Financial Services Alert - March 27, 2012

Developments of Note

Proposed Legislation Would Delay Volcker Rule Effective Date SEC Staff Provides Further Guidance to Exempt Reporting Advisers on Reporting Special Purpose Entities in Form ADV FDIC Issues Financial Institution Letter Advising Bank Directors and Officers that Copying and Removing Confidential Financial Institution Records is Breach of their Fiduciary Duty to the Financial Institution and is an Unsafe and Unsound Banking Practice IOSCO Publishes Consultative Report on the Principles for the Regulation of Exchange Traded Funds FDIC Proposes Rule to Implement Authority to Preserve Affiliate Contracts as Receiver of Systemically Important Financial Institutions FDIC Issues Notice of Proposed Rulemaking To Amend Assessment Regulations for Large Financial Institutions DEVELOPMENTS OF NOTE

Proposed Legislation Would Delay Volcker Rule Effective Date

A bipartisan group of Senators has introduced legislation that, if it becomes law, would delay the effectiveness of the Volcker rule until 12 months following the issuance by the FRB, the OCC, the FDIC, the SEC and the CFTC (collectively, the "Agencies") of final rules to carry out the Volcker rule. Currently, the Volcker rule provides that it will become effective on the earlier of 12 months following the adoption of such a final rule or two years after the date of enactment of the Dodd-Frank Act. Because the Agencies have not yet issued final rules to carry out the Volcker rule, in the absence of additional legislation, the Volcker rule will become effective on July 21, 2012. If the Agencies do not issue final rules that becomes effective prior to the Volcker rule's effective date, banking entities subject to the Volcker rule will need to comply with the Volcker rule without the benefit of any clarification as to the Volcker rule's scope and without the benefit of any exemptions from the Volcker rule as the Agencies may provide in a final rule.

SEC Staff Provides Further Guidance to Exempt Reporting Advisers on Reporting Special Purpose Entities in Form ADV

The staff of the SEC's Division of Investment Management (the "Staff") supplemented its "Frequently Asked Questions on Form ADV and IARD" (the "FAQ") to broaden the circumstances under which it would permit an exempt reporting adviser (an "ERA") to include a general partner, managing member or similar special purpose entity ("SPE") of one of the adviser's private funds in the adviser's report on Form ADV and thereby satisfy the SPE's own ERA reporting obligation. (An ERA is an adviser that relies on the venture capital fund adviser exemption under Section 203(l) of the Investment Advisers Act of 1940 (the "Advisers Act") or the private fund adviser exemption under Section 203(m) of the Advisers Act.) The Staff had previously provided more limited no action relief for SPEs, as discussed in the March 20, 2012 Financial Services Alert.

The Staff's more recent no-action relief applies to the situation where an SPE delegates certain responsibility for managing a private fund to the reporting ERA, but retains and exercises discretionary authority over the private fund's assets. Such an SPE can satisfy its reporting obligation as an ERA by including in the adviser's report on Form ADV all of the information that the SPE would have provided had it reported separately, provided the following conditions are met: (i) the SPE acts as the SPE only for private funds or other pooled investment vehicles advised by the reporting adviser; (ii) the reporting adviser controls the SPE; (iii) the investment advisory activities of the SPE are subject to the Advisers Act; (iv) the SPE has no employees or other persons...