Between earning clients’ trust, delivering extraordinary results, and thwarting hostile competitor moves, wealth management firms are always operating at a breakneck pace.
Unsurprisingly, many general counsels and executives at these firms struggle to make room for cybersecurity on their already-congested list of priorities.
If things ever get out of hand and they become the victim of a cyber attack, being a victim is exactly how they present it to the clients. Lately, however, it seems that the regulators are unwilling to see such events through the same lens.
To understand why, let’s take a deep dive into the evolving cyber threat landscape for wealth management firms, the response from regulators, and what the firms can do to protect their business interests.
Wealth Management Firms Make for a Lucrative Target
Wealth managers and financial planners are the custodians of large amounts of client resources. But even if we put aside the capital risks, we’re still looking at a lucrative resource that hackers are more than willing to attack for: sensitive data on high net worth individuals.
When a wealth management firm’s systems are compromised, it typically results in financial data leakage of dozens of clients. Each of these profiles can attract thousands of dollars on dark web marketplaces.
The typical image that comes to mind when we think of people buying these data profiles is an unscrupulous character looking to profit through identity theft and other nefarious means. But the surprising truth is that journalists, investigators, and activists are equally interested in acquiring these leaks. Sometimes, they’re willing to venture into the grey areas of the law and the internet to get their hands on this data.
On top of all that, wealth management firms are embracing the digital revolution faster than ever. A survey by the Personal Investment Management and Financial Advice Association in 2019 found that 95% of wealth managements firms were already working on a digital strategy.
By putting all these pieces together, a clear picture emerges: wealth management firms are particularly at risk of cyber attacks, and the number of incidents is only going to rise exponentially.
This is not just a theory either. All the data points to cybersecurity being an undeniable threat for wealth management firms in 2021 and beyond. For instance, there’s been a stunning 74% increase in cyber attacks against financial institutions since the start of the pandemic alone.
Of course, risks are a part of life for any business. But what makes cybersecurity concerns particularly concerning is the dramatic rise in regulatory consequences for the firms.
Regulators are Tightening the Ropes around Cybersecurity Details
Up until recently, regulators typically turned their backs on cybersecurity breaches as they saw the firms as victims of the attacks too. But this narrative has been turned upside down. Regulators are pushing for wealth management firms to prove their dedication to the safety of their client’s data instead of playing the part of a victim.
We’re seeing widespread actions by the SEC when it comes to lapses in cybersecurity protocols by wealth management and financial advisory firms. For instance, the SEC Enforcement Division’s Cyber Unit was formed specifically to tackle cyber issues. We’ve also seen digital threats become an Examination Priority for SEC’s Office of Compliance Inspections and Examinations (OCIE).
Similarly, FINRA is another regulator amping up the scrutiny of the cybersecurity practices of financial firms. The consensus is that the firms have a responsibility to safeguard the data and interests of their client. Falling victim to a cyberattack is no excuse for their responsibilities.
The result of all these policy changes is a sharp uptick in sanctions and penalties. In the first week of September alone, the SEC handed down sanctions against eight investment firms, with penalties ranging within the six-figure mark on average.
The message is clear. Talking the talk is no longer enough when it comes to the safety of client data. The regulators expect financial advisors, planners, and managers to walk the walk by putting concrete policies and plans into action.
How Wealth Management Firms Can Protect Themselves
It’s natural for the firms to feel threatened by the evolving cybersecurity landscape and the shifting attitude of the regulators. But financial planners are only on the hook for reasonable safeguards. Neither the regulators nor the clients expect them to have a bulletproof network with a 100% success rate. Cyberattacks are manageable but never entirely preventable.
As such, wealth management firms are responsible for proving that they had adequate measures and safeguards in place to keep their clients safe. This is typically achieved with a combination of:
- A holistic cybersecurity plan that involves details around software solutions, team awareness, digital best practices, human-powered monitoring and threat response, and more
- A cybersecurity policy that clearly shows to clients and regulators the concrete steps that the firm is taking in the interest of client data safety. The purpose of this policy document is to convey the primary points of the firm’s cybersecurity strategy, including steps for mitigating risks and minimizing damages with a threat response plan
- Regular audits of strategy, plans, policies, and critical infrastructure by cybersecurity experts. The goal is to ensure that everything is optimized for the constantly evolving cyber threat landscape
- Disclosure planning because regulators expect the firms to keep their clients in the loop and share details of a breach with them as soon as possible. This means that wealth management firms will have to report any breaches to clients and authorities even before they have a concrete answer for how it happened. Disclosure policies are primed to be scrutinized even more harshly over the next few years.
These steps, along with the finer details that come with implementing the best cybersecurity practices, are overwhelming for most wealth management firms. This is why Optistar is proud to offer customized solutions to tackle the constantly evolving cybersecurity challenges faced by financial firms.
Our team of cybersecurity veterans can help you exceed the expectations of your clients and regulators. To learn more, be sure to contact us at 888.782.7003 today or visit our site for more information: www.optistartech.com