Mind SEC’s new data breach rules, says Finra

Finra is calling on all its member firms to take heed and take action as new SEC rules that stiffen expectations around data breaches takes effect.

In an announcement Thursday, the industry self-regulator highlighted the SEC's recent amendments to Regulation S-P, aimed at modernizing and enhancing the protection of consumer financial information.

Announced in mid-May, the changes, which Finra says will impact all member firms, require covered institutions to adopt an incident response program and notify individuals if their sensitive customer information is accessed or used without authorization.

“These amendments apply to broker-dealers (including funding portals), investment companies, registered investment advisers and transfer agents (‘covered institutions’),” Finra said Thursday.

Under the retooled regulation, the SEC expects covered institutions to include an incident response program in their written policies, which should be reasonably designed to detect, respond to, and recover from unauthorized access to customer information.

Additionally, institutions are required to establish and enforce policies for oversight of service providers, including due diligence and monitoring processes.

The SEC also expects firms to notify affected individuals whose sensitive information was, or is likely to have been, accessed without authorization. Those notifications must be sent as soon as practicable, but no later than 30 days after discovering the incident, except in certain limited circumstances.

The amendments to regulation S-P, which have been entered into the Federal Register, also expand the safeguards and disposal rules. Now, those rules cover nonpublic information collected about an institution’s own customers as well as information received from other financial institutions.

Covered institutions must also maintain written records documenting compliance with the safeguards and disposal rules under the amended Regulation S-P.

As wealth firms and financial institutions build ever-growing storehouses of their customers' personal and financial information, data breaches have become a critical issue for even the largest players.

Shortly after the SEC unveiled its cybersecurity rule amendments, Interactive Brokers reported in Massachusetts that it had “identified a business email compromise that resulted in the unauthorized access to a limited amount of consumer personal information.”

JPMorgan made a similar revelation in early May, when it disclosed to the Office of the Maine Attorney General its own discovery of a data breach that exposed names, addresses, Social Security numbers and other sensitive information belonging to more than 451,000 retirement plan participants

Starting from June 3, 2024 – when the Regulation S-P amendments officially got published in the Federal Register – larger entities have 18 months to comply with the new requirements. Smaller firms have relatively more lenient timeframe of 24 months to get up to code.

“FINRA recommends that all member firms review the amendments to ensure their cybersecurity programs are modified, as needed, to come into compliance by the applicable compliance date for their firms,” the statement said.