On July 19, flights were grounded and billboards in Times Square went blank as the world experienced a global tech outage like no other. Triggered by a single botched software update by one cybersecurity company (Crowdstrike), millions of computers—including those operating large-scale systems—crashed. More than an inconvenience for travelers and workers, this event was a wake-up call—especially for the financial services space, more specifically, financial advisors and their compliance teams. There are systematic risks in relying on third-party companies to handle important aspects of your operations, and their vulnerabilities can quickly become yours as well.
In light of recent events, we wanted to review what steps your RIA firm can take to protect yourself and your clients from future cybersecurity incidents and risks.
3 Areas of Focus for RIAs
The Securities and Exchange Commission (SEC) has identified a few particular areas of focus RIAs may want to consider prioritizing first when it comes to managing cybersecurity risk. These include:
- Mitigating personal damages: Aside from any financial or reputational damages, a cybersecurity incident can cause stress and take an emotional toll on everyone involved—firm founders, employees, and clients alike.
- Preserving data privacy: Financial advisors are in a unique position when it comes to protecting client data, as they typically have access to especially sensitive information—namely bank and brokerage account details and personal information (date of birth, address, Social Security number, etc.). Should a hacker gain access to client information, they could cause serious damage in a short amount of time.
- Managing data access: Mitigating potential threats depends on your ability to control and understand who has access to sensitive data, for how long, and in what capacity. Access management, especially in the era of remote work, is critical to minimizing the impact of a potential security breach.
How Cyber Incidents Lead to Business Risks
When an RIA firm becomes victim to a data breach, hack, or other cybersecurity incident, the ramifications can be significant from a business perspective. These incidents can result in:
- Regulatory fines and penalties
- Lawsuits from clients
- Lost revenue
- Recovery costs
- Higher cybersecurity insurance premiums
A firm impacted by a cybersecurity incident may very well also experience damage to its reputation, since certain incidents will result in mandated disclosures. Not to mention, these incidents are disruptive to a firm’s day-to-day operations, pulling time and resources away from business growth initiatives and client-oriented tasks.
Your RIA Cybersecurity Protections
Cybersecurity risks evolve fast, and regulations are changing in an effort to address them. As a result, it’s your responsibility to stay up-to-date and informed about what’s happening both from a cybersecurity and regulatory compliance standpoint. That’s where experienced SEC RegTech specialists, like our team at Smartria, can help financial advisors and their RIA firms.
If you’d like to learn more about how Smartria can support your firm in complying with the latest regulations, book a demo today.
