The SEC Cybersecurity Roundtable: Indicator of Things to Come?

by Reed Smith

Starting with the Securities and Exchange Commission's January 2014 announcement that cybersecurity is a priority in its National Examination Program, SEC Chair Mary Jo White and others at the SEC have continued to stress the significance of the cybersecurity threat in speeches and in congressional testimony. Recently, the Commission hosted a Cybersecurity Roundtable to discuss the issues and challenges that cybersecurity presents for market participants and public companies, as well as for regulators. Panelists from government, financial institutions and public companies participated in four panels on the cybersecurity risk landscape—public company disclosure, resilience of market systems, and issues affecting broker-dealers, investment advisors, and transfer agents. Each panel was moderated by an SEC director with responsibility in that area. As Chair White observed in her opening remarks, the threat of a cybersecurity breach is global, and the public and private sectors must work together to address these threats. Thereafter, she actively participated throughout all of the sessions, and was joined by her fellow commissioners at various times during the almost day-long forum. In his prepared remarks, Commissioner Aguilar called for the establishment of a cross-division Cybersecurity Task Force within the SEC, acknowledging that the Commission “has much to learn about the specific risks that our regulated entities and public companies are facing.”

Much of the discussion was familiar territory to those following cybersecurity issues, particularly in the financial services industry. The panels on cybersecurity risk, market systems and SEC-regulated advisors included discussions related to such issues as:

  • The need for the public and private sectors to exchange information and clarity around what can be shared.
  • The role that Regulations S-ID (Identity Theft Red Flags rule released in coordination with the Commodity Futures Trading Commission) and S-CI (Systems Compliance and Integrity) can play in addressing cybersecurity threats and aiding resiliency of financial markets.
  • The impact of the presidential executive order that was issued last year, and the recent publication by the National Institute of Standards and Technology of a Cybersecurity Framework after consultation with all sectors and industries.
  • The concern about the market’s ability to withstand and recover from a concerted cyber attack. Such an event could impact the confidentiality and integrity of trading information, as well as the infrastructure connecting the various trading platforms. Several panelists observed that there is no common “reset” point to which all systems could uniformly return in the event of market shutdown.

The panel on disclosures perhaps provided the best insight into the Commission’s direction on cybersecurity. The consensus from the public company and market participant panelists was that the SEC’s Cybersecurity Disclosure Guidance, which was issued in October 2011, does not appear to have resulted in the release of significant, substantive information by public companies that would inform the investing public. Both Chair White and Commissioner Aguilar asked the panelists if the guidance had been helpful and contributed to more sharing of information. Panelists noted the disincentive to provide information about privacy breaches, the fact that reputation risk does not always result in long-term impact on stock price, and the lack of significant disclosure regarding the exposure of intellectual property or business information—the loss of which arguably has a greater impact on business operations. There was also discussion of other disclosure requirements, such as state data breach notice statutes and how much information is enough. From the various discussions on disclosures, which permeated all of the panels, the thread that emerged was that fuller guidance that is not unduly prescriptive or inflexible would assist companies in their disclosure process.

Consistent with the SEC’s emphasis on cybersecurity, the Financial Industry Regulatory Authority (FINRA), in its January 2, 2014 Annual Regulatory and Examination Priorities Letter, underscored that cybersecurity remains a top priority, stressing the need to ensure that broker-dealers have up-to-date securities policies and procedures in place in order to protect sensitive customer data from increasingly frequent—and sophisticated—attacks cutting across all industries. In February, FINRA announced a cybersecurity “sweep” aimed at assessing broker-dealers’ approaches to managing cybersecurity “in light of the critical role information technology (IT) plays in the securities industry, the increasing threat to firms’ IT systems from a variety of sources, and the potential harm to investors, firms, and the financial system as a whole that these threats pose.” In conjunction with the announcement, FINRA issued targeted examination sweep letters to 20 broker-dealer firms aimed at gathering information on their cybersecurity practices and risk concerns. Speaking at the Roundtable, a senior FINRA official gave a brief review of the “very preliminary” information obtained from the sweep letters, stating that broker-dealers reported their self-assessment of the risks they face from a cyber attack as being greatest in three key areas:

  • Operational risks from outside events and persons outside the firm with access to their systems, as their top concern
  • Risks from the inside by employees of the firms
  • Risks from hackers

One other theme that emerged from the Roundtable is the increased awareness of—and attention to—the cybersecurity threat at the public company board level. Panelists stressed that while cybersecurity used to be the province of the Audit Committee, today it is a major focus of the entire board. Recently announced public company data breaches quickly spawned shareholder litigation in addition to regulatory interest. We can expect that the conjunction of increased regulatory attention, particularly in the area of disclosure, and public company board of director oversight of cybersecurity risks, will be watched with interest by shareholders of public companies.

There is no doubt that cybersecurity issues have the attention of the SEC. This is consistent with the trend among financial services regulators that was most recently reflected in guidance from the CFTC describing the data security requirements for covered financial institutions. Given the fact that the SEC has not undertaken an update to its principal privacy and security regulation (Regulation S-P) since an interim rule was issued in 2008, the Commission has work to do on that regulation, in addition to considering issuance of supplemental disclosure guidance. Whether the SEC’s heightened interest in cybersecurity will result in concrete action remains to be seen. In the meantime, firms and companies regulated by the SEC that have not implemented a cybersecurity program should begin the process. Those that have a program in place should review it in light of SEC’s demonstrated interest and the guidance already issued by other financial regulators—and all should be ready for more to come.

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.

© Reed Smith | Attorney Advertising

Written by:

Reed Smith

Reed Smith 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:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. 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. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the 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 shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this 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 the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.