The Growing Importance of Cybersecurity for Broker Dealers and RIAs

As more and more broker dealers and registered investment advisors (“RIAs”) go paperless, the threat of security breaches has exponentially increased. Cybersecurity has become one of the most critical components for financial service firms in an effort to safeguard information and maintain trust with clients.  

Why Cybersecurity Matters for Broker Dealers and RIAs

Broker dealers and RIAs maintain a vast amount of private information thus making them prime targets for cyber criminals. Data breaches, ransomware attacks, and phishing scams are just a few ways that criminals try to break through the security of firms. Protecting client information is not only a Financial Industry Regulatory Authority (“FINRA”) and Securities and Exchange Commission (“SEC”) requirement, it is also essential to ensure trust and confidence with clients.  

Notable Breaches and Their Consequences

Equifax Data Breach (2017)

  • What Happened: Personal information of 147 million consumers was compromised.
  • Consequences: Lawsuits, regulatory fines, and significant reputation damage.

Robinhood Unauthorized Access (2020)

  • What Happened: Hackers accessed Robinhood accounts and siphoned funds.
  • Consequences: Financial losses for customers, highlighting the critical need for robust platform security.

Morgan Stanley Data Breach (2021)

  • What Happened: An insider accessed and transferred client data to a personal server.
  • Consequences: Emphasized the necessity for strong access controls and monitoring systems.

You may say that your broker dealer or RIA has security in place, does not have millions of customers, and uses only cloud-based storage, but that does not solve cyber risks. If even one client’s information is breached, your firm may be hit with such reputational damage that it could potentially face failure. It cannot be emphasized enough how essential solid cybersecurity is in any financial services firm.  

Essential Cybersecurity Measures for Financial Firms

  • Encrypt Sensitive Information
    Encryption prevents unauthorized access, even if data is intercepted by hackers.
  • Implement Multi-Factor Authentication (MFA)
    MFA adds an extra layer of security, reducing the risk of unauthorized access.
  • Conduct Frequent Internal Audits
    Simulate attacks to identify and address vulnerabilities within your systems.
  • Train Employees in Cybersecurity Best Practices
    Regular training helps staff recognize and respond to potential threats.
  • Develop a Response Plan
    Maintain an updated plan to ensure a swift and coordinated response to any breaches, minimizing potential damage.

Need Help with Cybersecurity Compliance?

If your broker dealer or RIA is need of cybersecurity compliance, contact Securities Compliance Management here to speak with one of our professional compliance team members who can provide guidance regarding regulatory requirements and referrals to experienced vendors to help your firm build and maintain a robust cybersecurity program.