On August 7, 2017, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) released a Risk Alert summarizing its most recent cybersecurity examination findings.1 As a part of its Phase 2 cybersecurity initiative, between September 2015 and June 2016, OCIE performed examinations of 75 firms, including broker-dealers, investment advisers, and investment companies. The Phase 2 examinations are a continuation of OCIE’s 2014 Cybersecurity Phase 1 Initiative, as OCIE further assesses industry practices and compliance issues associated with cybersecurity preparedness, with an emphasis on the maintenance and testing of policies and procedures.

OCIE found that, while cybersecurity preparedness improved since its previous examination, many firms experienced issues with some aspects of their cybersecurity programs. Regarding written policies, OCIE concluded that many firms did not reasonably tailor their policies and procedures to their risks and needs. Employees received either only general guidance or the firms failed to articulate procedures for policy implementation. OCIE also highlighted that, in some cases, firms did not abide by their stated policies and procedures, or that the policies and procedures did not reflect actual practice. Finally, OCIE observed that firms did not regularly perform risk assessments, system maintenance, or implement remedial measures after penetration testing.

The Risk Alert provides examples of policies and procedures that OCIE believes are elements of a robust cybersecurity program that firms should consider implementing.2 These are as follows :

  • Maintenance of an inventory of data, information, and vendors
  • Detailed cybersecurity-related instructions
  • Maintenance of prescriptive schedules and processes for testing data integrity and vulnerabilities
  • Established and enforced controls to access data and systems
  • Mandatory employee training
  • Engaged senior management

As stated in the Risk Alert, OCIE believes that cybersecurity is “one of the top compliance risks for financial firms” and warns firms that it will continue to examine firms’ cybersecurity compliance procedures and controls. In order to prepare for a potential examination, and maintain compliance with their legal and regulatory obligations, firms should evaluate their existing policies and procedures, particularly in light of the issues that OCIE identified. Further, to the extent that firms have not specifically addressed each of the elements highlighted by OCIE, they should assess whether their existing practices, policies and/or procedures should be amended.