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Client Alert: Reminder to Send Annual Privacy Notices

06.21.11

Since 2001, the Privacy of Consumer Financial Information rule adopted by the Federal Trade Commission (FTC) under the Gramm-Leach-Bliley Act has required all financial institutions (including private equity funds) to send annual notices to their investors who are individuals[1] describing the fund's privacy policy, the categories of nonpublic personal information the fund intends to disclose, the categories of affiliates or third parties to which such disclosures will be made, and a method for the investor to "opt-out" of the disclosure of personal information to third parties (to the extent the fund discloses information to third parties).
 
In 2010, the FTC developed a form of privacy policy that must be used to comply with the “safe harbor” provisions of the regulations. Since the FTC form was not developed specifically for use by private pooled investment vehicles, investment funds may find it awkward to use and confusing to read. A sample FTC form, populated with disclosures generally applicable to an investment fund that does not provide investor information to affiliates for marketing purposes, is available for review here.[2]   Funds may continue to use their previous, customary form instead of the “safe harbor” form, and this will satisfy the distribution requirement under the regulations but it will not provide safe harbor protection.  Using a form that does not fall within the safe harbor may be open to challenge as to whether it includes all necessary information. To comply with the safe harbor but to also provide a more use friendly version, some funds distribute their customary form and attach the “safe harbor” form as an exhibit.

Each fund must distribute the annual notice to individual investors every twelve months. Usually, the fund must mail a hard copy of the notice to each investor. However, the fund may meet the distribution requirement by emailing the notice to an investor or by posting it on a fund website[3] that the investor can access if the investor has specifically consented to receiving information electronically from the fund.

If you have any questions regarding complying with the Privacy of Consumer Financial Information rule or the new safe harbor requirements, please call Keith Kaplan at 215-569-4143 or Jon Katona at 215-569-4222.


[1]            In practice, most private equity funds establish one privacy policy that covers all investors (that is, individuals and institutions) and distribute it to institutional investors in connection with the required distribution to individual investors. Depending on your preference, we can provide a form of policy to you that applies to all investors or just the individual investors (who are required to be notified).
[2]            The FTC has provided several safe harbor templates depending upon the institution’s circumstances. Please contact us to determine which template would apply to you. 
[3]            The policy or a link to the policy must be posted on a webpage that investors access frequently.