Firm Fined for Inadequate Cybersecurity and Customer Data Protection

The Case

The firm failed to establish and maintain a supervisory system reasonably designed to safeguard customer records and information in violation of Rule 30(a) of Regulation S-P.

The firm needed stronger cybersecurity practices, including:

• a system for monitoring all third-party access to firm systems

• limiting third-party service providers’s access to the firm’s production data and systems

  • ensuring that any approved third-party service provider’s access to the firm’s production environment was logged and monitored

  • requiring multi-factor authentication for third-party service providers

  • implementing endpoint detection and response and security operations center monitoring of all access to firm systems, including third-parties

Why Does This Matter?

The action’s emphasis on cybersecurity reflects the SEC’s heightened focus on registered investment advisers adopting and implementing cybersecurity policies and procedures. Some of the key concerns highlighted by this and previous actions include:

• transparency of data breach disclosures

• multi-factor authentication for email accounts

• security of cloud-based email accounts, and 

• the importance of implementing an adequate incident response plan.

Based on recent legislation ushering in stricter customer data protection rules and disclosure requirements, fintechs must maintain cybersecurity measures and protect client data.

Were similar regulations enforced in countries outside the US?

Data privacy ramped up globally in 2023, with some of the critical new regulations on a global scale, including the following:

• Switzerland (Swiss Federal Data Protection Act)

• Saudi Arabia (Saudi Arabia Personal Data Protection Law) 

• India (Digital Personal Data Protection Act)

• EU (EU-US Data Privacy Framework, Digital Services Act, Digital Markets Act)

InnReg's Experience

Since its inception in 2013, InnReg has developed deep expertise in compliance services related to customer data protection and cybersecurity measures as part of its work during FINRA examinations and managing compliance programs for a wide range of fintechs.

Learn More About This Topic

For additional insights, read InnReg’s free Data Protection Compliance Checklist to help you build best practices to meet evolving regulatory requirements.