Looking for privacy

In the wake of a recent amendment to US disclosure rules, private equity funds – especially those that deliver their yearly privacy notices with their annual reports – may want to review and update such notices to ensure they are still in compliance.

Reformat your privacy forms

In November the FTC and several other federal agencies jointly announced changes to the Privacy of Consumer Financial Information rule, which requires funds to provide their investors with initial and annual notices disclosing their privacy policy and practices. The Final Model Privacy Form which went into effect at the end of the year is intended provide a legal safe harbor for financial institutions and ease their compliance burden.

However, according to law firm Paul, Weiss, Rifkind, Wharton & Garrison, the new form’s standarised format may limit a fund’s ability to accurately reflect its privacy policies and procedures. For instance, fund-specific information may not be inserted into the Model Form, while its disclosure table – which now more clearly displays a fund’s information-sharing practices – also requires a fund to list all categories of disclosure rather than just those applicable to it.

As the use of the Model Form is optional, Paul Weiss recommends that funds should consider whether adopting it is appropriate for their circumstances, or whether they should use other types of notices (known as simplified notices) instead. If they chose the latter option though, funds still need to update their simplified notices to comply with the Model Form.

Mainly the update would entail making sure that the language in their privacy notices is more aligned with that of the Model Forms rather than the language in the Sample Clauses that many privacy notices have been based on up to now. Privacy notices delivered after 31 December 2010 can also no longer rely on the language “as permitted by law” when describing disclosures made to nonaffiliated third parties.

While there will be a one-year grace period for funds that deliver privacy notices this year that either contain language based on the Sample Clauses or contain the “as permitted by law” wording, Paul Weiss recommends updating your own notices as soon as practical.