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On October 26, 2022, in a divided 3-2 vote, the Securities and Exchange Commission (“SEC”) proposed a new rule, 206(4)-11, under the Investment Advisers Act of 1940 and related amendments (the “Proposed Rule”) requiring SEC-registered investment advisers to exercise effective and sufficient oversight over their service providers so as to fulfill the adviser’s fiduciary duty, comply with the federal securities laws and protect investors from potential harm.  Notably, the Proposed Rule prohibits advisers from outsourcing certain services or functions to service providers without meeting minimum diligence and monitoring requirements. 

The Proposed Rule is meant to add an additional layer of comprehensive oversight by advisers for investor protection and is consistent with the SEC’s continued focus on protecting investors from third-party risk, including cyber risk, in the start of what is expected to be an active season of rule making.…

Continue Reading The SEC’s Proposed Outsourcing Oversight Requirements for Investment Advisers

On March 9, 2022, the Securities and Exchange Commission (“SEC”) proposed updates to its disclosure rules intended to “enhance and standardize” public company disclosure regarding cybersecurity risk management, strategy, governance, and incident reporting (the “Proposed Rules”). The Proposed Rules may require issuers to update their disclosure controls and procedures, in particular with respect…

On February 9, 2022, the SEC published a release addressing Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies (“Release”). The Release contained proposed new rules under the Advisers Act (Rules 206(4)-9 and 204-6) and the Investment Company Act of 1940 (Rule 38a-2) and amendments (collectively, the “Proposals”), which would require…

In 2021, the U.S. Security and Exchange Commission (SEC) continued to stake its claim as a lead regulator for cybersecurity. Going into 2022, we expect the SEC will continue to aggressively scrutinize and pursue enforcement actions related to cybersecurity disclosures by public companies and cybersecurity practices of SEC-regulated entities like broker-dealers and investment advisers.  Moreover, Chair Gensler has announced that the SEC is currently working on a proposal for clearer cybersecurity governance rules, including topics such as “cyber hygiene and incident reporting.”

In many cases, the alleged faults that the SEC has found in the cybersecurity disclosures and practices of these entities go beyond the requirements of any other state or federal cybersecurity regulations. By making itself a leader in its expectations from regulated businesses, the SEC may become the agency that sets industry standard guidance for cybersecurity risk through the SEC mandates formed during its investigations and enforcement actions.…

Continue Reading The Future of SEC Cybersecurity Enforcement

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A recent SEC settlement has again demonstrated the Commission’s continued attention to public companies’ disclosures of cybersecurity incidents and its commitment to a broad notion of what constitutes such an incident. On August 16, the SEC entered a settlement agreement with Pearson plc, a UK-based educational publishing company that is publicly traded on both the…

Article29On September 15, 2020, the Office of Compliance Inspections and Examinations (“OCIE”) issued a risk alert regarding its recent observation of growing “credential stuffing” attacks against SEC-registered investment advisers and broker-dealers (“firms”). These attacks use compromised usernames and passwords from the dark web to access investors’ accounts. The increase in credential stuffing exploits presents considerable financial, legal, and reputational risks. OCIE’s alert encourages firms to consider various mitigation efforts to reduce the risk of credential stuffing, particularly the use of multi-factor authentication (MFA).  Although the alert is phrase as encouragement, OCIE is certainly suggesting that the industry standard should be for firms to protect against these attacks, even those these attack stem primarily from a client’s behavior in re-using username/password combination and another website’s loss of that combination.
Continue Reading New OCIE Guidance on Credential Stuffing Attacks

Digital LockThe SEC’s Office of Compliance Inspections and Examinations (OCIE) released a Risk Alert related to Ransomware on July 10, 2020. In the publication, Cybersecurity: Ransomware Alert, OCIE alerts companies to the increase in sophisticated campaigns orchestrated to invade financial institution networks in order to obtain confidential information and plant ransomware. The attacks generally involve perpetrators using “phishing and other campaigns designed to penetrate financial institution networks … to access internal resources and deploy ransomware.” Once the ransomware is deployed, institutions typically lose control of the ability to use and maintain the integrity of their systems and data until they pay a ransom to the attackers.
Continue Reading OCIE’s Guidance on Ransomware Attacks