Are financial advisers prepared for cyber attacks?

Are financial advisers prepared for cyber attacks? KEY POINTS:

  • Financial services industry organization SIFMA is gearing up for its latest industry-wide cybersecurity test this fall.
  • The test mimics a real attack and helps firms and employees understand where their cybersecurity protections are weakest.
  • Financial advisers and their firms should also be conducting their own tests to see how prepared they are to face the worst security threats.

Two years ago, the Securities Industry and Financial Markets Association conducted a cybersecurity simulation that mimicked a real attack.

The test included the participation of more than 50 financial firms, as well as government regulators and SIFMA itself.

Now, the industry trade group is preparing for the latest iteration of its test — dubbed Quantum Dawn — this fall.

“We create the spooky scenario,” said Tom Price, managing director of operations, technology and business continuity at SIFMA. “It’s data destruction. It’s fake news coming from the newswires. It’s bad data in the processors.”

The participants include more than 1,000 individuals across different areas of financial services, including wealth management, in a range of roles including CEO, CFO, chief security officers, crisis management and others.

The simulation is aimed at getting firms to see how well they answer key questions on the fly: How well do they respond to these types of events? Who are the key contacts to talk to in such an event? How is key information escalated within a firm, to the government and law enforcement?

Having those answers is key for financial advisers and the firms they work in, as regulators turned up the pressure on them to have these plans in place.

The SEC has released cybersecurity guidance for the registered investment advisers it oversees. The Financial Industry Regulatory Authority, which regulates broker-dealers, has also issued its own guidance that includes information for small firms with 150 or less registered representatives.

The message: No firm is too small to have cybersecurity protections in place.

“The financial services industry is essential to the economy … We have to be right all the time,” Price said. “The bad guys only have to be right once.”

Risk to firms – Are financial advisers prepared for cyber attacks?

For the average financial advisory and their firm, even what may seem like a small oversight can turn into a big snafu.

Brian Edelman, CEO of FCI, a cybersecurity company, said he saw that first hand when one financial services company hired a shredding company to get rid of private documents.

But trouble struck when the documents were stolen and the clients’ stolen information turned up on the dark web.

The theft is an opportunity for financial advisers and their firms, according to Edelman.

“Incident response, done the right way, builds loyalty with clients,” Edelman said.

Having specific plans in place ahead of time can help minimize the impact an unfortunate event has on your business.

“Nothing is scarier than when the FBI shows up at your office,” Edelman said. “If you’re prepared for the regulators or the authorities, it’s the best thing that can happen.

“If you’re not, it’s the worst.”

Take the loss of a company laptop, for example. A police officer could find the lost item on the street and start an investigation, Edelman said. That could lead to the FBI and regulators also getting involved.

But if a financial adviser and their firm has a plan in place ahead of time, they will know to take the proper steps when the incident occurs. That includes documenting the item’s loss and having an incident response system installed on the machine so that it locks itself.

If that is the case, the police officer could leave after seeing proof of the protections in place, without higher level authorities getting involved, Edelman said.

When it comes to cybersecurity, a lot of the emphasis is still on fundamental efforts: having a corporate firewall, anti-virus protection and a secure computer, he said.

“It doesn’t cost you money to have a password on your computer,” Edelman said. “It doesn’t cost you money to have a PIN on your device or to have your device use biometrics … You have to make sure you’re doing these things.”

Firms also need to have a centralized system in place. That means, for example, having a single button for disabling employees’ access to the systems when they leave a firm.

The big questions those businesses need to ask themselves, according to Edelman: How do we protect it, and how do we prove it to regulators and authorities?

Conducting regular tests can help to identify areas where those plans are weak.

“At the end of the day, the biggest threat to the United States is money,” Edelman said. “That’s what they’re after.

“Financial advisers are directly connected to money.”

A 2017 SEC report on examinations noted that the staff saw a greater overall cybersecurity preparedness compared to 2014, though there was still room for improvement, the regulator noted.

“It remains an ongoing priority for our board and the industry,” said Kenneth E. Bentsen, Jr., president and CEO of SIFMA.


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About the Author: Bernard Aybout

In the land of bytes and bits, a father of three sits, With a heart for tech and coding kits, in IT he never quits. At Magna's door, he took his stance, in Canada's wide expanse, At Karmax Heavy Stamping - Cosma's dance, he gave his career a chance. With a passion deep for teaching code, to the young minds he showed, The path where digital seeds are sowed, in critical thinking mode. But alas, not all was bright and fair, at Magna's lair, oh despair, Harassment, intimidation, a chilling air, made the workplace hard to bear. Management's maze and morale's dip, made our hero's spirit flip, In a demoralizing grip, his well-being began to slip. So he bid adieu to Magna's scene, from the division not so serene, Yet in tech, his interest keen, continues to inspire and convene.