How the SEC will police advisers' lax cybersecurity
The SEC may be refining its approach to spurring good cybersecurity practices in advisers, but its expectations aren't slackening.
There's been "a conscious decision" at the agency to lead through the exam process, rather than enforcement, said David Glockner, regional director of the SEC's Chicago office.
"There've been a handful of enforcement cases in this area," Glockner said, "but if you step back and think about it, there are way more incidents, way more issues that pop up in exams than there are enforcement referrals or enforcement actions."
But even if the commission will discipline advisers sparingly and bring actions in the most egregious cases, officials want advisers to demonstrate that they are taking the issue seriously. Examiners will expect to review a firm's policies and procedures for protecting against data breaches and other threats to sensitive information.
As a starting point, officials recommend advisers take an inventory of their digital assets to determine the various entry points that hackers could take to infiltrate their systems, including a thorough vetting of all the outside vendors a firm contracts with.
To ensure that personnel throughout the firm are cognizant of the myriad cyber threats, the SEC urges firm leaders to elevate the issue as a business priority, appealing for a tone at the top that prevents cybersecurity issues from being marginalized as simply a matter for the IT department.
But in some firms, there remains a tension between business and cybersecurity concerns, according to Steven Levine, an associate regional director at the SEC's Chicago office.
Levine has warned about the compliance and supervision challenges facing the growing number of advisory firms that have adopted the broker-dealer model of maintaining a home office and multiple branches.
Often, branch managers look to bring in high-producing industry veterans who might resist the firm's cybersecurity policies and procedures, which puts additional onus on the chief compliance officer to lay down the law, Levine says.