Cyber Attack Response –Are You Prepared?

Creating an Incident Response Plan is Essential

Today’s world is full of cyber risks and attacks and an attack on a financial services firm’s systems is no longer a matter of “if”, but “when.” It is crucial now more than ever that firms have appropriate cyber policies in place especially in the current regulatory climate (NYDFS and GDPR). 

A client database has been hacked – and personal details of individuals stolen. It’s every company’s nightmare, and now it’s happened. What steps should the firm take? And who needs to be notified?

In today’s world of cyber risks and threats, a successful attack on a financial services firm’s systems is not a matter of “if”, but rather “when”. While it makes sense to invest in the best cyber attack deterrence technology and to put in place preventative policies and procedures, bad things can still happen to good cybersecurity programs. And when they do, the firm’s reputation is on the line.

Firms need to have an incident response plan (IRP) ready to activate if they are hacked and data is stolen, or breached by an employee error or third party negligence.  Similar to business continuity and disaster recovery plans, the IRP will help guide individuals as to the actions they should be taking – to limit further damage to systems, to mitigate reputational risk and to ensure incident reporting compliance with a growing number of regulatory requirements.

A key part of the IRP is defining what’s “an incident”, and the various levels of severity. Firms should also outline when they must notify a regulator or other government body that it has been hacked or suffered a data breach. Sometimes there is also a requirement to notify impacted clients – but if there isn’t, it is usually best practice to make them aware in any case. Failure to report a cyber breach to either a government body or to clients – if the breach comes to light later – can have a serious negative impact on a firm’s reputation. The internet is littered with companies who delayed reporting and have encountered supervisory censure as well as negative headlines and client lawsuits – Equifax is a recent example.

Many jurisdictions are putting formal notification requirements in place. For example, New York State’s Department of Financial Services (NYDFS) March 2017 cybersecurity regulation requires financial services firms to notify the regulator within 72 hours of a breach taking place, and other US states are putting in place similar requirements. The US Securities and Exchange Commission (SEC) published some observations from its cybersecurity examinations in August which noted that firms need to have robust reporting frameworks. In the EU and the UK, the General Data Protection Regulation (GDPR) will require firms to notify the correct regulator within 72 hours of a breach, and impacted individuals “without undue delay”.

GDPR places a heavy focus on personal data privacy and the individual’s rights in regards to consent for their data to be collected, disclosure on what the firm is using their data for, and the lifespan a firm retains their data. Fines can be severe for non-compliance. Failure to comply with certain articles of GDPR may result in significant fines of up to 20 million Euros or 4% of global turnover, whichever is higher.

There are several reasons why governments are asking firms to make formal notifications of cyber breaches. Registration of incidents helps governments gain intelligence on evolving attacks and specific entity types targeted. Secondly, in some jurisdictions, this information is shared in some way with other financial services firms – helping all firms to collaborate to prevent successful cyber attacks.

Thirdly, regulators are beginning to use this cyber breach reporting data in their pre-examination analysis. Supervisors can see which firms are having incidents and what kind of incidents they are having – perhaps to formulate good questions for discussion with the firm during the visit. On the flip-side, they can also see who is reporting below-normal levels of incidents. If the firm has some form of cybersecurity best-practice, then that is of interest. However, if the firm is simply not reporting cyber breaches, then more difficult questions will be asked.

As a result of these new breach reporting regulatory requirements and client expectations, firms are advised to ensure their IRP has specific communication instructions and a timely cadence.  Elements of the communications plan should contain when and how to do the following:

• Notify investors
• Contact internal and external counsel
• Notify the insurance provider
• Contact an IT forensics firm (it’sbest to have one on retainer before an incident)
• Call law enforcement
• Report to the regulator if required, or when to contact if not required
• Communicate to employees
• Disclose to clients

Best practice is for firms to conduct a table-top exercise to test their IRP and communications plan using several scenarios, such as ransomware, an insider attack or breach of the firm’s data at a third party. If the firm outsources significant portions of its IT infrastructure, it’s important to conduct these exercises in partnership with the IT provider. Where the firm engages with third parties for other types of activities that involve sensitive data, the firm should perform tabletop exercises with these vendors also – and ensure that the vendor is aware of all reporting obligations the firm has to regulators.

If a firm is genuinely not subject to any cyber breach reporting requirements, it should nonetheless put a framework in place to document each incident and note why no reporting is required. This will help support the firm’s engagement with regulators in the future. Additionally, efficient and comprehensive reporting will provide “lessons learned” and identify areas for response improvements.

For financial services firms their reputation is their biggest Crown Jewel, so ensuring a rapid and efficient response to a cyber incident will have a significant impact on how well a firm weathers a cyber attack and minimizes reputational damage.