Asset Management Insights - August 2017

August 2017

SEC Risk Alert: OCIE Focuses on Cyber Standard Compliance 

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On August 7, 2017, the SEC published a Risk Alert (the “Alert”) detailing the results of the Office of Compliance and Examinations’ (OCIE) Cybersecurity 2 Initiative, which builds on the observations from its first round of cyber examinations announced in April 2014.

For the Cybersecurity 2 Initiative, OCIE examined 75 firms including broker-dealers, investment advisers and investment companies registered with the SEC to assess cybersecurity preparedness, with more emphasis on validation and testing of procedures and controls than had been performed in previous examinations. These most recent examinations focused on the written policies and procedures covering 1) Governance and Risk Assessment, 2) Access Rights, 3) Data Loss Prevention, 4) Vendor Management, 5) Training and 6) Incident Response.  The Alert can be useful as a benchmark to use in evaluating your firm’s cybersecurity program.

The Alert noted an overall improvement in firms’ awareness of cyber-related risks since the previous examination initiative.  Perhaps most significant were the number of firms which had adopted written policies and procedures addressing the protection of sensitive information.  Additionally, the vast majority of firms examined by OCIE conducted periodic risk assessments to identify threats, vulnerabilities and the business consequences of a cyber incident.

While the industry showed overall improvement, the OCIE examinations identified one or more issues requiring attention in most of the firms reviewed.  Some of the more common issues included:
  • Written policies and procedures were not adequately tailored to the risk profile of the firm nor were they consistent with the actual practices the firm followed.
  • The systems maintenance processes in place to make sure that systems were patched were not adequate.
  • Risks identified through penetration testing were not addressed in a timely manner.
  • Employee training was either inadequate or there was no process in place to ensure that training was completed.
Finally, the Alert identified certain best practices that firms should consider including in their program:
  • Maintaining a complete inventory of data and information accessible by third-party vendors and service providers.
  • Maintaining prescriptive schedules and processes for testing data integrity and vulnerabilities.  This includes employing adequate penetration and vulnerability testing along with adequate patch management procedures.
  • Maintaining acceptable use policies along with other procedures for controlling the access to sensitive information and systems. This includes employing adequate controls to terminate access where appropriate.
  • Maintaining adequate employee training and processes to make sure senior management is engaged in the cybersecurity program.


BDO Insights

It is clear the SEC considers cybersecurity one of the top compliance risks facing financial firms. OCIE will continue to scrutinize cyber preparedness in all compliance examinations, evolving the standard from check-the-box implementation to the satisfactory implementation of policies, procedures and controls. Firms should leverage the information in the Alert to make sure they address any identified issues from this round of examinations relevant to their organization and adopt the best practices to improve their existing cyber programs.  In addition, all policies and procedures should be reviewed to make sure they reflect the firm’s actual practices. As OCIE’s focus moves to implementation effectiveness, the key to compliance will be not only instituting risk-based policies and procedures, but ensuring they are followed.

For more information about how your organization’s cybersecurity program stacks up, please contact: 
Keith McGowan
Asset Management & Broker Dealers National Practice Leader and Assurance Partner

Mike Stiglianese
BDO National Technology & Cybersecurity – Financial Services Industry Lead