computer screen reading "warning cyber attack"

Firms Falling Short on Preparedness

As a part of a cybersecurity initiative, the SEC’s Office of Compliance Inspections and Examinations (OCIE) recently performed examinations of 75 firms to assess industry practices and compliance issues associated with cybersecurity preparedness. The exams revealed systemic failures. The results are summarized in a Risk Alert, which outlines examples of policies and procedures that OCIE believes are elements of the kind of robust cybersecurity program firms should consider implementing.

with co-authors Cheri L. Hoff and Chelsea L. O’Donnell

On August 7, 2017, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released a Risk Alert summarizing its most recent cybersecurity examination findings.1 As a part of its Phase 2 cybersecurity initiative, between September 2015 and June 2016, OCIE performed examinations of 75 firms, including broker-dealers, investment advisers and investment companies. The Phase 2 examinations are a continuation of OCIE’s 2014 Cybersecurity Phase 1 Initiative, as OCIE further assesses industry practices and compliance issues associated with cybersecurity preparedness, with an emphasis on the maintenance and testing of policies and procedures.

OCIE found that, while cybersecurity preparedness improved since its previous examination, many firms experienced issues with some aspects of their cybersecurity programs. Regarding written policies, OCIE concluded that many firms did not reasonably tailor their policies and procedures to their risks and needs. Employees received either only general guidance or the firms failed to articulate procedures for policy implementation. OCIE also highlighted that, in some cases, firms did not abide by their stated policies and procedures, or the policies and procedures did not reflect actual practice. Finally, OCIE observed that firms did not regularly perform risk assessments, system maintenance or implement remedial measures after penetration testing.

The Risk Alert provides examples of policies and procedures that OCIE believes are elements of a robust cybersecurity program that firms should consider implementing.2 These are as follows :

  • Maintenance of an inventory of data, information and vendors
  • Detailed cybersecurity-related instructions
  • Maintenance of prescriptive schedules and processes for testing data integrity and vulnerabilities
  • Established and enforced controls to access data and systems
  • Mandatory employee training
  • Engaged senior management

As stated in the Risk Alert, OCIE believes that cybersecurity is “one of the top compliance risks for financial firms” and warns firms that it will continue to examine firms’ cybersecurity compliance procedures and controls. In order to prepare for a potential examination and maintain compliance with their legal and regulatory obligations, firms should evaluate their existing policies and procedures, particularly in light of the issues that OCIE identified. Further, to the extent that firms have not specifically addressed each of the elements highlighted by OCIE, they should assess whether their existing practices, policies and/or procedures should be amended.

Glen Kopp

Glen Kopp headshot 8-6-14Glen Kopp, former Assistant United States Attorney in the Southern District of New York, is a partner in Bracewell’s white collar, internal investigations and regulatory enforcement practice in New York. Prior to joining the firm, he served for five years in the U.S. Department of Justice, handling all phases of the federal criminal process. In private practice and at DOJ, he has handled regulatory enforcement matters, criminal proceedings, litigation and internal investigations relating to financial institutions; corporate, accounting, wire and bank fraud; insider trading; money laundering; options back-dating; securities; export control; and other matters. Since joining Bracewell, Glen has led an internal investigation into possible FCPA violations for a company with operations in the Middle East and drafted and reviewed FCPA provisions of international service contracts. Glen led an internal investigation involving possible improper billing practices for a government contractor. Glen has also guided a client through a criminal antitrust investigation and counseled clients victimized through cyber intrusions.

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