Stay current on changes and developments in corporate law with a wide variety of resources and tools.
By Yin Wilczek
May 1 --The recent alert by the Securities and Exchange Commission's Office of Compliance Inspections and Examinations on financial firms' preparedness signals a “paradigm shift” in the way the commission views cybersecurity, panelists said May 1 during a webcast.
Historically, the SEC focused on broker-dealers and investment advisers' protection of customer data and information, said John Reed Stark, managing director of the digital risk management firm Stroz Friedberg, and a former chief of the SEC Enforcement Division's Office of Internet Enforcement.
Now, the SEC looks “at cybersecurity as: if you're a regulated entity and you don't have cybersecurity, that represents a threat to the global marketplace,” Stark said.
Stark was a participant in a Securities Docket webcast on cybersecurity.
Co-panelist Bradley Bondi, a Washington-based partner at Cadwalader, Wickersham & Taft LLP, also warned that registrants cannot “gain too much” comfort from looking at the SEC's prior enforcement actions under Regulations S-P and S-ID.
“It is a whole new world,” Bondi said. These cases “provide an interesting insight into what the staff has done in the past, but it's really a bit of uncharted territory” going forward as to how the SEC will police cybersecurity preparedness.
Reg S-P requires broker-dealers and investment advisers to implement policies and procedures reasonably designed to prevent unauthorized access. Reg S-ID requires registrants to set up programs that identify, detect and respond to identity theft “red flags.”
Cybersecurity is now a top regulatory concern in the wake of several high-profile incidents, including one at Target Corp. (29 CCW 105, 4/2/14). The SEC recently hosted a roundtable to discuss cybersecurity issues (29 CCW 61, 2/19/14).
The panel also was asked how firms experiencing a data breach can show in court or to regulators that they had a reasonable framework in place.
Stark observed that regulatory and judicial scrutiny of cyber preparedness usually revolves around how a company or firm reacts to a breach.
If firms show they consistently review and update their policies and systems, train their employees, allocate sufficient resources to cybersecurity and show a very “methodical response” to data incidents, that generally would constitute a reasonable response, Stark said.
Meanwhile, Shelley Parratt, deputy director of the Securities and Exchange Commission's Division of Corporation Finance, in a speech at Northwestern University School of Law said May 1 that inadequate explanation of cybersecurity preparedness and risks remains a key deficiency in corporate disclosure documents filed with the commission.
To contact the reporter on this story: Yin Wilczek in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Phyllis Diamond at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)