David L. Hall

Hone a Plan to Meet Evolving Regulatory Expectations

March 7, 2016 Published Work
New York Law Journal
For several years, the U.S. Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) has been gathering information and issuing instructive guidance to investment advisers for protecting against cybersecurity intrusions. But with the announcement of its second round of cybersecurity examinations in September 2015—as well as a recently settled enforcement action against an investment adviser based upon a failure to adopt cybersecurity policies and procedures—the SEC crossed the Rubicon. It is now clear that the SEC expects that investment advisers have implemented comprehensive cybersecurity policies, procedures and practices. In fact, one of the key takeaways from OCIE's most recent guidance is that OCIE will be testing firms' policies and procedures, as opposed to limiting the scope of the examinations to surveying, as seen during its first round of examinations. As a result, investment advisers must take great care in drafting and evaluating their cybersecurity program, while evolving to meet ever-changing regulatory expectations.

Cybersecurity Rules and Regulations

Before compliance and legal personnel create cybersecurity policies and procedures, they should understand the standards that need to be met. For investment advisers, however, these standards come from several sources. One primary source is Rule 30 of Regulation S-P, which requires SEC-regulated firms to establish written policies and procedures designed to "(a) Insure the security and confidentiality of customer records and information; (b) Protect against any anticipated threats or hazards to the security or integrity of customer records and information; and (c) Protect against unauthorized access to or use of customer records or information that could result in substantial harm or inconvenience to any customer." [1]


1. 17 C.F.R. § 248.30(a).

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