Imminent: Cybersecurity Regulations For US Financial Services
As the financial services industry awaits the U.S. Securities and Exchange Commission’s (SEC) new cybersecurity regulations expected later this year there are still unknowns regarding what firms will be required to do.
But that doesn’t mean alternative investment firms can’t take proactive action now so they won’t be forced to scramble to be compliant during the expected grace period - which could be anywhere from 12 to 24 months.
As C-suite leaders and IT managers begin to examine their companies’ cyber programs, there are a few proactive measures that can be taken straightaway in line with previous guidance from the SEC that will very likely be included in any new rules.
Interestingly, investors have been matching regulators in terms of what they are seeking, so particularly if a firm is preparing to go through fundraising, these measures will help immensely.
Ongoing, thorough risk assessments should be implemented immediately. User security and access - including a comprehensive onboarding and offboarding checklist, robust policies and strict access permissions - should also be evaluated today.
Firms can test their vulnerability management programs and quickly introduce a formal patch program, network vulnerability scanning and penetration testing.
For those companies that are fundraising, they must be prepared for intense questioning around their cybersecurity practices from investors. Businesses must also dive into their data and information protection and ensure they have comprehensive data loss prevention policies for things such as email systems that may be at risk for leaking sensitive information like addresses and financial transactions.
Perhaps most importantly, firms must have robust incident report plans in place, particularly if they may be forced to report any breaches within the SEC’s proposed 48-hour window.
This should be a clearly written plan that also incorporates broader business continuity and operational resilience components in case of a breach. This cannot be a document that is simply written in a vacuum and placed on a shelf - it must be reviewed regularly to account for new threat vectors, systems, third parties and more. Prepare for it as you would a pop quiz: What if the SEC asks on any given day, how can your business quickly access and share your current and historical plans? This will be key as the proposed regulations require firms to maintain five years of historical documents and make the most immediate two years easily accessible.
Other pieces of the proposed rules are still unclear. For example, the SEC has indicated it wants some form of board oversight, such as an approval process for cybersecurity policies, but details won’t be well-defined until the official requirements are published. It also remains to be seen exactly how much information will be necessary to disclose about past cyber incidents in prospectus and brochure updates - which could present an issue as this type of information could be used against a firm in future attacks if it is publicly available.
The bottom line: it’s not just a waiting game. If your company can begin to evaluate your cyber posture today and takes proactive steps to ensure ongoing risk and vulnerability assessments, it will be a simple matter of fine-tuning once the new rules are published to ensure your firm’s cybersecurity strength and compliance.
Simon Eyre is CISO at Drawbridge
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