SEC proposes first cybersecurity rule for investment advisers

SEC proposes first cybersecurity rule for investment advisers
Under the regulation, advisers would have to adopt and implement policies and procedure to address cyber risks and report incidents to the SEC and on their Form ADV.
FEB 09, 2022

The SEC on Wednesday for the first time proposed a cybersecurity rule for registered investment advisers and investment companies.

The proposed regulation, which the Securities and Exchange Commission released for public comment on a 3-1 vote, would require advisers to adopt and implement written policies and procedures that address risks related to cyberattacks.

Under the 243-page proposed rule, advisers would have to report incidents to the agency on a confidential form and disclose major cyber breaches over the last two fiscal years on their Form ADV. It also mandates that advisers keep books and records related to cybersecurity.

The SEC drafted the cybersecurity rule at a time when cyberattacks are increasing in order to protect investors and strengthen market stability, SEC Chairman Gary Gensler said at an SEC open meeting.

“Cybersecurity incidents can lead to significant financial, operational, legal and reputational harm for advisers and funds,” Gensler said. “More importantly, they can lead to investor harm. The proposed rules and amendments are designed to enhance cybersecurity preparedness and could improve investor confidence in the resiliency of advisers and funds against cybersecurity threats and attacks.”

Over the last few years, the Securities and Exchange Commission has issued cybersecurity guidance, made the topic an examination priority and brought enforcement cases that centered on cybersecurity lapses that violated existing customer protection rules.

The proposal distills the SEC’s expectations on cyber preparedness in a stand-alone cyber rule.

SEC Commissioner Hester Peirce opposed releasing the proposal, saying it could create a foundation for enforcement against advisers who are victims of cyberattacks. She criticized an adversarial approach that might limit the ability of regulators and financial firms to work together on combatting cyber threats.

“A cyber rule that is styled as a cudgel will not facilitate such cooperation,” Peirce said during the open meeting. “A cyber policies and procedures rule may not even be necessary to foster the investments, strong cyber defenses, dialogue, communication and cooperation we seek for investment advisers and funds.”

The proposal will be open to public comment for 60 days after it’s posted on the SEC website or 30 days after it’s published in the Federal Register, whichever is longer. After reviewing the feedback, the SEC might revise the proposal before voting on a final rule.

Latest News

GLP-1 users are trading retirement savings for their prescriptions
GLP-1 users are trading retirement savings for their prescriptions

A Nationwide survey finds 47% of GLP-1 users have never discussed the drugs’ financial impact with an advisor, even as many dip into savings.

Inspired Healthcare sale price of properties is 59% of $1.2 billion sold by advisors
Inspired Healthcare sale price of properties is 59% of $1.2 billion sold by advisors

The hundreds of millions of dollars from a sale of Inspired Healthcare properties does not mean an immediate windfall for investors.

Class action alleges Webull misled investors about China operations
Class action alleges Webull misled investors about China operations

Its SEC filings said one thing - a congressional probe said another.

Investors accuse Netcapital of inflating revenue through sham deals
Investors accuse Netcapital of inflating revenue through sham deals

Sham agreements allegedly padded revenue by 345%.

Pre-retirees are looking for flexibility, security, and guidance when it comes to retirement income: Cerulli
Pre-retirees are looking for flexibility, security, and guidance when it comes to retirement income: Cerulli

"Most pre-retirees are uncomfortable making key retirement income decisions without an advisor's help," said Chris Bailey of Cerulli.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor