulators to reconsider, certain recent Regulatory Developments.

It also remains unclear whether, or to what degree, investment advisors, broker/dealers or other intermediaries will roll-back, modify or continue changes made prior to the original Vacated DOL Fiduciary Rule, or make new or additional changes in light of the new Final DOL Fiduciary Rule, Final DOL Investment Duty Amendments, Final DOL Proxy Voting Rule, Regulation Best Interest, Form CRS, or SEC fiduciary duty interpretations.

Federated Hermes continues to analyze the potential impact of these Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Previously proposed and final rules and guidance included, among others:

(1) final rules and amendments to the investment advisor advertising and solicitation rules;

(2) a final rule providing an updated regulatory framework for fund valuation practices;

(3) a final rule regulating the use of derivatives in mutual funds and other funds registered under the 1940 Act;

(4) final rules and amendments to the existing regulatory framework governing fund of funds arrangements among investment funds governed by the 1940 Act;

(5) proposed extensive changes to fund shareholder reports and other fund disclosure documents;

(6) SEC staff statements and other communications related to registered investment companies investing in Bitcoin futures;

(7) rule changes intended to enhance the ability to clear certain trades, particularly those involving repurchase agreements through the Fixed Income Clearing Corporation;

(8) the Presidential executive order prohibiting investment in companies linked to the Republic of China's military and state security apparatus, and related SEC risk alerts and other staff statements;

and (9) changes to Form N-PX to enhance disclosure for mutual fund and ETF proxy voting records.

On December 14, 2021, Federated Hermes submitted a comment letter to the SEC regarding the proposed changes to Form N-PX in which Federated Hermes raised concerns about several elements of the proposed changes that raise operational challenges, may not achieve the SEC's objectives and that would place a higher emphasis on voting of proxies relative to an asset manager's fiduciary duty to

The SEC also has requested comment on the Names Rule to determine whether it can be improved to help ensure that fund names inform and do not mislead investors.

Federated Hermes has submitted three comment letters regarding the Names Rule's application to cash and cash equivalent investments when held for temporary or defensive purposes and its application to ESG-integrated, impact and other ESG or sustainable funds.

Please refer to our prior public filings for more detailed discussions of these, and other, previously-issued proposed and final rules and guidance.

In addition to the above Regulatory Developments, the SEC staff continues to engage in a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including investment advisors and investment management companies such as Federated Hermes' investment management subsidiaries and the Federated Hermes Funds.

In addition to examinations of various mutual fund complexes, the SEC Division of Examinations (formerly the Office of Compliance, Inspections and Examinations) (DOE) conducted examinations that covered 15% of all SEC-registered investment advisors in 2020.

The SEC Division of Enforcement also brought 715 enforcement actions in the SEC's 2020 fiscal year, with 492 of these actions being brought after the SEC instituted mandatory telework in mid-March 2020.

It has been reported that the SEC's enforcement focus under the new administration could shift back to a more aggressive investor protection stance and to publicly-traded company matters (such as insider trading, issuer reporting, and accounting fraud), and toward enforcement of new regulations (such as Regulation Best Interest) and ESG disclosures, with a reinstitution of a "broken windows" enforcement philosophy under which enforcement actions are brought for minor violations.

In addition to routine examinations, the SEC examinations have included certain sweep examinations involving various topics.

Examples of sweep examinations conducted, or being conducted, by the SEC staff include, among others, money market fund liquidity, liquidity risk management, transition from the LIBOR, compliance with Regulations Best Interest and Form CRS, cybersecurity, best execution, and share class allocation, among others.

In addition to its Covid-19 actions and guidance, the SEC staff also issued various guidance statements and risk alerts on a variety of compliance issues, including, among others, the Executive Order on Securities Investments that Finance Communist Chinese Military Companies, cyber-security, large trader obligations, investment advisor compliance, Covid-19-related risks and the transition from LIBOR.

At an industry conference on October 8 and 9, 2020, SEC DOE staff members indicated that DOE will likely assess the longer-term effects of Covid-19 in 2021 (including valuation issues), as well as issues related to conflicts of interest, fees and expenses, investment advisor compliance with fund prospectus ESG disclosure, and compliance with recently promulgated regulations.

The DOE staff also will likely focus on controls surrounding the use of material non-public information, improper allocation of investment opportunities, code of ethics deficiencies, and liquidity events.

The SEC DOE released on December 21, 2020 updated guidance concerning its planned examination program involving Regulation Best Interest in 2021.

The SEC DOE indicated that, in 2021, exams will focus on firms' compliance with Regulation Best Interest's specific mandates, including the requirement of a "reasonable basis" for investment recommendations, and on "enhanced transaction testing" to assess broker/dealer policies and procedures.

The examination priorities include:

(1) continued evaluation of firm policies and procedures (including evaluating specific firm processes for Regulation Best Interest compliance and alterations to firm product offerings, including whether firms are recommending higher cost products when lower cost products are available);

(2) evaluation of how firms have considered costs in making a recommendation, which can include what information is available to firm personnel to identify relevant costs, how any such information has been used and any documentation of the consideration of costs;

(3) evaluation of the processes that firm personnel have used to make recommendations to new customers;

(4) evaluation of the processes that firm personnel have used to recommend complex products, including what information was available and used to consider reasonably available investment alternatives;

and (5) evaluation of the processes that firms have used to identify and address conflicts related to recommendations.

In addition to the above Regulatory Developments, the SEC staff continues to engage in a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including investment advisors and investment management companies such as Federated Hermes' investment advisory subsidiaries and the Federated Hermes Funds.

It has been reported that the SEC's enforcement focus under the current administration could shift back to publicly-traded company matters (such as insider trading, issuer reporting, and accounting fraud), and to a more aggressive investor protection stance.

On November 18, 2021, the SEC's DOE released its results for fiscal year 2021, highlighting a seven percent increase in enforcement actions over 2020.

The report notes enforcement actions across all areas of the securities industry, as well as emerging new actions, including in respect of digital asset exchanges and SPACs.

According to the DOE's annual report, the SEC filed 697 total enforcement actions in fiscal year 2021, including 434 new actions, 120 actions against issuers who were delinquent in making required filings with the SEC, and 143 "follow-on" administrative proceedings seeking bars against individuals based on criminal convictions, civil injunctions, or other orders.

On October 13, 2021, the SEC's new Director of Enforcement announced that he intends to recommend aggressive use of available remedies in enforcement actions, including, among other remedies, requiring admissions of wrongdoing in certain cases.

It also has been reported that the SEC Division of Examinations is significantly expanding the scope of its examinations involving private markets fund managers.

On March 3, 2021, the SEC's DOE released its examination priorities for 2021, which included, among other priorities:

(1) compliance with Regulation Best Interest and Form CRS, as well as investment advisor fiduciary duties;

(2) information security and operational resilience;

(3) financial technology innovation;

(4) anti-money laundering programs;

(5) the transition from LIBOR to an alternate reference rate;

(6) investment advisor and fund ESG disclosures and practices;

(7) fund valuation and other disclosures and fund governance practices;

(8) the design, implementation and maintenance of investment advisor and fund compliance programs and fund liquidity risk management programs;

and (9) money market fund compliance with stress-testing requirements.

In addition to routine examinations, additional sweep examinations addressing various topics have been conducted.

For example, as previously announced in June 2021, the SEC conducted a sweep exam regarding the cyberattack involving the compromise of software created by the SolarWinds Corp.

In addition to its Pandemic-related actions and guidance, the SEC staff has also issued various guidance statements and risk alerts on a variety of compliance issues, including, among others, fixed-income principal and cross trades, managing client assets in wrap programs, ESG investing and product offerings, anti-money laundering, suspicious activity monitoring and reporting, digital assets, securities issued by SPACs, the Executive Order on Securities Investments that Finance Communist Chinese Military Companies, cyber-security, large trader obligations, investment advisor compliance and the transition from LIBOR.

These investigations, examinations and actions have led, and can lead, to further regulation, guidance statements and scrutiny of the investment management industry.

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Regulation or potential regulation by regulators other than the SEC and DOL also continued, and can continue, to affect investment management industry participants, including Federated Hermes.

For example, FINRA also has undertaken, and continues to undertake, examinations.

In the fourth quarter 2020, FINRA began reviewing firms' systems and procedures for providing customers waivers and rebates available through rights of reinstatement on mutual fund purchases.

Other FINRA examinations have included bank sweep program, zero commission and cyber-security sweep examinations.

In its 2021 Report on FINRA's Examination and Risk Monitoring Program, FINRA identifies, among other areas of concern, anti-money laundering, outside business activities, private securities transactions, Regulation Best Interest and Form CRS compliance, misrepresentation relating to cash management accounts and digital assets, best execution and liquidity risk management controls as areas of focus and potential examination.

Various state legislatures or regulators also have adopted or are beginning to adopt state-specific cyber-security and/or privacy requirements that can apply, to varying degrees, in addition to federal regulation.

The activities of the Financial Stability Oversight Council (FSOC) also continue to be monitored by the investment management industry, including Federated Hermes.

In December 2019, FSOC changed its systemically important designation approach for non-bank financial companies from an entity-based approach to an activities-based approach under which an individual firm would only be so designated if it determined that efforts to address the financial stability risks of that firm's activities by its primary federal and state regulators have been insufficient.

Since then, FSOC has been required first to focus on regulating activities that pose systemic risk, through actions by primary regulators.

FSOC has focused on potential risks in the asset management industry, including money market funds, and other types of cash management vehicles (such as local government investment pools) that continue to use amortized cost or have a stable NAV but are not subject to the 2014 Money Fund Rules and Guidance.

The FSOC also has recommended that the SEC and other financial regulators monitor developments concerning such short-term cash management vehicles for any financial stability risk implications (such as liquidity, redemption risks and leverage).

As discussed above, the market volatility and liquidity stress on money market funds experienced as a result of Covid-19 in March 2020 has drawn the attention of U.S.

and global regulators, including FSOC.

In its 2020 Annual Report, FSOC noted that "[s]tresses on prime and tax-exempt [money market funds] revealed continued structural vulnerabilities that led to increased redemptions and, in turn, contributed to and increased the stress in short-term funding markets." It has been reported that, during her testimony prior to her confirmation by the Senate on January 25, 2021, Treasury Secretary Janet Yellen expressed comfort with the idea of looking at whether activities of asset managers represent a systemic risk rather than whether asset management firms pose systemic risk.

It had previously been reported that some advocacy groups had been encouraging the Treasury Secretary to set a new direction for FSOC and exercise its powers to subject big financial firms to stricter oversight.

While the Treasury Secretary's testimony is encouraging for the investment management industry, any possibility of FSOC reverting to its pre-December 2019 systemically important designation practices, and recommending new or heightened regulation for non-bank financial companies, which the Fed's Board of Governors (Governors) have indicated can include open-end investment companies, such as money market funds and other mutual funds, increases the potential for further regulation of the investment management industry, including Federated Hermes and the Federated Hermes Funds.

For example, on December 20, 2021, the Financial Industry Regulatory Authority (FINRA) filed with the SEC a proposed rule change to amend the provisions of FINRA Rule 2251 (Processing and Forwarding of Proxy and Other Issuer-Related Materials) relating to reimbursement from issuers for forwarding proxy and other materials and make minor conforming revisions.

On October 8, 2021, FINRA issued a regulatory notice encouraging FINRA member firms to incorporate government-wide anti-money laundering and countering financing of terrorism priorities into their anti-money laundering programs.

FINRA examinations have included, among others, options trading, bank sweep programs, zero commission and cyber-security sweep examinations.

In a 2021 Report on its Examination and Risk Monitoring Program, FINRA identified, among other areas of concern, anti-money laundering, outside business activities, private securities transactions, Regulation Best Interest and Form CRS compliance, misrepresentations relating to cash management accounts and digital assets, best execution and liquidity risk management controls as areas of focus and potential examination.

In addition to federal regulation, various state legislatures or regulators also have adopted or are beginning to adopt state-specific cyber-security and/or privacy requirements that can apply to varying degrees to investment management industry participants, including Federated Hermes.

The activities of the FSOC also continue to be monitored by the investment management industry, including Federated Hermes.

In December 2019, the FSOC changed its systemically important designation approach for non-bank financial companies from an entity-based approach to an activities-based approach under which an individual firm would only be so designated if it were determined that efforts to address the financial stability risks of that firm's activities by its primary federal and state regulators

have been insufficient.

Since then, the FSOC has been required first to focus on regulating activities that pose systemic risk through actions by primary regulators.

The FSOC has focused on potential risks in the asset management industry, including money market funds, and other types of cash management vehicles (such as local government investment pools), that continue to use amortized cost or have a stable NAV but are not subject to the 2014 Money Fund Rules and Guidance.

As discussed above, the market volatility and liquidity stress on money market funds experienced as a result of the Pandemic beginning in March 2020 has drawn the attention of U.S.

and global regulators, including the FSOC.

Certain policy advocates have called for the FSOC to reverse its 2019 decision to change its approach as outlined above in order to better fulfill its statutory mandate to mitigate risks to financial stability.

Any possibility of the FSOC reverting to its pre-December 2019 systemically important designation practices, and recommending new or heightened regulation for non-bank financial companies, which the Fed's Board of Governors (Governors) have indicated can include open-end investment companies, such as money market funds and other mutual funds, increases the potential for further regulation of the investment management industry, including Federated Hermes and the Federated Hermes Funds.

As a candidate, the current President stated that he is open to the idea of a financial transactions tax (FTT) on securities transactions, an idea proposed by certain former Democratic candidates, including the current Vice President.

Prior federal legislative attempts to enact an FTT would have imposed a 0.1% tax on stock, bond and derivative transactions, which would have applied to sales made in the U.S.

persons, while initial securities issuances and short-term debt would have been exempt.

A later proposal would have taxed stock trades at 0.5%, bond trades at 0.1%, and derivatives transactions at 0.005% coupled with an income tax credit for individuals with income of less than $50,000 ($75,000 for married couples), which was intended to offset the average burden of the tax for such individuals.

Neither bill has progressed in Congress.

While ultimately left out of the New Jersey budget by New Jersey Governor Phil Murphy for 2021, on July 16, 2020, a bill was introduced into the New Jersey state legislature which sought to impose a $0.0025 tax per financial transaction on any person or entity that transacts more than 10,000 financial transactions through electronic infrastructure located in New Jersey during the year.

It has been reported that the New Jersey Governor favors an FTT and could revive the concept in subsequent years.

It also has been reported that certain New York lawmakers are in favor of, and considering, an FTT.

The need to fund state budget deficits, particularly given the impact of Covid-19, is being cited as a renewed justification for enacting FTTs.

On October 27, 2020, a bill was introduced into the U.S.

House of Representatives that would have prohibited states from imposing FTTs on security industry participants.

Management believes that an FTT, particularly if enacted with broad application, would be

detrimental to Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

The current regulatory environment has impacted, and will continue to impact, to various degrees, Federated Hermes' business, results of operations, financial condition and/or cash flows.

The Wall Street Tax Act, introduced in the House of Representatives on January 15, 2021 together with its companion Senate bill introduced on March 18, 2021, would impose, if enacted, a 0.1% tax on stock, bond and derivatives transactions and reportedly would raise an estimated $777 billion over a decade.

The Tax on Wall Street Speculation Act, introduced in the Senate and House of Representatives on April 21, 2021, would impose an FTT of 0.5% on stock trades, 0.1% on bond trades, and 0.005% on derivative transactions.

These proposals are being introduced for a variety of reasons, including to fund infrastructure programs and college education programs or in an attempt to reduce speculation on Wall Street.

While Congressional hearings have taken place during which the FTT proposals have been discussed, none of the bills introduced to date have progressed in Congress.

The President initially proposed (and the House Ways and Means Committee approved a reconciliation tax bill) raising the corporate income tax rate to 26.5%;

although the White House later abandoned the proposal in favor of a new separate 15% minimum tax on firms with more than $1 billion in profit.

The President has also proposed a "wealth tax" on the unrealized investment income of Americans with at least $1 billion in assets, which reportedly is supported by certain Senators who initially opposed the President's budget proposals.

A 1% percent excise tax on the value of stock repurchased by publicly-traded U.S.

corporations also has been proposed.

While these tax increases, among others, are being proposed to fund infrastructure plans and the proposed budget, the President has not signaled an intent to include an FTT in any tax proposals.

Legislation also has been introduced in various states, such as New York, New Jersey, and Illinois, that, if enacted, would have imposed FTTs on various types of securities, commodities or other financial transactions.

In March 2021, a bill was re-introduced into the U.S.

House of Representatives that would prohibit states from imposing FTTs on security industry participants.

As of December 31, 2021, that bill has not progressed in Congress.

Management believes that an FTT, particularly if enacted with broad application, would be detrimental to investors and Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition, cash flows and/or stock price (collectively Financial Condition).

The regulatory environment has impacted, and will continue to impact, to various degrees, Federated Hermes' Financial Condition.

For example, Regulatory Developments can result in shifts in product structures, as well as changes in asset flows and mix and customer relationships.

It remains uncertain whether, and to what degree, investment advisors, broker/dealers or other intermediaries will roll-back, modify or continue changes made in response to the original Vacated Final DOL Fiduciary Rule given the new DOL Final Fiduciary Rule and other Regulatory Developments.

It also remains uncertain the degree to which previously issued Regulatory Developments will be rescinded or changed.

It also remains unclear whether, or to what degree, investment advisors, broker/dealers or other intermediaries will roll-back, modify or continue changes made prior to the original, vacated DOL fiduciary rule, or make new or additional changes in light of the Final DOL Fiduciary Rule, the DOL's final investment duty amendments, Final DOL Proxy Voting Rule, Final DOL ESG Rule, New DOL Proposed ESG/Proxy Voting Rule, Regulation Best Interest, Form CRS, or SEC fiduciary duty interpretations.

As noted above, the DOL has taken non-enforcement positions with respect to the Final DOL Fiduciary Rule, and has proposed the New DOL Proposed ESG/Proxy Voting Rule, which increases this uncertainty.

If intermediaries continue to reduce the number of Federated Hermes Funds offered on their platforms, mutual fund-related sales and distribution fees earned by Federated Hermes can decrease.

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On the other hand, management continues to believe that Federated Hermes' business can be positively affected because separately managed account/wrap-fee strategies work well in level wrap-fee account structures and can provide transparency and potential tax advantages to clients, while Federated Hermes' experience with bank trust departments and fiduciary experience and resources presents an opportunity to add value for customers.

Federated Hermes has dedicated, and continues to dedicate, significant and additional internal and external resources to monitor, analyze and address regulatory responses to the impact from Covid-19 and Regulatory Developments generally, and their effect on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Federated Hermes continues to analyze the potential impact of these Regulatory Developments on Federated Hermes' Financial Condition.

and their effect on Federated Hermes' Financial Condition.

Additional internal and external resources have been, and will continue to be, devoted to technology, legal, compliance, operations and other efforts to address regulatory-related matters.

These efforts included, and will continue to include, having conversations internally, and with intermediaries, customers, service providers, counsel and other advisors, regarding Regulatory Developments, and analyzing and/or affecting legislative, regulatory, product offering, development and structure adjustments, technology or information system development, reporting capabilities, business processes and other options, in an effort to comply, and/or to assist Federated Hermes' intermediaries and customers to comply, with new Regulatory Developments or minimize the potential impact of any adverse consequences stemming therefrom.

These efforts included, and will continue to include, having conversations internally, and with intermediaries, customers, service providers, counsel and other advisors regarding Regulatory Developments, and analyzing and/or affecting legislative, regulatory, product offering, development and structure adjustments, technology or information system development, reporting capabilities, business processes and other options, in an effort to comply, and/or to assist Federated Hermes' intermediaries and other customers to comply, with new Regulatory Developments or minimize the potential impact of any adverse consequences stemming therefrom.

As appropriate, Federated Hermes also participated, and will continue to participate, either individually or with industry groups, in the comment process for proposed regulations.

Federated Hermes continues to expend legal and compliance resources to examine corporate governance and public company disclosure proposals and final rules issued by the SEC, to adopt, revise and/or implement policies and procedures, and to respond to examinations, inquiries and other matters involving its regulators, including the SEC, customers or other third parties.

Federated Hermes continues to expend legal and compliance resources to examine corporate governance, public company, ESG, climate change, and other disclosure proposals and final rules issued by the SEC and other regulators, to adopt, revise and/or implement policies and procedures, and to respond to examinations, inquiries and other matters involving its regulators, including the SEC, customers or other third parties.

Federated Hermes also has devoted, and will continue to devote, resources to technology and system investment, business continuity, cybersecurity and information governance, and the development of other investment management and compliance tools, to enable Federated Hermes to, among other benefits, be in a better position to address Regulatory Developments.

In connection with Covid-19, Federated Hermes has devoted internal and external resources to complying with the requirements of federal and state orders imposing work and travel restrictions, and the requirements under the Center for Disease Control and Prevention's (CDC) and state and local health departments' guidance, as well as enhanced disinfection and contamination procedures.

Federated Hermes is unable to fully assess at this time whether, or the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new Regulatory Developments ultimately can be successful.

The degree of impact of Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows can vary and is uncertain.

Management also is monitoring and assessing the potential impact of Covid-19 generally, and the impact of current low interest rate environment on money market fund and other fund asset flows, and related asset mixes, as well as the degree to which these factors impact Federated Hermes' prime and municipal (or tax-exempt) money market business and Federated Hermes' business, results of operations, financial condition and/or cash flows generally.

Management is also monitoring the potential for additional regulatory scrutiny of money market funds, including prime and municipal (or tax-exempt) money market funds.

In connection with the Pandemic, Federated Hermes has devoted internal and external resources to endeavor to comply with the requirements of federal and state orders imposing work- and travel-related restrictions, and the requirements under the CDC's and state and local health departments' guidance, as well as enhanced disinfection and contamination procedures.

The degree of impact of Regulatory Developments on Federated Hermes' Financial Condition can vary, including in a material way, and is uncertain.

Management also continues to monitor and assess the potential impact of the Pandemic generally, and the impact of the low interest rate environment and anticipated increasing interest rate environment on money market fund and other fund asset flows, and related asset mixes, as well as the degree to which these factors impact Federated Hermes' institutional prime and municipal (or tax-exempt) money market business and Federated Hermes' Financial Condition.

Management also continues to monitor, and expend resources in connection with, the potential for additional regulatory scrutiny of money market funds, including prime and municipal (or tax-exempt) money market funds.

The Regulatory Developments discussed above, and related regulatory oversight, also impacted, and/or can impact, Federated Hermes' intermediaries, other customers and service providers, their preferences and their businesses.

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In addition, these developments have caused, and/or can cause, changes in asset flows, levels and mix, as well as customer and service provider relationships.

Federated Hermes will continue to monitor regulatory actions in response to Covid-19 and other Regulatory Developments as necessary and can implement additional changes to its business and practices as it deems necessary or appropriate.

Further analysis and planning, or additional refinements to Federated Hermes' product line and business practices, can be required in response to market, customer or new or modified Regulatory Developments, such as the new investment advisor advertising, valuation, derivatives, and fund of funds rules, Final DOL Fiduciary Rule, Final DOL Proxy Voting Rule, Final DOL Investment Duty Amendments, and other Regulatory Developments, or any additional regulation or guidance issued by the SEC, DOL or other regulatory authorities.

In addition to the impact on Federated Hermes' AUM, revenues, operating income and other aspects of Federated Hermes' business described above, on a cumulative basis, Federated Hermes' regulatory, product development and restructuring, and other efforts in response to the Regulatory Developments discussed above, including the internal and external resources dedicated to such efforts, have had, and can continue to have, on a cumulative basis, a material impact on Federated Hermes' expenses and, in turn, financial performance.

As of December 31 , 2020, given the current regulatory environment, Covid-19 and the possibility of future additional modified or delayed regulation or oversight, Federated Hermes is unable to fully assess the impact of regulatory actions in response to Covid-19 or other adopted or proposed regulations, and other Regulatory Developments, and Federated Hermes' efforts related thereto, on its business, results of operations, financial condition and/or cash flows.

Modified or new Regulatory Developments in the current regulatory environment, and Federated Hermes' efforts in responding to them, could have a material and adverse effect on Federated Hermes' business, results of operations, financial condition and/or cash flows.

As of December 31, 2020, management also believes that any designation as a systemically important non-bank financial company, or any reforms ultimately put into effect by FSOC, would be detrimental to Federated Hermes' money market fund business and could materially and adversely affect Federated Hermes' business, results of operations, financial condition and/or cash flows.

Federated Hermes will continue to monitor regulatory actions in response to the Pandemic and other Regulatory Developments as necessary and can implement additional changes to its business and practices as it deems necessary or appropriate.

Further analysis and planning, or additional refinements to Federated Hermes' product line and business practices, can be required in response to market conditions, customer preferences or new or modified Regulatory Developments, such as the new investment advisor advertising, valuation, derivatives, and fund of funds rules, any proposed changes to the Final DOL Fiduciary Rule, the New DOL Proposed ESG/Proxy Voting Rule and other Regulatory Developments, or any additional regulation or guidance issued by the SEC, DOL or other regulatory authorities.

In addition to the impact on Federated Hermes' AUM, revenues, operating income and other aspects of Federated Hermes' business described above, Federated Hermes' regulatory, product development and restructuring, and other efforts in response to the Regulatory Developments discussed above, including the internal and external resources dedicated to such efforts, have had, and can continue to have, on a cumulative basis, a material impact on Federated Hermes' expenses and, in turn, financial performance.

As of December 31, 2021, given the regulatory environment, the Pandemic and the possibility of future additional regulation or oversight, Federated Hermes is unable to fully assess the impact of regulatory actions in response to the Pandemic or other

Regulatory Developments, and Federated Hermes' efforts related thereto, on its Financial Condition.

As of December 31, 2021, management also believes that any designation as a systemically important non-bank financial company, or any reforms ultimately put into effect by the FSOC, would be detrimental to Federated Hermes' money market fund business and could materially and adversely affect Federated Hermes' Financial Condition.

Current Regulatory Environment - International

Similar to the U.S., in 2020, the outbreak of Covid-19 shifted the regulatory environment in the UK and European Union (EU) toward the adoption of measures intended to provide regulatory flexibility and market stabilization.

While the impact of Covid-19 remains unclear as 2021 begins, regulators in the UK and EU are beginning to allow certain regulatory relief granted in 2020 to expire, while extending other relief, and continue to advance new and proposed consultations, directives, regulations and laws while generally remaining in a remote working environment.

Similar to the situation in the U.S., in 2021, as the Pandemic continued, the regulatory environment globally shifted away from the adoption of measures intended to provide regulatory flexibility.

In its October 27, 2021 Annual Report, the Financial Stability Board (FSB) noted that the outlook for financial stability continued to be dominated by the Pandemic, with the recovery being uneven across economies and sectors and financial vulnerabilities related to stretched asset valuations and high non-financial sector debt.

In an October 28, 2021 final report to the G20, the FSB highlighted market and institutional resilience, operational resilience and crisis preparedness as key policy objectives.

While the full impact of the Pandemic remains unclear as of the first quarter of 2022, regulators in the UK and EU have continued to allow certain regulatory relief granted in 2020 to expire, while extending other relief, continue policy efforts to address the effects of the Pandemic and related market instability, and advance new and proposed consultations, directives, regulations and laws.

These Regulatory Developments continue to impact the investment management industry in the UK and EU.

In the UK, the transition period under the European Union Withdrawal Agreement Bill (Withdrawal Agreement Bill), which implemented the withdrawal agreement reached between the UK and the other 27 EU member states and set out the arrangements for the UK's withdrawal from the EU (Brexit), ended on December 31, 2020.

In the UK, the transition period under the European Union Withdrawal Agreement Bill (Withdrawal Agreement Bill), which implemented the agreement reached between the UK and the other 27 EU Member States and set out the arrangements for the UK's withdrawal from the EU (Brexit), ended on December 31, 2020.

On December 30, 2020, the EU–UK Trade and Cooperation Agreement (TCA) became effective.

Among other things, the TCA provides for free trade for goods and limited mutual market access for services, creates certain border checkpoints, imposes visa requirements on UK nationals staying more than 90 days in the EU in a 180-day period, removes any role for the European Court of Justice in the UK, and eliminates the requirement for the UK to comply with EU data protection directives.

The TCA also provides for cooperation between the UK and EU regarding a range of policy areas, as well as transitional provisions about EU access to UK fisheries, and UK participation in certain EU programs.

As of January 2021, the Office for Budget Responsibility in the UK reports that the UK has approximately £25 billion to pay to the EU by 2057, with £18 billion to be paid in the next five years.

In addition to the TCA, since the UK no longer participates in EU trade agreements with other countries, the UK has entered into approximately 60 trade agreements with other countries outside the EU as of January 1, 2021 and continues to negotiate trade agreements with other countries.

Significant political, economic, legal and regulatory uncertainty continues to exist regarding the impact of Brexit on a post-Brexit UK.

See Item 1A - Risk Factors under the captions General Risk Factors - Economic and Market Risks - Potential Adverse Effects of a Decline or Disruption in the Economy or Markets and General Risk Factors - Regulatory and Legal Risks - Potential Adverse Effects of Changes in Laws, Regulations and Other Rules for further discussion of the risks of political instability, currency abandonment and other market disruptions on Federated Hermes and its business.

Brexit has affected, and will likely continue to affect, the requirements and/or timing of implementation of legislation and regulation applicable to doing business in the EU and UK, including the laws and regulations applicable to Federated Hermes, as well as to the sponsoring, management, operation and distribution of Federated Hermes' products and services, both within and outside the EU and UK.

On November 9, 2020, the European Securities and Markets Authority (ESMA) issued a press release reminding financial institutions of the need to be ready for the expiration of the transition period of December 31, 2020, including the need to finalize authorizations and fully establish EU-based operations and appropriate risk management capacity commensurate to the

magnitude, scope and complexity of their activities and risks generated in their EU operations.

On October 1, 2020, ESMA issued an updated statement on the consequences of Brexit under the Benchmark Regulation, which indicates that EU supervised entities can continue to use third-country UK benchmarks until December 31, 2021 and that this transition period is also recognized in the UK.

While the TCA addresses the financial services industry, it does not provide for passporting rights nor address equivalence decisions.

Passporting ended at the end of the transition period and firms now must rely on temporary permission regimes and comply with the local laws of each country.

The UK Financial Conduct Authority (FCA) has implemented a temporary permissions regime that allows European Economic Area (EEA)-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK, and allows EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for up to three years, while they seek full FCA authorization.

The UK also has created a financial services contracts regime that allows, for a limited time, EEA-based firms not taking advantage of the temporary permissions regime in the UK to continue to service UK customers entered into prior to the end of the transition period in order for them to conduct an orderly exit from the UK.

Among other things, the TCA provides for free trade for goods and limited mutual market access for services, removes any role for the European Court of Justice in the UK, and eliminates the requirement for the UK to comply with EU data protection directives.

The TCA also provides for cooperation between the UK and EU regarding a range of policy areas and UK participation in certain EU programs.

Political, economic, legal and regulatory uncertainty continues regarding the impact of Brexit on a post-Brexit UK.

See Item 1A - Risk Factors - General Risk Factors - Economic and Market Risks - Potential Adverse Effects of a Decline or Disruption in the Economy or Markets and General Risk Factors - Regulatory and Legal Risks - Potential Adverse Effects of Changes in Laws, Regulations and Other Rules for further discussion of the risks of political instability, currency abandonment and other market disruptions on Federated Hermes and its business.

Brexit has affected, and will likely continue to affect, the requirements and/or timing of implementation of legislation and regulations applicable to doing business in the EU and UK, including the laws and regulations applicable to Federated Hermes, as well as to the sponsoring, management, operation and distribution of Federated Hermes' products and services, both within and outside the EU and UK.

On March 24, 2021, the European Securities and Markets Authority (ESMA) issued an updated statement on the consequences of Brexit under the Benchmark Regulation, which indicates that EU-supervised entities can continue to use third-country UK benchmarks until December 31, 2023 and that this transition period is also recognized in the UK.

On September 20, 2021, the UK House of Commons Treasury Committee published the UK Government's response (Response) to its report on the Future Regulatory Framework of Financial Services, which was published on June 30, 2021.

Among other key points, the Response expresses support for incorporating into UK law EU financial services rules that were "on-shored" into the UK as a result of Brexit.

UK regulators are continuing with the process of rationalizing the EU legislation and regulatory requirements that were quickly "on-shored" upon Brexit taking effect.

In October 2020, the UK Financial Conduct Authority (FCA), the Bank of England (BoE) and other UK regulators granted firms until March 31, 2022 to comply with certain of these regulatory changes including, among others, certain reporting obligations and market abuse requirements.

On November 9, 2021, Her Majesty's Treasury (HM Treasury) published, "Financial Services Future Regulatory Framework Review:

Proposals for Reform," its second consultation on the UK government's proposals for adapting the UK regulatory framework for financial services following Brexit.

The consultation builds on a previous consultation, and seeks to build on the strengths of the UK's financial services regulatory framework and the UK's existing model of regulation established by the Financial Services and Markets Act 2000.

It sets forth proposals:

(1) to include changes to regulators' statutory objectives, including giving HM Treasury and the FCA broader rule-making powers to establish new UK financial conduct standards as EU regulation is gradually repealed;

(2) for enhanced mechanisms for accountability, scrutiny and oversight of the regulators by UK Parliament, HM Treasury and stakeholders;

and (3) as to how HM Treasury intends to return responsibility for designing and implementing regulatory requirements to the UK regulators, a break from the approach under EU law.

The consultation period ended on February 9, 2022.

While the TCA addresses the financial services industry, it does so on a limited basis and does not provide for passporting rights nor address equivalence decisions.

Passporting ended at the expiration of the Brexit transition period and firms now must rely on temporary permission regimes and comply with the local laws of each country.

Regarding providing a replacement for passporting, the FCA has implemented a temporary permissions regime that allows European Economic Area (EEA)-domiciled investment funds that were marketed in the UK under a passport to continue temporarily to be marketed in the UK, and allows EEA-based firms that passported into the UK to continue new and existing regulated business within the scope of their permissions in the UK for up to five years, while they seek full FCA authorization.

On March 4, 2021, the FCA provided further guidance on the UK temporary permissions regime by advising firms of the opening and closing dates (or landing slot) during which firms must either apply for full permission or cancel their temporary permission and then cease any regulated financial conduct in the UK.

On January 18, 2022, the FCA issued a statement indicating that it would seek to ensure that firms relying on the temporary permissions regime, where appropriate, cannot expand their UK business while in the temporary permissions regime.

The FCA also indicated that, if firms miss their landing slot, fail to respond to mandatory information requests, do not intend to apply for full authorization, or have their authorization application refused, and do not voluntarily leave the temporary permissions regime, the FCA will take action to remove them.

The UK also has created a financial services contracts regime that allows, for a limited time, EEA-based firms not taking advantage of the temporary permissions regime in the UK to continue to service UK customers under contracts entered into prior to the end of the transition period in order for them to conduct an orderly exit from the UK.

In addition to the UK, EU governments, such as, among others, France, the Netherlands, Italy and Germany, also have adopted similar temporary permission regimes or other laws to permit UK products to be sold, and EU-UK financial transactions to continue, for a period of time in their countries.

Pursuant to amendments implemented by the Withdraw of the United Kingdom from the European Union (Consequential Provisions) Bill 2020, a firm that is authorized in the UK and/or Gibraltar, which has previously passported into Ireland, will be deemed to be authorized for specific and limited purposes in Ireland for a 15-year period following the end of the transition period, subject to the fulfillment of certain conditions.

The FCA, ESMA and EU regulators previously signed memoranda of understandings (MoUs) covering cooperation and exchange of information that have come into effect at the end of the transition period ( i.e.

, on December 31, 2020) and provide for some level of regulatory coordination until the new regime is agreed and in place.

In a joint declaration dated December 24, 2020, the EU and UK committed to agreeing to a framework for regulatory cooperation and mutual equivalence by March 2021.

UK regulators also are continuing with an "onshoring" process of amending EU legislation and regulatory requirements so that they work in the UK.

In October 2020, the FCA, Bank of England (BoE) and other UK regulators granted firms until March 31, 2022 to comply with certain regulatory changes including, among others, certain reporting obligations and market abuse requirements.

Despite these developments, there remains a risk of regulatory divergence between the UK and the EU.

For example, EU investment firms in EU Member States are required to comply with the Investment Firms Directive (IFD) and Investment Firms Regulation (IFR) by June 26, 2021.

The IFD and IFR do not bind the UK and UK regulators are considering a new UK prudential regime for MiFID firms (IFPR), which has been included in the Financial Services Bill and is based on the IFD and IFR.

On December 14, 2020, the FCA issued "Consultation Paper 20/24:

A new UK prudential regime for MiFID investment firms," in which the FCA seeks comment on its proposed rules on the IFPR.

The form of the final IFPR is not known and UK regulators are targeting an implementation date of January 1, 2022.

Moreover, rather than adopt the EU Sustainable Finance Disclosure Regulation (SFDR), the UK announced on November 9, 2020 that it will introduce ESG disclosure rules aligning with the Task Force on Climate-related Financial Disclosures (TCFD), which makes the UK the first country to adopt that approach.

On December 22, 2020, the Financial Stability Board (FSB) issued a statement encouraging the International Financial Reporting Standards Foundation and financial authorities to use the TCFD's recommendations as the basis for standards for climate-related financial disclosures.

It also has been reported that an ESG Template for funds to explain their ESG features is expected to be proposed in 2021, to supplement the European Markets in Financial Instruments Directive (MiFID) Template, which is being revised to include ESG fields.

The current post-Brexit regulatory environment (particularly the need to obtain full authorizations on a country-by-country basis) also creates a level of uncertainty regarding the ability and requirements to distribute products and provide management services between the UK and EU, increasing regulatory burdens and compliance and other costs for UK funds being distributed in the EU and EU funds (such as Irish-domiciled funds) being distributed in the UK.

The ability to engage investment managers for EU funds and UK funds also could be impacted, resulting in structural and other changes for UK- and EU-domiciled funds.

In March 2020, Her Majesty's Treasury (HM Treasury) released a consultation paper proposing an overseas fund regime which is targeted at Undertakings for the Collective Investment in Transferable Securities (UCITS) and will enable Federated Hermes' Irish UCITS funds to continue to be marketed in the UK after December 31, 2020 and the temporary permissions regime.

HM Treasury proposes an equivalence regime which will determine countries which are equivalent to the UK and will work with the FCA to determine countries of equivalence.

HM Treasury is using the Financial Services Bill 2019 - 2021 to introduce the Overseas Funds Regime (OFR) - an equivalence regime for overseas retail funds to be able to market to UK retail investors.

HM Treasury has also proposed a separate regime for money market funds to be able to market to all investors, noting that the

process will be different if the fund wants to market to retail or professional investors.

In March 2020, HM Treasury released a consultation paper proposing an Overseas Fund Regime (OFR) which is targeted at Undertakings for the Collective Investment in Transferable Securities (UCITS) and would be a long-term replacement to the temporary permissions regime which enabled Federated Hermes' Irish UCITS funds to continue to be marketed in the UK after December 31, 2020.

HM Treasury proposed this equivalence regime which will determine countries which are equivalent to the UK.

HM Treasury used the Financial Services Act 2021 to formally introduce the OFR as an equivalence regime for overseas retail funds to be able to market to UK investors, including retail investors, on appropriate terms.

HM Treasury has also proposed a separate regime for money market funds to be able to market to all investors, noting that the process will be different if the fund wants to market to retail or professional investors.

These regimes will function similarly to the existing EU approach to equivalence.

Federated Hermes has received permission from the FCA to allow certain Irish-domiciled UCITS funds and Luxembourg-based direct lending funds to continue to be marketed in the UK post-Brexit.

Despite negative deposit interest rates, euro-denominated European money market funds have successfully operated and provided investors with high quality diversified investments which continue to provide same day liquidity, first through the use of an approved share cancellation methodology and more recently through the use of accumulating share classes.

Federated Hermes continues to work with the FCA and the Central Bank of Ireland (CBI) on appropriate permissions to operate in each jurisdiction, in a manner similar to euro-denominated money market funds, should official rates in U.S.

HM Treasury is working with the FCA to undertake equivalence assessments for different countries and different fund types in order to identify those that can take advantage of the OFR.

The FCA is continuing to consider the requirements that will apply under the OFR and whether those funds will need to put in place some form of value assessment process.

Federated Hermes has received permission from the FCA to allow certain Irish-domiciled UCITS funds and Luxembourg-based direct lending funds to continue to be marketed in the UK under the temporary permissions regime.

Regarding equivalency, the FCA, ESMA and EU regulators previously signed memoranda of understandings (MoUs) covering cooperation and exchange of information that came into effect at the end of the transition period (i.e., on December 31, 2020) and provide for some level of regulatory coordination and mutual equivalence until a new regime is agreed and in place.

On March 26, 2021, HM Treasury announced that technical discussions had concluded, and that the UK and the EU agreed to another MoU that creates a framework for voluntary regulatory cooperation in financial services and establishes a Joint UK-EU Financial Regulatory Forum, which will serve as a platform to facilitate dialogue on financial services matters.

The MoU, however, does not reflect progress on equivalency determinations.

In addition to a few other equivalency decisions, such as two time-limited equivalency decisions in connection with the UK relating to central counterparty clearing and settlement of Irish securities, on June 26, 2021, the European Commission issued two adequacy decisions recognizing the level of protection of the UK's data protection laws as "essentially equivalent" with EU laws.

These adequacy decisions allow EU to UK data flow to continue after Brexit.

In September 2021, as part of a broader announcement on the future of the UK's data protection regime, the UK Government announced plans to work on granting adequacy decisions regarding the data protection laws of other countries, including the U.S., Australia, Singapore and others.

HM Treasury has granted over 25 equivalency decisions to the EU, in addition to those granted to 32 other jurisdictions.

Despite these developments, there remains a risk of regulatory divergence between the UK and the EU.

On July 1, 2021, Rishi Sunak, the UK Chancellor of the Exchequer, called an end to negotiations with the EU on regulatory equivalence (or common regulations) with EU financial services regulation.

This decision means that the UK has elected to have its own financial rules.

EU investment firms in EU Member States were required to comply with the Investment Firms Directive (IFD) and Investment

Firms Regulation (IFR) by June 26, 2021, the effective date of the IFD and IFR in the EU.

The IFD and IFR, however, do not bind the UK, and a new UK prudential regime for Markets in Financial Instruments (MiFID) firms titled Investment Firms Prudential Regime (IFPR) was included in the Financial Services Bill 2019-2021, which was based on the IFD and IFR.

On April 29, 2021, the Financial Services Bill 2019-2021 received Royal Assent and became UK law as the Financial Services Act 2021.

Among other things, this Act:

(1) introduced the IFPR as a new UK prudential regime for investment firms;

(2) amended the UK's on-shored Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) to provide the FCA with additional powers to clarify the scope of the regulations and amend the requirements within the PRIIPs Key Information Document (KID);

(3) increased the power of the FCA to ensure a smooth transition away from LIBOR;

(4) simplified the process enabling non-UK investment funds to be marketed in the UK;

and (5) required the FCA to consult on whether it should make general rules providing that authorized persons owe a duty of care to consumers.

On June 29, 2021, the FCA issued its first of three policy statements based on a prior consultation on the IFPR that set forth "near final" rules on consolidation, own-fund requirements, and concentration risk, which will apply to UK-authorized MiFID firms.

On July 26, 2021, the FCA issued its second policy statement, which set forth industry feedback to the first policy statement, and additional "near-final" rules to supplement and amplify those rules that were set forth in the first policy statement.

On August 6, 2021, the FCA published another consultation on the IFPR with additional disclosure requirements and other technical changes.

The consultation period closed on September 17, 2021.

On November 26, 2021, the FCA published its final policy statement setting out its final rules on the IFPR, which implement most of the policy proposals set forth in the FCA's consultation papers.

The IFPR, which became effective on January 1, 2022, introduced a single prudential regime and represents a significant change for FCA-authorized investment firms in the UK that are authorized under MiFID, including alternative investment fund managers with MiFID top-up permissions.

As another example, EU regulators have previously issued or proposed directives, rules and laws regarding sustainable finance, including the Sustainability-Related Disclosures Regulation or Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation.

The Taxonomy Regulation establishes a framework to facilitate sustainable investment, including when Member States establish measures (e.g., labels or standards) setting requirements regarding financial products or corporate bonds presented as "environmentally sustainable." On April 21, 2021, the European Commission issued a Sustainable Finance Package that contained:

(1) an EU Taxonomy Climate Delegated Act, which aims to support sustainable investment by clarifying which economic activities most contribute to meet the EU's environmental objectives;

(2) a proposal for a Corporate Sustainability Reporting Directive (CSRD) and revisions to the Non-Financial Reporting Directive, which aim to make sustainability reporting by companies more consistent, so that financial firms, investors, and the broader public can use comparable and reliable sustainability information;

and (3) amendments to delegated acts to better reflect sustainability preferences in insurance and investment advice and sustainability considerations in product governance and fiduciary duties.

The amendments provide for a 12-month implementation period that is expected to end in October 2022.

On May 7, 2021, the European Commission published a draft delegated act setting out definitive standards for the disclosure of information on environmental sustainability that certain large companies must make, as required under the Taxonomy Regulation.

On June 8, 2021, ESMA published a "Trends, Risks and Vulnerabilities (TRV) Report" in which it assessed EU investment funds' exposure to climate-sensitive economic sectors and identified certain key risks.

On July 6, 2021, the European Commission adopted a delegated regulation that supplemented certain disclosure requirements under the Taxonomy Regulation which specified the content, methodology and presentation of information that certain large financial and non-financial entities must disclose concerning their environmentally-sustainable economic activities.

By letter dated July 23, 2021, addressed to the European Supervisory Authorities (ESAs), the European Commission stated that, due to the length and technical detail of the Level 2 technical standards, their late submissions, and forthcoming amendments to the draft Level 2 technical standards, the European Commission will bundle all of the regulatory technical standards in a single delegated act and defer the date of application from January 1, 2022 to July 1, 2022.

On July 26, 2021, the European Commission published updated Questions and Answers concerning a number of questions raised by the ESAs regarding the application of the SFDR, including the application of the SFDR to Alternative Investment Fund Managers (AIFM) and Accredited Investment Fiduciaries (AIF).

On August 2, 2021, the European Commission published additional regulations and a directive as part of its sustainable finance initiatives regarding sustainability risks and sustainability factors to be taken into account by AIFs, UCITS and investment firms, among other regulated entities.

On August 3, 2021, the Platform on Sustainable Finance:

Technical Working Group published a draft report on preliminary recommendations for technical screening criteria for the Taxonomy Regulation.

Comments on the report were due by September 24, 2021, with the results analyzed and submitted to the European Commission in November 2021.

On October 7, 2021, the European Parliament issued a press release announcing the rejection of a supplement to the Taxonomy Regulation that would have specified the technical screening criteria under which certain economic activities qualify as contributing substantially to climate change mitigation and climate change adaptation and for determining whether those activities cause significant harm to any other relevant environmental objectives.

On October 22, 2021, the ESAs published their final report on the draft taxonomy regulatory technical standards for financial product

disclosures under the SFDR.

The final regulatory technical standards aim to create a single "rulebook" for sustainability-related disclosures for SFDR pre-contractual and periodic product disclosures.

These final rules for taxonomy reporting for financial products diverge from those for financial undertakings themselves for which the Delegated Act for Taxonomy Article 8 apply.

The European Commission notified the European Parliament and the European Council of a further six-month delay (from July 2022 to January 1, 2023) to the application of the delegated act regulatory technical standards that will set out the detailed requirements regarding the form and content of disclosures to be made for financial products under the SFDR.

Rather than adopt the SFDR, the UK announced on November 9, 2020 that it will introduce ESG disclosure rules aligning with the TCFD, making the UK the first country to adopt that approach.

On December 22, 2020, the FSB issued a statement encouraging the International Financial Reporting Standards Foundation and financial authorities to use the TCFD's recommendations as the basis for standards for climate-related financial disclosures.

In a consultation launched on March 24, 2021, the UK government solicited views on proposals to require that UK companies with more than 500 employees that are traded on a UK-regulated market disclose TCFD-aligned climate-related information.

The consultation stated that new regulations would come into force on April 6, 2022.

On June 22, 2021, the FCA published "Consultation Paper 21/17:

Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulation pension providers" in which the FCA proposed to introduce TCFD-aligned disclosure requirements for asset managers, life insurers and FCA-regulated pension providers, with a focus on the information needs of clients and consumers.

The FCA also proposed to extend the TCFD-aligned climate disclosure requirements to all companies with standard listed equity shares, except for standard listed investment entities and shell companies.

The consultation period ended on September 10, 2021.

Based on its June 2021 consultation, on December 10, 2021, the FCA published a Policy Statement, "Enhancing climate-related disclosures by asset managers, life insurers and FCA-regulated pension providers," in which the FCA introduced a new ESG sourcebook containing rules and guidance for asset managers and certain FCA-regulated asset owners to make disclosures at an entity level and product or portfolio level consistent with TCFD recommendations on an annual basis.

On December 10, 2021, the FCA also published a Policy Statement on "Enhancing client-related disclosures by standard listed companies" in which the FCA extended the application of its climate-related disclosure requirements to issuers of standard listed shares and Global Depositary Receipts representing equity shares (but not listed investment entities and shell companies).

On November 3, 2021, the FCA published a discussion paper, "Sustainability Disclosure Requirements (SDR) and investment labels" in which the FCA sought views on new sustainability disclosure requirements for asset managers and FCA-regulated asset owners, as well as a new classification and labelling system for sustainable investment products.

The consultation period ended on January 7, 2022.

On June 7, 2021, the TCFD began to seek public comment on two documents, "Proposed Guidance on Climate-related Metrics, Targets, and Transition Plans," and the associated, "Measuring Portfolio Alignment:

Technical Supplement," in order to update its final recommendations on climate-related financial disclosures as disclosure practices and the use of disclosures by financial and non-financial organizations continued to progress.

In a July 10, 2021 statement, the G20 Finance Ministers indicated that, "[w]e will work to promote implementation of disclosure requirements or guidance, building on the [TCFD] framework, in line with domestic regulatory frameworks, to pave the way for future global coordination efforts, taking into account jurisdictions' circumstances, aimed at developing a baseline global reporting standard." Based on its June 2021 consultations, on October 14, 2021, the TCFD released a new guidance document on climate-related metrics, targets, and transition plans.

This new guidance seeks to support organizations that make TCFD-aligned disclosures in preparing decision-useful metrics, targets, and transition plan information and linking that information to estimates of financial impact.

Despite a continuing possibility of negative deposit interest rates, euro-denominated European money market funds have successfully operated and provided investors with high quality diversified investments which continue to provide same day liquidity, first through the use of an approved share cancellation methodology and more recently through the use of accumulating share classes.

Federated Hermes has worked with the FCA and the Central Bank of Ireland (CBI) on appropriate permissions to operate in each jurisdiction, in a manner similar to euro-denominated money market funds, should official rates in U.S.

dollars or British pound sterling become negative.

Additionally, Federated Hermes continues to work with the CBI on appropriate permissions to operate its U.S.

dollar money market funds in a manner similar to euro-denominated money market funds, should official rates in U.S.

dollars become negative.

The activities of the International Organization of Securities Commissions (IOSCO) and FSB also continue to be monitored by the investment management industry, including Federated Hermes.

Building on consultations and other reports published from 2015 through 2020 regarding methodologies for identifying non-bank, non-insurance company global systemically important financial institutions, recommendations to address structural vulnerabilities from asset management activities, and liquidity risk management, the FSB and IOSCO continued, and will continue, to assess, recommend and implement regulatory reforms affecting money market funds, liquidity risk management, derivatives, leverage, and other aspects of the investment management industry.

The post-Brexit regulatory environment (particularly the need to obtain full authorizations on a country-by-country basis) also creates a level of uncertainty regarding the ability and requirements to distribute products and provide investment management services between the UK and EU, increasing regulatory burdens and compliance and other costs for UK funds being distributed in the EU and EU funds (such as Irish-domiciled funds) being distributed in the UK.

The ability to engage investment managers for EU funds and UK funds also could be impacted, resulting in structural and other changes for UK- and EU-domiciled funds.

The impact of Brexit on Federated Hermes' UK domiciled funds is difficult to quantify and remains uncertain given the overlap with the Pandemic and recent surge in the number of ESG-related money market funds in both the EU and UK.

As of December 31, 2021, Brexit has not had a material adverse effect on Federated Hermes' Financial Condition.

As of December 31, 2021, EU-resident shareholders in Federated Hermes' UK domiciled funds and the UK-resident shareholders in Federated Hermes' Irish-domiciled funds were permitted to remain in the funds.

Subscriptions also can continue as long as there

is not a proactive sales effort.

Regarding the regulatory environment for money market funds post-Brexit, UK-domiciled money market funds remain on par with current EU regulatory requirements;

however, it is possible that the UK may deviate from - or simply not adopt - any new or amended EU money market fund laws, rules or regulations that may be adopted in the future.

The activities of the IOSCO and the FSB also continue to be monitored by the investment management industry, including Federated Hermes.

Building on consultations and other reports published from 2015 through 2021 regarding methodologies for identifying non-bank, non-insurance company global systemically important financial institutions, recommendations to address structural vulnerabilities from asset management activities, and liquidity risk management, IOSCO and FSB have continued, and will continue, to assess, recommend and implement regulatory reforms affecting money market funds, liquidity risk management, derivatives, leverage, and other aspects of the investment management industry.

In its October 27, 2021 Annual Report, the FSB highlighted the FSB's policy work to foster global financial stability in response to the Pandemic and emerging risks, including, among others, work to:

(1) enhance the resiliency of non-bank financial intermediaries;

(2) enhance cyber incident response and recovery;

(3) address "global stablecoin" arrangement risks;

(4) enhance cross-border payments;

and (5) address climate-related financial risks.

The FSB's statements in its Annual Report on cyber incidents followed an October 19, 2021 report issued by the FSB on "Cyber Incident Reporting:

Existing Approaches and Next Steps for Broader Convergence" in which the FSB identified three ways that it will work to achieve greater convergence in cyber incident reporting:

(1) the development of best practices that authorities could consider when developing their cyber incident reporting regime;

(2) the identification of common types of information to be shared, including identifying and reducing legal and operational impediments to sharing such information;

and (3) the creation of common terminologies for cyber incident reporting, including a common definition of "cyber incident."

In its 2021-2022 work program, published February 26, 2021, IOSCO indicated that its priorities include financial stability and systemic risks of non-bank financial intermediation activities, as well as risks exacerbated by the Pandemic, such as misconduct risks, fraud, and operational resilience.

IOSCO also indicated that, among other efforts, it will continue efforts (headed by the Sustainable Finance Task Force) to improve the completeness, consistency, and comparability of sustainability reporting.

Based on a prior consultation, on November 2, 2021, IOSCO published its Final Report setting forth its "Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management," which aims to improve sustainability-related practices, policies, procedures and disclosures in the asset management industry through five recommendations for securities regulators and policymakers.

The five recommendations are:

(1) setting regulatory and supervisory expectations for asset managers in respect of the development and implementation of practices, policies and procedures relating to material sustainability-related risks and opportunities, as well as related disclosure;

(2) clarifying or expanding on existing, or adopting new, regulatory requirements to improve product-level disclosure to help investors understand sustainability-related products and material sustainability-related risks for all products;

(3) providing securities regulators and policymakers access to supervisory tools to assess whether asset managers and sustainability-related products are in compliance with regulatory requirements and enforcement tools to address any breaches of such requirements;

(4) securities regulators and policymakers encouraging asset management industry participants to develop common sustainable finance-related terms and definitions, including related to ESG approaches, to ensure consistency throughout the global asset management industry;

and (5) securities regulators and policymakers considering to promote financial and investor education initiatives relating to sustainability or enhance existing sustainability-related initiatives.

Based on a prior consultation, on November 23, 2021, IOSCO issued a Final Report on "Environmental, Social and Governance (ESG) Ratings and Data Providers" in which IOSCO noted that "the use of environmental, social and governance (ESG) ratings and data products has grown considerably .

." and sets forth 10 recommendations.

The recommendations are:

(1) regulators could consider focusing more attention on the use of ESG ratings and data products and ESG ratings and data products providers that may be subject to their jurisdiction;

(2) ESG ratings and data products providers could consider adopting and implementing written procedures designed to help ensure the issuance of high quality ESG ratings and data products based on publicly disclosed data sources where possible and other information sources where necessary, using transparent and defined methodologies;

(3) ESG ratings and data products providers could consider adopting and implementing written policies and procedures designed to help ensure their decisions are independent, free from political or economic interference, and appropriately address potential conflicts of interest that may arise from, among other things, the ESG ratings and data products providers' organizational structure, business or financial activities, or the financial interests of the ESG ratings and ESG data products providers and their officers and employees;

(4) ESG ratings and data products providers could consider identifying, avoiding or appropriately managing, mitigating and disclosing potential conflicts of interest that may compromise the independence and objectivity of the ESG ratings and ESG data products provider's operations;

(5) ESG ratings and data products providers could consider making adequate levels of public disclosure and transparency a priority for their ESG ratings and data products, including their methodologies and processes to enable the users of the product to understand what the product is and how it is produced, including any potential conflicts of interest, while maintaining a balance with respect to

proprietary or confidential information, data and methodologies;

(6) ESG ratings and data products providers could consider adopting and implementing written policies and procedures designed to address and protect all non-public information received from or communicated to them by any entity, or its agents, related to their ESG ratings and data products, in a manner appropriate in the circumstances;

(7) market participants could consider conducting due diligence or gathering and reviewing information on the ESG ratings and data products that they use in their internal processes, including understanding what is being rated or assessed by the product, how it is being rated or assessed and, limitations and the purposes for which the product is being used;

(8) ESG ratings and data products providers could consider improving information gathering processes with entities covered by their products in a manner that leads to more efficient information procurement for both the providers and these entities;

(9) where feasible and appropriate, ESG ratings and data products providers could consider responding to and addressing issues flagged by entities covered by their ESG ratings and data products while maintaining the objectivity of these products;

and (10) entities subject to assessment by ESG ratings and data products providers could consider streamlining their disclosure processes for sustainability related information to the extent possible, bearing in mind applicable jurisdictions' regulatory and other legal requirements.

On November 20, 2020, IOSCO published its final report providing a thematic review of the consistency in implementation of money market reforms across the nine largest money market fund jurisdictions.

In this report, IOSCO concludes that these jurisdictions generally implemented money market fund reforms in line with 2012 IOSCO policy recommendations for money market funds, but that market conditions in March 2020 highlighted continuing vulnerabilities in certain types of money market funds and the need for further reform.

Similar to the PWG in the U.S., IOSCO issued a paper on "Money Market Funds during the March-April Episode" (IOSCO Paper) in November 2020.

The IOSCO Paper calls for further consideration of the functioning of money market funds, investor behavior and elements of the existing regulatory framework for money market funds which could have played a role in accelerating the outflow of assets from non-government money market funds in March 2020.

In its 2020 Annual Report regarding the "Implementation and Effects of the G20 Financial Regulatory Reforms", among other topics, the FSB reviewed the status of money market fund reforms across G20 jurisdictions, ongoing vulnerabilities from liquidity and leverage in asset management, and measures taken by financial regulators relating to funds (including money market funds) in response to Covid-19.

The FSB also issued a report on its "Holistic Review of the March Market Turmoil" (FSB Review) on November 17, 2020, in which it specifically reviewed the impact of the markets in March 2021 on open-end funds, including money market funds.

In its FSB Review, among other conclusions, the FSB concluded that redemptions from money market funds were "exacerbated by certain fund structures and regulations that could have created perceptions of first-mover advantage." Among other recommendations, the FSB Review calls for an examination of risk factors, including "liquidity risks, core functions and aspects of the structure or regulations in non-government [money market funds] which experienced large outflows and contributed to the stress in short-term funding markets." In a December 16, 2020 "Global Monitoring Report on Non-Bank Financial Intermediation" the FSB further examined the impact of Covid-19 on the markets and the role of non-bank financial intermediaries, including the importance of money market funds in this sector, particularly in the U.S.

In this report, the FSB noted that U.S.

regulations allow fund boards to impose redemption gates and liquidity fees if a money market fund's weekly liquid assets fall below 30% of the fund's total assets, and that a concern that redemptions could be limited or suspended might have led to additional outflows.

As a result of these IOSCO and FSB reports, similar to the SEC in the U.S., UK and EU regulators are expected to re-examine existing money market fund regulation in 2021.

As discussed above, Federated Hermes believes that money market funds are resilient investment products that have proven their resiliency during Covid-19.

Federated Hermes intends to engage with UK and EU (as well as U.S.) regulators in 2021, both individually and through industry groups, to shape any further money market fund reforms to avoid overly burdensome requirements or the erosion of benefits that money market funds can provide.

Since the beginning of the fourth quarter 2020, UK and EU regulators issued, proposed or adopted new consultations, directives, rules, laws and guidance that impact UK and EU investment management industry participants, including Federated Hermes.

• On December 17, 2020, ESMA published its final guidelines under Article 25 of the Alternative Investment Fund Managers Directive (AIFMD) setting out common criteria to promote convergence in the way national competent authorities (NCAs) (1) assess how the use of leverage by alternative investment funds (AIFs) contributes to systemic risk in the financial system and (2) design, calibrate and implement leverage limits.

The ESMA Guidelines follow

recommendations by the European Systemic Risk Board (ESRB) published in April 2018 on how to address liquidity and leverage risk in investment funds.

Federated Hermes is reviewing the final guidelines and assessing their impact.

• On December 17, 2020, the European Banking Authority (EBA) launched two consultations, one seeking comment on its new guidelines on remuneration policies, and a second seeking comment on its new guidelines on internal governance, under the IFD.

The remuneration policy guidelines specify the remuneration provisions that certain investment firms should comply with, taking into account the proportionality principle, for their remuneration policies to ensure an alignment of the variable remuneration of identified staff with the risk profile of the investment firm and the assets it manages.

These new guidelines also clarify how the remuneration framework applies on a consolidated basis to investment firms and others financial institutions that are subject to a specific remuneration framework, such as firms subject to the UCITS, the AIFMD or MiFID II.

The governance guidelines specify the governance provisions that certain investment firms should comply with, taking into account the proportionality principle.

These guidelines set forth a governance framework aimed at ensuring that investment firms have a clear organizational structure, effectively manage their risks and have adequate internal control mechanisms in place.

Both consultation periods end on March 17, 2021.

Federated Hermes is reviewing these consultations and will be monitoring developments.

• On December 16, 2020, ESMA published its 2020 update of the guidelines for money market fund stress tests under the Money Market Fund Regulation (MMFR).

The updated guidelines provide specifications on the type of stress tests and their calibration to allow money market fund managers to have the information needed for reporting under the MMFR.

The update takes into account the experience of money market funds in March 2020, particularly in relation to redemption scenarios.

The updated 2020 guidelines will be required to be used for the first reporting period that is two months after publication of the translations of the updated guidelines.

Federated Hermes has reviewed the updated guidelines and is taking steps to timely comply.

• On December 14, 2020, the FCA issued "Consultation Paper 20/24:

A new UK prudential regime for MiFID investment firms" in which the FCA seeks comment on its proposed rules on the IFPR.

The IFPR is a new prudential regime for UK firms authorized under MiFID II.

This consultation represents the first consultation the FCA will issue on the IFPR.

In this report, IOSCO concluded that these jurisdictions generally implemented money market fund reforms in line with 2012 IOSCO policy recommendations for money market funds, but that market conditions in March 2020 highlighted continuing vulnerabilities in certain types of money market funds and the need for further reforms.

Similar to the PWG Report in the U.S., IOSCO issued a paper, "Money Market Funds during the March-April Episode," (IOSCO Paper) in November 2020.

The IOSCO Paper called for further consideration of the functioning of money market funds, investor behavior and elements of the existing regulatory framework for money market funds which could have played a role in accelerating the outflow of assets from non-government money market funds in March 2020.

Following prior speeches and reports on the need for money market fund reforms, including the "Holistic Review of Money Market Turmoil" (FSB Report) published in November 2020, on June 30, 2021, the FSB published a consultation report, "Policy Proposals to Enhance Money Market Fund Resilience," in which it identified characteristics of money market funds that, in their view, make them susceptible to vulnerabilities, such as sudden and disruptive redemptions and the forced sale of assets to meet significant redemptions.

The FSB also evaluated policy proposals purporting to enhance funds' resilience, including:

(1) swing pricing;

(2) minimum balance at risk;

(3) capital buffers;

(4) removing ties between regulatory thresholds and imposition of fees and gates;

(5) removing stable NAVs;

(6) limiting eligible assets;

and (7) imposing additional liquidity requirements and escalation procedures.

The FSB held a virtual workshop on the policy proposals on July 12, 2021.

In an August 16, 2021 comment letter to the FSB, among other comments, Federated Hermes expressed its belief that the combination of delinking the potential imposition of redemption gates and liquidity fees from a money market fund's weekly liquid asset requirements and enhancing money market funds' ability to "know their customer", when combined with consideration of, and improvements in, the short-term funding markets generally, can address the FSB's concerns without adversely impacting the viability of money market funds and their benefits to investors, issuers and capital formation.

As a result of these IOSCO and FSB reports, similar to the SEC in the U.S., UK and EU regulators are re-examining existing money market fund regulation.

On March 26, 2021, ESMA published a consultation paper on the legislative review of the EU money market regulation.

Similar to the PWG Report, IOSCO Paper and FSB Review, this consultation reviewed the role played by money market funds in the March 2020 market turmoil, perceived structural vulnerabilities of money market funds and possible money market fund regulatory reforms that could be adopted.

Most of the proposed reforms are similar to those set forth in the PWG Report, including decoupling the link between regulatory liquid asset thresholds and redemption fees and gates.

The consultation period closed on June 30, 2021.

Among other comments, Federated Hermes provided to ESMA similar comments to those provided to the FSB in response to its consultation discussed above.

The BoE also published a May 12, 2021 speech by BoE Governor Andrew Bailey in which he advocated for reforms to money market regulations in response to the March 2020 "dash for cash".

The proposals outlined by Mr.

Bailey in that speech align to the proposals of other global regulators, including U.S.

The five proposals discussed were:

(1) redemption terms should be aligned with the underlying liquidity of assets;

(2) running minimal maturity mismatch risk;

(3) money market funds should not hold less liquid assets on a scale that would make them more suitable to be traditional investment funds;

(4) money market funds should not be designed with regulatory thresholds or cliff-edges which create adverse incentives and amplify first-mover advantage behavior;

and (5) reforms should improve the ability of funds to support short-term funding markets, including by making them more resilient.

On July 13, 2021, the BoE published a report, "Assessing the resilience of market-based finance," which set forth the conclusions from a joint BoE and FCA review of the vulnerabilities associated with liquidity mismatches in open-end funds, including money market funds.

Regarding money market funds, the report stated:

"To address vulnerabilities in the global money market fund sector, a robust and coherent package of international reforms needs to be

As noted in a speech by the Governor of the BoE, it is important that any package removes the adverse incentives introduced by liquidity thresholds related to the use of suspensions, gates and redemption fees." The report identified the following three priorities for remediating vulnerabilities in market-based finance:

(1) limiting the demand for liquidity rising unduly in stress periods;

(2) increasing the resilience of the supply of liquidity in stress periods;

and (3) agreeing upon appropriate options for central banks to backstop market function.

The report also discussed possible frameworks for consistently and realistically classifying the liquidity of fund assets and enhancing the calculation and use of swing pricing.

On July 1, 2021, the European Systemic Risk Board (ESRB) published an "Issues note on systemic vulnerabilities of and preliminary policy considerations to reform money market funds (MMFs)," in which the ESRB provided an overview of the money market fund sector in the EU, set out its analysis of systemic vulnerabilities in money market funds, and identified a broad set of preliminary policy options for money market fund reform.

The Issues note, which primarily focused on non-public debt money market funds (i.e., non-Government money market funds), identified the following systemic vulnerabilities:

(1) the large footprint for these money market funds in the commercial paper and certificate of deposit markets;

(2) high portfolio overlap;

(3) lack of reliable asset liquidity in the commercial paper and certificate of deposit markets;

and (4) interconnectedness and the pressure a low interest rate environment places on liquidity.

The Issues note also identified the following initial policy options for money market fund reform, among others:

(1) decoupling regulatory thresholds;

(2) capital requirements and buffers;

(3) implementing redemption holdbacks;

(4) imposing notice periods for redemptions;

(5) removing stable NAV money market funds;

and (6) improved availability and use of swing pricing.

On July 26, 2021, the European Banking Authority (EBA) published a consultation paper "Draft Regulatory Technical Standards on criteria for the identification of shadow banking entities under Article 394(4) of Regulation (EU) No 575/2013" that purported to set out criteria for the identification of shadow banking entities for the purposes of reporting large exposures.

In the consultation, the EBA discussed money market UCITS funds as conducting shadow banking, which the EBA defined as entities that offer banking services and perform banking activities as defined in the draft regulatory technical standards but are not regulated and are not being supervised in accordance with any of the acts that form the regulated framework for banking.

Among other things, the consultation solicited comments on whether money market funds should be considered shadow banking entities.

The consultation period ended on October 26, 2021.

On September 17, 2021, the Managing Director of the International Monetary Fund (IMF) released a report stating that the March 2020 global financial crisis exposed fundamental vulnerabilities that could affect global financial stability, and advocating that global financial regulators work together to boost the resilience of investment funds.

The Managing Director identified money market funds as particularly vulnerable to redemptions triggered by economic shocks and advocated for certain policy measures to address the identified vulnerabilities.

In a November 2, 2021 comment letter to the IMF, Federated Hermes noted that the problems experienced in March 2020 in the short-term markets did not relate to the regulation or structure of money market funds, but rather resulted from the government-imposed lockdown of global economies.

In addition to other points discussed below, Federated Hermes' comment letter to the IMF suggested that enhancing regulation surrounding "know your customer" requirements in both the U.S.

and EU would significantly improve a money market fund's ability to manage its liquidity in all market conditions.

Based on the prior consultation, on October 11, 2021, the FSB issued its "Policy Proposals to Enhance Money Market Fund Resilience:

Final Report" ("FSB Final Report") in which the FSB set forth its final policy proposals for money market fund reform.

In the FSB Final Report, the FSB found that money market funds are subject to two broad types of vulnerabilities that can be mutually reinforcing:

(1) susceptibility to sudden and disruptive redemptions;

and (2) challenges in selling assets, particularly under stressed conditions.

The proposals included mechanisms to:

(1) impose on redeeming fund investors the cost of their redemptions (i.e., swing pricing);

(2) absorb credit losses;

(3) address regulatory thresholds that may give rise to cliff effects;

and (4) reduce liquidity transformation.

In the FSB Final Report, the FSB noted that it will be working with IOSCO to review progress made by member jurisdictions in adopting reforms to enhance money market fund resilience, which are to be completed by the end of 2023, and then to assess the effectiveness of those measures in addressing risks to financial stability by 2026.

Based on its prior consultation, on November 1, 2021, the FSB also published its Progress Report on "Enhancing the Resilience of Non-Bank Financial Intermediation" in which it summarized the progress of, and key findings from, its work on, among other things, policies to enhance money market fund resilience, including with respect to the appropriate structure of the sector and of underlying short-term funding markets and to assess liquidity risk, and its management in open-end funds, including the redemption pressures faced by such funds in March 2020 and their drivers, the availability and effectiveness of liquidity risk management tools, and the extent to which fund vulnerabilities impacted the financial system and wider economy.

Regarding improving money market fund resilience, the FSB reiterated in its Progress Report that options include:

(1) swing pricing or economically equivalent measures (to impose on redeeming investors the cost of their redemptions);

(2) minimum balance at risk and a capital buffer (to absorb losses);

(3) removal of ties between regulatory thresholds and imposition of redemption fees and gates and removal of the stable NAV (to reduce threshold effects);

and (4) limits on eligible assets, and

additional liquidity requirements and escalation procedures (to reduce liquidity transformation).

In a November 15, 2021 comment letter to the FSB, Federated Hermes:

(1) supported the FSB's objectives of financial stability, sound functioning of securities markets, and improved market reforms which, when supported by data, enhance the safety and stability of markets, including the functioning of short-term funding markets;

(2) supported the FSB's acknowledgement of a need for a jurisdiction-specific, targeted approach to future money market fund reforms;

(3) supported the FSB's recommendation to delink liquidity and the potential imposition of redemption fees and gates;

(4) disagreed with requiring money market funds to hold higher amounts of liquid securities;

(5) supported the FSB's recommendation that regulatory reforms should aim to increase the range of liquidity management tools available to money market fund managers, provided that a fund's board retains discretion as to what liquidity management tools to use and when to implement them;

(6) disagreed with the FSB's assessment on the potential application of swing pricing to money market funds;

and (7) advocated for retaining stable-NAV money market funds.

In a December 15, 2021 comment letter to the FSB, Federated Hermes discussed regulatory reforms to address structural issues supporting market liquidity, including, among others, permanent access to the Central Bank discount windows, a standing bank repurchase agreement facility, a complete review of regulations affecting market making, and improved secondary market trading infrastructure.

On December 2, 2021, the ESRB adopted a recommendation on money market funds to the European Commission and an accompanying report.

The recommendation aims to ensure the resilience and functioning of money market funds while minimizing the likelihood of central banks needing to step in during times of crisis.

The recommendation is consistent with the proposals of the FSB, but does not envisage capital buffers or a minimum balance at risk for money market funds.

The ESRB also believes own-fund requirements are not needed provided that deposit-like features of money market funds are reduced and fund-like features of money market funds are increased.

The recommendation aims to reduce threshold effects that accentuate first-mover advantages, including by reducing deposit-like features of money market funds, reducing liquidity transformation by improving and diversifying asset portfolio liquidity via requirements to hold public debt assets and by making sure this liquidity can be used when needed, facilitating the use of tools that impose trading costs on redeeming investors (i.e., swing pricing), and enhancing monitoring and stress-testing frameworks.

On February 16, 2022, ESMA published a final report, "ESMA Opinion on the review of Money Market Fund Regulation," which makes recommendations to improve the resiliency of money market funds.

Among other recommendations, it recommends:

(1) addressing the threshold effects for constant NAV money market funds by removing the possibility to use amortized cost for low volatility NAV money market funds and decoupling regulatory thresholds from suspensions, gates and redemption fees for low volatility NAV and constant NAV money market funds;

(2) addressing liquidity concerns by ensuring mandatory availability of at least one liquidity management tool for all money market funds;

(3) amending daily liquid asset and weekly liquid asset ratios;

(4) adjusting the pool of eligible assets to require money market funds to hold public debt assets, which could be used to satisfy the daily and weekly asset liquidity ratios;

(5) reinforcing the possibility of temporarily using liquidity buffers in times of stress;

and (6) enhancing reporting and disclosure requirements and the stress testing framework for money market funds.

On February 14, 2022, ESMA published a separate final report, "Guidelines on stress test scenarios under the MMF Regulation," in which it sets forth updated guidelines and specifications on the types of money market fund stress tests and their calibration in order to allow managers of money market funds to have the information needed to complete the reporting required under the EU Money Market Fund Regulation.

Federated Hermes does not believe money market funds are shadow banking entities.

As discussed above, Federated Hermes believes that money market funds are resilient investment products that have proven their resiliency during the Pandemic.

Federated Hermes intends to continue to engage with UK and EU (as well as U.S.) regulators in 2022, both individually and through industry groups, to shape any further money market fund reforms to avoid overly burdensome requirements or the erosion of benefits that money market funds provide.

Since the beginning of the fourth quarter 2021, UK and EU regulators issued, proposed or adopted other new consultations, directives, rules, laws and guidance that impact UK and EU investment management industry participants, including Federated Hermes.

• On January 27, 2022, ESMA published a consultation paper, "Guidelines on certain aspects of the MiFID II suitability requirements," in which ESMA requests comments on proposed updates to its November 2018 Guidelines on certain aspects of the MiFID II suitability requirements.

MiFID II is the Markets in Financial Instruments Directive II (MiFID II).

The consultation period closes on April 27, 2022.

ESMA expects to then publish a final report followed by the final guidelines in the third quarter 2022.

ESMA also intends to consult separately on the product governance changes to MiFID II made under the EU's ESG framework in August 2021.

• On January 19, 2022, the FCA published a consultation paper, "Strengthening our financial promotion rules for high-risk investments, including cryptoassets," in which the FCA solicits comments on proposed changes to (1) the FCA's

classification of high-risk investments;

(2) the consumer journey into high-risk investments;

(3) strengthen the role of firms approving and communicating financial promotions;

and (4) apply the FCA's financial promotion rules to qualifying cryptoassets.

The consultation period ends on March 23, 2022.

• On January 13, 2022, IOSCO issued a consultation report, "Operational resilience of trading venues and market intermediaries during the COVID-19 pandemic," in which IOSCO solicits comments on the operational resilience of trading venues and market intermediaries.

The final report highlights a series of "lessons learned" from the Pandemic that may be useful to enhance practices in the future, including:

(1) greater automation and less dependence on physical documents and manual processes;

(2) considering the role of service providers and offshore services;

(3) reviewing, updating and testing business continuity plans, including scenario planning;

and (4) monitoring processes to help ensure information security in order to prevent cyberattacks.

The consultation period ends on March 14, 2022.

• On January 3, 2022, ESMA published a Final Report, "Guidelines on certain aspects of the MiFID II appropriateness and execution-only requirements," based on prior consultations.

The purpose of the Guidelines is to enhance clarity and foster convergence in the application of the appropriateness and execution-only requirements applicable under MiFID II to investment firms providing non-advised services to request information on the knowledge and experience of clients or potential clients to assess whether the investment service or product is appropriate and to issue a warning in case the investment service or product is deemed inappropriate.

• On December 17, 2021, the CBI published cross-industry outsourcing guidance and a feedback statement based on a prior consultation to supplement existing legislation, regulations and guidance on outsourcing, which apply to specific firms.

The guidance:

(1) sets out the CBI's expectations on governance and management of outsourcing risk;

(2) highlights the responsibilities of a company's board of directors and senior management when outsourcing;

and (3) outlines the CBI's expectations for outsourcing frameworks to manage the associated risks.

• On November 30, 2021, the FCA published a final Policy Statement, "Changes to UK MiFID's conduct and organizational requirements," in which the FCA sets forth its policy and rules on changes to UK research rules and the removal of certain best execution reporting that the FCA believes did not appear to benefit users within the FCA's wider reform work being undertaken on capital markets.

The changes being made by the FCA are intended to ensure rules for research and best execution under the UK MiFID are more proportionate to the risks arising and remove unnecessary regulation.

• On November 25, 2021, the European Commission adopted a package of measures to ensure that investors have better access to company and trading data.

The proposals related to several commitments in the 2020 capital markets union (CMU) action plan.

The four legislative proposals that form the package include:

(1) the European Single Access Point, which will offer a single point of access to public information about EU companies and EU investment products;

(2) a Review of the European Long-Term Investment Funds (ELTIFs) Regulation, to increase the attractiveness of ELTIFs and make it easier for retail investors to invest in them;

(3) a Review of the Alternative Investment Fund Managers Directive (AIFMD) to harmonize the rules around loan-originating funds (debt funds), in order to facilitate lending;

and (4) a Review of the Markets in Financial Instruments Regulation (MiFIR), which is intended to adjust the trading rules to ensure more transparency for all parties trading on capital markets.

• On November 18, 2021, ESMA and the EBA published a consultation paper "Draft Guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) under IFD" in which they set out the process and criteria for the assessment of the main SREP elements, such as:

(1) business model;

(2) governance arrangements and firm-wide controls;

(3) risks to capital and capital adequacy;

and (4) liquidity risk and liquidity adequacy.

The EBA also is consulting on regulatory technical standards on the policy that could be determined by national competent authorities (NCAs) for investment firms.

The consultation period ended on February 18, 2022.

Federated Hermes reviewed this consultation and is monitoring developments.

• On November 17, 2020, the CBI published a "Dear CEO" letter building on its recent thematic inspections of compliance by Regulated Financial Service Providers with their obligations under the Fitness and Probity Regime.

The Dear CEO letter sets out the key findings and observations from the CBI's inspections relating to board appointments, policies and procedures, due diligence, outsourcing, CBI engagement and the compliance function, together with the CBI's expectations.

The Dear CEO letter is to be read in conjunction with an April 2019 letter from the CBI regarding fitness and probity, the CBI's Fitness and Probity Standards, and its associated fitness and probity guidance.

The CBI expects firms to review the findings and observations and, if requested, report on them to the CBI.

Federated Hermes is conducting the assessment called for in the Dear CEO Letter and the relevant Federated Hermes Fund boards will review the assessment as indicated by the CBI in the Dear CEO letter.

• On November 12, 2020, ESMA published a report regarding the preparedness of investment funds with significant exposures to corporate debt and real estate assets for potential future adverse liquidity conditions and valuation shocks.

The report calls for priority areas for action, including:

(1) ongoing supervision by national securities regulators of alignment of funds' strategies, liquidity profiles, and redemption policies;

(2) ongoing supervision of liquidity risk assessment;

(3) enhanced liquidity profile reporting requirements and alignment of UCITS liquidity reporting to the reporting requirements imposed on AIF managers (AIFMs);

(4) the establishment of a legal framework to increase the availability and use of liquidity management tools by UCITS;

and (5) supervision of fund valuation practices in stressed market conditions.

Federated Hermes is reviewing this consultation and will be monitoring developments.

• On November 10, 2020, the CBI published a "Dear CEO" letter regarding its thematic review of compliance by MiFID authorized investment firms with MiFID best execution requirements for consumers.

In the letter, the CBI identified significant shortcomings in best execution governance, including evidence of board or committee oversight and challenge, clear decision-making processes, limited assurance testing, and a lack of independent reviews of the best execution process.

The CBI is requiring firms to review their best execution processes and frameworks and discuss them at their next Board meetings.

Federated Hermes is conducting the review called for in the Dear CEO Letter and the review will be discussed with the relevant Federated Hermes Fund boards.

• On November 9, 2020, ESMA began a "Consultation on guidelines on marketing communications under the regulation on facilitating cross-border distribution of collective investment undertakings" setting forth guidelines specifying the requirements for marketing communication sent to investors to promote UCITS and AIFs.

The guidelines require marketing materials to be identifiable as marketing material, describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner, and contain information which is fair, clear and not misleading.

The guidelines also take into account the online aspects of marketing communications.

The consultation period ended on February 8, 2021 and ESMA intends to issue final guidelines by August 2, 2021.

Federated Hermes has reviewed this consultation and is monitoring developments.

• On October 22, 2020, the European Commission issued a "Public consultation on the review of the alternative investment fund managers directive (AIFMD)" in which the Commission seeks to examine how to strengthen the rules and complete the internal market for AIFs.

The Commission might also consider adjustments to the rules on UCITS.

The consultation period ended on January 29, 2021.

Federated Hermes is working with industry organizations and key Member State regulators to provide meaningful input to the European Commission as matters under review are assessed.

• On October 20, 2020, the CBI issued a "Dear CEO" letter to all Irish management companies expressing the CBI's concerns with the implementation of CP86, which is a set of rules and guidance issued by the CBI related to the governance and effectiveness of Irish management companies, including self-managed funds.

Among other matters, it expects that Irish management companies should have a minimum of three local staff members suitably qualified and of appropriate seniority to fulfil the role.

The letter also expresses the CBI's concerns regarding (1) how some designated persons discharge their role, (2) delegation of oversight, (3) risk management frameworks, (4) board approval of new funds and (5) fund governance.

In the letter, the CBI announced that it has commenced supervisory engagement with Irish management companies where specific concerns have been identified.

The CBI also announced in the letter that all Irish management companies are required to critically assess their day to day operational, resourcing and governance arrangements against all relevant rules and guidance, taking into account the findings of the review, and to implement a timely plan for making the necessary changes to ensure full and effective embedding of all aspects of the CBI's Fund Management Companies – Guidance, dated December 2016.

Investment management industry participants, such as Federated Hermes, also continued and will continue, to monitor, plan for and implement certain changes in response to previously issued new proposed or adopted rules and guidance.

These proposed and final rules and guidance, included:

(1) the application of level 2 requirements for the SFDR, which have been postponed until further notice;

(2) attempts to "synergize" EU legislation (in particular the Non-Financial Reporting Directive (NFRD), the Taxonomy Regulation, and the SFDR) to enhance sustainability as advocated by ESMA's Securities and Markets Stakeholder Group (SMSG) in its advice published September 14, 2020;

(3) general trends in FCA regulatory oversight regarding LIBOR, performance reporting, disclosure, and liquidity management for open-ended funds, as published in the FCA's 2019/2020 Annual Report;

and (4) broad or structural regulatory changes to the EU investment management model, as outlined in ESMA's AIFMD Letter published August 19, 2020.

ESMA's AIFMD Letter recommends changes in the manner in which EU-based AIFs and UCITS funds are managed, with recommendations for increased portfolio management substance within the EU and enhanced restrictions on delegation and the use of group company secondment arrangements.

The European Commission issued a related consultation in October 2020.

ESMA's AIFMD Letter and this consultation will likely result in a formal rule making proposal.

The potential drafting and adoption of a European Commission rule proposal based on the ESMA AIFMD Letter could have a material impact on Federated Hermes' current operating model, and non-U.S.

business, results of operations, financial condition and/or cash flows.

Federated Hermes continues to evaluate ESMA's recommendations and the potential impact.

In addition, EU regulators have previously issued or proposed directives, rules and laws regarding sustainable finance.

For example, the European Parliament passed on November 27, 2019 the Sustainability-Related Disclosures Regulation or Sustainable Finance Disclosure Regulation, which requires certain website, prospectus and annual report disclosures and implements a product classification system.

The European Parliament and Council of the EU on December 18, 2019 agreed upon the Taxonomy Regulation, which is aimed at establishing a framework to facilitate sustainable investment, including when Member States establish measures (e.g., labels or standards) setting requirements regarding financial products or corporate bonds presented as "environmentally sustainable." The Taxonomy Regulation will need to be complied with beginning December 31, 2021.

Building on those directives, rules and laws, on December 16, 2020, the Luxembourg financial services regulator announced the implementation of a fast-track approval system for updating funds' prospectuses to incorporate sustainability disclosures, which is among the general principles of the EU's SFDR that come into effect March 10, 2021.

SFDR level 2 RTS will not be implemented on March 10, 2021 as originally intended but will be applicable "at a later stage"

according to the European Commission.

Industry observers have stated that the RTS will likely be implemented closer to January 1, 2022, which is the date that the Taxonomy Regulation goes into effect.

On December 3, 2020, three Commission Delegated Regulations Supplementing the Benchmarks Regulation (BMR) on sustainable financial issues were published in the EU Official Journal and became effective on December 23, 2020.

These supplemental regulations set out (1) sustainability criteria in order for a benchmark to qualify as an EU Climate Transition Benchmark or EU Paris-aligned Benchmark, and (2) ESG requirements for benchmarks provided in accordance with the BMR.

On November 23, 2020, Richard Monks, FCA Director of Strategy, delivered a speech on sustainable investments in which he discussed a number of initiatives intended to address identified concerns, including domestic and international work on issuers' disclosures and ongoing work on implementation of EU regulations.

On November 12, 2020, UK Finance published a white paper on sustainable finance.

The white paper sets out a principles-based framework for the measurement and reporting of multi-year commitments to sustainable finance and gives greater definition to ESG reporting.

On November 5, 2020 ESMA published a consultation setting out draft advice to the European Commission on Article 8 of the Taxonomy Regulation specifying the content, methodology and presentation of the key performance indicators for sustainable activities that non-financial undertakings and asset managers are required to disclose.

The consultation period ended on December 4, 2020.

In addition to the above Regulatory Developments, the FCA, CBI and other global regulators, continue to monitor by examining various reports, financial statements and annual reports and conducting regular review meetings and on-site inspections.

• On November 9, 2021, HM Treasury and the BoE issued a statement announcing next steps on the development of a UK Central Bank Digital Currency that would exist alongside cash and bank notes.

• On November 1, 2021, the FCA decided to delay publishing its policy statement in response to its July 20, 2021 consultation titled "PRIIPs - Proposed scope rules and amendments to Regulatory Technical Standards," in which the FCA requested comments on proposed amendments to the PRIIPs disclosure regime.

The amendments are intended to, among other things, clarify the scope of PRIIPs and address misleading performance scenarios and summary risk indicators.

The consultation period ended on September 30, 2021.

The policy statement is delayed until the first quarter of 2022 to consider the implementation date of the new requirements.

• On October 25, 2021, the FCA finalized rules that create a Long-Term Asset Fund (LTAF) regime for a new type of authorized open-end fund designed to invest efficiently in long-term assets, such as infrastructure, private equity, real estate, private debt and venture capital.

The FCA indicated that the LTAF is aimed at defined contribution pension funds, sophisticated investors and some high-net worth individuals, and that it would be consulting in 2022 on the potential for widening the distribution of the LTAF to certain retail investors.

Investment management industry participants, such as Federated Hermes, also have continued and will continue, to monitor, plan for and implement certain changes in response to previously issued new, proposed or adopted consultations, directives, rules, laws and guidance.

Previously proposed and final consultations, directives, rules, laws and guidance included, among others:

(1) the ongoing amendment and implementation of MiFID II;

(2) HM Treasury's ongoing review of the UK retail disclosure regime and the PRIIPs Regulation;

(3) efforts by ESMA to update and modify collection of information for monitoring systemic risk among AIFMs;

(4) ESMA guidance on marketing communications under the Regulation on Cross-Border Distribution of Funds;

(5) ESMA's regulation of financial institutions, including AIFMs, UCITs management companies, and MiFID investment firms, outsourcing to cloud service providers;

(6) ESMA's updated guidelines for money market fund stress tests under the Money Market Fund Regulation;

(7) the FCA's proposed rules on the IFPR, which is the new prudential regime for UK firms authorized under MiFID II;

(8) ESMA's report regarding the preparedness of investment funds with significant exposure to corporate debt and real estate assets for potential future adverse liquidity conditions and valuation shocks;

(9) a call for input from HM Treasury on its review of the UK funds regime to identify options that will make the UK a more attractive location to set up, manage and administer funds;

(10) a review by ESMA of the MiFID II framework on best execution reports;

(11) a systematic review by ESMA of the Short Selling Regulation;

(12) a "Dear CEO" letter from the FCA and Prudential Regulation Authority (PRA) to firms that carry on trade finance activity to reiterate the FCA's and PRA's expectations of such firms, including an expectation to demonstrate that they have taken a risk sensitive approach to their control environment to ensure that the inherent risks within trade finance activity are effectively mitigated;

(13) European Commission amendments to the technical standards regarding the KIIDs for retail and insurance-based investment products;

(14) an IOSCO Final Report on the use of artificial intelligence and machine learning by market intermediaries and asset managers;

(15) ESMA's final guidelines applicable to market data providers;

(16) ESMA's final guidelines for marketing communications under the new EU Cross-Border Distribution of Funds Regulation, which applies to EU UCITS and AIFs;

(17) the FCA's "Dear Chair" letter to AFMs setting forth the FCA's guidance on the design, delivery and disclosures of ESG and sustainable investment funds;

(18) ESMA's request for comments on certain aspects of the MiFID II remuneration requirements for the purposes of enhancing clarity and fostering convergence in the application of the requirements;

(19) the FCA's 2021-2022 business plan, which indicated that the FCA's priorities, including, among other things:

(a) adapting the regulatory framework to facilitate a market-based transition to net-zero carbon emissions;

(b) amendments to the regulatory framework for money market funds;

and (d) LIBOR transition;

(20) the European Commission draft directive that would extend the exemption from the KIID requirement under the PRIIPs Regulation for an additional six months from December 31, 2021 to June 30, 2022;

and (21) the FSB's considerations regarding climate-related financial risks to support and promote international coordination on disclosures, data collection, vulnerabilities analysis and regulation.

In addition to the above Regulatory Developments, the FCA, CBI and other global regulators continue to monitor investment management industry participants by examining various reports, financial statements and annual reports and conducting regular review meetings and inspections.

They also continue to take enforcement action when determined necessary.

Examples of recent reviews include reviews regarding closet index fund managers, CP86 compliance, fitness and probity, best execution, client asset arrangements, and operational resilience.

It has been reported that FCA enforcement priorities for 2021 will include financial crime, market abuse, non-financial misconduct and alternative investment managers.

Federated Hermes continues to analyze the potential impact of these Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows.

FCA enforcement priorities have included financial crime, market abuse, non-financial misconduct and alternative investment managers.

In a recent speech, the Chief Executive of the FCA echoed the priorities set forth in the FCA's 2021/22 Business Plan and indicated that the FCA wants to be a regulator that "tests [its] powers to their limits" to ensure market integrity, and that over time it plans to "become as much a data regulator as a financial one".

In terms of its approach to enforcement actions, it has been reported that these statements follow the ongoing narrative that the FCA will be willing to take more risks and to act quickly.

It also has been reported that the FCA is focusing on what it considers to be the six most important cross-market issues:

(2) financial resilience;

(3) operational resilience;

(4) diversity and inclusion;

(5) ESG work;

and (6) international cooperation.

On February 8, 2021, the CBI published a Securities Market Risk Outlook Report that identifies key conduct risks to securities markets, actions investment firms should take to identify, mitigate and manage those risks, and the CBI's supervisory priorities.

The CBI's priorities include, among others, dealing with the Pandemic and Brexit, fund governance, money market fund reform, diversity and inclusion, climate change, and bolstering systems to identify, mitigate and manage misconduct risk, including market abuse risk.

Federated Hermes continues to analyze the potential impact of these Regulatory Developments on Federated Hermes' Financial Condition.

Please refer to our prior public filings for more detailed discussions of these, and other, previously proposed and final rules and guidance.

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Since the European Commission first proposed an EU FTT in 2011, proponents of the FTT have sought the widest possible application of the FTT with low tax rates.

In December 2019, Germany proposed a draft directive that would impose a 0.2% tax on purchases of shares of large companies worth more than €1 billion, which would cover over 500 companies.

Initial public offerings (IPOs) would be excluded, and each Member State would be free to tax equity funds and similar products for private pensions.

Under the German proposal, the five countries with the highest incomes would share a small part of their revenues with the other countries, so that each participating country would receive at least €20 million of FTT revenue.

Germany expressed a commitment to introducing an FTT at the EU-level and had Presidency of the EU Council from July 1, 2020 to December 31, 2020.

It also has been reported that European Parliament and the EU Council entered into an agreement regarding the EU budget on November 10, 2020 that confirmed it could be possible to proceed with an EU FTT.

Germany's Presidency of the EU Counsel ended on December 31, 2020, however, with no formal action having been taken on the EU FTT.

An EU FTT does not appear to be a priority for Portugal's six-month Presidency of the EU Council, which began on January 1, 2021.

It has been reported that the key sticking point currently among participating Member States regarding an EU FTT on securities transactions is the mechanism and formula used to distribute the funds raised between the Member States.

As attention turns to a post-Covid-19 economy and as the EU looks to fund their budgets and the Covid-19-related measures it has adopted, an EU FTT on securities transactions, or even bank account transactions, remains a potential additional source of revenue.

In December 2019, Germany proposed a draft directive that would have imposed a 0.2% tax on purchases of shares of large companies worth more than €1 billion, which would cover over 500 companies.

Initial public offerings (IPOs) would have been excluded, and each Member State would have been free to tax equity funds and similar products for private pensions.

Under the German proposal, the five countries with the highest incomes would have shared a small part of their revenues with the other countries, so that each participating country would receive at least €20 million of FTT revenue.

No formal action has been taken on this German proposal.

On February 24, 2021, Portugal, the successor to the German Presidency of the EU Council, proposed at a meeting of the Working Party on Tax Questions to begin discussions at the EU level regarding the design of an EU FTT involving a gradual implementation by Member States based on the FTTs already implemented in France and Italy.

Member States that would want to implement an FTT more quickly would have been permitted to do so.

Member States were invited to provide input on the proposed approach to the EU FTT design, whether the FTTs in France and Italy would be a solid basis for an EU FTT, and whether an EU FTT should apply to equity derivative transactions.

Subject to certain exemptions, the French FTT levies a tax of up to 0.3% on stock purchases of French publicly traded companies with a market value over €1 billion, American and European depository receipts of covered company securities, high frequency trades, credit default swaps against EU sovereign debt, and certain corporate actions.

Subject to certain exemptions, the Italian FTT levies a tax on equity transactions, certain derivative transactions on equities and certain high frequency trades of up to 0.2% of the value of the net balance of purchase and sale transactions executed on the same day on the same financial instrument by the same party.

The Italian FTT applies to shares issued by Italian companies with a capitalization of at least €500 million, cash equity contracts, equity derivative contracts, and certain other equity transactions.

It has been reported that Austria's Finance Minister has spoken out against the Portuguese proposal on the basis that an EU FTT would harm business.

The Portuguese proposal on an EU FTT invited Member States electing not to participate in the enhanced cooperation initiative to provide input on whether the need to find additional sources for financing the EU recovery effort might increase their interest in further working on an EU FTT.

As attention turns to a post-Pandemic economy and as the EU and EU Member States look to fund their budgets and the Pandemic-related measures that have been adopted, an EU FTT on securities transactions, or even bank account transactions, remains a potential additional source of revenue.

On May 18, 2021, the European Commission issued a communication on "Business Taxation for the 21st Century," in which it indicated that, after July 2021, it would make certain additional proposals, which could include an FTT.

In a meeting of the Council of the EU on June 3, 2021, the Council recognized that the European Commission recently clarified that, if there is no agreement by the end of 2022, the European Commission will, based on impact assessments, propose a new resource for the EU budget based on a new FTT and that the European Commission will endeavor to make those proposals by June 2024 with the FTT's planned introduction by January 1, 2026.

The Council also indicated at its June 3, 2021 meeting that further work will be required before final policy choices are made and an agreement on a possible FTT can be reached.

The exact time needed to reach a final agreement on an EU FTT, implement any agreement and enact legislation is not known at this time.

Certain individual EU Member States, such as Italy, France and Spain, have implemented FTTs at the Member State-level, with Spain's 0.2% FTT on certain securities transactions, effective on January 16, 2021, being the latest.

The weakening economy in Europe can increase the risk that additional jurisdictions propose to implement FTTs.

The Labour Party in the UK has also separately proposed a UK FTT, but it was not advanced in 2020.

Covid-19 also could delay agreement on, and the implementation of, an FTT in the EU, UK or other European countries.

Notwithstanding the impact of Covid-19, global securities regulators are urging the adoption of new risk free reference rates as alternatives to LIBOR.

Separate working groups have been formed in the UK, the U.S., the EU, and other jurisdictions (e.g., Japan and Switzerland) to recommend an alternative to LIBOR for their respective markets.

The FCA, the BoE and the Prudential Regulation Authority continue efforts started in September 2018 regarding the transition from LIBOR to the Sterling Overnight Index Average (SONIA) by the end of 2021.

On November 30, 2020, Intercontinental Exchange, Inc.

(ICE) announced that the ICE Benchmark Administration Limited (IBA), a wholly-owned subsidiary of ICE and the administrator of LIBOR, will consult in early December 2020 on its intention to (1) cease the publication of the one-week and two-month USD LIBOR after December 31, 2021, and (2) cease the publication of all other tenors of USD LIBOR after June 30, 2023.

This follows the announcement on November 18, 2020, that the IBA would consult on its intention to cease the publication of all

tenors of GBP, EUR, CHF and JPY LIBOR after December 31, 2021.

On December 4, 2020, IBA published its consultation on its intention to cease the publication of LIBOR settings.

The consultation period closed on January 25, 2021.

It has been reported that IBA intends to share the results of the consultation with the FCA and to publish a feedback statement summarizing responses from the consultation shortly thereafter.

The consultation is not an announcement that IBA will cease or continue the provision of any LIBOR settings after December 31, 2021 or June 30, 2023.

The deadline for transitioning away from USD LIBOR has been extended to June 30, 2023.

IBA has noted that any publication of the overnight and 1, 3, 6 and 12 month USD LIBOR settings based on panel bank submissions beyond December 31, 2021 will need to comply with applicable regulations, including as to representativeness, and that, based on current information from panel banks, IBA anticipates there being a representative panel for the continuation of these USD LIBOR settings through June 30, 2023.

The Working Group on Sterling Risk-Free Reference Rates (RFRWG), FCA and BoE also will continue to assess the evolving impact of Covid-19 on firms' LIBOR transition efforts and provide further updates in due course.

Regulators in the U.S.

and other countries are also working on the transition from LIBOR.

For example, the SEC and other regulators in the U.S.

are undertaking efforts to identify risks and prepare for the transition from LIBOR to the Secured Overnight Financing Rate (SOFR) by the end of 2021.

As discussed above, certain individual EU Member States, such as Italy and France, have implemented FTTs at the Member State-level.

Spain's 0.2% FTT on certain securities transactions, effective on January 16, 2021, is another example.

It has been reported that Spain's FTT tax revenues were only approximately 31% of projections.

The weakened economy in Europe can increase the risk that additional jurisdictions propose to implement FTTs.

The Labour Party in the UK has also previously proposed a UK FTT (in addition to the existing UK stamp duty), but it has not been advanced to date.

The Pandemic also could further delay agreement on, and the implementation of, an FTT in the EU, UK or other European countries.

Notwithstanding the impact of the Pandemic, global securities regulators urged the adoption of new risk free reference rates as alternatives to LIBOR.

Separate working groups were formed in the UK, the U.S., the EU, and other jurisdictions (e.g., Japan and Switzerland) to recommend an alternative to LIBOR for their respective markets.

The FCA, the BoE and the PRA, as well as other global regulators, continued efforts started in September 2018 regarding the proposed transition from LIBOR to the Sterling Overnight Index Average (SONIA) by the end of 2021.

On March 5, 2021, Intercontinental Exchange, Inc.

(ICE) published a feedback statement from ICE Benchmark Administration Limited, a wholly-owned subsidiary of ICE and the administrator of LIBOR, formally confirming its intention to:

(1) cease the publication of the one-week and two-month USD LIBOR after December 31, 2021;

(2) cease publication of the EUR, CHF, JPY and GBP LIBOR for all tenors after December 31, 2021;

and (3) cease the publication of all other tenors of USD LIBOR after June 30, 2023.

On June 2, 2021,

IOSCO issued a statement in which it urged all global market participants to "discontinue new use of USD LIBOR-linked contracts, as soon as practicable and no later than the end of 2021, to avoid the safety and soundness risks associated with the continued use." On June 2, 2021, the FSB released statements and reports that set out recommendations for financial and non-financial sector firms, as well as the authorities, to consider as they seek to transition away from LIBOR by the end of 2021.

The statements and reports included:

(1) a summary of high-level steps firms will need to take now and over the course of 2021 to complete their transition;

(2) a paper reviewing overnight risk-free rates and term rates;

(3) a statement on the use of the International Swaps and Derivatives Association's (ISDA) spread adjustments in cash products;

and (4) a statement that encouraged authorities to set globally consistent expectations that regulated entities should cease the new use of USD LIBOR in line with the relevant timelines for that currency, regardless of where those trades are booked.

In September 2021, the FCA issued a "Feedback Statement:

FCA use of powers over use of critical benchmarks," in which the FCA discussed, among other topics, its authority to prohibit some or all new uses of a critical benchmark, which includes LIBOR in the UK.

On September 9, 2021, the FCA also updated its website, and issued a consultation, "Proposed decisions on the use of LIBOR (Articles 23C and 21A BMR)," setting forth further guidance and requests for comment regarding further arrangements for the orderly wind-down of LIBOR by the end of 2021.

Although the FCA found that market participants have made good progress in actively transitioning contracts away from LIBOR, the FCA concluded that it will not be practicable to convert all outstanding sterling and Japanese yen LIBOR contracts by the end of 2021.

Consequently, to avoid disruption to legacy contracts that reference the 1 month, 3 month and 6 month sterling and Japanese yen LIBOR tenors, the FCA required the LIBOR benchmark administrator to publish these tenors under a 'synthetic' methodology, based on term risk-free rates, for the duration of 2022.

The synthetic panels are not intended for new issues, as the FCA also proposed to prohibit new use of overnight, 1 month, 3 month, 6 month and 12 month U.S.

dollar LIBOR, which will continue to be published through June 30, 2023.

On November 22, 2021, the FSB issued a statement urging swift action to ensure preparedness for LIBOR cessation and to reinforce the message and timeline from supervisors globally to ensure there is no interruption to new business and financing.

On December 10, 2021, the FCA also issued final guidance on the transition to LIBOR, including a feedback statement on its "Decisions on the use of LIBOR" (Articles 23C and 21A BMR) summarizing the results of its prior consultation discussed above.

Legislators and regulators in the U.S.

and other countries are also working on the transition from LIBOR, with particular emphasis on legacy financial agreements that lack sufficient "fallback" language to transition to a new reference rate in the event of LIBOR's cessation.

The SEC and other regulators in the U.S.

have undertaken efforts to identify risks and prepare for the proposed transition from LIBOR to the Secured Overnight Financing Rate (SOFR) or another alternative reference rate by the end of 2021.

The SOFR was selected as the preferred LIBOR replacement in the U.S.

by the Alternative Reference Rates Committee (ARRC) at the Federal Reserve Bank of New York.

Despite the extension of the USD LIBOR transition deadline to June 30, 2023, U.S.

regulators continue to urge financial institutions to stop entering into new LIBOR transactions by the end of 2021.

The Governors have indicated that "[n]ew contracts entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation." On October 23, 2020, the International Swaps and Derivatives Association (ISDA) published its ISDA 2020 IBOR Fallbacks Protocol, which enables parties to protocol covered documents to amend the terms of each such protocol covered document to (1) regarding a protocol covered document which incorporates, or references, a rate as defined in a Covered ISDA Definitions Booklet, include in the terms of such protocol covered document either the terms of, or a particular defined term included in, the Supplement to the 2006 ISDA Definitions, and (2) in respect of a protocol covered document which otherwise references a relevant interbank lending rate (IBOR), include in the terms of such protocol covered document new fallbacks for that relevant IBOR.

This protocol was effective January 25, 2021.

The phase-out of LIBOR can cause the renegotiation or re-pricing of certain credit facilities, derivatives or other financial transactions to which investment management industry participants, including Federated Hermes and its products, customers or service providers, are parties, alter the accounting treatment of certain instruments or transactions, or have other unintended consequences, which, among other effects, could require additional internal and external resources, and can increase operating expenses.

Federated Hermes continues to assess the impact that the transition from LIBOR will have on Federated Hermes and Federated Hermes' products and strategies, customers and service providers.

While Brexit has not had a significant impact on Federated Hermes' business as of December 31 , 2020, given the post-Brexit regulatory environment and potential impact of Covid-19, Federated Hermes remains unable to fully assess the degree that any potential Brexit impact and resulting changes could have on Federated Hermes' business, results of operations, financial condition and/or cash flows.

The HFML Acquisition, the HCL Acquisition and HFML's acquisition of MEPC Limited effective as of January 1, 2020 (MEPC Acquisition), each increased the potential Brexit impact to Federated Hermes.

Management also believes that a UK FTT or EU FTT, particularly if enacted with broad application, would be detrimental to Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

Management continues to monitor and evaluate the impact of Regulatory Developments (including potential new money market fund reforms) on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Regulatory changes stemming from Brexit, money market fund reform, a EU or UK FTT, or FCA, FSB, CBI, ESMA, IOSCO or other initiatives or Regulatory Developments, as well as the potential political and economic uncertainty surrounding Brexit and Covid-19, also can adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

Similar to its efforts in the U.S., Federated Hermes has dedicated, and continues to dedicate, significant internal and external resources to analyze and address European reforms that impact Federated Hermes' investment management and stewardship business.

European Regulatory Developments, and Federated Hermes' efforts relating thereto, have had, and can continue to have, an impact on Federated Hermes' expenses and, in turn, financial performance.

As of December 31 , 2020, Federated Hermes is unable to conclusively assess the potential impact that an FTT or other Regulatory Developments can have on its business, results of operations, financial condition and/or cash flows.

Federated Hermes also is unable to conclusively assess at this time whether, or the degree to which, Federated Hermes, any of its investment management subsidiaries or any of the Federated

Hermes Funds, including money market funds, or any of its other products, could ultimately be determined to be a non-bank, non-insurance company global systemically important financial institution.

The HFML Acquisition, HCL Acquisition and MEPC Acquisition each increased the potential impact that the above matters can have on Federated Hermes' business, results of operations, financial condition and/or cash flows.

On May 6, 2021, the ARRC published market indicators that would support a recommendation of term SOFR and confirmed that "a recommended term rate is now in clear sight" and the recent guidance "would allow the ARRC to recommend a SOFR-based term rate relatively soon." Despite the extension of the transition deadline to June 30, 2023 for certain tenors of USD LIBOR, U.S.

regulators continued to urge financial institutions to stop entering into new LIBOR transactions by the end of 2021.

The Governors have indicated that, "[n]ew contracts entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation." On October 23, 2020, ISDA published its ISDA 2020 IBOR Fallbacks Protocol, which enables parties to protocol-covered documents to amend their terms to:

(1) regarding a protocol-covered document which incorporates, or references, a rate as defined in a Covered ISDA Definitions Booklet, include either the terms of, or a particular defined term included in, the Supplement to the 2006 ISDA Definitions;

and (2) in respect of a protocol-covered document which otherwise references a relevant interbank lending rate (IBOR), include new "fallbacks" for that relevant IBOR.

This protocol became effective January 25, 2021.

On March 24, 2021, New York passed a law that implements fallback provisions that favor the transition to SOFR plus a spread adjustment for contracts without effective fallback provisions that are written under New York law.

The New York law also provides a safe harbor from litigation where SOFR is selected as a replacement rate for USD LIBOR.

Regulators have also taken note of the growing market demand for credit sensitive rates as alternatives to SOFR because credit sensitive rates have a term component built in, which is operationally similar to LIBOR.

During the open session of the June 11, 2021 FSOC meeting, SEC Chair Gensler delivered prepared remarks regarding the LIBOR transition in which he specifically condemned one such rate, the Bloomberg Short Term Bank Yield Index (BSBY), as featuring many of the same flaws as LIBOR, and generally advocated for term SOFR over BSBY.

On December 7, 2021, the SEC Staff released a statement providing guidance for registered broker-dealers and investment advisors reminding firms of their obligations to disclose the steps that they have taken to reduce LIBOR exposure (particularly those tenors that expire on December 31, 2021), mitigate risks, address fallback provisions, and avoid new obligations.

service providers, are parties, alter the accounting treatment of certain instruments or transactions, or have other unintended consequences, which, among other effects, could require additional internal and external resources, and can increase operating expenses.

The extent of such renegotiation or re-pricing could be mitigated by the adoption of, or advocacy for, a historical five-year median difference spread adjustment methodology by certain regulators, self-regulatory organizations and trade groups (including, for example, the ARRC and ISDA).

Federated Hermes has closely monitored regulatory statements and industry developments regarding the obligations of registered investment advisors and funds when recommending and purchasing securities or other investments that use LIBOR as a reference rate or benchmark.

Federated Hermes has focused on identifying LIBOR-linked securities or other investments, including, but not limited to:

derivatives contracts;

floating-rate notes;

municipal securities;

and tranches of securitizations, including collateralized loan obligations.

With respect to LIBOR-linked securities or other investments with maturities after the applicable LIBOR tenor cessation date, Federated Hermes has sought to proactively address transition-related questions with the issuers or lead arrangers of such securities and other investments, as applicable, including, for example, questions regarding transition events, benchmark replacement, and benchmark replacement adjustments.

As necessary, Federated Hermes has sought to negotiate modifications to benchmark fallback language for such securities and other instruments to contemplate the permanent cessation of LIBOR.

Federated Hermes will be continuing these efforts with respect to any remaining securities or other investments held by Federated Hermes' products and strategies that continue to use a U.S.

LIBOR tenor with a cessation date of June 30, 2023.

Federated Hermes also negotiated fall back language that provides for the use of an alternative reference rate or benchmark in its corporate credit facility and its U.S.-registered Federated Hermes Funds' credit facility.

Federated Hermes continues to monitor the impact that the transition from LIBOR will have on Federated Hermes and Federated Hermes' products and strategies, customers and service providers.

While Brexit has not had a significant impact on Federated Hermes' business as of December 31, 2021, given the post-Brexit regulatory environment and potential continuing impact of the Pandemic, Federated Hermes remains unable to fully assess the degree that any potential Brexit impact and resulting changes could have on Federated Hermes' Financial Condition.

The 2018 HFML Acquisition and the 2021 Acquisition of HFML Noncontrolling Interest (together the HFML Acquisition), the HCL Acquisition, and HFML's acquisition of MEPC Limited effective as of January 1, 2020 (MEPC Acquisition), each increased the potential Brexit impact to Federated Hermes.

Management continues to monitor and evaluate the impact of Regulatory Developments (including potential new money market fund reforms) on Federated Hermes' Financial Condition.

Regulatory changes stemming from Brexit, money market fund reform, a EU or UK FTT, or FCA, CBI, ESMA, FSB, IOSCO or other initiatives or Regulatory Developments, as well as the potential political and economic uncertainty surrounding Brexit and the continuing Pandemic, also can adversely affect, potentially in a material way, Federated Hermes' Financial Condition.

Similar to its efforts in the U.S., Federated Hermes has dedicated, and continues to dedicate, significant internal and external resources to analyze and address UK, EU and other international Regulatory Developments that impact Federated Hermes' investment management, stewardship and real estate development businesses.

UK, EU and other international Regulatory Developments, and Federated Hermes' efforts relating thereto, have had, and can continue to have, an impact on Federated Hermes' expenses and, in turn, financial performance.

As of December 31, 2021, Federated Hermes is unable to fully assess the potential impact that an FTT or other international Regulatory Developments can have on its Financial Condition.

Federated Hermes also is unable to fully assess at this time whether, or the degree to which, Federated Hermes, any of its investment advisory subsidiaries or any of the Federated Hermes Funds, including money market funds, or any of its other products, could ultimately be determined to be a non-bank, non-insurance company global systemically important financial institution.

The HFML Acquisition, HCL Acquisition and MEPC Acquisition each increased the potential impact that the above matters can have on Federated Hermes' Financial Condition.

Human Capital Resource Management

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Like other companies, Federated Hermes experiences employee turnover which is tracked at various levels within the company and conducts exit interviews with departing employees.

Federated Hermes' ability to attract, retain and properly motivate highly qualified professionals across the company is a critical factor in maintaining its competitive position within the investment management industry and ensuring Federated Hermes the opportunity for future success.

Federated Hermes' compensation programs across the company are designed to attract, retain and incentivize talented and qualified individuals.

The information derived from these interviews, as well as our employee

development initiatives described below and succession planning, allows Federated Hermes to cultivate leaders, manage turnover and retain talented and qualified individuals.

See Item 1A - Risk Factors - General Risk Factors - Other General Risks - Recruiting and Retaining Key Personnel (Human Capital Resource Management Risk) for more information on the risks to Federated Hermes if it is unable to attract and retain talented and qualified employees.

For additional information on remote and hybrid working arrangements, see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations – Business Developments – The Pandemic.

Competitive Compensation

Understanding that Federated Hermes' business success depends on its ability to attract, retain and incentivize talented and qualified individuals, Federated Hermes' compensation programs across the company strive to meet this goal.

Federated Hermes endeavors to reward individual contribution, as demonstrated by the delivery of long-term sustainable results.

Federated Hermes' compensation programs are also designed to align the interests of its officers and employees with its business strategy, values and objectives, including the interests of its clients, shareholders and stakeholders, while affording the business the opportunity to grow.

For employees managed out of the U.S., Federated Hermes' compensation programs are comprised of competitive levels of cash compensation together with equity and other components for certain positions.

Compensation is structured in the form of salary, which is competitively evaluated annually;

For employees managed from the U.S., Federated Hermes' compensation programs are comprised of competitive levels of cash compensation together with equity and other components for certain positions.

Compensation is structured in the form of:

salary, which is competitively evaluated annually;

and, where appropriate, long-term incentives.

For employees managed out of the UK, compensation is based on fixed and variable compensation.

For employees managed from the UK, compensation is based on fixed and variable compensation.

Fixed compensation can include base salary, a retirement plan and other corporate benefits, and is designed to provide competitive fixed compensation at a level that reflects market-compensation.

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• The pay mix for Investment Management employees is more heavily weighted in variable compensation in the form of discretionary bonuses and, among other factors deemed relevant, takes into account investment product performance from one- through five-year periods.

For employees managed out of the U.S., all or a portion of any annual performance bonus can be paid in cash or a combination of cash and annual bonus restricted stock.

For employees managed from the U.S., all or a portion of any annual performance bonus can be paid in cash or a combination of cash and annual bonus restricted stock.

Investment Management employees are also eligible for periodic restricted stock awards.

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Federated Hermes' executive compensation programs are designed to reward outcomes related to a variety of factors including Federated Hermes' financial, investment, sales and customer service performance as measured against other similar companies within the investment management industry.

Please refer to the Compensation

Discussion and Analysis section of Federated Hermes' Information Statement for additional information regarding executive compensation.

Please refer to the Compensation Discussion and Analysis section of Federated Hermes' Information Statement for additional information regarding executive compensation.

Federated Hermes' Stock Incentive Plan is designed to support its retention and attraction objectives.

Under this program, executive officers and certain employees in the U.S.

are eligible to receive periodic restricted stock awards that vest over a ten-year period.

The restrictions on the vested portion of an award typically lapse on the award's fifth- and tenth-year anniversaries.

Under this program, executive officers and certain employees are eligible to receive periodic restricted stock awards that vest over specified vesting

periods (e.g., for U.S.

employees, a ten- year period).

The restrictions on the vested portion of an award typically lapse on specified anniversary dates of an award (e.g., for U.S.

employees, the award's fifth- and tenth-year anniversaries).

Additionally, for certain groups of U.S.

employees, a portion of their bonus awards are paid in the form of annual bonus restricted stock with a three-year ratable vesting schedule with restrictions lapsing on each vesting date.

For all employees managed out of the UK, discretionary bonus awards above a certain threshold are subject to deferral.

employees, a portion of their bonus awards are paid in the form of bonus restricted stock with a three-year ratable vesting schedule with restrictions lapsing on each vesting date.

For all employees managed from the UK, discretionary bonus awards above a certain threshold are subject to deferral.

Under the deferred bonus scheme, a portion of the bonus is deferred, notionally tracks the performance of certain Federated Hermes Funds and vests over three years.

Employees can also receive awards under a long-term incentive plan (LTIP) that offers certain employees the chance to acquire beneficial ownership of ordinary shares in HFML.

Employees have also been eligible to receive awards under a long-term incentive plan (LTIP) that offers certain employees the chance to acquire beneficial ownership of ordinary shares in HFML.

These shares normally vest over a five-year period.

Subject to certain approvals and contingencies, as part of a tender offer intended to acquire the remaining approximately 10% interest in HFML not owned by Federated Hermes, Federated Hermes intends to issue awards of restricted Federated Hermes Class B common stock under its Stock Incentive Plan to HFML employees in the first quarter of 2022 in exchange for the beneficial interests in these HFML shares awarded under the LTIP and issue treasury shares of Federated Hermes Class B common stock in exchange for the remaining interests in the HFML shares that are held by a former employee and those that have not yet been awarded to employees and are held by an employee benefit trust that was established in connection with the LTIP.

These awards of restricted Federated Hermes stock, as well as the treasury Federated Hermes stock, will have the same vesting schedule and similar transfer restrictions as the awards granted under the LTIP.

See Note (22) to the Consolidated Financial Statements for additional information.

The Private Equity and Infrastructure businesses of Federated Hermes also operate carried interest and share of performance fee programs typical to such asset classes.

For 2021, Federated Hermes' total compensation expense was $532.5 million and included salary, bonus and stock-based compensation expense.

Federated Hermes' benefit offerings across the company are designed to equip Federated Hermes employees with resources and services to help them stay healthy, develop their careers, meet their financial goals, and balance the demands of work and personal life, as well as to further employee engagement and retention.

Along with the traditional health and welfare benefits, such as medical, dental, disability, paid time off and retirement, the company also offers flexible work arrangements, education assistance, paid parental leave, paid volunteer time, employee discounts and other programs and services.

Federated Hermes' benefit offerings across the company are designed to reflect the local market and equip Federated Hermes employees with resources and services to help them stay healthy, balance the demands of work and personal life, develop their careers, and meet their financial goals, as well as to further employee engagement and retention.

Along with the traditional health and welfare benefits, such as medical and dental coverage, an employee assistance program, disability, paid time off and retirement programs, the company also offers flexible work arrangements, education assistance, paid parental leave, adoption benefits, paid volunteer time, employee discounts and other programs and services.

Federated Hermes also has introduced a range of resources to provide employees with information and support to remain physically and emotionally healthy during the Pandemic.

See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations – Business Developments – The Pandemic for additional information on the steps Federated Hermes has taken to safeguard the health and safety of employees.

Employee Development

Federated Hermes provides a professional work environment for employees across the company that supports employees' career aspirations and professional development interests through training programs and mentoring initiatives.

Training is provided on the job and by Federated Hermes' training staff through a blend of internal/external classroom and online courses.

Federated Hermes' extensive training curriculums focus on Technical, Professional, Leadership & Management, and includes, among others, courses on:

Training is provided on the job and by Federated Hermes' training staff and a network of specialist training providers through a blend of internal/external classroom and online courses.

Federated Hermes' extensive training curriculums focus on Technical, Professional, Leadership & Management, and include, among others, courses on:

the securities markets and Federated Hermes' products;

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customer service skills;

dignity and respect in the workplace, individual and team performance;

financial, physical and mental health well-being;

remote working and hybrid management;

dignity and respect in the workplace;

individual and team performance;

communication skills;

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The attraction, training and retention of qualified employees across the company supports Federated Hermes' succession planning at all levels.

Federated Hermes has developed a diversity and inclusion strategy with the mission to foster a diverse, inclusive and respectful workplace where employees across the company are encouraged to be innovative and creative and where unique perspectives and experiences are recognized and appreciated for the contributions they bring to the company.

Federated Hermes cultivates an appreciation of the benefits of diversity in the workplace across the company through its recruitment process, the onboarding of new employees, and ongoing employee education and programs.

The company's diversity and inclusion initiatives are sponsored and endorsed by the Board and executive management, and advanced, in collaboration with management and employees at all levels, by the various teams and employee resource business groups across the company including Human Resources and, in the U.S., a dedicated Diversity Officer/Senior Talent Acquisition Manager and, in London, a dedicated Head of Inclusion.

Federated Hermes is committed to providing equal employment opportunities across the company to qualified individuals without regard to:

race, color, national origin, religion, sex, pregnancy, sexual orientation, gender identity or expression, mental or physical disability, age, familial or marital status, ancestry, military status, veteran status, or genetic information, as well as any other prohibited criteria under law applicable to Federated Hermes.

Diversity and Inclusion

As of December 31, 2021, across the company, approximately 40% of Federated Hermes' employees are women.

Federated Hermes' Board has approximately 17% women, and approximately 10% of Federated Hermes' executives are women.

In the United States, approximately 7% of Federated Hermes' employees are minorities, 33% of business managers are women and/or minorities, 27% of investment professionals are women and/or minorities, and approximately 89% of AUM managed from the United States are in products that have at least one portfolio manager that is a woman and/or minority.

Federated Hermes recognizes that a diverse and inclusive workplace benefits employees and supports stronger long-term business performance.

Federated Hermes developed its diversity and inclusion strategy with the mission of fostering a diverse, inclusive and respectful workplace where employees across the company are encouraged to be innovative and creative and

where unique perspectives and experiences are recognized and appreciated for the contributions they bring to the company.

Federated Hermes has made a long-term commitment to enhancing the diversity of the company's workforce and providing an inclusive environment.

The company's diversity and inclusion strategy is centered around four pillars:

driving diversity;

creating inclusion;

expanding outreach;

and ensuring program sustainability by evaluating results and implementing enhancements.

Federated Hermes cultivates the benefits of workplace diversity throughout the company through its recruitment process, the onboarding of new employees, and the ongoing education and training of employees.

In the U.S., the company implemented several programs to advance diversity and inclusion, which include:

launching a Women in Investing Employee Resource Business Group with the mission of supporting and advancing the professional development and representation of women within the company, the investment management industry and the community;

implementing an internship program with a local high school for underrepresented students;

and implementing a University Ambassador Program, enabling employees to serve as liaisons between the company and universities to facilitate building a diverse, early-career talent pipeline and enhance the company's brand recognition.

In London, a number of diversity and inclusion initiatives have been launched, including:

inclusive leadership training for management;

Employee Resource Groups with several Employee Networks;

and cultural events such as National Inclusion Week, Mental Health Awareness Week, Pride Week and Black History Month.

The company's diversity and inclusion initiatives are sponsored and endorsed by the Board and executive management.

The Compensation Committee of the Board receives periodic updates and reports on the company's diversity and inclusion strategy and its compensation practices, including an annual pay equity analysis.

In collaboration with management and employees at all levels, these initiatives are advanced by various teams and employee resource business groups across the company, including Human Resources and, in the U.S., a dedicated Diversity Officer/Senior Talent Acquisition Manager and, in London, a dedicated Head of Inclusion.

Federated Hermes is committed to providing equal employment opportunities across the company to qualified individuals without regard to:

national origin;

sexual orientation;

gender identity or expression;

mental or physical disability;

familial or marital status;

military status;

veteran status;

or genetic information;

as well as any other prohibited criteria under law applicable to Federated Hermes.

Federated Hermes encourages its employees across the company to raise human resources questions or concerns with their managers or the Human Resources Department in the U.S.

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Christopher Donahue President, Chief Executive Officer, Chairman and Director of Federated Hermes, Inc.

Ceresino Vice Chairman of Federated Hermes, Inc.

and President of Federated International Management Limited and Chairman and President of Federated International Securities Corp.

Ceresino Vice Chairman of Federated Hermes, Inc., Chairman, Director and President of Federated International Securities Corp.

and Vice Chairman of Federated MDTA, LLC 64

Donahue Vice President, Treasurer, Chief Financial Officer and Director of Federated Hermes, Inc.

and President of FII Holdings, Inc.

Dudiak Vice President, and Director, Human Resources of Federated Hermes, Inc.

Dudiak Vice President, Director of Human Resources of Federated Hermes, Inc.

Fisher Vice President and Director of Federated Hermes, Inc.

and President and Chief Executive Officer of Federated Advisory Companies* 65

Germain Executive Vice President, Chief Legal Officer, General Counsel and Secretary of Federated Hermes, Inc.

Germain Executive Vice President, Chief Legal Officer and Secretary of Federated Hermes, Inc.

Novak Vice President, Assistant Treasurer and Principal Accounting Officer of Federated Hermes, Inc.

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He also serves as a director, trustee or officer of various other Federated Hermes subsidiaries.

He is also a director or trustee of six investment companies managed by subsidiaries of Federated Hermes.

He is also a director or trustee of seven investment companies managed by subsidiaries of Federated Hermes.

Donahue is the brother of J.

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subsidiaries since 1994, holding the title Senior Vice President since July 2002.

In these capacities, she is responsible for the Human Resources Department at Federated Hermes, Inc., including Total Compensation Management, Employment Services/Employee Relations, Organization Development, and Human Resources Information Management, as well as the company's response to Covid-19.

Fisher has served as Vice President of Federated Hermes since 1998.

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Fisher served as President of the Institutional Sales Division of Federated Securities Corp., a wholly-owned subsidiary of Federated Hermes.

Germain has served as Executive Vice President, Chief Legal Officer and Secretary of Federated Hermes since October 2017, and as General Counsel and Vice President of Federated Hermes since January 2005.

Germain has served as Executive Vice President, Chief Legal Officer and Secretary of Federated Hermes since October 2017, as General Counsel from January 2005 through June 2021 and Vice President of Federated Hermes since January 2005.

In his capacity as Chief Legal Officer, he oversees the delivery of legal, compliance, internal audit and risk management services to Federated Hermes and its affiliates.

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Germain also serves as Chief Legal Officer, Executive Vice President and Secretary of 33 investment companies managed by subsidiaries of Federated Hermes.

Novak has served as Vice President, Assistant Treasurer and Principal Accounting Officer of Federated Hermes since 2013.

Prior to that time, he served as Fund Treasurer of Federated Hermes' domestic mutual funds beginning in 2006 and served as the Controller of Federated Hermes from 1997 through 2005.

Novak has served as Vice President, Assistant Treasurer and Principal Accounting Officer of Federated Hermes since April 2013.

Prior to that time, he served as Fund Treasurer of Federated Hermes' U.S.-based mutual funds beginning in 2006 and served as the Controller of Federated Hermes from 1997 through 2005.

He serves as a director of Hermes Fund Managers Limited.

He also serves as Senior Vice President, Treasurer, Assistant Treasurer, Assistant Company Secretary, President or director for various subsidiaries of Federated Hermes.

He also serves as director or officer for various subsidiaries of Federated Hermes.

Novak is a Certified Public Accountant.

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He had previously served as a Vice President of Federated Securities Corp.

since 1995, and most recently served as Executive Vice President of Federated Securities Corp.

from 1995 through 2010, and most recently served as Executive Vice President of Federated Securities Corp.

Uhlman also held the position of National Sales Director, Institutional Sales, from 2007 through June 2016.

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All references to the Notes to the Consolidated Financial Statements in this Form 10-K refer to those in Item 8 - Financial Statements and Supplementary Data (Consolidated Financial Statements).

All other information required by this Item is contained in Item 6 - Selected Financial Data and Note (5) to the Consolidated Financial Statements.

All other information required by this Item is contained in Note (4) to the Consolidated Financial Statements.

All cross-references between Items in this 10-K are considered to be incorporated into the Item containing the cross-reference.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business