As mentioned in our previous Alert regarding the National Institute of Standards and Technology's (NIST) new framework for promoting cybersecurity ("Framework for Improving Critical Infrastructure Cybersecurity"), financial institutions increasingly are the subject of regulators' attention regarding cybersecurity preparedness.
In continuation of that theme, on April 15, 2014, the U.S. Securities and Exchange Commissions' (SEC) Office of Compliance Inspections and Examinations (OCIE) released a Risk Alert announcing its Cybersecurity Initiative, which aims to assess cybersecurity preparedness in the securities industry.
On the immediate horizon for the OCIE's Cybersecurity Initiative are examinations of more than 50 registered broker-dealers and registered investment advisers in which the OCIE will evaluate firms' cybersecurity preparedness. These examinations will focus on:
- cybersecurity governance
- identification and assessment of cybersecurity risks
- protection of networks and information
- risks associated with remote customer access and funds transfer requests
- risks associated with vendors and other third parties
- detection of unauthorized activity
- experiences with certain cybersecurity threats
As part of the OCIE Risk Alert, the OCIE included a sample questionnaire that it will use in connection with the examinations. Many of the questions track information outlined in NIST's new framework.
The questionnaire particularly focuses on whether a firm has in place several different written policies that are implicated in assessing cybersecurity preparedness, including the following:
- basic information security policy
- business continuity plan that addresses mitigation of cybersecurity incident
- incident report policy
- data destruction policy
- policy for verifying customer email requests to transfer funds
- policies relating to information security for vendors and business partners
- updating supervisory procedures to reflect the Identity Theft Red Flags Rules, which became effective in 2013 (17 CFR § 248—Subpart C—Regulation S-ID)
The OCIE staff also is interested in whether firms have maintained insurance to cover losses and expenses associated with cybersecurity incidents, what categories of data and devices are encrypted by the firm, monitoring activities related to the firm's network and physical environments, and how the firm conducts risk assessments of vendors and business partners (including whether the firm has contractual requirements for vendors and partners).
Even though most broker-dealers and investment advisers will not be examined by the OCIE in the near term, the extensive list of questions and requests provided in the OCIE questionnaire should be used by firms to internally assess what they should be doing now to address cybersecurity concerns and threats.
For more information on other cybersecurity, data security and privacy matters, please contact one of the authors.