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How does the XmlSerializer work? What ACL permissions does a process using it require?

The XmlSerializer constructor generates a pair of classes derived from XmlSerializationReader and XmlSerializationWriter by analysis of the classes using reflection. 

Temporary C# files are created and compiled into a temporary assembly and then loaded into a process.

The XmlSerializer caches the temporary assemblies on a per-type basis as the code generated like this is expensive. This cached assembly is used after a class is created

Therefore the XmlSerialize requires full permissions on the temporary directory which is a user profile temp directory for windows applications.