United States: SEC (OCIE) Cybersecurity Initiative

The US Securities and Exchange Commission's (SEC) Office of Compliance Inspections and Examinations (OCIE) has issued a National Exam Program Risk Alert entitled OCIE Cybersecurity Initiative (the "Risk Alert") in which it announced its plans to conduct examinations of more than 50 (of approximately 15,000) registered broker-dealers and investment advisers.1

The Risk Alert does not indicate the nature of the firms that OCIE intends to examine, although it can be expected that the sample may be designed to elicit information about how firms of different sizes and levels of complexity are approaching and addressing cybersecurity risks. Accordingly, registered broker-dealers and investment advisers should review the Risk Alert carefully and begin preparations for dealing with a potential examination by OCIE of their cybersecurity defenses, whether as part of this initial review or in the future.

The Risk Alert includes a sample information request list that demonstrates the many categories of detailed information that OCIE will potentially be seeking from the entities being examined. This important and somewhat unusual disclosure by OCIE is, per the Risk Alert, "intended to empower compliance professionals in the industry with questions and tools they can use to assess their firms' level of preparedness, regardless of whether they are included in OCIE's examinations."

More substantively, the sample information request list can be used by a firm's compliance professionals as a guide to map with greater depth and breadth the firm's cyber infrastructure, assess the firm's cybersecurity risks and document, implement and monitor policies and procedures regarding identification, documentation, prioritization, management and mitigation of cyber risks. In this regard, the sample information request list suggests that all financial firms should, among various other measures: 

  • be using an established framework to address cybersecurity;2
  • have policies and procedures in place to manage information security assets, networks and information, including the prioritization of resources for protection based on their sensitivity and business value; 
  • conduct periodic risk assessments to identify physical security threats and vulnerabilities that bear on cybersecurity;
  • identify a person responsible for overseeing cybersecurity risks; and
  • have a cybersecurity incident response policy.

Registered broker-dealers and investment advisers should review the information requests included in the Risk Alert and evaluate their existing cybersecurity policies and procedures. Firms should also prepare for greater scrutiny of their cybersecurity policies and procedures. 

The Risk Alert references the February 2014 issuance by the NIST of its first iteration of a "Framework for Improving Critical Infrastructure Cybersecurity."3 NIST's Framework is intended to "help organizations charged with providing the nation's financial, energy, health care and other critical systems better protect their information and physical assets from cyber attack" and "provides a structure that organizations, regulators and customers can use to create, guide, assess or improve comprehensive cybersecurity programs."

We believe the Risk Alert may indeed serve as a significant "empowering" tool for compliance professional and boards. Furthermore, in our view, the NIST Framework for cybersecurity that is referenced in the Risk Alert can be viewed as analogous to COSO's framework for internal controls.4 Public companies have developed internal controls over the last several years, and specifically in response to requirements under Section 404 of the Sarbanes-Oxley Act of 2002, generally using the COSO internal control framework. Similarly, we believe that public companies (and other organizations) generally may come to use the NIST Framework to develop controls to address cybersecurity.

Taken together with the NIST Framework, the OCIE Risk Alert and sample information request list show that cybersecurity, rather than being a mere IT issue, is a business issue that raises significant operational, financial and reputational risks that should be addressed as part of a company's enterprise risk management program.

Cybersecurity is not a new issue for the SEC or other regulators in the United States and globally. In 2011, the SEC's Division of Corporation Finance issued CF Disclosure Guidance: Topic No. 2, "Cybersecurity"5, in which it stated that:

Registrants should disclose the risk of cyber incidents if these issues are among the most significant factors that make an investment in the company speculative or risky. In determining whether risk factor disclosure is required, we expect registrants to evaluate their cybersecurity risks and take into account all available relevant information, including prior cyber incidents and the severity and frequency of those incidents. As part of this evaluation, registrants should consider the probability of cyber incidents occurring and the quantitative and qualitative magnitude of those risks, including the potential costs and other consequences resulting from misappropriation of assets or sensitive information, corruption of data or operational disruption. In evaluating whether risk factor disclosure should be provided, registrants should also consider the adequacy of preventative actions taken to reduce cybersecurity risks in the context of the industry in which they operate and risks to that security, including threatened attacks of which they are aware.

As part of the continued and increased national and global attention to cybersecurity issues, the SEC hosted a Cybersecurity Roundtable in March 2014, during which Chair Mary Jo White referred to the NIST Framework and noted the "compelling need for stronger partnerships between the government and the private sector" to address cybersecurity risks. She further stated that:

The SEC's formal jurisdiction over cybersecurity is directly focused on the integrity of our market systems, customer data protection, and disclosure of material information. But it is incumbent on every government agency to be informed on the full range of cybersecurity risks and actively engage to combat those risks in our respective spheres of responsibility.

In light of the increasing focus on cybersecurity by the U.S. government, including not only the SEC but also the U.S. Department of Homeland Security, NIST and other agencies, as well as international organizations like ISO, it is generally expected that every public company should have already considered cybersecurity matters and risks. A significant number of companies globally have already implemented policies and procedures to address the voluntary practices set out in the NIST Framework or the ISO standards, most significantly for identifying cybersecurity threats, testing cybersecurity procedures, regularly updating procedures to address identified threats and appropriately communicating with internal and external stakeholders about cybersecurity risks. But a significant number of companies have also found themselves unprepared for cyber attacks and have yet to take appropriate steps, including in some instances to even assign the oversight of cybersecurity risks to senior management or to the board of directors (or both), to address cybersecurity risks.

OCIE's Risk Alert indicates that registered broker-dealers and investment advisers must be ahead of the curve in addressing cybersecurity risks and prepared for addressing further guidance from the SEC or other agencies of the U.S. government. Indeed, it is foreseeable that regulation of cybersecurity risks could ultimately be formulated in a manner that corresponds to regulations pertaining to internal control under Sarbanes-Oxley Section 404. The risk of cybersecurity threats to financial firms (and other companies) and their investors, customers and other constituents and the need for such firms to adopt and regularly monitor appropriate defenses against those threats is great enough potentially to lead to such a result.

Please contact us if you have questions about the Risk Alert or cybersecurity, including cybersecurity governance matters.

 Footnotes

1 The Securities and Exchange Commission, National Exam Program Risk Alert, OCIE Cybersecurity Initiative (April 15, 2014)

2 Frameworks established by the National Institute of Standards and Technology ("NIST") and the International Organization for Standardization ("ISO") are referenced in the sample information request. NIST is a non-regulatory agency of the U.S. Department of Commerce that "promotes U.S. innovation and industrial competitiveness by advancing measurement science, standards and technology in ways that enhance economic security and improve our quality of life." (See NIST's press release regarding the issuance of the framework) ISO is a network of national standards bodies, whose membership includes most countries across the globe, with headquarters in Geneva Switzerland. ISO began operations in 1947 has published over 19,500 International Standards covering almost all aspects of technology and manufacturing. ISO's cybersecurity paper is available.

3 Available at Framework for Improving Critical Infrastructure Cybersecurity. NIST was directed to establish this framework under the February 12, 2013, Executive Order 13636 issued by President Obama.

4 "COSO" is the Committee of Sponsoring Organizations of the Treadway Commission. COSO's stated goal is to provide thought leadership dealing with three interrelated subjects: enterprise risk management ("ERM"), internal control, and fraud deterrence. In 1992, COSO published Internal Control – Integrated Framework. Section 404 of the Sarbanes-Oxley Act basically requires public companies use COSO's framework to assess and report on the design and operating effectiveness of their internal controls. COSO recently updated its framework.

5 Available at CF Disclosure Guidance: Topic No. 2.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
17 Jan 2018, Seminar, Los Angeles, United States

Dentons is pleased to offer a full day of California CLE-approved classes, just in time to meet the California MCLE compliance period deadline of February 1, 2018.*

18 Jan 2018, Conference, Washington, DC, United States

Please join us for the Dentons Forum for Women Executives luncheon featuring Rebecca Boggs Roberts, NPR journalist and author of Suffragists in Washington, D.C.: The 1913 Parade and the Fight for the Vote.

24 Jan 2018, Seminar, San Francisco, United States

Dentons will host our Fourth Annual Courageous Counsel Leadership Institute in January, centered on the theme "Cultivating Innovation."

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions