United States: SEC Steps Up Cybersecurity Enforcement

September has been a busy month for the SEC in addressing cybersecurity. In the span of a week, the SEC issued a new alert in connection with its cybersecurity examination of Wall Street firms, entered a Cease and Desist Order against a firm for failing to adopt written policies or procedures to protect customer information, and issued an Investor Alert that highlights actions individuals should take if their personal information is compromised.

Cybersecurity Examination Initiative

On September 15, 2015, the Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) issued an Alert in connection with the OCIE's Cybersecurity Examination Initiative to assess cybersecurity preparedness in the securities industry, including firms' ability to protect broker-dealer and investment adviser customer information. This Alert precedes the OCIE's second round of cybersecurity investigations, and provides additional information on criteria:

  • Cybersecurity Governance and Risk Assessment processes in place, including the involvement of senior management and boards of directors in assessing controls and risk assessment procedures
  • Access Rights and Controls designed to prevent unauthorized access to systems or information, such as multifactor authentication, user credentials, authentication and authorization methods
  • Data Loss Prevention including the transfer of information outside the firm to third parties, how firms monitor potentially unauthorized data transfers and verification of customer requests to transfer funds
  • Vendor Management and due diligence including selection, monitoring and oversight of third-party vendors, which has become increasingly important in the wake of recent hackings of third-party vendor platforms
  • Employee and Vendor Training to create awareness of and responsiveness to potential data breaches
  • Incident Response Plan in the event of a cybersecurity attack or data breach.

While the OCIE's initiative is focused on the securities industry, the guidance is relevant and beneficial to any entities that obtain, store, process and/or transfer data.

SEC Enforces Cybersecurity Compliance

On September 22, 2015, the SEC issued a Cease and Desist Order against R.T. Jones Capital Equities Management, Inc. (RT Jones), a registered investment adviser, in connection with a potential cybersecurity breach.

RT Jones stored customer personally identifiable information (PII), including social security numbers, on a third-party hosted web server. In July 2013, the firm's web server was attacked by an unauthorized, unknown intruder that gained access rights to the data on the server, including the PII of as many as 100,000 individuals. RT Jones retained a cybersecurity consulting firm that traced the hacker attack to China. RT Jones also notified each of the persons whose PII may have been compromised. To date, RT Jones is not aware of any indication that a client has suffered any financial harm as a result of the attack.

Notwithstanding the lack of financial harm, the SEC determined that RT Jones had willfully violated Rule 30(a) of Regulations S-P (17 C.F. R. §248.30(a)), the "Safeguards Rule" that applies to all registered investment advisers and broker-dealers. As explained in the SEC Order, the Safeguards Rule requires that registered investment advisers and broker-dealers adopt written policies and procedures reasonably designed to (1) ensure the security and confidentiality of customer records and information, (2) protect against any anticipated threats or hazards to the security or integrity of customer records and information, and (3) protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer.

The SEC noted that RT Jones failed to adopt any written policies and procedures reasonably designed to safeguard its clients' PII, in violation of the Safeguards Rule. The SEC also observed that RT Jones's policies and procedures for protecting client information were deficient insofar as the firm did not adopt the following cybersecurity measures:

  • Conduct periodic risk assessments
  • Employ a firewall to protect the web server containing the PII
  • Encrypt client PII
  • Establish procedures for responding to a cybersecurity incident.

The SEC imposed a $75,000 civil money penalty on the firm for violating the rule.

SEC Investor Alert: Identity Theft, Data Breaches

Also on September 22, 2015, the SEC issued an Investor Alert titled "Identity Theft, Data Breaches and Your Investment Account." The SEC alert highlighted various steps investors can take if they suspect or know they have been the victim of a data breach or identity theft, including the following:

  • Contact your investment firm and other financial institutions immediately. This may include banks, credit card companies or insurance companies. The SEC also cautioned investors to "document any conversations" with these institutions in writing.
  • Change your online account passwords. Investors are encouraged to promptly change their passwords for any accounts that have been compromised. The SEC recommends that individuals use "strong passwords" (i.e., consisting of at least eight characters, including symbols, numbers, and both upper- and lowercase letters).
  • Consider closing compromised accounts.
  • Activate two-step verification if available. Under this procedure, any attempt to log on to an account through an unrecognized device should prompt the firm to send a unique code to the individual's email or cell phone that must be entered to gain access to the account.
  • Monitor your investment accounts for suspicious account activity and immediately report it to the investment firm.
  • Place a fraud alert on your credit file by contacting any one of the three credit bureaus (Experian, Transunion or Equifax).
  • Monitor your credit reports.
  • Consider creating an Identity Theft Report by (1) completing the Federal Trade Commission's (FTC's) online complaint form or obtaining an FTC Identity Theft Affidavit form; (2) contacting the local police department about the identity theft and providing the police with a copy of the FTC Identity Theft Affidavit; and (3) making sure the Affidavit is attached to the police report.


Given the numerous high-profile data breaches that have impacted public companies, banks and other entities in the past few years, it is not altogether surprising that the SEC has taken a greater interest in protecting investors' and customers' personal information. As one of the premier financial regulators in the nation, the SEC's words of wisdom and caution should not be taken lightly. Companies within and outside the financial and securities industries should take heed and be proactive in assessing their cybersecurity risks and designing and implementing appropriate cyber risk mitigation policies and procedures – ideally, before an incident occurs. Companies that fail to do so might risk the wrath of the SEC or any of a number of other regulators that have been at the forefront of protecting individuals' data security and privacy rights.

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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