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.  

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.  

Example of Breaches and Consequences 

  • Equifax Data Breach (2017): 147 million consumers had their personal information compromised. The breach resulted in lawsuits, regulatory fines, and reputation damage. 
  • Robinhood Unauthorized Access (2020): Hackers gained unauthorized access to Robinhood accounts. They siphoned funds leaving financial losses for customers. This incident especially highlights the importance of platform security.  
  • Morgan Stanely Data Breach (2021): This breach came from the inside. Someone accessed and transferred client data to a personal server. This breach underscores the importance of robust access controls and monitory 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.  

Security Measures

  • Ensure that all sensitive information is encrypted. Encryption helps prevent unauthorized access even if it is intercepted by hackers. 
  • Require multi-factor authentication (“MFA”) to add an additional layer of protection against hackers. 
  • Conduct frequent internal audits that simulate attacks to help identify areas of weakness and vulnerabilities within your firm’s systems. 
  • Train all employees in cybersecurity best practices. 
  • Develop and maintain an updated response plan for any possible breaches so that if one does happen, a swift and coordinated response happens, minimizing potential damages. 

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.