What changed in this filing

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Item 1. Business

2025-02-28 compared with 2024-02-23 · 415 added, 451 removed, 285 unchanged (75% of the section changed)

ITEM 1 – BUSINESS

Federated Hermes, Inc.

a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, Federated Hermes) is a global leader in active, responsible investing with $757.6 billion in assets under management (AUM or managed assets) at December 31, 2023.

Federated Hermes, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, Federated Hermes) is a global leader in active investing with $829.6 billion in assets under management (AUM or managed assets) at December 31, 2024.

Federated Hermes has been in the investment management business since 1955 and is one of the largest investment managers in the United States (U.S.).

Federated Hermes also provides stewardship services to customers seeking a range of solutions for engagement, advocacy, active ownership and impact, as well as real estate development services.

In seeking to enhance long-term investment performance for its customers and clients (collectively, including intermediaries, customers), Federated Hermes has taken steps to integrate the proprietary insights from fundamental investment analysis, including environmental, social and governance (ESG) factors and engagement interactions, into many of the products and strategies it manages.

Federated Hermes also provides stewardship services to customers seeking a range of solutions for engagement, as well as real estate development services.

In seeking to enhance long-term risk-adjusted investment performance, and create long-term financial value/wealth, for its customers and clients (collectively, including intermediaries, customers) consistent with its fiduciary duties and customer objectives, Federated Hermes has taken steps to integrate the proprietary insights from fundamental investment analysis, including governance, environmental and social factors and engagement interactions, into many of the products and strategies it manages.

Federated Hermes operates in one operating segment, the investment management business.

Federated Hermes sponsors, markets and provides investment-related services and strategies (collectively, as applicable, strategies) to various investment products, including sponsored investment companies and other funds (Federated Hermes Funds) and Separate Accounts (which include separately managed accounts (SMAs), institutional accounts, sub-advised funds and other managed products) in both domestic and international markets.

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

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 its 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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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 180 Federated Hermes Funds, Federated Hermes’ investment advisory subsidiaries managed 24 money market funds with $406.2 billion in AUM, 41 equity funds with $42.5 billion in AUM, 56 fixed-income funds with $43.9 billion in AUM, 54 alternative/private markets funds with $12.4 billion in AUM and five multi-asset funds with $2.7 billion in AUM.

Of the 176 Federated Hermes Funds, Federated Hermes’ investment advisory subsidiaries managed as of December 31, 2024, 22 money market funds with $461.7 billion in AUM, 45 equity funds with $43.8 billion in AUM, 54 fixed-income funds with $45.6 billion in AUM, 50 alternative/private markets funds with $11.5 billion in AUM and five multi-asset funds with $2.8 billion in AUM.

As of December 31, 2024, Federated Hermes provided investment strategies to $264.3 billion in Separate Account assets.

These Separate Accounts represent assets of government entities, high-net-worth individuals, pension and other employee benefit plans, corporations, trusts, foundations, endowments, sub-advised funds and other accounts or products owned or s ponsored by third parties.

Fees for Separate Accounts are typically based on AUM pursuant to investment advisory agreements that are generally terminable upon notice to Federated Hermes (or, in certain cases, after a 30-day, 60-day or similar notice period).

Fees for Separate Accounts are typically based on AUM pursuant to investment advisory agreements that are generally terminable upon notice to the investment advisor (or, in certain cases, after a 30-day, 60-day or similar notice period).

Certain Federated Hermes Funds have adopted distribution plans that, subject to applicable law, provide for payment to Federated Hermes for distribution services.

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Assets Under Management

Total AUM are composed of Federated Hermes Funds and Separate Accounts and represent the balance of AUM at a point in time.

Total managed assets represents the total of AUM, which is composed of Federated Hermes Funds and Separate Accounts and represent the balance of AUM at a point in time.

Total managed assets for the past two years were as follows:

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Total Average Managed Assets $ 788,471 $ 705,978 $ 632,633 12 % 12 %

Changes in Federated Hermes’ average asset mix year-over-year across both asset classes and product/strategy types have a direct impact on Federated Hermes’ operating income.

Asset mix impacts Federated Hermes’ total revenue due to the difference in the fee rates earned on each asset class and product/strategy type per invested dollar.

Generally, advisory fees charged for services provided to multi-asset and equity products and strategies are higher than advisory fees charged to alternative/private markets and fixed-income products and strategies, which in turn are higher than advisory fees charged to money market products and strategies.

Changes in Federated Hermes’ average asset mix year-over-year across both asset classes and offering types have a direct impact on Federated Hermes’ operating income.

Asset mix impacts Federated Hermes’ total revenue due to the difference in the fee rates earned on each asset class and offering type per invested dollar.

Generally, advisory fees charged for services provided to multi-asset and equity offerings are higher than advisory fees charged to alternative/private markets and fixed-income offerings, which in turn are higher than advisory fees charged to money market offerings.

Likewise, Federated Hermes Funds typically have higher advisory fees than Separate Accounts.

Additionally, certain components of distribution expense can vary depending upon the asset class, distribution channel and/or the size or structure of the customer relationship.

Federated Hermes generally pays out a larger portion of the revenue earned from managed assets in money market and multi-asset funds than the revenue earned from managed assets in equity, fixed-income and alternative/private markets funds.

Federated Hermes generally pays out a larger portion of the revenue earned from managed assets in equity, money market and multi-asset funds than the revenue earned from managed assets in fixed-income and alternative/private markets funds.

Federated Hermes’ revenue from investment advisory, administrative and other service fees over the last three years were as follows:

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Total Revenue $ 1,632,093 $ 1,609,574 $ 1,445,814 1 % 11 %

Investment Products and Strategies

Federated Hermes offers a wide range of products and strategies, including money market, equity, fixed-income, alternative/private markets and multi-asset investments.

Investment Offerings

Federated Hermes offers a wide range of investment offerings, including money market, equity, fixed-income, alternative/private markets and multi-asset offerings.

Federated Hermes’ offerings include products and strategies expected to be in demand under a variety of economic and market conditions.

Federated Hermes has structured its investment process to meet the requirements of fiduciaries and others who use Federated Hermes’ products and strategies to meet the needs of their customers.

Federated Hermes has structured its investment process to meet the requirements of fiduciaries and others who use Federated Hermes’ offerings to meet the needs of their customers.

Fiduciaries typically have stringent demands regarding portfolio composition, risk and investment performance.

Federated Hermes, which began selling money market fund products to institutions in 1974, is one of the largest U.S.

Federated Hermes, which began selling money market fund offerings to institutions in 1974, is one of the largest U.S.

managers of money market assets, with $630.3 billion in AUM at December 31, 2024.

Federated Hermes has developed expertise in managing cash for institutions, which typically have strict requirements for regulatory compliance, relative safety, liquidity and competitive yields.

Federated Hermes also manages retail money market products that are typically distributed through broker/dealers and other financial intermediary customers.

Federated Hermes also manages retail money market offerings that are typically distributed through broker/dealers and other financial intermediary customers.

At December 31, 2024, Federated Hermes managed money market assets across a wide range of categories:

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private equity ($4.7 billion);

other alternative ($3.4 billion);

infrastructure ($3.0 billion);

private credit ($3.4 billion);

multi-asset ($2.9 billion);

market neutral ($0.3 billion);

and bear market ($0.2 billion).

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

infrastructure ($2.8 billion) and other alternatives ($1.0 billion).

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

Federated Hermes’ proprietary, independent investment research process is centered on the integration of several qualitative and quantitative disciplines including:

fundamental research and credit analysis;

integration of proprietary insights from fundamental investment analysis, including ESG factors and engagement interactions, (for many of Federated Hermes' products and strategies);

integration of proprietary insights from fundamental investment analysis, including governance, environmental and social factors and engagement interactions (for many of Federated Hermes' offerings);

quantitative research models;

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Distribution Channels and Product Markets

Federated Hermes’ distribution strategy is to provide investment management products and strategies to more than 10,000 institutions, financial intermediaries and other customers, including, among others, banks, broker/dealers, registered investment advisors, government entities, corporations, insurance companies, foundations and endowments.

Federated Hermes uses its trained sales force of more than 200 representatives and managers, backed by an experienced support staff, to offer its products and strategies, add new customer relationships and strengthen and expand existing relationships.

Federated Hermes’ investment products and strategies are offered and distributed in three markets.

Federated Hermes’ distribution strategy is to provide investment offerings to more than 10,000 institutions, financial intermediaries and other customers, including, among others, banks, broker/dealers, registered investment advisors, government entities, corporations, insurance companies, foundations and endowments.

Federated Hermes uses its trained sales force of nearly 250 representatives and managers, backed by an experienced support staff, to make available and distribute its offerings, add new customer relationships and strengthen and expand existing relationships.

Federated Hermes’ offerings are made available and distributed in three markets.

These markets, and the relative percentage of managed assets at December 31, 2024 attributable to such markets, are as follows:

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and international (7%).

Financial Intermediary Federated Hermes offers and distributes its products and strategies in this market through a large, diversified group of over 6,300 national, regional and independent financial intermediary customers, including broker/dealers, banks and registered investment advisors.

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

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

Financial Intermediary Federated Hermes makes available and distributes its offerings in this market through a large, diversified group of over 6,400 national, regional and independent financial intermediary customers, including broker/dealers, banks and registered investment advisors.

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

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

As of December 31, 2024, managed assets in the U.S.

financial intermediary market included $446.9 billion in money market assets, $56.1 billion in equity assets, $45.8 billion in fixed-income assets, $2.5 billion in multi-asset and $0.8 billion in alternative/private markets assets.

Institutional Federated Hermes offers and distributes its products and strategies to a wide variety of domestic institutional customers including, among others, government entities, not-for-profit entities, corporations, corporate and public pension funds, foundations, endowments and non-Federated Hermes investment companies or other funds.

Institutional Federated Hermes makes available and distributes its offerings to a wide variety of domestic institutional customers including, among others, government entities, not-for-profit entities, corporations, corporate and public pension

funds, foundations, endowments and non-Federated Hermes investment companies or other funds.

As of December 31, 2024, managed assets in the U.S.

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Of the Separate Account AUM, $34.2 billion related to SMAs.

The investment management business is highly competitive across all types of investment products and strategies, including mutual funds, exchange traded funds (ETFs), SMAs, institutional accounts, sub-advised funds and other managed products and strategies.

The investment management business is highly competitive across all types of investment offerings, including mutual funds, exchange traded funds (ETFs), SMAs, institutional accounts, sub-advised funds and other managed offerings.

Competition is particularly intense among mutual fund and ETF providers.

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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, private markets/alternative product managers and other financial institutions.

Federated Hermes launched its first ETFs - two fixed-income, fully transparent ETFs in December 2021, a dividend income equity ETF in November 2022 and a third fixed-income ETF in January 2024.

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 other customers and type and quality of services.

Federated Hermes launched its first ETFs in December 2021 and currently has eight ETFs in its offerings as of December 31, 2024.

Competition for sales of investment offerings 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 other customers and type and quality of services.

Regulatory Matters

With Federated Hermes’ global operations, Federated Hermes, and certain of its subsidiaries and products (such as the Federated Hermes Funds), are registered with or licensed by, and subject to examination by, various U.S.

With Federated Hermes’ global operations, Federated Hermes, and certain of its subsidiaries and offerings (such as the Federated Hermes Funds), are registered with or licensed by, and subject to examination by, various U.S.

and/or non-U.S.

regulators, self-regulatory agencies or exchanges, such as, among others, the U.S.

Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), Commodity Futures Trading Commission (CFTC), Department of Labor (DOL), New York Stock Exchange (NYSE), the UK Financial Conduct Authority (FCA), the Central Bank of Ireland (CBI), the Cayman Island Monetary Authority (CIMA), and the Luxembourg Commission de Surveillance du Secteur Financier (CSSF).

Federated Hermes’ business, and products, strategies, and other services (collectively, as applicable, offerings), also are subject to various U.S.

Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), Commodity Futures Trading Commission (CFTC), Department of Labor (DOL), New York Stock Exchange (NYSE), UK Financial Conduct Authority (FCA), Central Bank of Ireland (CBI), Cayman Island Monetary Authority (CIMA), Monetary Authority of Singapore, Australian Securities and Investments Commission (ASICS) and Luxembourg Commission de Surveillance du Secteur Financier (CSSF).

Federated Hermes’ business and offerings, are subject to various U.S.

and/or non-U.S.

laws, regulations, rules, codes, notices, directives, guidelines, listing standards, judicial decisions, orders, circulars and/or conditions (collectively, as applicable, regulatory requirements), such as the Securities Act of 1933 (1933 Act), the Securities Act of 1934 (1934 Act), the 1940 Act, the Advisers Act, the Dodd-Frank Wall Street Reform

and Consumer Protection Act of 2010 (Dodd-Frank Act), and the Sarbanes-Oxley Act of 2002 (SOX), and related regulations;

laws, regulations, rules, codes, notices, directives, guidelines, listing standards, judicial decisions, orders, circulars and/or conditions (collectively, as applicable, regulatory requirements).

These include, for example:

(1) federal securities laws such as the Securities Act of 1933 (1933 Act), the Securities Exchange Act of 1934 (1934 Act), the 1940 Act, Advisers Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), and the Sarbanes-Oxley Act of 2002 (SOX) and related regulations;

(2) the NYSE Listed Company Manual;

(3) corporate laws regarding governance, reporting, disclosure and other requirements;

and state or foreign laws regarding securities fraud, securities registrations, reporting, and escheatment of unclaimed or abandoned property.

Federated Hermes, and its business and offerings, are also subject to various other privacy, anti-money laundering, anti-terrorist financing, economic, trade and sanction regulatory requirements, both domestically and internationally, as well as to various cross-border regulatory requirements, such as the anti-bribery and anti-corruption rules under the Foreign Corrupt Practices Act of 1977 (FCPA) and the data protection rules under the General Data Protection Regulation (GDPR) of the European Union (EU).

Federated Hermes, and its business and offerings, are also subject to sanctions programs administered by the Office of Foreign Assets Control of the U.S.

(4) state or foreign laws regarding securities fraud, securities registration, reporting and escheatment of unclaimed or abandoned property;

(5) various privacy, and data protection laws and regulations, such as Regulation S-P in the U.S.

and the General Data Protection Regulation (GDPR) of the European Union (EU) and UK GDPR;

(6) various financial crime laws, such as anti-money laundering, anti-terrorist financing, economic, trade and financial sanctions, both domestically and internationally;

(7) various cross-border regulatory requirements, such as the anti-bribery and anti-corruption rules under the Foreign Corrupt Practices Act of 1977 (FCPA) and UK Bribery Act 2010;

and (8) regulations or other rules promulgated by various regulatory or other authorities.

The regulatory requirements applicable to Federated Hermes’ business and offerings, also include economic, trade and financial sanctions regulatory requirements, such as the sanctions programs administered by the Office of Foreign Assets Control of the U.S.

Department of Treasury (USDT), as well as sanctions programs adopted and administered by non-U.S.

jurisdictions where Federated Hermes’ products and strategies are offered.

jurisdictions where Federated Hermes’ offerings are distributed.

Certain regulatory requirements, both in the U.S.

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Federated Hermes also must comply with complex and changing tax regimes in the jurisdictions where it operates.

Federated Hermes also monitors, reviews and assesses proposed new or revised regulatory requirements that are proposed from time to time (collectively, as applicable, regulatory developments).

Federated Hermes monitors, reviews and assesses proposed new or revised regulatory requirements that are proposed from time to time (collectively, as applicable, regulatory developments).

These regulatory requirements and regulatory developments continue to impact the investment management industry generally, and will continue

to impact, to various degrees, Federated Hermes’ business, results of operations, financial condition, cash flows, stock price and reputation (collectively, Financial Condition).

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

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Federated Hermes’ primary regulator in the U.S.

Despite the SEC receiving criticism and an adverse judicial ruling relating to its expedited pace of new proposed regulatory developments and final regulatory requirements, the SEC (among other regulatory authorities, self-regulatory authorities, or exchanges) has continued to advance robust rulemaking initiatives.

Since the beginning of the fourth quarter 2023, the SEC issued proposed rules on, among other topics:

(1) standards for covered clearing agencies for U.S.

treasury securities;

(2) short position and short activity reporting by institutional investment managers;

(3) reporting on securities loans;

and (4) modernization of beneficial ownership reporting.

The SEC’s Fall 2023 Unified Agenda of Regulatory and Declaratory Actions (SEC Fall Reg Flex Agenda) identified 43 other rulemaking initiatives, including eight proposed rules and 26 final rules to be issued by April 2024 and an additional six proposed rules and three final rules to be issued by October 2024.

The SEC Fall Reg Flex Agenda indicates that proposed rules are scheduled to be issued on, among other topics, corporate board diversity, human resource management disclosure, fund fee disclosure and reform, and exchange-traded products, and that final rules are scheduled to be issued on, among other topics, climate change disclosure, safeguarding advisory client assets (i.e., the custody rule), enhanced disclosures about ESG investment practices, open-end liquidity risk management and swing pricing, cybersecurity risk management for investment advisors, registered investment companies and business development companies, Form PF reporting requirements, and outsourcing by investment advisors.

Over the past several years, the SEC received criticism for the expedited pace in which it promulgated new proposed and final regulations.

With the new Presidential administration taking office on January 20, 2025, there will be a new SEC Chairperson, and a majority of SEC Commissioners will be Republican.

The new Chairperson will appoint new SEC leadership as well, including a new Director of the SEC’s Division of Enforcement, a new SEC Chief of Staff and new SEC Director of Policy.

While it is difficult to predict where new SEC leadership will focus their efforts, it appears likely that the SEC will resume the focus of the SEC during the previous Republican Presidential administration on areas such as deregulation, capital formation, enforcement aimed at retail investor protection and combating fraud, and cryptocurrency offerings.

Given the new administration, deregulation is a possibility, and the pace of new SEC proposed and final regulations is expected to slow.

Regarding deregulation, the investment management industry is expected to request the SEC to repeal or modify certain regulatory requirements previously promulgated by the SEC and to adopt more investor- and industry-friendly regulatory requirements.

For example, among other topics, Federated Hermes intends to discuss with the SEC’s Commissioners and Staff, either directly or through an industry trade group:

(1) repealing the mandatory redemption fee requirement applicable to registered institutional prime and municipal (or tax-exempt) money market funds;

(2) repealing the requirement under the amendments to Rule 35d-1 under the 1940 Act (Names Rule) to sell securities within 90 days to bring a registered mutual fund into compliance with its 80% investment policy (80% Policy);

(3) permitting a new or existing registered fund to offer both mutual fund and exchange-traded share classes;

(4) streamlining the registered fund shareholder approval process by reducing shareholder meeting quorum requirements and amending NYSE Rule 452 to allow brokers the discretion to vote shares for their clients who do not instruct them how to vote ( i.e.

, broker non-votes) for quorum purposes when shareholder approval matters are not contested;

(5) permitting registered fund boards to appoint a greater number of new independent directors to reduce the frequency of conducting expensive shareholder meetings to approve independent directors;

(6) effectuating the NYSE proposal to eliminate the annual shareholder meeting requirement for exchange-traded closed-end funds;

(7) permitting closed-end fund boards to rely on state-recognized anti-takeover measures, such as control share provisions;

and (8) allowing electronic delivery of disclosure documents and other information to shareholders as a default delivery option.

Federated Hermes also intends to continue efforts to have legislation introduced in Congress that, if enacted, would permit the use of amortized cost valuation by money market funds and override the floating net asset value (NAV) and certain other requirements imposed under prior money market fund rule amendments and related guidance that became effective in 2016 for institutional prime and municipal (or tax-exempt) money market funds.

Regarding the pace of new SEC proposals and final regulations, given the results of the Presidential election in November 2024 and the 2024 judicial decisions that overturned the Chevron Doctrine and made it easier to challenge new regulation, during the fourth quarter of 2024, the SEC did not issue any new proposed rules.

The SEC did issue seven final rules that had been previously proposed on, among other topics:

(1) daily computation of customer and broker-dealer requirements under the broker-dealer customer protection rule;

and (2) covered clearing agency resilience and recovery and wind-down plans.

The SEC’s Fall 2024 Unified Agenda of Regulatory and Declaratory Actions (SEC Fall Reg Flex Agenda), which was published on October 17, 2024, identified only 30 other rulemaking initiatives, down from 43 rulemaking initiatives included in the 2023 SEC Fall Reg Flex Agenda.

The 2024 SEC Fall Reg Flex Agenda includes 13 proposed rules and 17 final rules to be issued by October 2025, many of which have appeared on prior SEC Reg Flex Agendas and been delayed.

The 2024 SEC Fall Reg Flex Agenda indicates that proposed rules are scheduled to be issued on, among other topics:

(1) incentive-based compensation arrangements;

(2) corporate board diversity;

(3) human capital management disclosure;

(4) safeguarding advisory client assets;

(5) fund fee disclosure and reform;

(6) conflicts of interest associated with use of predictive data analytics by broker-dealers and investment advisors;

and (7) exchange-traded offerings.

The 2024 SEC Fall Reg Flex Agenda indicates that final regulations are scheduled to be promulgated on, among other topics:

(1) enhanced disclosures by certain investment advisors and registered investment companies about governance, environmental or social investment practices;

(2) cybersecurity risk management for investment advisors, registered investment companies and business development companies;

(3) outsourcing by investment advisors;

(4) customer identification programs for registered investment advisors and exempt reporting advisors;

(5) regulation best execution;

and (6) reporting of security-based swap positions.

Notably, the SEC removed from the 2024 SEC Fall Reg Flex Agenda plans to adopt a final rule on open-end fund liquidity risk management programs.

Federated Hermes also believes that the SEC under the new administration may eliminate plans to adopt other rules or modify certain rules to make them more

industry and investor friendly, such as the rules relating to climate change disclosure, corporate board diversity and safeguarding advisory client assets.

The SEC voluntarily stayed its climate change rule on April 4, 2024, after nine cases challenging the rule’s validity were filed in federal courts across the U.S., which have been consolidated in the United States Court of Appeals for the Eighth Circuit (Eighth Circuit) and remain pending.

However, given the new Republican Presidential administration and Congress, and an apparent shift in sentiment in the U.S.

around governance, environmental or social stewardship practices, the SEC’s climate change disclosure rule could be further challenged by:

(1) the SEC reopening the public comment period of the rule and rescinding it under the Administrative Procedures Act;

(2) the Eighth Circuit vacating the rule;

or (3) the Republican administration and Congress working to withhold funding to the SEC to prevent enforcement of the rule.

On February 11, 2025, the acting SEC Chair requested that the Eighth Circuit pause the litigation over the SEC’s climate change rule, citing, among other things, that a majority of SEC Commissioners no longer agree with the SEC’s prior litigation filings defending the adoption of the rule and that he continues to question the SEC’s statutory authority to adopt the rule, the need for the rule, and the cost-benefit analysis supporting the rule.

The Republican Congress also could pass legislation to block the effectiveness of the rule, or Congress or Republican state attorneys general could take other actions in furtherance of the apparent shift in sentiment in the U.S.

around governance, environmental or social stewardship practices.

For example, on November 27, 2024, eleven Republican state attorneys general filed a lawsuit against three major asset managers alleging that the asset managers, motivated by environmental issues, colluded to reduce coal production through exercising their proxy voting authority over their significant shareholders in nine coal companies in violation of U.S.

antitrust law.

House of Representatives Committee on the Judiciary (House Judiciary Committee) issued on December 13, 2024 an interim report in which the House Judiciary Committee purportedly details how a group of major financial institutions and climate activists allegedly colluded to pressure U.S.

companies into committing to “net zero” climate goals in violation of U.S.

antitrust laws.

On December 20, 2024, the House Judiciary Committee sent letters to over 60 asset managers, including Federated Hermes Limited (FHL, formerly Hermes Fund Managers Limited), Federated Hermes’ wholly owned London-based subsidiary, requesting information regarding their involvement with certain “net zero” initiatives.

On January 20, 2025, the President issued an executive order implementing a regulatory freeze pending review of existing proposed regulations.

Under the executive order, all Federal executive departments and agencies are prohibited from proposing or issuing any rule in any manner, including by sending a rule to the Office of the Federal Register, until a department or agency head appointed or designated by the President reviews and approves the rule.

In addition, all executive departments and agencies are instructed to immediately withdraw any rules that have been sent to the Office of the Federal Register but not published in the Federal Register, so that they can be reviewed and approved by a department or agency head appointed or designated by the President.

Finally, the executive order instructs all executive departments and agencies to consider postponing for 60 days the effective date for any rules that have been published in the Federal Register, or any rules that have been issued in any manner but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy that the rules may raise.

During this 60-day period, where appropriate and consistent with applicable law, executive departments and agencies are instructed to consider opening a comment period to allow interested parties to provide comments about issues of fact, law, and policy, and consider further delaying such rules beyond the 60-day period.

While it is unclear as to the extent to which the SEC will abide by this executive order as an independent agency that operates independently of the executive departments, industry trade groups have requested the SEC to delay the implementation of certain SEC promulgated regulatory requirements for which compliance is not yet required, such as the short sale reporting rule, the amendments to the Names Rule, and amendments to Form PF applicable to private fund advisors.

On January 29, 2025, the SEC and CFTC announced that they are extending the compliance date for the amendments to Form PF that were adopted on February 8, 2024, from March 12, 2025 to June 12, 2025.

Given the executive order and above developments, it appears likely that the timing proposed in the 2024 SEC Fall Reg Flex Agenda will be delayed and the pace of new SEC proposed and final regulations slowed.

On February 18, 2025, the President issued an executive order that will change the manner in which federal agencies promulgate new regulations.

Under the executive order, all independent agencies, such as the SEC, are required to submit proposed new regulations to the White House Office of Information and Regulatory Affairs (White House) for review (except for monetary functions of the Federal Reserve) and must consult with the White House on their priorities and strategic plans.

The executive order also provides that the White House will establish agency performance standards and the Office of Management and Budget will adjust the independent agencies’ apportionments to ensure that tax dollars are spent wisely.

The executive order is in line with other actions and commentary from the new Presidential administration that assert the President has broader authority over federal agencies than previous administrations have wielded.

The SEC and other regulators also continued in 2024, and are expected to continue in 2025, to conduct risk-based, for cause, and sweep examinations, bring enforcement actions, and review and comment on issuer and fund filings.

For example, according to the SEC, the SEC filed 784 total enforcement actions in 2023, a three percent increase over 2022.

The SEC has announced that its 2024 examination priorities include focusing on areas that pose emerging risks to investors or the markets in addition to core and perennial risk areas, including, among other topics:

(1) Regulation Best Interest;

(2) conflict of interest disclosures;

(3) conflict mitigation practices;

(4) complex, high cost, illiquid or microcap products, including derivatives, exchange-traded funds, variable annuities, real estate investment trusts, and private placements, and related investment advice, recommendations and disclosures;

(5) Form CRS;

(6) the SEC’s marketing rule;

(7) crypto assets;

and (8) emerging financial technologies, such as artificial intelligence, and their usage.

For example, according to the SEC, the SEC filed 583 total enforcement actions during its 2024 fiscal year ending on September 30, 2024, a

26% decrease compared to its 2023 fiscal year.

On January 17, 2025, the SEC announced that it filed 200 total enforcement actions, including 118 standalone enforcement actions, in the first quarter of the SEC’s 2025 fiscal year, which ended on December 31, 2024, prior to the new administration taking office.

The enforcement actions addressed a wide range of violations, including, among others, financial misstatements, failures by advisory firms to disclose conflicts of interest, and misleading statements about artificial intelligence.

On October 21, 2024, the SEC announced that its 2025 examination priorities include focusing on perennial and emerging risk areas.

These areas include, among other topics:

(1) investment advisor fiduciary duties, standards of conduct, and conflict of interest disclosures;

(2) investment company disclosures of fees, expenses and waivers/reimbursements;

(3) compliance with new regulatory requirements, such as T+1 trade settlement and Form PF amendments;

(4) outsourcing by investment advisors;

(5) commercial real estate market exposure and valuation of illiquid and hard-to-value assets;

(6) cybersecurity;

(7) use of artificial intelligence;

and (8) broker compliance with Regulation Best Interest.

The SEC has emphasized that its published examination priorities are not an exhaustive list, and are in addition to its normal examinations, risk alerts, and other outreach to registrants and investors.

Key recent regulatory requirements and regulatory developments in the U.S.

that significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following.

Please see our prior annual and periodic SEC filings for additional information regarding additional regulatory requirements and regulatory developments that can impact Federated Hermes’ business and offerings, including certain of those discussed below.

Money Market Reform.

In July 2023, the SEC adopted additional rule and form amendments imposing certain reforms on money market funds.

The final rule amendments purport to improve the resiliency and transparency of money market funds by:

(1) de-linking and removing the regulatory tie between the imposition of redemption gates and liquidity fees and the 30% threshold for a money market fund’s weekly liquid assets;

(2) removing provisions from Rule 2a-7 under the 1940 Act that permit a money market fund to temporarily suspend redemptions;

(3) increasing minimum portfolio liquidity requirements from

10% to 25% for daily liquid assets and from 30% to 50% for weekly liquid assets to provide a more substantial buffer in the event of rapid redemptions from money market funds;

(4) requiring institutional prime and institutional tax-exempt money market funds to impose mandatory liquidity fees when such a fund experiences daily net redemptions that exceed 5% of its net assets, unless the fund’s liquidity costs are de minimis;

(5) requiring non-government money market funds to impose a discretionary liquidity fee if the fund’s board (or its delegate) determines that a fee is in the best interest of the fund;

(6) allowing retail and government money market funds to handle a negative interest rate environment either by converting from a stable NAV or share price to a floating NAV or share price or by using a reverse distribution mechanism or share cancellation to reduce the number of shares outstanding to maintain a stable NAV per share, subject to certain board determinations and disclosures to shareholders;

and (7) enhancing certain reporting requirements that are intended to improve the SEC’s ability to monitor and assess money market fund data.

The amendments adopted in the final rule became effective on October 2, 2023.

The compliance date for the discretionary liquidity fee, increased minimum liquidity requirements, changes to the stress testing requirements and amendments specifying the method for calculating weighted average maturity and weighted average life, is April 2, 2024.

The reporting amendments will become effective June 11, 2024.

Money market funds have until October 2, 2024, to comply with the mandatory liquidity fee requirement.

Federated Hermes believes money market funds provide, and will continue to provide, a more attractive investment opportunity compared to other competing products, such as insured and uninsured deposit account alternatives.

Federated Hermes also believes that money market funds are investment products that have proven their resiliency.

Federated Hermes believes, however, that the mandatory liquidity fee required by the rule amendments could precipitate runs on money market funds during periods of high redemptions and have an effect similar to the effect swing pricing would likely have had on money market funds.

The SEC’s action of adopting a mandatory liquidity fee requirement, without specifically proposing it in its money market fund reform proposing release and seeking public comment on it, may be challenged in court due to its unworkability and lack of supporting data.

As of February 23, 2024, Federated Hermes anticipates minimal impact to retail and government money market funds, while institutional prime money market funds and institutional municipal (or tax-exempt) money market funds will be subject to some new or adjusted requirements.

Federated Hermes continues to review and assess the rule amendments, plan for changes to its money market fund business required by the rule amendments and assess the impact of compliance with the rule amendments by the requisite compliance date (including increased costs of compliance) on Federated Hermes’ business, prospects, reputation, results of operations, financial condition, cash flows and/or stock price (collectively, as applicable, Financial Condition).

Also, while Federated Hermes agrees with certain of the money market fund rule amendments adopted by the SEC (such as de-linking the imposition of redemption gates and liquidity fees and the weekly liquid asset threshold) Federated Hermes also supports efforts to permit the use of amortized cost valuation by money market funds, and to override the floating NAV and certain other requirements imposed under prior money market fund rule amendments and related guidance that became effective in 2016 for institutional and municipal (or tax-exempt) money market funds.

In a continuing effort to implement these desired changes, proposed legislation has been re-introduced in the U.S.

House of Representatives, and work continues to re-introduce proposed legislation in the U.S.

Voluntary Swing Pricing and Liquidity.

In November 2022, the SEC proposed to amend Rule 22c-1 (the voluntary swing pricing rule) and Rule 22e-4 (the liquidity rule) under the 1940 Act, as well as certain disclosure forms under the 1940 Act for open-end management investment companies, other than money market funds and ETFs.

The amendments include, among others:

(1) mandating swing pricing for such funds during times of stressed market conditions;

(2) implementing a “hard close” for such funds, whereby purchase and redemption orders must be received by a fund, its transfer agent or a registered clearing agency by an established cut-off time to receive the applicable day’s price;

(3) eliminating the “less liquid” investment category from the existing four category liquidity classification framework under Rule 22e-4 of the 1940 Act, and thereby broadening the “illiquid” investment category;

(4) requiring such funds to classify all portfolio investments daily instead of monthly;

(5) mandating such funds to determine and maintain a highly liquid investment minimum equal to at least 10% of net assets;

and (6) imposing expanded Form N-PORT reporting and disclosure obligations on such funds.

Similar to mutual fund industry trade organizations (such as the ICI and Securities Industry and Financial Markets Association), Federated Hermes strongly opposes the use of swing pricing because the implementation of swing pricing is unnecessary to achieve the SEC’s desired objective, would be extremely costly, would be very difficult for the industry to implement, would be difficult for investors to understand and would represent an unwarranted change in the character of a hugely popular investment vehicle which provides investors with the benefits of professional management, diversification and access to the capital markets to help them meet their financial goals.

Federated Hermes believes there are less onerous alternatives to mandating swing pricing in those limited circumstances where material dilution is a real concern, such as discretionary liquidity fees to be applied at a fund board’s discretion in the exercise of its fiduciary duty to a fund and its shareholders.

Federated Hermes strongly opposes a hard close concept, which was proposed to ensure fund managers have the appropriate data necessary to determine whether a fund’s NAV should be adjusted via swing pricing, but which would result in unintended consequences to third-party intermediaries and underlying investors and would be particularly detrimental to retirement plan participants in 401(k) plans using open-end

mutual funds.

Federated Hermes also strongly opposes eliminating the “less liquid” investment category from the existing four category liquidity classification framework under the liquidity rule because funds investing primarily in bank loans will not be able to comply with the 15% limit on illiquid investments under the 1940 Act, subjecting these funds to undeserving harm.

Federated Hermes continues to monitor these proposed rule amendments.

ESG and Sustainability.

The SEC, the Financial Stability Oversight Council (FSOC) and other federal regulators continue to focus on climate and ESG-related disclosures by corporate issuers, registered investment advisors and registered investment companies.

For example, in July 2023, the FSOC’s Climate-related Financial Risk Committee (CFRC) issued a staff progress report on actions underway to support capacity building and disclosure among FSOC member agencies, address data gaps, and assess climate-related financial risks.

Among other actions, the progress report indicates that the CFRC is developing a framework to identify and assess climate-related financial risk, as well as a set of risk indicators for banking, insurance, and financial markets.

In March 2022, the SEC issued a proposed rule that incorporates certain concepts and vocabulary relating to global greenhouse gas measurement from governmental and non-governmental disclosure standard setters (such as the Task Force on Climate-related Financial Disclosures and the Greenhouse Gas Protocol) as part of a proposed disclosure regime that w ould mandate, among other things, certain climate risk disclosur es by public companies, such as Federated Hermes, including on Form 10-K, about a company’s governance, risk management, and strategy with respect to climate-related risks, as well as Scope 1, Scope 2, and, for certain issuers, Scope 3 emissions data.

Similar to the ICI, Federated Hermes believes that :

(1) any final rule should only require companies to provide material climate risk-related information in a company’s Form 10-K, with any non-material information required by any amendments to Regulation S-K to be provided in a new climate report;

(2) the SEC should not amend Regulation S-X to require a company to provide material financial metrics in footnotes to its financial statements;

and (3) it is premature to require disclosure of Scope 3 emissions data.

Federated Hermes also continues to believe that any SEC rule on climate disclosure should:

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

(2) focus on material disclosures;

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

capital markets.

The DOL issued final rules in November 2022 clarifying that under the Employee Retirement Income Security Act of 1974, as amended (ERISA), plan fiduciaries can, but are not required to, consider the economic effects of ESG factors for purposes of investing ERISA plan assets and exercising voting rights with respect to plan investments.

Specifically, among other things, the DOL’s final rules clarified that a fiduciary's duty of prudence must be based on factors that the fiduciary reasonably determines are relevant to a risk and return analysis and that such factors may include the economic effects of climate change and other ESG considerations on the particular investment or investment course of action, including exercising shareholder rights when (among other things) voting on shareholder resolutions and board nominations.

The DOL’s final rules became effective on January 30, 2023, except that the proxy voting provisions apply from and after December 1, 2023.

States also continue to debate the legality of certain types of ESG investing under unfair and deceptive practices laws, antitrust laws, securities laws and other grounds.

There is an ideological battle unfolding at the state level, pitting Republican, conservative-leaning “Red” state governments that would seek to exclude or limit ESG investing against Democratic, liberal-leaning or “Blue” state governments that support ESG-focused investing.

For example, certain U.S.

states and/or state officials have adopted regulatory requirements or proposed legislation or other regulatory developments, or have taken official positions, restricting or prohibiting (or proposing to restrict or prohibit) state government entities from doing certain business with entities (such as investment advisors) identified by the state as “boycotting” or “discriminating” against particular industries or from considering (or engaging entities, such as an investment advisor, that consider) certain (e.g., non-material) ESG factors in their investment processes and proxy voting.

Other states have enacted pro-ESG and/or disclosure-related ESG regulations .

For example, in October 2023, California enacted new climate accountability legislation that will require large businesses doing business in California that were formed in the United States and that have revenues of more than $1 billion to make annual disclosures of certain greenhouse gas emission information (including Scope 3 disclosures) and biennial disclosure of certain climate-related financial risks and mitigation measures, beginning in 2026 (unless such California regulatory requirements are successfully challenged in court).

Federated Hermes observes that much of the tension surrounding ESG is due to the lack of definition of the broad terminology “ESG investing” and the political opportunity to define prohibited or permissible activities.

Federated Hermes believes that it is appropriate within the context of an investment advisor’s fiduciary duty to customers and shareholders to integrate the proprietary insights from fundamental investment analysis, including ESG factors and engagement interactions within other traditional investment analysis of risk/returns for purposes of assessing risks and opportunities within the investment objective and the time horizon of an investment strategy in an effort to obtain long-term risk-adjusted returns for customers and shareholders.

1940 Act Names Rule.

In September 2023, the SEC adopted amendments to Rule 35d-1 under the 1940 Act (Names Rule).

The Names Rule generally requires a fund to invest at least 80% of the value of its assets in the particular type of investments or industry suggested by the fund's name.

The amendments:

(1) broaden the scope of funds that must comply with the current requirement to adopt a policy to invest at least 80% of their assets in accordance with the investment focus the fund’s name

(2) provide enhanced disclosure and reporting requirements related to terms used in fund names;

and (3) establish certain additional recordkeeping requirements.

Specifically, the amendments, among other things:

(1) apply the Names Rule’s 80% investment policy requirement to any fund name with terms suggesting that the fund focuses in investments that have, or investments whose issuers have, particular characteristics, such as “growth” or “value” or certain terms that reference a thematic investment focus, including terms indicating that the fund’s investment decisions incorporate one or more ESG factors;

(2) update funds’ prospectus disclosure requirements to require a fund with an 80% investment policy to define the terms used in its name, including the criteria the fund uses to select the investments that the term describes;

(3) amend Form N-PORT to purportedly enhance transparency regarding how funds’ investments reflect their investment focus as required under the amended Names Rule;

(4) include new recordkeeping provisions related to a fund’s compliance with the Names Rule’s requirements;

(5) retain the Names Rule’s current requirements for a fund to invest in accordance with its 80% investment policy “under normal circumstances,” and for the 80% investment requirement to apply at the time a fund invests its assets, but also add a new requirement that a fund review its portfolio assets’ treatment under its 80% investment policy at least quarterly and specific time frames—generally 90 days—for getting back into compliance if a fund departs from its 80% investment policy;

(6) generally require a registered closed-end fund or business development company whose shares are not listed on a national securities exchange to obtain shareholder approval before changing its 80% investment policy unless the fund conducts a tender or repurchase offer in advance of the change, subject to certain conditions;

and (7) retain the current Names Rule’s requirement that, unless the 80% investment policy is a fundamental policy of the fund, 60 days’ notice must be provided to fund shareholders of any change in the fund’s 80% investment policy, and update the notice requirement to expressly address electronic delivery of the notice and the content of the notice.

Federated Hermes is assessing the impact of the Names Rule amendments on the Federated Hermes Funds registered under the 1940 Act.

The amendments to the Names Rule became effective on December 11, 2023, and such Federated Hermes Funds will be required to comply with the amended Names Rule beginning on December 11, 2025.

Custody Rule.

In August 2023, the SEC reopened the comment period for its proposal to amend and redesignate Rule 206(4)-2 under the Advisers Act (Custody Rule).

The proposed amendments, if adopted as proposed, would, among other things:

(1) explicitly include an investment advisor’s discretionary authority to trade client assets and the ability to transfer client assets within the definition of “custody” under the Custody Rule;

(2) expand the Custody Rule to cover a broader array of advisory activities and client assets beyond “client funds and securities”, which would include digital assets;

(3) require investment advisors to (a) enter into written agreements with each qualified custodian that maintains possession or control of client assets that contain terms prescribing the custodian’s standard of care, requiring indemnification from the custodian, prohibiting certain limitations on liability, imposing asset segregation requirements, and prohibiting rehypothecation, and (b) obtain reasonable assurances in writing that the custodian will take certain actions, including responding to SEC information requests;

and (4) update related recordkeeping and reporting requirements for investment advisors.

Federated Hermes believes that the SEC would exceed its authority by imposing such terms into private contractual arrangements, as there is no separate statutory authority granted to the SEC under the Advisers Act that provides for such authority.

Federated Hermes is also concerned that investment managers have no efficacious means to implement these requirements.

Custodians are not obligated to agree to such terms, and many may choose not to accept them, potentially leading to greater concentration in the market for custodial services.

On December 6, 2024, the Financial Stability Oversight Council (FSOC) issued its 2024 Annual Report.

Among other topics, the FSOC addressed in its 2024 Annual Report risks to financial services companies related to:

(1) cybersecurity;

(2) the use of artificial intelligence;

(3) third party service providers and outsourcing;

(4) crypto assets;

and (5) climate change.

The FSOC also addressed investment funds, including money market funds, other open-end short-term investment vehicles, private liquidity funds, local government investment pools, collective funds, and hedge funds, among others.

Regarding money market funds and open-end short-term investment vehicles, specifically, the FSOC recommended in its 2024 Annual Report that the SEC and the FSOC “should monitor the efficacy of [the SEC’s money market fund reforms] to address the financial stability vulnerabilities created by [money market funds]” and “continue to assess and monitor the vulnerabilities from other [open-end short-term investment vehicles], considering what actions may be appropriate to address potential vulnerabilities.” While the SEC’s latest money market fund reforms became fully effective in October 2024 and the SEC removed its plans to propose a final rule on open-end fund liquidity risk management programs from its 2024 SEC Fall Reg Flex Agenda, the liquidity of (and perceived vulnerabilities created by) money market funds and other open-end short-term investment funds remain a focus of the FSOC.

Federated Hermes has implemented the policy, procedure and operational changes required to comply with the latest SEC money market fund reforms and continues to work with the registered domestic Federated Hermes Funds’ transfer agent and fund accounting service providers to further refine the operational model to support the delivery and remittance of the mandatory redemption fee required for institutional prime and municipal (or tax-exempt) money market funds (which, as noted above, Federated Hermes intends to discuss with the SEC Commissioners and Staff repealing the mandatory redemption fee requirement).

On January 28, 2025, FINRA published its “2025 FINRA Annual Regulatory Oversight Report” (FINRA 2025 Report), which purports to provide insight into findings from FINRA’s regulatory operations programs.

In the FINRA 2025 Report, FINRA focuses on regulatory obligations, examination observations, and effective practices in a number of areas, including, for example:

(1) cybersecurity;

(2) anti-money laundering;

(3) manipulative trading;

(4) technology management;

(5) Regulation Best Interest and Form CRS;

(6) books and records;

(7) liquidity risk management;

and (8) segregation of assets.

In the FINRA 2025 Report, FINRA notes that “firms may consider the information in this Report in developing new, or modifying existing, compliance practices.”

Please see Federated Hermes’ prior annual and periodic SEC filings for additional information regarding other U.S.

regulatory developments and regulatory requirements that can impact Federated Hermes and its offerings.

These include, among others:

(1) money market fund reforms;

(2) open-end mutual funds and liquidity management;

(3) governance, environmental or social, and sustainability disclosure requirements that could impose significant climate-change related disclosure obligations on SEC registrants, which have been voluntarily stayed by the SEC pending resolution of litigation challenging the final rule;

(4) amendments to the Names Rule;

(5) tailored shareholder reports;

(6) amendments to Form PF;

(7) share repurchase disclosure modernization, which was vacated by the U.S.

Court of Appeals for the Fifth Circuit;

(8) the impact of several recent court decisions that impact the regulation of the investment management industry, including, among other things, the potential ability to challenge regulation, the SEC’s ability to bring enforcement actions seeking civil penalties, and the validity of certain final rules adopted by the SEC;

(9) the new DOL fiduciary rule, the effectiveness of which has been stayed by two federal District Courts in Texas;

(10) the Federal Trade Commission ban on non-compete agreements, which has been struck down by a federal District Court in Texas;

and (11) customer identification programs for investment advisors.

In addition to the above matters, key recent regulatory requirements and regulatory developments in the U.S.

since September 30, 2024, that can significantly impact or relate to Federated Hermes’ business and offerings include, among others,

the following.

Unless otherwise noted, Federated Hermes is evaluating the impact of the matters described on its business and offerings.

New DOL Fiduciary Rule .

In October 2023, the DOL issued its new proposed “Fiduciary Rule” in which it introduces changes to the definition of “investment advice” fiduciary under ERISA, as well as amendments to several prohibited transaction class exemptions (DOL New Fiduciary Rule).

The proposed changes, among other things, broaden the circumstances in which ERISA fiduciary status will apply to investment advisors, broker dealers and other entities with direct or indirect discretionary authority or control, that represent or acknowledge acting as a fiduciary, or that make investment recommendations to investors on a regular basis as part of their business, including recommendations relating to ERISA plan rollover transactions, any other securities transaction, or any investment strategy involving securities or other investment property.

Under the proposal, a “recommendation” is broadly defined to include, among other things, making recommendations as to the advisability of acquiring, holding, disposing, or exchanging securities or other investment property, as to the management of securities or other investment property, or as to rolling over, transferring, or distributing assets from an ERISA plan or individual retirement account.

The proposal also would eliminate several prohibited transaction exemptions (PTE), including, among others, PTE 77-4 (Purchase of Shares of Open-End Investment Companies), and require all investment advice fiduciaries to comply with the “best interest” standard of care and disclosure requirements under PTE 2020-02 in order to receive compensation that would otherwise be prohibited under ERISA in the absence of an exemption, including commissions, 12b-1 fees, revenue sharing, and mark-ups and mark-downs in certain principal transactions.

If finalized as proposed, the DOL New Fiduciary Rule will impact Federated Hermes’ business and the businesses of Federated Hermes’ customers that utilize Federated Hermes’ offerings.

Systematically Important Financial Institution (SIFI) Designation.

The purpose of the FSOC is to provide comprehensive monitoring of the stability of the U.S.

financial system by identifying risks to U.S.

financial stability, promoting market discipline, and responding to emerging threats to U.S.

financial system stability.

The FSOC may designate certain non-bank financial companies (potentially including, for example, money market funds and other investment companies) as SIFIs, which are subject to supervision and regulation by the Board of Governors (Governors) of the Federated Reserve System (Fed).

In July 2023, the FSOC proposed a new analytic framework for financial stability risk identification, assessment, and response, and proposed guidance on nonbank financial company designations as SIFIs.

The proposed new framework is purportedly intended to provide greater transparency to the public about how the FSOC identifies, assesses, and addresses potential risks to financial stability, regardless of whether the risk stems from activities, individual firms or otherwise.

The proposed interpretative guidance on the FSOC’s procedures for designating nonbank financial companies as SIFIs for Fed supervision and enhanced prudential standards (such as capital and liquidity requirements) pursuant to Section 113 of the Dodd-Frank Act would replace the FSOC’s existing guidance issued in 2019 and describes the procedural steps the FSOC would take in considering whether to designate a nonbank financial company as a SIFI.

Importantly, under the FSOC’s proposals, the FSOC would no longer look to federal and state regulators to address risks to financial stability before the FSOC would begin to consider a nonbank financial company for potential designation as a SIFI.

The FSOC’s proposal would separate into two documents the FSOC’s procedures and substantive analysis for considering a nonbank financial company for potential designation.

The FSOC’s proposals would eliminate language added in the FSOC’s 2019 guidance that would have required the FSOC to conduct a cost-benefit analysis and an assessment of the likelihood of a nonbank financial company’s material financial distress prior to deciding whether the firm should be subject to Fed supervision.

The FSOC also would not necessarily need to consider the financial impact of a designation on the entity being designated as a SIFI or the broader market in which the company participates.

Federated Hermes disagrees with FSOC’s authority to dispense with the requirement to conduct a cost-benefit analysis and to no longer defer in any way to the primary regulator of an entity that is subject to designation as a SIFI.

Federated Hermes believes that:

(1) money market funds and other mutual funds are not less regulated and are far more transparent than banks;

(2) money market funds are not interconnected with the financial system in a way that transmits risk and do not pose a threat to the financial stability of the U.S.;

(3) money market funds and other mutual funds did not cause or amplify the 2008 financial crisis, the 2020 shutdown crisis resulting from the outbreak of a novel coronavirus (Pandemic) or the spring 2023 bank panic;

(4) money market funds, other mutual funds and other types of SEC-regulated investment funds, are not “shadow banks;” and (5) money market funds and other mutual funds are not nonbank financial institutions as defined in the Bank Holding Company Act and should not be subject to designation as SIFIs.

Federated Hermes is concerned that FSOC’s proposal could decimate the money market fund industry if money market funds were to be designated as SIFIs and subjected to Fed supervision and enhanced prudential standards under Section 113 of the Dodd-Frank Act.

If Federated Hermes or a Federated Hermes Fund were designated as a SIFI, among other things, they would become subject to enhanced regulatory requirements and direct supervision by the Fed, which could result in increased operating and compliance costs and potentially restrict business activities.

As noted above, two District Courts in Texas previously stayed the new DOL fiduciary rule, which was issued on April 23, 2024, and, among other things, permits plan fiduciaries to consider governance, environmental and social factors in choosing retirement plan investments.

On February 14, 2025, the District Court for the Northern District of Texas issued a decision in which it concluded that the new DOL fiduciary rule comports with the Employee Retirement Income Security Act of 1974, as amended, noting that the new DOL fiduciary rule is carefully written to specify that fiduciaries must keep beneficiaries’ financial interests paramount and allows for governance, environmental or social considerations to be factored in when choosing among alternatives that serve plans equally.

Despite this court decision, the new DOL fiduciary rule remains subject to potential challenge or revision by the new Presidential administration, the Republican Congress and Republican state attorneys general.

SEC Staff Guidance on Shareholder Proposal Rule .

On February 12, 2025, the SEC Staff issued Staff Legal Bulletin No.

14M, which provides guidance on the exclusion of shareholder proposals under Rule 14a-8 of the 1934 Act.

This bulletin rescinds the previous Staff Legal Bulletin No.

14L and reinstates earlier guidance, expanding the ability of companies to exclude shareholder proposals on the grounds of “economic relevance” and “ordinary business.” The bulletin clarifies that proposals addressing social policy issues, such as climate-related proposals, can be excluded unless they transcend ordinary business matters and raise significant policy issues appropriate for a shareholder vote.

The bulletin emphasizes a case-by-case analysis of shareholder proposals, considering the specific facts and circumstances of each company.

Schedule 13G Interpretive Guidance.

On February 11, 2025, the SEC issued a new Compliance and Disclosure Interpretation (C&DI) regarding the eligibility of shareholders (including institutional investment advisors) to file beneficial ownership reports on Schedule 13G.

Sections 13(d) and 13(g) of the 1934 Act require that beneficial owners of more than 5% of a voting class of equity securities of an issuer registered under the 1934 Act report their beneficial ownership on a Schedule 13D or, if eligible, a Schedule 13G.

The C&DI addresses the circumstances in which a shareholder’s engagement with an issuer’s management on a particular topic would cause the shareholder to be deemed to hold the relevant class of securities of the issuer with the “purpose or effect of changing or influencing control of the issuer,” thereby causing the shareholder to lose eligibility to report on Schedule 13G and requiring the shareholder to report on Schedule 13D within five business days of losing eligibility to report on Schedule 13G.

Under prior guidance, the SEC provided that much of what constitutes ordinary course institutional investor engagement with portfolio companies – including engagement on executive compensation, corporate governance matters (such as board declassification), or social or environmental policies – would not, on its own, constitute an attempt to change or influence control of such companies, and therefore preclude such investors from reporting on Schedule 13G.

The new C&DI deviates from this permissive approach, emphasizing that such engagement may constitute an attempt to influence or control issuers if it involves an attempt to exert pressure on management to take specific actions.

The updated guidance provides for a facts-and-circumstances approach that looks to “the subject matter of the engagement [and] the context in which the engagement occurs.” As a result, shareholders (including institutional investment advisors) who have historically reported their beneficial ownership on Schedule 13G as passive investors will now need to closely consider whether their engagement practices with issuers on certain topics historically perceived as ordinary course could now cause them to be viewed as holding the relevant class of the issuer’s securities with a “purpose or effect of changing or influencing control of the issuer,” and, therefore, trigger a loss of eligibility to report beneficial ownership on Schedule 13G and require reporting on Schedule 13D.

This new guidance has the potential to reshape, potentially in a significant way, the corporate governance, the executive compensation and the governance, environmental or social engagement landscape and stewardship services provided by institutional investment advisors, including, among others, Federated Hermes.

Diversity, Equity and Inclusion (DEI).

On January 21, 2025, the President signed an executive order, “Ending Illegal Discrimination And Restoring Merit-Based Opportunity,” which focuses on DEI initiatives and directs executive agencies and departments to terminate all “discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements,” curtail the Office of Federal Contract Compliance Programs’ (OFCCP) operational authority, and directs agencies to scrutinize the DEI practices of private sector employers.

This executive order raises questions about the future and status of certain programs, preferences, and set-aside procurements administered by the U.S.

Small Business Administration, U.S.

Department of Transportation, and other agencies.

The first portion of the executive order rescinds Executive Order 11246 (1965), which established the OFCCP and provided the OFCCP its operational authority to ensure compliance with anti-discrimination laws by Federal contractors.

The second portion of the executive order focuses on DEI programs in the private sector.

Specifically, the executive order directs agency heads to submit reports within 120 days identifying:

(1) key sectors within each agency's jurisdiction;

(2) private sector companies with the most "egregious and discriminatory" DEI programs;

(3) a plan to deter DEI programs “that constitute illegal discrimination

or preferences;” (4) litigation that would be potentially appropriate for Federal lawsuits, intervention, or statements of interest;

and (5) potential regulatory action and sub-regulatory guidance.

Under the executive order, agencies are directed to identify up to nine potential investigations of publicly traded corporations, large non-profit corporations or associations, foundations with assets over $500 million, state and local bar and medical associations, and universities with endowments over $1 billion.

On February 21, 2025, the United States District Court for the District of Maryland issued a nationwide injunction temporarily preventing enforcement of the following three provisions of the executive order on the basis that they are unconstitutional under the First and Fifth Amendments of the U.S.

Constitution:

(1) the requirement that federal contractors and grantees certify that they do not operate “illegal” DEI programs and comply with federal discrimination laws;

(2) the direction to the U.S.

Attorney General to deter “illegal” DEI programs or principles in the private sector by, in part, submitting a report identifying up to nine civil enforcement investigations of certain private sector companies, associations, and educational institutions;

and (3) the requirement that federal agencies terminate federal equity-related grants or contracts.

It is expected that the court’s decision will be appealed.

Names Rule FAQs.

On September 20, 2023, the SEC adopted significant amendments to the Names Rule, as well as certain forms and disclosure requirements.

Unless the compliance date for the amended Names Rule is delayed, or the amendments modified or repealed, the amended Names Rule has a compliance date of December 11, 2025, for large fund complexes, such as the registered domestic Federated Hermes Funds, and June 11, 2026, for small fund complexes.

Among the relevant changes, the Names Rule amendments significantly expand the universe of fund names in scope of the Names Rule.

For example, the amendments to the Names Rule expand the application of the Names Rule to fund names suggesting a focus on specific types of investments, industries, geographic regions or characteristics, such as “growth,” “value,” and terms indicating that the fund’s investment decisions incorporate one or more governance, environmental or social factors.

To address certain interpretative questions, on January 8, 2025, the SEC released updated Frequently Asked Questions (FAQs) that modify, supersede, or withdraw portions of prior FAQs related to the Names Rule.

In the updated FAQs, among other things, the SEC Staff provides guidance relating to the shareholder approval requirement for a fund seeking to revise a fundamental 80% Policy, stating that a fundamental 80% Policy may be amended to bring such policy into compliance with the amended Names Rule without shareholder approval, provided the amended policy does not deviate from the existing policy or other existing fundamental policies.

The FAQs restate that individual funds must determine, based on their own individual circumstances, whether shareholder approval is necessary within this framework.

Accordingly, funds may take the position that clarifications or other nonmaterial revisions to a fundamental 80% Policy in response to the amended Names Rule would not require shareholder approval.

If it is determined that nonmaterial revisions have been made to a fundamental 80% Policy, notice to the fund's shareholders is required.

With respect to money market funds, the FAQs also confirm that funds that use the term “money market” in their name along with another term or terms that describe a type of money market instrument ( e.g.

, a “Treasury Money Market Fund”) must adopt an 80% Policy to invest at least 80% of the value of their assets in the type of money market instrument suggested by its name.

The FAQs further explain that a generic money market fund, one where no other describing term is included in its name, would not be required to adopt an 80% Policy.

The SEC Staff also removed certain prior FAQs for certain reasons, including because they were deemed no longer relevant as they addressed circumstances that were specific to the 2001 adoption of the Names Rule or were separately addressed in the adopting release related to the 2023 amendments to the Names Rule.

Based on the amended Names Rule and FAQs, Federated Hermes has recommended the following changes be implemented in respect of the domestic registered Federated Hermes Funds upon compliance with the amended Names Rule becoming required:

(1) one name change;

(2) the adoption of an 80% Policy by two funds;

(3) modifications to existing 80% Policies by 16 funds;

and (4) enhanced investment strategies disclosures for three funds.

SEC’s Expanded Dealer Definition.

On November 21, 2024, the U.S.

District Court for the Northern District of Texas (the Northern District Court) ruled against the SEC in two separate cases, vacating its final rule (Dealer Rule), promulgated on February 6, 2024, which expanded the definition of securities dealers.

The Dealer Rule expanded the definitions of “dealer” and “government securities dealer” under the 1934 Act to include market participants who provide significant liquidity to the markets and, as a result, would have included many market participants who trade for their own accounts, such as private funds.

Several trade groups filed lawsuits challenging the Dealer Rule on the grounds that the SEC exceeded its statutory authority and that the Dealer Rule was arbitrary and capricious and therefore should be vacated in its entirety.

The first case was filed by the National Association of Private Fund Managers, Alternative Investment Management Association Limited, and Managed Funds Association representing the interests of their private fund members (the Private Funds Association Case), and the second case was filed by the Crypto Freedom Alliance of Texas and the Blockchain Association.

In both decisions, the Northern District Court granted the trade groups’ motions for summary judgment, finding that the SEC had exceeded its statutory authority.

The Northern District Court reasoned that the new definition is inconsistent with the history of the 1934 Act, which indicates that

“dealers” act on behalf of customers.

The Northern District Court stated in the Private Funds Association Case that the structure of the 1934 Act “only makes sense if dealers are in the business of customer-order facilitation.” The Northern District Court also rejected the SEC’s requests to vacate the Dealer Rule only as it applies to private funds or to remand to the SEC for further rulemaking, handing the SEC two significant defeats.

Current Regulatory Environment – International

Similar to the U.S., the legislative and regulatory environment outside the U.S.

Like the U.S., the legislative and regulatory environment outside the U.S.

is dynamic and subject to continual change.

Federated Hermes’ primary regulators outside the U.S.

are the FCA, CBI, CSSF and CIMA.

Depending upon where Federated Hermes is doing business, or distributing or marketing its offerings, other prudential regulators in other jurisdictions outside the U.S.

include the FCA in the UK, and the CBI in Ireland, a member state of the EU.

Depending upon where Federated Hermes is doing business, or distributing or marketing its offerings, other regulators in other jurisdictions outside the U.S.

can also regulate Federated Hermes and its business and offerings.

Regulatory developments and regulatory requirements promulgated, or recommended, by the European Commission, European Securities and Markets Authority (ESMA), Bank of England (BoE), His Majesty’s Treasury (HMT), Financial Stability Board (FSB), and International Organization of Securities Commission (IOSCO) can apply to or impact Federated Hermes and its business and offerings.

Consequently, regulatory developments and regulatory requirements promulgated, or recommended, by, among others, the European Commission, European Securities and Markets Authority (ESMA), Bank of England (BoE), His Majesty’s Treasury (HMT), FCA, CBI, Financial Stability Board (FSB), and International Organization of Securities Commission (IOSCO) can apply to or impact Federated Hermes and its business and offerings.

The pace of proposed and new regulatory developments and regulatory requirements outside the U.S.

also continued in 2023 and is expected to continue in 2024.

In the fourth quarter 2023, the FCA, CBI, CSSF, and CIMA alone issued over 20 consultation papers, discussion papers, reports, statements, regulatory technical standards and other guidance-related documents relevant to the investment management industry.

These included, among others:

(1) a FCA consultation paper regarding updating the regime for money market funds;

(2) FCA consultation guidance on the anti-greenwashing rule;

(3) a FCA policy statement and final rules on Sustainability Disclosure Requirements (SDR) and investment labels;

(4) a FCA consultation paper regarding operational resilience for critical third parties to the UK financial sector;

(5) a CBI consultation paper regarding European long term investment fund rules in the CBI Alternative Investment Fund (AIF) Rulebook;

(6) a CBI consultation paper regarding own fund requirements for Undertakings for the Collective Investment in Transferable Securities (UCITS) management companies and AIF managers (AIFMs) authorized for discretionary portfolio management;

(7) ESMA’s consolidated questions and answers (Q&A) on the Sustainable Finance Disclosure Regulation (SFDR);

(8) ESMA’s public

statement on guidelines on fund names;

and (9) ESMA’s update of its Brexit statement on provisions of the Benchmark Regulation

In its Business Plan 2023/24, the FCA set forth an ambitious program, including:

(1) a focus on putting consumer needs first, particularly with the UK Consumer Duty coming into force in July 2023;

(2) preparing financial services for the future, through implementing the outcomes of the Future Regulatory Framework (FRF) review and delivering the commitments set out under the Edinburgh Reforms;

(3) strengthening the UK’s position in global wholesale markets by welcoming new technology and innovation;

and (4) reducing and preventing financial crime.

The FCA’s Business Plan follows the publication of its Strategy:

2022-2025, in which the FCA indicated it would focus on reducing and preventing serious harm, setting, and testing higher standards, and promoting competition and positive change.

The CBI disclosed that its key regulation and supervision priorities include, among other areas, (1) assessing and managing risks to the financial and operational resilience of firms;

continued throughout 2024 and is expected to continue in 2025.

In the UK, in its Business Plan 2024/25 published on March 19, 2024, the FCA reaffirmed its goal to deliver on the public commitments previously set out in its three-year strategy, 2022-2025.

In its Business Plan 2024/2025, the FCA stated that in 2025 it expects to focus on:

(1) reducing and preventing financial crime, including investing in systems to use intelligence and data more effectively to identify financial crime;

(2) putting consumers’ needs first, which will include further work to implement the Consumer Duty that took effect in July 2023;

and (3) strengthening the UK’s position in the global wholesale markets, including by supporting industry work on T+1 settlement, concluding its review of the UK’s Listing Regime, and further consultations on the options for the payment of investment research by asset managers.

In the EU, ESMA’s 2025 Work Programme for the investment management sector indicates that there will be a focus on liquidity management tools, sustainability in investment management, monitoring of costs, and further work on reforming the regime for EU Undertakings for the Collective Investment in Transferable Securities (UCITS).

This is reflected in the regulatory priorities outlined by national regulators, including the CBI.

On February 29, 2024, the CBI disclosed that its key regulation and supervision priorities include, among other areas, (1) assessing and managing risks to the financial and operational resilience of firms;

(2) addressing systemic risks generated by non-banks;

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(4) ensuring that the EU Anti-Money Laundering Plan results in a consistent and robust EU-wide framework;

(5) implementing new EU regulations on digital operational resilience (DORA) and markets in crypto assets;

(5) implementing new EU regulations on digital operational resilience and markets in crypto assets;

and (6) strengthening the resilience of the financial system to climate risks.

Key recent regulatory requirements and regulatory developments outside the U.S.

that significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following.

Retained EU Law (Revocation and Reform) Act 2023, Financial Services and Markets Act 2023, and Remaining Impacts of Brexit.

The Retained EU Law (Revocation and Reform) Act 2023 became effective on June 29, 2023, (the Brexit Freedoms Act).

The Brexit Freedoms Act implements a renewed regulatory framework in the UK.

Among other things, under the Brexit Freedoms Act:

(1) a large amount of EU legislation (approximately 600 retained laws) were automatically revoked at the end of 2023 and the principle of supremacy and other general principles of EU law was abolished after December 31, 2023;

(2) any remaining retained EU laws became “assimilated law” after December 31, 2023, and it is no longer necessary to interpret assimilated law in accordance with corresponding EU law;

(3) any secondary retained EU law, or the same categories of assimilated law, can be revoked or replaced and alternative provisions made, so long as no regulatory burden is increased, up until June 23, 2026;

(4) certain retained EU laws can be modified by statutory instrument to take account of changes in technology and developments in scientific understanding;

(5) certain retained EU law can be more easily restated, reproduced or updated;

and (6) it is easier for UK domestic courts to depart from retained EU case law.

In June 2023, the Financial Services and Markets Act 2023 (FSM Act) became effective in the UK.

The FSM Act contains significant reforms to the UK’s regulatory framework for financial services, aims to establish an enhanced regulatory regime better tailored to UK markets, and provides certain updated objectives for financial services regulators aimed at focusing on long-term growth and international competitiveness.

Among other things, the FSM Act provides for a phased revocation of retained EU law relating to financial services and empowers HMT, relevant national authorities (i.e., financial service regulators, such as the FCA and Prudential Regulation Authority), and the BoE to modify or replace existing retained EU laws with new UK-specific regulation and migrate much of these from the statute book into the regulators’ rulebooks.

In June 2023, HMT, on behalf of the UK Government, and the European Commission on behalf of the EU, entered into a memorandum of understanding (MOU) establishing a framework for financial services regulatory cooperation between the UK and EU.

Premised on an objective of preserving financial stability, market integrity, and the protection of investors and consumers, the MOU provides for:

(1) the bilateral exchanges of views and analysis relating to regulatory developments and other issues of common interest;

(2) transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions;

(3) bilateral exchanges of views and analysis relating to market developments and financial stability issues;

and (4) enhanced cooperation and coordination, including in international bodies as appropriate.

The MOU also provides that each participant will endeavor to share information on regulatory developments to allow for a timely identification of potential cross-border implementation issues, to the extent that such information is available and can be shared.

The MOU also established a Joint EU-UK Financial Regulatory Forum between the EU and UK (EU-UK Forum).

The first meeting of the EU-UK Forum took place in London in October 2023.

Topics discussed included, among others:

(1) financial stability risks;

(2) implementation of relevant international regulatory standards in the financial services sector;

(3) regulatory developments in financial services;

(4) the respective policies, rules and processes concerning deference regimes, such as equivalence, or other tools used to address cross-border issues;

and (5) efforts to prevent and combat money laundering and terrorist financing.

Federated Hermes continues to have 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 marketing permissions regime (TMPR), which is scheduled to end on or before December 31, 2026, or on or before December 31, 2027 in relation to temporary recognized EU money market funds.

The TMPR is to be replaced by the UK’s overseas funds regime (OFR).

The primary legislation establishing the OFR is in place, but further secondary legislation is required before the OFR will become operative.

In December 2023, the FCA issued a consultation paper on how the OFR will operationally function for firms.

In January 2024, the UK Government issued a statement confirming that the European Economic Area (EEA), including EU member states, will be deemed equivalent for the purposes of the OFR, and that UCITS funds established in an EEA member state will be able to avail of the OFR, except for those that are money market funds, due to separate ongoing regulatory developments in this area.

The post-Brexit regulatory environment (particularly the need to obtain full authorizations on a country-by-country basis) also continues to create 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 number of regulatory developments.

As of December 31, 2023, 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.

UCITS Directive and AIFMD Review.

Two EU directives regulate the EU collective investment funds industry:

the directive relating to UCITS and the Alternative Investment Funds Manager Directive (AIFMD).

The UCITS directive, which covers mutual funds, establishes uniform rules, allowing them to be offered cross-border, while the AIFMD covers alternative funds, including private equity, private credit and hedge funds, and establishes the rules for authorizing, supervising, and overseeing AIFMs.

The European Commission has proposed amendments to the UCITS directive and AIFMD, which the EU Parliament is expected to vote on in February 2024.

If approved by EU Parliament, the Council of the EU (Council) will formally adopt the measures and member states must implement the measures within two years.

The proposed amendments would require, among other things, AIFs and UCITS management companies to provide more information when applying for authorization and create stricter requirements for individuals serving as officers of such entities.

The proposed amendments would also require, among other things:

(1) EU and non-EU AIFMs to make certain required pre-contractual disclosures to investors about the AIF’s liquidity risk management framework;

and (2) AIFMs to annually report all direct and indirect fees and charges incurred by the AIF.

The proposed amendments also encourage, but do not require, the boards of AIFMs to have at least one non-executive board member.

One of ESMA’s objectives for 2024 is to issue regulatory technical standards/implementing technical standards, guidelines, and technical advice based on mandates from the review of the AIFMD and the UCITS directive.

Separately, ESMA has also set out its objective to issue technical advice in 2024 on possible revisions to the UCITS Eligible Assets Directive (EAD).

The EAD prescribes the eligibility criteria for assets in which a UCITS is permitted to invest, designed to ensure UCITS comply with relevant obligations, among others, dealing with portfolio liquidity and net asset value.

Given the passage of time since the EAD’s introduction, the European Commission has asked ESMA to review, clarify and advise on certain items under the EAD.

ESMA has been tasked with issuing technical advice by October 31, 2024, after which a public consultation will take place.

Please see Federated Hermes’ prior annual and periodic SEC filings for additional information regarding other non-U.S.

regulatory developments and regulatory requirements that can impact Federated Hermes and its offerings.

These include, among others:

(1) money market fund reform initiatives in the UK, EU, and internationally;

(2) UK and EU sustainability disclosure requirements;

(3) EU regulatory developments such as the EU Retail Investment Package, review of the EU UCITS Eligible Assets Directive, and the Digital Operational Resilience Act (DORA);

and (4) UK regulatory developments such as the UK Overseas Funds Regime (OFR), the re-introduction of the possibility of bundling investment research costs.

In addition to the above matters, key recent regulatory requirements and regulatory developments outside the U.S.

since September 30, 2024, that can significantly impact or relate to Federated Hermes’ business and offerings include, among others, the following.

Unless otherwise noted, Federated Hermes is evaluating the impact of the matters described on its business and offerings.

Consumer Composite Investments.

On December 19, 2024, the FCA published a Consultation Paper CP24/30, “A new product information framework for Consumer Composite Investments,” in which the FCA proposed and solicited public comment on certain significant changes to the rules for the way information on consumer composite investments (i.e., funds, structured products and other investments where returns are dependent on the performance of, or changes in, the value of indirect investments) is presented by moving from an overly prescriptive disclosure regime purportedly to a more flexible, simpler approach.

The rule changes would replace the existing disclosure frameworks for packaged retail and insurance-based investment products (PRIIPS), UCITS, and certain other types of investment products.

The public consultation period ends on March 20, 2025.

Money Market Fund Reform.

The regulation of money market funds in the EU and UK is another example of potential divergence between the EU and UK post-Brexit.

EU and UK money market fund regulation is considered “equivalent” until December 31, 2025.

Accordingly, UK-domiciled money market funds currently remain on par with current EU regulatory requirements.

As a result, EU-based funds can still use passports to sell to UK investors.

However, following various consultations, reports, and speeches by representatives of the IOSCO and the FSB in 2020, 2021, 2022, and 2023 similar to the SEC in the U.S., ESMA, the BoE, the European Systemic Risk Board, the European Banking Authority, and the International Monetary Fund (IMF), among other regulators, have been re-examining existing money market fund regulation, soliciting public comment on proposed money market fund reforms, and issuing reports and recommendations.

In September 2023, ESMA published Working Paper No.

2, 2023 titled” “Bang for (breaking) the buck:

Regulatory constraints and money market funds reforms” wherein the authors:

(1) set out a framework to assess money market fund resilience;

(2) demonstrate that the maximum redemptions a money market fund can face depends on regulatory constraints and asset liquidity;

and (3) utilize the framework to assess the impact of regulatory reforms, such as an increase in liquidity requirements, changes to the allowed price deviation for money market funds using amortized cost or requirements to invest in more liquid assets, to, among other things, conclude that removing the use of amortized cost has the largest positive effect in terms of

resilience, while higher liquidity requirements have more limited effects.

In a September 2023 progress report, “Enhancing the Resilience of Non-Bank Financial Intermediation” (FSB Progress Report), the FSB reviewed its 2021 money market reform recommendations, discussed perceived vulnerabilities of money market funds, and recognized that individual jurisdictions need flexibility to tailor measures to their specific circumstances.

In its FSB Progress Report, the FSB also indicated that:

(1) through its “Thematic Peer Review of Money Market Fund Reforms” announced on August 14, 2023, it will take stock of the money market fund policy measures adopted by FSB member jurisdictions by the end of 2023;

(2) it will be working with IOSCO to assess the functioning and resilience of commercial paper and negotiable certificates of deposits markets by the end of 2023;

and (3) it will be working with IOSCO to complete an assessment of the effectiveness of money market fund reforms in addressing risks to financial stability by the end of 2026.

In December 2023, the FCA published a consultation paper in which it sets out proposals to enhance the resilience of Money Market Funds domiciled in the UK, and addressing vulnerabilities identified in March 2020 and other times of market stress.

The proposals are intended to mitigate risks to wider financial stability and reduce the need for central bank support in the future, while maintaining cash management services that meet the needs of investors.

HMT expects to lay a Statutory Instrument (SI) before UK Parliament which will replace the UK Money Market Fund Regulation with provisions in new legislation which will purportedly set an overall framework for money market fund regulation more suited to the needs of the UK market.

HMT published the draft SI and policy note at the same time as the FCA’s consultation paper.

The proposals in the FCA’s consultation paper prioritize strengthening the existing regulatory regime for money market funds while maintaining the broad current money market fund operating model.

The proposals increase money market fund resilience principally by seeking to ensure money market funds have usable liquidity sufficient to endure severe but plausible redemption stresses.

The proposals include:

(1) increasing the minimum liquid asset requirement for all money market funds, raising daily liquid assets and weekly liquid assets (WLA) levels to 15% and 50% of their assets respectively;

(2) modifying the assets eligible for WLA for Variable NAV (VNAV) money market funds;

(3) removing the regulatory link between liquidity levels in money market funds that have the ability to offer subscriptions and redemptions at a constant NAV (so-called ‘stable NAV money market funds’) and the need for the manager to consider or impose tools such as liquidity fees or redemption gates;

(4) enhancing ‘know your customer’ requirements;

(5) enhancing stress testing for stable NAV money market funds;

and (6) enhancing operational resilience for stable NAV money market funds.

Measures not proposed include:

(1) changing or removing stable NAV operation for the current stable NAV money market funds, so these money market funds would be no longer permitted to deal at a constant NAV;

and (2) making changes to how money market funds currently operate in order to impose on redeeming investors the true cost of their redemptions in the absence of money market funds selling assets and crystallizing losses (however, the FCA is consulting on a requirement for all money market funds to have at least one Liquidity Management Tool available for use when the fund is still trading if needed, and for all managers to have the ability to suspend their money market funds, with such tools to be deployed at the manager’s discretion.

In December 2023, ESMA also published a “Final Report:

Guidelines on stress test scenarios under the MMF Regulation” that included:

(1) updated guidelines on the methodology to implement scenarios related to hypothetical changes in the level of liquidity of the assets held in the portfolio of a money market fund;

and (2) updated guidelines on specifications on the type of stress tests and their calibration for reporting purposes.

As noted above, Federated Hermes believes money market funds provide, and will continue to provide, a more attractive investment opportunity compared to other competing products, such as insured and uninsured deposit account alternatives.

Federated Hermes also believes that money market funds are investment products that have proven their resiliency.

Liquidity Risk Management in Open-End Funds.

In July 2023, the FSB issued a consultation report on addressing structural vulnerabilities from the liquidity mismatch in open-end funds.

On the same day, the IOSCO also proposed detailed guidance for open-end funds’ use of anti-dilution liquidity management tools.

In December 2023, the FSB published its final report, which entailed noticeable changes from the consultation report.

On the same day, the IOSCO published its final report.

The revised FSB recommendations set out the key objectives for an effective regulatory and supervisory framework to address vulnerabilities arising from liquidity mismatch in open-end funds.

Combined with the liquidity risk management tools, these recommendations aim to achieve a significant strengthening of liquidity management by open-end fund managers compared to current practices.

To address structural liquidity mismatch in open-end funds, the revised FSB recommendations provide greater clarity on the redemption terms that open-end funds can offer to investors, based on the liquidity of the open-end fund asset holdings.

This would be achieved through a categorization approach, where open-end funds would be grouped depending on the liquidity of their assets (e.g., liquid, less liquid, illiquid).

Open-end funds in each category would then be subject to specific expectations in terms of their redemption terms and conditions.

Authorities should set expectations for open-end fund managers to use a

mixture of quantitative and qualitative factors when determining the liquidity of open-end fund assets in normal and stressed market conditions within the context of the domestic liquidity framework set out by authorities.

The revised FSB recommendations seek to achieve:

(1) greater inclusion of anti-dilution liquidity management tools in open-end fund constitutional documents;

and (2) greater use of, and greater consistency in the use of, anti-dilution liquidity management tools in both normal and stressed market conditions.

To support these objectives and ensure more effective liquidity risk management practices, IOSCO’s liquidity management tool guidance provides detailed guidance on the design and use of anti-dilution liquidity management tools by open-end fund managers.

The liquidity management tool guidance aims to support the greater use of anti-dilution liquidity management tools by open-end funds to mitigate investor dilution and potential first-mover advantage arising from structural liquidity mismatch in open-end funds.

The liquidity management tool guidance sets out key operational, design, oversight, disclosure and other factors and parameters that responsible entities should consider when anti-dilution liquidity management tools are used, to promote greater, more consistent, and more effective use of these tools.

For example, under the IOSCO guidance, responsible entities should have appropriate internal systems, procedures, and controls in place at all times in compliance with applicable regulatory requirements for the design and use of anti-dilution liquidity management tools as part of the everyday liquidity risk management of their open-end funds.

Furthermore, under the IOSCO guidance, anti-dilution liquidity management tools used by responsible entities should impose on subscribing and redeeming investors the estimated cost of liquidity.

This encompasses the explicit and implicit transaction costs of subscriptions and redemptions, including any significant market impact of asset purchases or sales to meet those subscriptions and redemptions.

In July 2023, the FCA published detailed findings from its review of the liquidity management frameworks of a sample of firms, alongside an industry-wide Dear CEO letter to FCA regulated firms.

The FCA emphasized, among other matters, the need to focus on liquidity management from the top of the organization;

creating a liquidity ‘playbook’ outlining governance actions and escalations to be followed when liquidity stress testing triggers are activated;

and a framework for detailed liquidity reporting to be presented to the board.

The FCA set out, among others, the following examples of good practice:

(1) full application of ESMA’s 2019 stress testing guidelines in UCITS and AIFs (where relevant) to the firm’s liquidity stress testing;

(2) using a ‘pro-rata’ methodology as opposed to a ‘most liquid first’ methodology when calculating liquidity bucketing and stress testing;

(3) regularly challenging and reviewing the firm’s models;

and (4) undertaking testing of multiple scenarios for redemptions.

The FCA’s good practice recommendations include encouraging pre and post redemption liquidity stress testing, and implementing internal triggers to generate enhanced governance processes capturing both large and smaller redemptions.

The FCA also provided additional commentary on liquidity management tools (particularly swing pricing policies) and valuation processes.

Sustainability Finance Initiatives (SDR, SFDR, Greenwashing and Fund Names).

In November 2023, the FCA published its policy statement and final rules on the Sustainability Disclosure Requirements (SDR) regime.

The SDR regime is the approach taken by the FCA to (1) establish an environmental and social labeling regime for the UK financial services industry that contracts with and incorporates concepts from the EU, (2) combat greenwashing through greater guidance and accountability requirements and (3) provide greater clarity on the use of sustainability and ESG related terminology in fund names.

The EU’s Sustainable Finance Disclosure Regulation (SFDR) imposes mandatory ESG disclosure obligations on asset managers and other financial markets participants.

SFDR requires all covered firms to disclose how financial products integrate sustainability risks in the investment process, including whether they consider adverse sustainability impacts, and, for those products promoting sustainable objectives, the provision of sustainability-related information.

ESMA has made further recommendations for the Commission to consider changes related to SFDR disclosures.

Related amendments to applicable legislation require that all covered investment managers must consider in their investment process any ESG risks which are likely to have a material impact on the value of the investment and require investment advisors to inquire as to the investor’s desire for ESG-focused products in their portfolio when assessing suitability.

Preventing greenwashing has been a top priority for European policymakers.

In November 2023, building off of its anti-greenwashing rule to be introduced through the SDR and investment labels regime, the FCA issued a consultation paper that provided general guidance on the anti-greenwashing rule.

That guidance sets out the FCA’s expectations for any FCA-authorized firm that makes claims about the sustainability of an offering.

Under the draft guidance, sustainability disclosures must be fair, clear and not misleading, and consistent with the sustainability characteristics of an offering.

The European Commission has also requested input from the European Supervisory Authorities (ESAs) relating to greenwashing risks and supervision of sustainable finance policies.

The ESAs have been studying the market and put forward a common understanding of greenwashing and warning of risks in June 2023.

The ESAs are expected to publish a final greenwashing report in May 2024, which is expected to include recommendations for possible changes to the EU regulatory framework to ensure sustainability-related statements, declarations, actions, or communications reflect the underlying sustainability profile of an entity, financial product, or financial service.

In November 2022, ESMA also published a consultation on its draft guidelines on

the use in funds’ names of ESG or sustainability-related terms.

The guidelines propose quantitative thresholds with minimum investment holding requirements where EU funds use ESG or sustainability-related words in their names.

In December 2023, in a public statement, ESMA provided an update on the guidelines and set out relevant amendments based on feedback received during the consultation period.

ESMA has, however, decided to postpone the adoption of the guidelines until the AIFMD and UCITS directive reviews have further progressed.

Corporate Sustainability Due Diligence.

In December 2023, the Council and the European Parliament announced that they had reached a provisional political agreement on the Corporate Sustainability Due Diligence Directive (CSDDD).

The CSDDD imposes due diligence obligations requiring companies to identify, and to prevent or at least mitigate, adverse impacts on human rights and the environment, including by their subsidiaries and supply chain partners.

Obligations would be enforced through administrative sanctions and civil liability, with a defense of having exercised reasonable due diligence.

The press releases issued by the Council and EU Parliament explain that the financial sector is to be temporarily excluded from part of the scope of the CSDDD, but there will be a review clause that could lead to their possible future inclusion.

The CSDDD proposal remains subject to ongoing review and negotiation in the EU.

Formal adoption is expected to take place in the first half of 2024, which would give businesses until early 2026 to prepare.

Corporate Sustainability Reporting.

In the EU, the Corporate Sustainability Reporting Directive (CSRD) entered into force in January 2023.

The CSRD mandates sustainability reporting by corporate issuers in accordance with certain European Sustainability Reporting Standards in December 2023.

The regulation applies from January 1, 2024 for financial years beginning on or after such date.

CSRD will apply to EU companies, and corporate groups that include EU companies, that meet certain criteria.

In the UK, in August 2023, the UK Government Department for Business and Trade published guidance on UK sustainability disclosure standards (SDS).

The SDS are based on the International Financial Reporting Standards Board’s SDS issued by the International Sustainability Standards Board (ISSB).

The UK SDS will set out corporate disclosures on the sustainability-related risks and opportunities that companies face.

They will form the basis of any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including risks and opportunities arising from climate change.

In July 2023, IOSCO issued a report endorsing the ISSB standards concluding that they serve as an effective and proportionate global framework of investor-focused disclosures in relation to climate-related matters.

Financial Transactions Tax (FTT).

An EU FTT also continues to be discussed, although it remains unclear if or when an agreement will be reached regarding its adoption.

The last proposal was 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.

As attention continues on a post-pandemic economy and as the EU and EU Member States continue to 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.

The Council has recognized that the European Commission has clarified that, if there is no agreement by the end of 2022 (which there was not), 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 has indicated 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.

The weakened economy in Europe can increase the risk that additional jurisdictions propose to implement single-country FTTs.

The debate regarding the use of a FTT as a funding source for governments continues.

For example, in June 2023, a European Commission Working Document regarding own resources of the EU was published in which an EU FTT was considered as a potential resource to assist in funding the EU budget.

This Working Document concluded that “the prospects of reaching an agreement in the future are limited given that the last substantive discussions took place under the Portuguese Council Presidency in 2021” and “[t]here is little expectations that any proposal would be agreed in the short term.” Also, in June 2023, a policy brief was submitted to the G20 proposing that an international FTT be adopted by G20 nations to assist with funding net zero climate actions.

On November 21, 2024, the European Central Bank (ECB) published its Financial Stability Review (ECB Review), which included, among other things, renewed critiques of money market funds.

In the ECB Review, the ECB stressed that the EU must proceed with money market fund reform to ensure the stability of short-term funding markets

and to mitigate the risk of cross-border regulatory arbitrage.

The ECB argued that to prevent regulatory arbitrage due to divergences in minimum standards—which could potentially shift liquidity risk towards EU money market fund markets—the EU should prioritize money market fund legal reforms to address risks from liquidity mismatch by increasing liquidity buffer requirements for private debt money market funds and ensuring that these buffers are more usable.

Additionally, the ECB supports removing threshold effects linked to breaches of liquidity requirements.

This ECB push for reform will likely influence the incoming European Commission's decision regarding whether to reopen the money market fund reform review in early 2025.

T+1 Settlement.

On November 18, 2024, ESMA published its Final Report, “ESMA assessment of the shortening of the settlement cycle in the European Union,” in which ESMA recommended migrating the settlement cycle for all trades in relevant securities and other investment instruments from a two-day cycle from the trade date (or T+2) to a one-day cycle from the trade date (or T+1) on October 11, 2027.

Similarly, in the UK, on September 27, 2024, the Accelerated Settlement Taskforce published a draft Recommendation Report and Consultation in which it solicited public comment on migrating from a T+2 settlement cycle to a T+1 settlement cycle.

The Accelerated Settlement Taskforce recommended that the migration in the UK also occur on October 11, 2027.

The migration aims to enhance settlement efficiency and market integration.

previously migrated to a T+1 settlement cycle effective May 28, 2024.

UK and EU regulation of governance, environmental or social ratings.

The framework for the regulation of providers of governance, environmental or social ratings in the EU and UK is beginning to emerge.

In the UK, HMT published draft legislation on November 14, 2024, that would bring such rating providers within the scope of UK regulations.

Subject to certain exemptions, such rating providers would need to be authorized and regulated by the FCA and would be subject to requirements made by the FCA, which are yet to be developed.

The EU is at a slightly more advanced stage.

The text of a regulation published on November 8, 2024 has been adopted by the EU Council, and is pending publication in the Official Journal.

That Regulation will bring the provision of such ratings in the EU within EU regulations, subject to certain exceptions.

Liquidity Risk Management for Open-End Funds.

There are specific regulatory developments in the EU relating to liquidity risk management for open-end funds.

Those developments are occurring in the context of the ongoing international efforts to enhance and harmonize liquidity risk management requirements for collective investment schemes.

These include steps to update the Recommendations for Liquidity Risk Management published and developed by the IOSCO in 2018.

On November 11, 2024, IOSCO released two consultation reports, one proposing revisions to the recommendations and the second consulting on complementary guidance for the effective implementation of the revised recommendations.

Ultimately, the FSB and IOSCO intend to assess whether the implemented reforms have sufficiently addressed the financial stability risks identified in the FSB’s earlier policy paper, published on December 20, 2023, on structural vulnerabilities arising from liquidity mismatches in open-ended funds.

UK and EU changes to rules on how asset managers may pay for investment research.

On July 26, 2024, the FCA implemented changes to its rules that permit FCA regulated asset managers to ‘bundle’ payments for third party investment research together with trade execution costs.

This payment method is optional, meaning that managers may continue to pay for research out of their own resources or from a dedicated research payment account established by the manager.

The ability to bundle investment research costs is subject to certain requirements, including requiring that firms:

(1) adopt a formal policy on the use of bundled payments for research;

(2) establish a budget for the amount of third-party research to be purchased;

(3) undertake ongoing assessments of the value and price of the research received;

(4) determine an approach to the allocation of costs across the firm’s clients and a structure for the allocation of payments across research providers;

(5) put in place operational procedures for the administration of accounts to purchase research;

and (6) disclose to clients the firm's approach to bundled payments and the costs incurred.

The new rules apply to FCA-regulated Markets in Financial Instruments Directive (MiFID) investment firms, and so are available for asset managers providing services for individual portfolios.

For collective investment schemes, the FCA is currently consulting on extending the same payment optionality.

The consultation closed on December 16, 2024, and the FCA intends to publish its response and final rules (if any) in 2025.

In the EU, there are similar efforts to re-introduce the option for asset managers to combine investment research and execution costs.

These are being considered as part of the EU Listing Act, which refers to a package of measures amending several pieces of EU legislation and regulatory requirements.

On December 4, 2024, amendments to the existing EU MiFID provisions regarding payments for investment research were finalized.

Under the amendments:

(1) bundled payments for execution services and research are allowed irrespective of the issuers’ market capitalization, which removed the current threshold;

(2) research labelled as “issuer sponsored research” must comply with an EU Code of Conduct, which is currently being developed;

(3) investment research must be fair, clear and not misleading in regards to the information or content provided;

and (4) trading commentary and other bespoke trade advisory services linked to the execution of transactions in financial instruments should not be considered as research.

In connection with these changes, on October 28, 2024, ESMA published a

consultation paper on the safeguards that should apply alongside the new payment optionality under MiFID.

ESMA intends to deliver technical advice following its consideration of responses to the consultation during 2025.

EU and UK sustainability requirements for asset managers and investment offerings.

The regulation of sustainable investment offerings remains an area of focus for regulators outside the U.S.

In the EU, work on the sustainability related requirements for investment offerings has continued.

On May 14, 2024, ESMA published its final report setting out its guidelines regarding the use of governance, environmental or social and sustainability-related terms in fund names.

The guidelines apply to EU UCITS management companies and alternative investment fund (AIFs) managers.

The guidelines aim to ensure that investors are protected against unsubstantiated or exaggerated sustainability claims in fund names by setting out clear and measurable criteria to be met for funds using governance, environmental or social or sustainability-related terms in their names.

In particular, the guidelines indicate that the use of governance, environmental or social or sustainability related terms in fund names will trigger mandatory quantitative investment requirements or obligations, including the application of certain thresholds, exclusions or benchmarks to the proportion of fund investments used to meet:

(1) transition, social and governance terms;

(2) environmental or impact-related terms;

or (3) sustainability-related terms.

The guidelines took effect on November 21, 2024 for new funds, and will take effect on May 21, 2025 for existing funds.

Federated Hermes has determined that three of its offshore Federated Hermes Funds will change names, while five other offshore Federated Hermes Funds with governance, environmental or social-related names will adopt new monitoring guidelines.

The CBI had until October 21, 2024, to issue guidance or consultation on the ESMA requirements.

It did not issue any substantive changes but created a streamlined filing process for fund name changes or disclosures made necessary by the rule.

In addition, a review of the EU Sustainability Finance Disclosure Regulation (SFDR) by the European Commission is ongoing, with results expected to be published during 2025.

The review of the SFDR may result in a legislative proposal for further amendments to the SFDR.

In the UK, the FCA’s Sustainability Disclosure Requirements (SDR) began to take effect during 2024.

This regulation has several components:

(1) an anti-green washing rule that took effect on May 31, 2024;

(2) the introduction of sustainability labels for UK investment funds beginning on July 31, 2024;

and (3) naming, marketing and disclosure rules for UK-based asset managers, which became effective on December 2, 2024.

Further developments are expected.

In particular, the UK Government is expected to consult on extending SDR, and, in particular, the SDR labelling regime, to non-UK funds that can be sold to retail investors in the UK under the UK’s Overseas Funds Regime (OFR), though the publication of that consultation has been delayed.

The FCA has consulted on extending the SDR sustainability labelling regime to asset managers providing portfolio management services but has since delayed publication of the outcome of that consultation, and so the final rules remain pending.

EU UCITS – Review of eligible assets.

The EU is assessing whether to make changes to the Eligible Assets Directive (EAD), which sets out the types of investments that may be acquired by an EU UCITS and the applicable requirements.

On May 7, 2024, ESMA published a Call for Evidence (CfE) as part of its review of the EAD.

A key component of the CfE was to seek input on divergent interpretations and market practices in the application of the EAD, and whether there is a need for increased clarity on key concepts and definitions within the EAD.

In addition, ESMA requested feedback from stakeholders to assess potential risks and benefits of EU UCITS gaining direct and indirect exposure to certain asset classes, such as structured loans and crypto assets.

The CfE closed on August 7, 2024, and ESMA is expected to deliver its technical advice during 2025.

EU UCITS and AIFs – Targeted reforms of the UCITS directive and Alternative Investment Fund Manager Directive.

On March 13, 2024, amendments to the existing EU regulatory frameworks for EU UCITS and alternative investments funds (AIFs) were finalized, which included:

(1) enhancements to improve delegation arrangements by investment managers to third parties;

(2) changes to liquidity risk management requirements;

and (3) for AIFs, permitting depositary and custody services to be provided cross-border and prescribing requirements for loan originating AIFs.

Most of the changes become effective starting on April 16, 2026.

EU regulators are expected to promulgate rules and regulations during 2025 related to certain changes, such as finalizing regulatory technical standards and accompanying guidelines on liquidity risk management tools and consulting on regulatory technical standards for open-ended loan originating AIFs.

EU and UK sustainability reporting requirements for corporations.

In the EU, the Corporate Sustainability Reporting Directive (CSRD) was promulgated on December 14, 2022, and became effective on May 28, 2024.

A key component of the CSRD regime is the European Sustainability Reporting Standards (ESRS), and these remain under development following a delay in finalization of sector-specific ESRS.

Alongside the CSRD, the Corporate Sustainability Due Diligence Directive (CSDDD), which was proposed on February 23, 2022, became effective on July 25, 2024, following an extensive negotiation process.

The CSDDD imposes due diligence obligations requiring companies to identify, prevent or at least mitigate, adverse impacts on human rights and the environment, including by their subsidiaries and supply chain partners.

Member states must adopt the Directive by July 26, 2026.

In the UK, the UK Government has stated that it is creating UK Sustainability Reporting Standards (UK SRS) that will apply to UK incorporated entities.

The UK SRS is to be based on the sustainability disclosure

standards developed by the International Sustainability Standards Board of the International Financial Reporting Standards Foundation.

A consultation on the UK SRS is expected during 2025.

Upon the UK exiting from the EU in 2020, the FCA created the Temporary Marketing Permissions Regime (TMPR) for UCITS funds then passported into the UK to continue to be marketed with obtaining individual recognition under the UK Financial Services and Markets Act.

The TMPR will expire in December 2026.

It was replaced by the OFR, which was introduced in February 2021 and allowed the UK to declare that types of funds passported into the UK, and individual funds, have equivalent investor safeguards as FCA registered funds, or impose additional standards, so they can continue to be marketed.

In January 2024, the UK announced European Economic Area UCITS were an equivalent regime for purposes of the OFR, but individual funds would be recognized after applying.

Asset managers are to apply during “landing periods” assigned alphabetically.

The landing period for Federated Hermes’ Irish UCITS Funds to apply is July 2025 to the end of September 2025.

EU and UK operational resilience requirements.

In the EU, the DORA, which was first proposed by the European Commission on September 24, 2020, became effective on January 17, 2025.

The DORA applies to a range of firms, including regulated financial services firms in the EU, and seeks to enhance and harmonize the requirements applicable to the information and communications technology (ICT) that firms use.

This includes, among other aspects, requirements for the maintenance of registers, due diligence and monitoring of ICT service providers, mandatory contractual provisions for ICT service providers, and enhanced reporting.

Meanwhile, in the UK, on November 12, 2024, the FCA, Prudential Regulatory Authority, and BoE published a joint policy statement and final rules regarding the operational resilience of critical third parties (CTPs) to the UK financial sector.

The new rules will enable UK regulators to monitor and manage operational resilience risks purportedly in an effective and proportionate manner.

The relevant requirements for CTPs will cover various regulatory areas including:

(1) governance;

(2) risk management;

(3) dependency and supply chain risk management;

and (4) technology and cyber resilience.

Current Regulatory Environment – Potential Impacts

Applicable regulatory requirements, regulatory developments and regulatory supervision impact the domestic and international investment management industry generally by imposing substantial legal and compliance burdens, and significant restrictions and requirements, on its participants, and their offerings, and, therefore, will continue to impact, to various degrees, Federated Hermes’ Financial Condition.

The imposition of a financial transaction tax (FTT) with broad application in the U.S., UK, or EU, or the designation of Federated Hermes or any of its offerings, such as certain money market funds, as a systemically important financial institution (SIFI), also can affect, potentially in a material way, Federated Hermes’ Financial Condition.

Federated Hermes has monitored, reviewed, and assessed, or will continue to monitor, review, and assess, regulatory developments and regulatory requirements, as applicable, and their impact on its business and offerings.

Federated Hermes actively participates, either individually or with industry-trade groups (such as the ICI), in the public comment process regarding regulatory developments that can significantly impact Federated Hermes’ business and offerings.

Federated Hermes actively participates, either individually or with industry-trade groups (such as the Investment Company Institute), in the public comment process regarding regulatory developments that can significantly impact Federated Hermes’ business and offerings.

Regulatory developments and regulatory requirements also are subject to legal challenge in court, and Federated Hermes’ considers initiating, participating in or supporting such legal challenges when management deems it necessary or appropriate.

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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 contributions, 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 and shareholders, while affording the business the opportunity to grow.

Federated Hermes endeavors to reward individual contributions, as demonstrated by the delivery of long-term continuing 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 customers and shareholders, while affording the business the opportunity to grow.

Generally, for employees working in the U.S., Federated Hermes’ compensation programs are comprised of competitive levels of cash compensation together with equity, a profit sharing/401(k) plan, and other corporate benefits/components for certain positions.

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Compensation across the company is generally administered in four employee categories:

Sales, Investment Management, Administration and Executive.

Investment Management;

Administration;

and Executive.

The employee’s category, position and performance generally drive the mix of fixed versus variable compensation, bonus structure/opportunity and long-term incentive structure/opportunity.

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Sales employees are also eligible to receive cash-based long-term incentive awards annually which generally vest after three years, and, for certain levels of Sales employees, annual bonus restricted stock awards and periodic restricted stock awards.

• 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.

• The pay mix for Investment Management employees includes variable compensation in the form of discretionary bonuses and takes into account, among other factors deemed relevant, investment offering performance from one-, three- and five-year periods.

For employees working in 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.

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• The components of Federated Hermes’ executive compensation programs are designed to be competitive within the investment management industry and 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.

Financial factors include, for example, Federated Hermes’ operating profits (as defined in Federated Hermes Stock Incentive Plan), AUM, gross product sales, net product sales, total revenue (including net revenues after taking into account the net pre-tax impact of waivers to maintain the yields of certain money market funds at or above zero (Voluntary Yield-related Fee Waivers), net income and net income per diluted share.

Financial factors include, for example, Federated Hermes’ operating profits (as defined in Federated Hermes Stock Incentive Plan), AUM, gross offering sales, net offering sales, total revenue (including net revenues after taking into account the net pre-tax impact of waivers to maintain the yields of certain money market funds at or above zero (Voluntary Yield-related Fee Waivers), net income and net income per diluted share.

Please refer to the Compensation Discussion and Analysis section of Federated Hermes’ Information Statement for additional information regarding executive compensation.

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employees, the award’s fifth- and tenth-year anniversaries, and for non-U.S.

employees, generally the award’s sixth, seventh and eighth

anniversaries which extend beyond the five-year vesting period in an effort to continue to align the employees’ and Federated Hermes’ interests during the restriction period).

employees, generally the award’s sixth, seventh and eighth anniversaries which extend beyond the five-year vesting period in an effort to continue to align the employees’ and Federated Hermes’ interests during the restriction period).

Additionally, for certain groups of 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.

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The Private Equity and Infrastructure businesses of Federated Hermes also operate carried interest and share of performance fee programs typical in the management of such asset classes.

For 2023, Federated Hermes’ total compensation expense was $563.4 million and included, among other items, salary, bonus and stock-based compensation expense.

For 2024, Federated Hermes’ total compensation expense was $540.5 million and included, among other items, salary, bonus and share-based compensation expense.

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, wellness program focusing on employee mindfulness, health and well-being, disability, paid time off and retirement programs, the company also offers flexible work arrangements which include hybrid work schedules, education assistance, paid parental leave, adoption benefits, volunteer paid time off, employee discounts and other programs and services.

Effective January 1, 2023, Federated Hermes implemented additional paid time off in its vacation and paid parental leave programs.

Employee Development

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Federated Hermes’ extensive training curriculums focus on technical, professional, leadership and management skills, and include, among others, courses on:

the securities markets and Federated Hermes’ products;

the securities markets and Federated Hermes’ offerings;

compliance/regulatory requirements;

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technical (systems) topics;

and general professional development.

and general professional

The attraction, development, and retention of qualified employees across the company supports Federated Hermes’ succession planning at all levels.

Diversity and Inclusion

As of December 31, 2023, across the company, approximately 40% of Federated Hermes’ employees are women.

Female representation on Federated Hermes’ board of directors is approximately 17%, and approximately 14% of Federated Hermes’ executive officers are women.

In the U.S., approximately 7% of Federated Hermes’ employees are minorities, 32% of business managers are women and/or minorities, and 27% of investment professionals are women and/or minorities.

As of December 31, 2023, approximately 91% of U.S.

investment teams’ AUM are managed by a team with at least one woman or racially/ethnically diverse individual.

Federated Hermes recognizes the dignity and respect of each person and 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’ 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:

As of December 31, 2024, 39% of Federated Hermes’ employees are women.

Female representation on Federated Hermes’ board of directors is 33%, and 10% of Federated Hermes’ executive officers are women.

In the U.S., 7% of Federated Hermes’ employees are minorities, 33% of business managers are women and/or minorities and 28% of investment professionals are women and/or minorities.

Federated Hermes’ strategy recognizes the dignity and respect of each person and that a diverse and inclusive workplace benefits employees and supports stronger long-term business performance.

Federated Hermes developed its strategy with the mission of fostering a diverse, inclusive, and respectful workplace where employees’ 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 its workforce and providing an inclusive environment.

The company’s strategy is centered around four pillars:

driving diversity;

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and sustainability with ongoing program development.

Federated Hermes cultivates the benefits of workplace diversity throughout the company through its recruitment process, onboarding of new employees, and employees’ ongoing education and development.

In the U.S., the company implemented and/or enhanced several programs and initiatives to advance diversity and inclusion, which include (in addition to other previously established programs and initiatives):

(1) expanding the list of diversity-focused job advertisements;

(2) expanding the diverse colleges and affinity groups with whom we share job postings;

(3) expanding the company’s internship program

with a local high school for underrepresented students;

(4) enhancing our partnership with a Pittsburgh-based high school, whose mission is to break the cycle of generational poverty, by providing educational sessions and student support;

(5) providing paid internships for students affiliated with a New York City-based organization whose vision is to empower students to overcome many of the structural barriers that typically limit upward social-economic mobility;

(6) establishing a relationship with the Financial Alliance for Racial Equity, including providing paid internship opportunities;

(7) expanding the company’s relationship with the Hispanic Heritage Foundation to offer internship and entry level employment opportunities;

and (8) providing Juneteenth as a paid company holiday.

In London, several diversity and inclusion initiatives have been launched, including (in addition to other previously established programs and initiatives):

(1) menopause essential training for all line managers;

(2) inclusive recruitment training;

(3) neurodiversity training open to all colleagues;

(4) cultural competency workshops with several teams across the business;

(5) building strategic relationships inclusion workshops;

(6) launching the MYSTORY campaign;

(7) LGBTQ+ awareness training with the Senior Management Team in London and a workshop for all employees;

(8) coping with change workshop;

(9) mental health first aide training and refresher training;

and (10) several men’s health workshops on topics such as:

(a) tips to beat stress and anger;

(b) how to spot symptoms;

and (d) men’s mental health .

The company’s diversity and inclusion initiatives are sponsored and endorsed by Federated Hermes’ board of directors and executive management, and support dignity and respect commitments.

The Compensation Committee of Federated Hermes’ board of directors 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 cultivates the benefits of workplace inclusion throughout the company through its recruitment process, onboarding of new employees, and employees’ ongoing education and development.

The company’s efforts are sponsored and endorsed by Federated Hermes’ board of directors and executive management, and support dignity and respect in the workplace.

The Compensation Committee of Federated Hermes’ board of directors receives periodic updates and reports on the company’s strategy and its compensation practices, including an annual pay equity analysis.

In collaboration with management and employees at all levels, these efforts are advanced by various teams and employee resource business groups across the company, including Human Resources.

Federated Hermes is committed to providing equal employment opportunities across the company to qualified individuals without regard to:

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Christopher Donahue President, Chief Executive Officer, Chairman and Director of Federated Hermes, Inc.

Ceresino Vice Chairman of Federated Hermes, Inc., Chairman, Director and President of Federated International Securities Corp.

and Vice Chairman of Federated MDTA, LLC 66

Donahue Vice President, Treasurer, Chief Financial Officer and Director of Federated Hermes, Inc.

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Van Meter Vice President and Chief Compliance Officer of Federated Hermes, Inc.

Zierden III Vice President of Federated Hermes, Inc.

* Federated Advisory Companies include the following:

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Donahue who serves as Vice President, Treasurer, Chief Financial Officer and director of Federated Hermes.

Ceresino has served as Vice Chairman of Federated Hermes since 2007.

He is President of Federated International Securities Corp.

and Vice Chairman of Federated MDTA LLC, each of which are wholly-owned subsidiaries of Federated Hermes.

Ceresino also serves as a director, trustee, President or CEO of certain other wholly-owned subsidiaries of Federated Hermes involved in Federated Hermes’ non-U.S.

Ceresino began to transition his day-to-day responsibilities on January 12, 2024, and will retire on May 9, 2024, after the transition period.

Donahue has served as Vice President, Treasurer and Chief Financial Officer of Federated Hermes since 1998.

He previously served as a member of Federated Hermes’ board of directors from May 1998 to April 2004 and was re-elected to Federated Hermes’ board of directors in April 2016.

He also serves as an Assistant Secretary of Federated Hermes and is a director and President of FII Holdings, Inc., a wholly-owned subsidiary of Federated Hermes.

He serves as a director of Federated Hermes Limited (FHL, formerly Hermes Fund Managers Limited).

He also serves as an Assistant Secretary of Federated Hermes and is President of FII Holdings, Inc., a wholly-owned subsidiary of Federated Hermes.

He serves as a director of FHL.

He also serves as a director, trustee or officer of various other Federated Hermes subsidiaries.

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She has served as Director, Human Resources since November 1997.

She also has served as an officer of various Federated Hermes 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, including Total Compensation Management, Employment Services/Employee Relations, Organization Development, and Human Resources Information Management.

She also has served as an officer of various Federated Hermes subsidiaries since 1994.

In these capacities, she is responsible for the Human Resources Department at Federated Hermes, including Total Rewards, Human Resources Business Partners and Resourcing, Talent Development and Human Resources Information Management.

Fisher has served as Vice President of Federated Hermes since 1998.

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Novak is a Certified Public Accountant.

Nusseibeh is a director and CEO of FHL, a wholly -owned subsidiary of Federated Hermes.

He joined FHL in 2009 and was appointed CEO in November 2011, having previously served as Chief Investment Officer from 2009 through November 2011.

Nusseibeh is a director and CEO of FHL .

He joined FHL in 2009 and was appointed CEO in May 2012, after serving as acting CEO beginning in November 2011 and having previously served as Chief Investment Officer from 2009 through November 2011.

He formerly served as Global Head of Equities at Fortis Investments USA, having initially been appointed as Head of Global Equities in 2005.

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Van Meter served as Senior Counsel in the SEC’s Division of Examinations.

Zierden III has served as Vice President of Federated Hermes since July 2024.

He has also served as the President-Administration of Federated Services Company since 2012.

In such capacity, he manages the Global Technology Organization, data governance, investor services and financial planning and analysis, which includes responsibility for company-wide mergers and acquisitions.

Zierden is also Executive Managing Director of the Federated Hermes Private Markets business.

Available Information

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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