State Securities Officials Work on Model Cybersecurity Rule

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By Antoinette Gartrell

State securities examiners are gathering information about firms’ cybersecurity practices that may serve as the basis for a model cybersecurity rule, NASAA President Mike Rothman said June 23.

The North American Securities Administrators Association also is seeking to enhance its cooperation with other regulators while focusing its cybersecurity measures on three main areas: prevention, mitigation and recovery, he said.

There is “no question that cyberattacks are going to increase,” Rothman said at the North American Securities Administrators Association Cybersecurity Roundtable. “These threats to the public mean that, as regulators, we must be vigilant.”

In addition, NASAA is planning to release a checklist to help investment adviser firms perform self-assessments on their potential risk of cyber attacks, as well as more expansive guidance on how firms should guard against the growing threat of cyber-hacking, Catherine Jones, chair of NASAA’s Cybersecurity and Technology Project Group, said at the gathering. Both items should be out by the fall, Jones said.

There is no one-size-fits-all approach to cybersecurity readiness, the questions must be flexible and tailored to the size of the firm, Jones said. Thus far, three states—New York, Vermont and Colorado—have cybersecurity rules in place, which require safeguards such as annual risk assessments and mandatory e-mail encryption practices.

No Outsourcing Risk

Christopher Hetner, senior cybersecurity adviser at the Securities and Exchange Commission, said that while third-party service providers can help protect against possible cybersecurity threats, investment adviser firms can’t “outsource the risk.” Investment advisory firms still must ensure that there are sufficient controls in place when outsourcing to such providers, who offer services such as off-site data storage for sensitive information, he said. “Pick a standard, adopt it to your company profile and allow it to evolve.”

More than half of IA firms didn’t have confidentiality agreements with third party service providers who had access to their information technology systems, according to a 2014 NASAA report. Additionally, only 44.6 percent of firms had cybersecurity policies or training programs in place and over 73 percent required only a single factor authentication method to access client information, the report showed. The report is expected to be updated with NASAA’s most current examination findings about firm cybersecurity practices at the annual conference in September, spokesman Bob Webster told Bloomberg BNA.

Implementing two-factor authentication and following the National Institute of Standards and Technology’s recommendations for software updates and patches are two ways of promoting good “cyber hygiene,” Jonathan L. Dean, a supervisory special agent in the FBI’s Cyber Division said.

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To contact the editor responsible for this story: Phyllis Diamond at

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