Financial Services: UK Regulators Shine a Spotlight on Cybersecurity and Technology Resilience

by King & Spalding
Contact

In a paper published last month,[i]  the UK’s Financial Conduct Authority (“FCA”) set out various cybersecurity insights gleaned from the work of cyber coordination groups (“CCGs”) the regulator established in 2017.  The publication of these insights—along with previous communications from the FCA and Bank of England—show that the cybersecurity practices of financial services firms operating in the UK are under the regulatory microscope as the cyber threat continues to grow. Indeed, in a November 2018 speech by Megan Butler (the FCA’s Executive Director of Supervision), she said: “On the basis of the data that the FCA is currently collecting, we see no immediate end in sight to the escalation of tech and cyber incidents that are affecting UK financial services.”

This client alert summarizes the insights from the recent FCA paper alongside longer-term themes. It also provides our suggestions for how financial services firms should proactively equip themselves to respond to increased regulatory scrutiny—including for a full-blown enforcement investigation—of their systems and controls in this area.    

The FCA Paper

To date, the FCA has brought together over 175 financial services firms to create CCGs representing the fund management, investment management, insurance, retail banking, and retail investment and lending sectors.  Later in 2019, it will be establishing two new CCGs for trading venue and benchmark administrators, as well as brokers and principal trading firms.  The FCA paper shared practices and insights from the existing CCGs on the following topics:

  • Governance
  • Identification of information assets
  • Protection of information assets
  • Detection
  • Being alert to emerging threats and ready to respond
  • Testing and refining defences

Governance

Financial services firms must take steps to put cyber risk on the agenda of the board and senior management by educating them on the topic and providing them with sufficient information to properly understand and engage with the firm’s cyber risk.  This includes providing tailored workshops that use case studies and/or real incidents reported in the media, as well as presenting high-quality management information to executives in terms they can understand. Financial services firms and their boards are also encouraged to create profiles for the various types of malicious actors who might target the firm (from hostile nation states to amateur hackers), and to consider what methods such actors might use to seek to achieve their ends. 

A practical way to achieve better governance of cyber issues is to recruit “champions” in the business who understand cyber and can help to bridge any gaps between the business and its technology and security functions.  As reported previously by the FCA (in a November 2018 survey report[ii]), firms subject to the Senior Managers Regime[iii] tend to have better structures in place for allocating responsibility and ownership of the firm’s cybersecurity strategy, but smaller firms outside the regime should consider nominating an individual at the board or senior level to have responsibility for technology resilience. These requirements tie into the “data protection by design and default principle,” one of the fundamental principles under the General Data Protection Regulation (“GDPR”), which requires all controllers of personal data to put in place technical and organizational measures to integrate necessary safeguards into the processing of all personal data, amongst other obligations.

Identification of information assets

Knowing what information the firm possesses – and the linkages that exist between different internal and external management systems – is crucial.  The paper encourages firms to use existing guidance available on GDPR security outcomes[iv] to develop a list of information assets, and to consider assets from multiple perspectives and data sources.  It also suggests carrying out a business impact analysis to identify those business services that need the most protection to ensure continuity.  In this regard, it is crucial to understand all of the firm’s dependencies on suppliers and other third-party partners

Protection of information assets

Firms need to make continuous and joined-up efforts to protect the continuity of their business services, including by investing in a long-term cyber education and awareness program across the business, and by deploying training to those individuals who have access to critical systems.  The paper includes suggestions on how to manage third-party suppliers via contractual language and audit rights in line with the GDPR requirement to enter into compliant written agreements with third parties with the aim of safeguarding personal data and for following a risk-based approach to the use of encryption.  It also suggests using existing security configuration standards like the Center for Internet Security Benchmarks[v] or the National Cyber Security Centre[vi] secure configuration guidance[vii] as a base.

Cybersecurity should be made part of the firm’s change management[viii] processes.  In this regard, the FCA’s November 2018 survey report indicated that poor IT change management was responsible for 20% of the operational incidents that were reported to the FCA by firms between October 2017 and September 2018.  The survey found a significant disconnect between firms’ self-assessments of their IT change management processes (which were generally positive) and the reality of the FCA’s data.

Detection

The paper’s focus in this area was on tackling the “insider threat” and putting an effective monitoring regime in place.  This can be achieved via the firm’s identity and access management processes, heightened monitoring of critical systems and the use of network behavior monitors and analysis.

Where an attack or other incident is detected, remember that firms have a duty under Principle 11[ix] to report all major technology outages and cyber-attacks to the FCA (and there is a similar Fundamental Rule (“FR”) 7 duty to the Prudential Regulation Authority (“PRA”)).  If an incident could have a significant adverse effect on the firm’s reputation, and/or could affect the firm’s ability to continue to provide adequate services to its customers, then the notification must be made immediately.[x]  These duties/obligations are in addition to the stringent requirements under GDPR to report breaches which pose a risk to the “rights and freedoms” of individuals to the Information Commissioner’s Office (“ICO”) within 72 hours of becoming aware of the personal data breach and, in some cases, to the individuals themselves, without undue delay. 

Being alert to emerging threats and ready to respond

Firms can stay up-to-date on emerging threats and issues by participating in cyber forums and should also incorporate the sharing of information and intelligence into their incident response plans.  Another beneficial practice is to carry out tabletop exercises using examples of cyber incidents that have affected other businesses and using the output of these exercises to continuously refine and improve incident response plans.  Firms may even wish to simulate an incident investigation process from start to finish as part of their training program and consider establishing and testing communications protocols with key internal decision makers and external stakeholders.

Testing and refining defences

Firms are urged to create a comprehensive framework for testing and refining cyber defences, by reviewing exceptions and non-conformities and performing root-cause analysis of incidents and near-misses, as well as by testing employees’ passwords against exposed credential dumps and making it easier for staff to report phishing or other suspicious events.  It is also suggested that firms use a variety of other means to flush out security vulnerabilities, such as penetration testing, phishing simulations, vulnerability scanning and red/purple teaming.

Proactive measures to take

Cyber incidents are inevitable, and the FCA does not expect firms to be able to guarantee a “zero failure” system.  However, the FCA is pursuing enforcement investigations more frequently than it has in the past, and it would be prudent for firms to take note of the regulator’s increased attention.  Over the past few years, there has been a steady supply of papers, speeches and informal guidance on cyber issues from the regulators.  There has also been enforcement activity, notably the Final Notice issued in respect of Tesco Bank in October 2018 (imposing a financial penalty of £16.4 million) and the Final Notices issued in respect of the Royal Bank of Scotland (“RBS”) in November 2014 (where the FCA imposed a financial penalty of £42 million and the PRA imposed an additional penalty of £14 million).  The RBS case focused on IT resilience and operations, while the Tesco Bank case concerned a cyber breach – thus demonstrating that the UK regulators will bring enforcement actions across the spectrum of technology issues.

The FCA’s and PRA’s remits to carry out enforcement investigations run parallel to the enforcement capability of the ICO. The ICO has a mandate to investigate and impose sanctions on businesses that fail to put appropriate safeguards in place to protect personal data, as well as those that fail to meet their obligations to report cybersecurity incidents (which impact upon the rights and freedoms of individuals) to the ICO.  As has been widely publicized, the monetary penalties under GDPR are significant: regulators have a mandate under GDPR to issue fines of up to 20 million Euros or 4% of annual global turnover, whichever is higher.  A recently published memorandum of understanding between the FCA and the ICO illustrates their commitment to collaborate in enforcement investigations.  It also sets out principles on information sharing and their joint approach to enforcement, where they each have a remit.[xi]

Firms should ensure that their internal threat detection, communications, and escalation procedures are primed to respond to a breach from a technical and business continuity point of view, while also ensuring that they will satisfy the timely notification requirements imposed by Principle 11, FR 7 and related notification rules.  One way to do this would be via regular mock scenario planning or tabletop exercises to test how the firm would react to a cyber breach, and whether there are any gaps or flaws in the existing breach response plan and related protocols.

Other proactive measures to consider include:

  • commissioning a cyber-focused Governance review;
  • arranging training for the board and/or senior management, to ensure that they understand the cyber risks facing the business, as well as their role in protecting the firm and its customers from such risks; and/or
  • carrying out a third-party/outsourcing review into cyber-interconnectivity (i.e. the dependencies between internal systems and those maintained by, or otherwise dependent on, third parties) and whether the firm has sufficient operational and legal protections in place across its entire cyber “eco system.”

Such steps will help position the firm to respond appropriately and to defend any subsequent regulatory or private actions flowing from an incident.

[i] https://www.fca.org.uk/publications/research/cyber-security-industry-insights

[ii] https://www.fca.org.uk/publications/research/cyber-technology-resilience-themes-cross-sector-survey-2017-18

[iii] The regulatory reforms introduced in 2016 aimed at creating a more direct form of accountability for senior management of firms and governing the vetting and approval of individuals for senior management roles.  It currently applies to all deposit takers, investment firms and insurers regulated by the FCA and PRA, and from 9 December 2019 it will extend to all financial services firms that are solo-regulated by the FCA.

[iv] See here: https://ico.org.uk/for-organisations/security-outcomes/ and here: https://www.ncsc.gov.uk/guidance/gdpr-security-outcomes.  

[v] Over 140 configuration guidelines for technology that are designed to safeguard systems against an evolving range of cyber threats – see: https://www.cisecurity.org/cis-benchmarks/.

[vi] An agency within the UK government that provides advice and support for the public and private sector on how to manage computer security threats.

[vii] https://www.ncsc.gov.uk/collection/10-steps-to-cyber-security.

[viii] The structured approach that an organization takes in order to move from its current state to a desired future state (e.g. as part of a corporate restructure or in response to changes in regulatory requirements).

[ix] One of the FCA’s Principles for Businesses.  Principle 11 requires a firm to deal with its regulators in an open and cooperative way, and to disclose
to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice.

[x] See SUP 15.3.1R.  https://www.handbook.fca.org.uk/handbook/SUP/15.pdf

[xi] https://ico.org.uk/media/2614342/financial-conduct-authority-ico-mou.pdf.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Written by:

King & Spalding
Contact
more
less

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.