SEC Sets Priorities for Advisor Exams

Wes Stillman
Posted by Wes Stillman on Jul 20, 2021 12:09:58 PM

The Securities and Exchange Commission (SEC) Division of Examinations (EXAMS) recently issued this year’s priorities for advisor examinations. Advisors who want a better understanding of how EXAMS is shifting its focus would do well to read the full report themselves, as there’s a lot of good information packed into those 42 pages. But for those who are pressed for time, I thought I would recap my takeaways on Registered Investment Advisor (RIA) cybersecurity (and, by extension, CPA cybersecurity) here.

After spending more than a year working remotely in some way, it is no surprise that this year’s exam places greater scrutiny on remote work and related technologies. EXAMS wants to see whether RIAs have updated policies and procedures that are reasonably designed, implemented and enforceable for today’s world.

This includes a look at whether a financial professional’s cybersecurity protocols reflect the way the firm works now, versus when the protocols were first developed. Examiners want to see whether RIAs have adequate cybersecurity protocols in place and actively enforced, so that access from anywhere and from any device remains secure, keeping firm and client data protected.

A Closer Look at Access Management

Secure access management – that is, how firms control access to all key systems, devices, and data – has been a perennial concern of the SEC. But as all of us have collectively shifted to an increasingly remote workforce, EXAMS is now shining an even brighter light on access management.

This means it is critical for advisors to close lingering gaps between remote work, end device management and home networks with their existing cybersecurity policies.

That said, it is difficult to buy company devices for all employees, and it is even harder to mandate control over personal devices. Cloud-based IT management and virtual desktops can help facilitate file sharing and face-to-face (if not in person) meetings using Microsoft Teams, Zoom and similar applications, but access to all these tools must be secured.

Digging Into Access Management

In the year ahead, RIAs, CPAs, and other financial professionals should periodically review their cybersecurity policies and programs, paying special attention to updating password policies so they are consistent with industry standards. Reviews should be conducted annually at a minimum. Ideally, they would be done more than once a year.

For example, it is no longer simply enough to use Multi-Factor Authentication (MFA) to validate an individual who is seeking to log into an account. In a remote work environment, MFA should be used in combination with conditional factors and defenses, such as a Remote Desktop Protocol (RDP) that is supported through an encrypted known connection. Additionally, the use of technologies to control and monitor access to the Internet can address potential security vulnerabilities of Internet connections.

Since cybersecurity attacks and data breach attempts are increasing in frequency and sophistication, EXAMS also wants to understand how RIAs and their third-party service providers plan to respond when (not if) these events happen. Examiners are looking for the gold standard in cybersecurity incidence response: the 1-10-60 protocol. That is one minute or less to detect, 10 minutes to investigate, and 60 minutes to remediate. Any protocol that is less rigorous is considered sub-par and falls outside of SEC guidance.

Governance, risk and compliance (GRC) tools can help firms manage these risks. In fact, RightSize Solutions is currently piloting a GRC solution for RIAs that will be available later this year.

The new EXAMS priorities report makes clear that, in 2021, examinations will focus on how firms are controlling access in a remote environment and whether their day-to-day operations are consistent with their representations. In short, does your firm’s cybersecurity walk match up with your cybersecurity talk? The time to figure this out it now.

You may access the full report here.

Topics: Business Technology


Sign up and stay plugged into the education, news pieces and information relevant to you.

Subscribe to The Woodard Report today! 

Do you have questions about this article? Email us and let us know >


Most Recent