On January 27, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued observations gleaned from its examinations related to cybersecurity and operational resiliency practices taken by market participants (the “Observations”). The Observations impact the entire securities industry because OCIE conducts examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies, transfer agents, and others. It uses a risk-based approach to examinations to fulfill its mission to promote compliance with U.S. securities laws, prevent fraud, monitor risk, and inform SEC policy.
The Observations cover a broad range of operations in the areas of governance and risk management, access rights and controls, data loss prevention, mobile security, incident response and resiliency, vendor management, and training and awareness. They highlight specific examples of cybersecurity and operational resiliency practices and controls that organizations have taken to safeguard against threats and respond in the event of an incident.
Organizations subject to examination by OCIE should expect that the primary elements highlighted will be a focus of routine, as well as targeted examinations. The Observations are best regarded as a set of “best practices” that should be considered by regulated organizations in developing, implementing and monitoring the effectiveness of their own compliance programs.
The following are selected excerpts from the Observations that we believe are the most significant. A complete copy of the Observations can be found here.
Governance and Risk Management
OCIE emphasized that effective compliance programs “start with the right tone at the top.” As a top priority of any examination, senior leaders should be committed to improving their organization’s cyber posture through working with others to understand, prioritize, communicate, and mitigate cybersecurity risks.
OCIE observes that a key element is the incorporation of a governance and risk management program that generally includes, among other things: (i) a risk assessment to identify, analyze, and prioritize cybersecurity risks to the organization; (ii) written cybersecurity policies and procedures to address those risks; and (iii) the effective implementation and enforcement of those policies and procedures.
Access Rights and Controls
OCIE observes that “access rights and controls” are used to identify and determine who are the appropriate users within an organization who should have access to organization systems based on job responsibilities. Access controls generally include: (i) understanding the location of data, including client information, throughout an organization; (ii) restricting access to systems and data to authorized users; and (iii) establishing appropriate controls to prevent and monitor for unauthorized access.
Data Loss Prevention
“Data loss prevention,” as conceived by OCIE, typically includes a set of tools and processes an organization uses to ensure that sensitive data, including client information, is not lost, misused, or accessed by unauthorized users.
Mobile Security
Mobile devices and applications may create additional and unique vulnerabilities. Examples of the mobile security measures OCIE has observed include the following elements: (i) establishing specific policies and procedures for the use of mobile devices, including managing the use of mobile devices., e.g., the compliance program addresses the special concerns that are presented when employees are permitted to use their own mobile devices in performing business functions; (ii) implementing security measures; (iii) training employees, including training employees on mobile device policies; and (iv) effective practices to protect mobile devices.
Incident Response and Resiliency
OCIE notes the importance of a compliance program including the following elements: (i) the timely detection and appropriate disclosure of material information regarding incidents; and (ii) assessing the appropriateness of corrective actions taken in response to incidents. OCIE emphasized that an important component of an incident response plan is a business continuity plan and resiliency plan that addresses how quickly the organization could recover and again safely serve clients if the operations of the organization were materially disrupted.
Vendor Management
OCIE found that practices and controls related to vendor management generally include policies and procedures related to: (i) conducting due diligence for vendor selection; (ii) monitoring and overseeing vendors, and contract terms; (iii) assessing how vendor relationships are considered as part of the organization’s ongoing risk assessment process as well as how the organization determines the appropriate level of due diligence to conduct on a vendor; and (iv) assessing how vendors protect any accessible client information.
Training and Awareness
Training and awareness are key components of cybersecurity programs. Training provides employees with information concerning cyber risks and responsibilities and heightens awareness of cyber threats.
OCIE has observed the following practices used by organizations in the area of cybersecurity training and awareness: (i) training staff to implement the organization’s cybersecurity policies and procedures and engaging the workforce to build a culture of cybersecurity readiness and operational resiliency; (ii) providing specific cybersecurity and resiliency training, including preventive measures in training, such as identifying and responding to indicators of breaches, and obtaining customer confirmation if behavior appears suspicious; (iii) monitoring to ensure employees attend training and assessing the effectiveness of training; and (iv) continuously re-evaluating and updating training programs based on cyber-threat intelligence.
