Almost all industries and professions can benefit from cybersecurity. After all, new cybersecurity threats are being identified seemingly every day, and the number of active cybercriminals has tremendously increased in recent years.
However, cybersecurity is especially important for investment advisers, who are among the top targets of cybercriminals. Investment advisers often hold their clients’ financial information, which is a very valuable target for hackers and cybercriminals.
Thus, investment advisers must adequately protect themselves by performing cybersecurity best practices and investing in the right solution to manage this issue.
Here, we will discuss why cybersecurity is important for investment advisers, and important tips investment advisers can use to improve their cybersecurity.
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Why Cybersecurity Is Important for Investment Advisers
There are three main reasons why cybersecurity is crucial for investment advisers:
1. Investment advisers are top targets of cybercriminals
Above, we have discussed how investment advisers are among the top targets of cybercriminals due to a fairly obvious reason: investment advisers often hold their clients’ valuable financial information and other confidential data. There are even many clients, especially seniors that turned over their banking account passwords to the investment adviser brokers.
2. Staying compliant with the regulations
Various regulators have now required investment advisers to be adequately protected from cybersecurity threats. SEC has recently announced its cybersecurity focus to more closely overseeing vendors and service providers, including investment advisers where they are required to:
- Prevent account takeover attacks and protect the integrity of customer accounts
- Adequately verifying investor’s identity to prevent unauthorized account access
- Address phishing and social engineering attacks
- Effectively respond to cybersecurity incidents
- Managing the operational risk of the investment adviser firm, including the additional risks associated with employees in work-from-home situations
3. Potential long-term damage to your reputation
According to Ping Identity’s 2019 consumer survey, 81% of consumers would stop engaging with a brand online after a data breach.
If your investment adviser firm is affected by a data breach and other forms of cybersecurity attacks, it can lead to long-term or even permanent damage to your reputation. Investors and clients might be afraid to trust their money to your firm.
Cybersecurity Tips and Best Practices for Investment Advisers
1. Conduct regular IT security audit
Performing regular security assessments is now a legal requirement for registered investment advisers (RIAs) to meet the SEC requirements.
Investment advisers should thoroughly evaluate the potential external and internal threats by monitoring the following areas:
- Employee training and overall cybersecurity awareness
- Strong and unique password policies
- Antivirus updates
- OS and application updates
- Access control measures
- Proper administrative access for all employees
- Network segmentation and segregation
- Secure communications and encryptions
- Overall IT policies describing how IT assets can be used and what practices are considered inappropriate
- Regular data backups
- Overall protection of mobile devices and on-site devices
- Cyberattack response plans
2. Regularly conduct penetration testing
Penetration testing is the practice of trying to penetrate our system by identifying and attacking potential vulnerabilities, which is a crucial practice to determine whether an IT infrastructure is adequately protected against potential security threats.
Investment advisers should perform penetration testing to evaluate:
- Web applications (If any)
- Network devices
- Mobile devices
- Wireless networks
Penetration testing can significantly help the investment adviser company to identify potential cybersecurity vulnerabilities before they cause actual damages. Penetration tests should be conducted regularly with high-risk devices and endpoints might require a shorter time frame to conduct the test.
3. Investing in adequate cybersecurity infrastructure
It’s crucial for investment advisers to invest in adequate cybersecurity infrastructure and solutions. While the actual needs may vary depending on the system and services provided by each investment adviser firm, here are some best practices to follow:
- Regularly update your OS, software, and apps, as soon as security patches are made available. This is crucial in preventing
- With most cybersecurity threats are made possible by bots, it’s crucial to invest in adequate bot management software, preferably one capable of AI-based real-time detection
- Implement SSL data encryption (HTTPS) on websites and web applications
- Install sufficiently powerful firewall and antivirus/anti-malware, update them regularly
- Require secure and unique passwords on all employee accounts, implement 2-factor authentication when necessary
- Create backup copies of company data regularly, and regularly restore from a known safe state
4. Security awareness training
Human errors remain the top cause for successful data breaches and various cybersecurity issues. It’s crucial for investment advisers to conduct regular training to educate employees about known cybersecurity threats like phishing emails and other social engineering attacks.
Employees must also be educated about cybersecurity best practices to encourage improved habits that might affect cybersecurity, like appropriate usages of software and devices.
Security training should be made mandatory as a part of new employee onboarding, and refresher courses must also be conducted regularly to cover new trends and threats in security. Training programs should be in-depth and cover:
- Common phishing techniques
- Common malware threats
- Common social engineering attack methods to avoid
- Best practices to identify and avoid common cybersecurity attacks
- Processes for reporting cybersecurity issues
Remember that even after you’ve invested in state-of-the-art security measures, your firm’s security is only as strong as the least aware and knowledgeable employee in the company.
It’s crucial for investment advisers to keep proper documentation of the organization’s efforts regarding cybersecurity, which also might be required by regulatory bodies including the SEC to assess whether the RIA is compliant with the current regulations.
The documentation must cover the investment adviser firm’s operating model, security policies and programs, insurance, security governance, known vulnerabilities, and more.
Investment advisers must continuously follow proper procedures to improve cybersecurity in order to stay compliant with regulatory bodies, but also to win the trust of investors and clients.
It’s crucial for registered investment advisers to regularly evaluate both external and internal cyber threats, the status of data storage (especially sensitive data), and regularly revising the governance structure for managing cybersecurity threats.
Without a clear cybersecurity strategy, investment advisers won’t be able to effectively prevent, detect, and respond to ongoing cyberattacks in time, which may also endanger the investments and financial data managed by the firm.