For broker-dealer use only. Not for use with the public. PROCU 2012 ANNUAL MEETING REGULATORY UPDATE Michael D. Burns Chief Compliance Officer October 1, 2012

For broker-dealer use only. Not for use with the public. Topics For Discussion Where has Dodd-Frank Led us to Today SEC Activities and Status Investment Adviser Regulatory Overhaul Financial Industry Regulatory Authority (FINRA) Focus Department of Labor Fiduciary Focus on ERISA Regulatory Environment

For broker-dealer use only. Not for use with the public. Dodd-Frank Wall Street Reform and Consumer Protection Act Set Regulatory Framework for Managing Systemic Risk: Financial Stability Oversight Council (FSOC) Over the Counter Derivatives are Subject to CFTC and SEC Regulatory Rules Establishes a Bureau of Consumer Financial Protection (CFPB) Federal Insurance Office (FIO) Created to Monitor and Report on the U.S. Insurance Industry Office of Credit Ratings (OCR) within the SEC Mortgage Reform and Anti-Predatory Lending Standards are Addressed

For broker-dealer use only. Not for use with the public. Dodd-Frank Wall Street Reform and Consumer Protection Act BY THE NUMBERS RulemakingsStudies Systemic Risk & Resolution Authority4227 Bank Regulation146 Private Funds115 OTC Derivatives14010 Payment, Settlement & Clearing81 Investor Protection1229 Securitization122 Credit Rating Agencies148 Executive Compensation & Corporate Governance81 Municipal Securities23 Consumer Financial Protection2124 Mortgage Reform248 Federal Insurance Office25 Federal Reserve System & Emergency Authorities15 Miscellaneous411 Total315145

For broker-dealer use only. Not for use with the public. Dodd-Frank Act: Investment Adviser Changes SEC Registration requirements Changed from $30 Million to $100 Million Advisers to Private Funds will Generally be Required to Register with the SEC if the Adviser has Assets Under Management of $100 Million or More Municipal Securities Rule revisions will require SEC registration of Advisers when meeting the definition of a “municipal advisor” and giving advice to or on behalf of a municipal entity or obligated party

For broker-dealer use only. Not for use with the public. SEC Priorities and Status RIA Regulatory Changes SIPC Expansion Money Market Reform Regulatory Environment – Supervision of Registered Investment Advisers

For broker-dealer use only. Not for use with the public. Investment Adviser Changes Required RIA firms to deliver to their clients a narrative brochure written in plain English (ADV Part II) – Update by next required ADV Update Part 2A –firm brochure that contains many of the items previously required to be disclosed in the ADV Part II. Part 2B –IAR supplement to the Part 2A brochure. The brochure supplement will contain information regarding the educational background, business experience, and disciplinary history (if any) of the IAR. Forms are to be updated upon any material event and must be provided in accordance with delivery requirements Expanded custody rules were adopted which include audits of securities holdings

For broker-dealer use only. Not for use with the public. FINRA Regulatory Focus Suitability Rule overhaul became effective July 1, 2012 Expanded information to be maintained and evaluated Introduced “Hold” recommendations Positioning itself as Self Regulator for Registered Investment Advisers Revenue enhancements through fee increases Focus on complex product disclosure and training, sales to seniors, expanded public disclosure of disciplinary history and firm reporting of information for expanded oversight and transparency.

For broker-dealer use only. Not for use with the public. FINRA Regulatory Exam Priorities 2012 Exam Priorities Business Conduct & Sales Practice Concerns o Heightened supervision of complex products o Suitability Reviews (Rules 2111 & 2090) Microcap Fraud Private Securities Transactions & Outside Business Activities Social Media & Electronic Communications Cyber Security

For broker-dealer use only. Not for use with the public. Department of Labor ERISA Fiduciary Focus ERISA applies to both defined Contribution and Defined Benefit Plans Rule 408(b)(2) Plan disclosures required July 1, 2012 Rule 404(a)(5) Participant Disclosures required August 31, 2012 DOL withdrew proposal to expand fiduciary definition to cover SEPs, SIMPLEs and IRAs pending a cost/benefit analysis and further review

For broker-dealer use only. Not for use with the public. Regulatory Enforcement and Economic Impact Identification of experienced candidates with no disclosures are becoming much more challenging Disclosures are resulting from more than sales practices issues: credit considerations, aggressive litigation and more complex products Regulatory focus on consumer protection as well as volatile markets have resulted in increasing disclosures for both firms and advisors The economic environment, combined with the real estate market, have resulted in more disclosure than ever on credit concerns

For broker-dealer use only. Not for use with the public. Page 12