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SEC Issues Cybersecurity Alert For Brokers And Financial Advisers

On May 17, 2017, the US Securities and Exchange Commission (SEC), through its National Exam Program, issued a “Risk Alert” to broker-dealers, investment advisers and investment firms to advise them about the recent “WannaCry” ransomware attack and to encourage increased cybersecurity preparedness. The purpose of the alert, according to the SEC, was to “highlight for firms the risks and issues that the staff has identified during examinations of broker-dealers, investment advisers, and investment companies regarding cybersecurity preparedness.”

Based on a 2015 survey of 75 SEC registered broker-dealers, investment advisers and investment firms, the SEC National Exam Program staff recognized certain firm practices that registrants may find relevant when dealing with threats such as the WannaCry ransomware attack:

  • Cyber-risk Assessment: Five percent of the broker-dealers, and 26 percent of the investment advisers and investment companies examined “did not conduct periodic risk assessments of critical systems to identify cybersecurity threats, vulnerabilities, and the potential business consequences.”
  • Penetration Tests: Five percent of the broker-dealers, and 57 percent of the investment companies “did not conduct penetration tests and vulnerability scans on systems that the firms considered to be critical.”
  • System Maintenance: All broker-dealers, and 96 percent of investment firms examined “have a process in place for ensuring regular system maintenance, including the installation of software patches to address security vulnerabilities.” And only ten percent of the broker-dealers, and four percent of the investment firms examined had a significant number of critical and high-risk security patches that were missing important updates.

The SEC recommends registrants undertake at least two separate tasks: (1) assess supervisor, compliance and/or other risk management systems related to cybersecurity risks; and (2) make any changes, as may be appropriate, to address or strengthen such systems. To assistant registrants, the SEC highlights its Division of Investment Management’s recent cybersecurity guidance, and the webpage of the Financial Industry Regulatory Authority (FINRA), which has links to cybersecurity-related resources.

The SEC cautions that the recommendations described in the Risk Alert are not exhaustive, “nor will they constitute a safe harbor.” Factors other than those described in the Risk Alert may be appropriate to consider, and some factors may not be applicable to a particular firm’s business. Moreover, future changes in laws or regulations may supersede some of the factors or issues raised in the Risk Alert. Ultimately, the “adequacy of supervisory, compliance, and other risk management systems can be determined only with reference to the profile of each specific firm and other facts and circumstances.”

The SEC recognizes that it is not possible for firms to anticipate and prevent every cyber-attack. However, “appropriate planning to address cybersecurity issues, including developing a rapid response capability is important and may assist firms in mitigating the impact of any such attacks and any related effects on investors and clients.”

Dentons is the world’s largest law firm, a leader on the Acritas Global Elite Brand Index, a BTI Client Service 30 Award winner, and recognized by prominent business and legal publications for its innovations in client service, including founding Nextlaw Labs and the Nextlaw Global Referral Network. Dentons’ global Privacy and Cybersecurity Group operates at the intersection of technology and law, and was recently singled out as one of the law firms best at cybersecurity by corporate counsel, according to BTI Consulting Group.  

SEC Issues Cybersecurity Alert For Brokers And Financial Advisers

NIST Plans To Examine Internet of Things (IoT) For Its Cybersecurity Framework

The National Institute of Standards and Technology (NIST) is holding a Cybersecurity Framework Workshop this week at its headquarters in Gaithersburg, Maryland. The purpose of the workshop is to discuss issues related to its widely used Cybersecurity Framework. Sessions at the workshop are being livestreamed, and are exploring the extraterritorial application of the NIST framework, sector-specific requirements, and uses for small businesses.

One closely watched workshop being held today is entitled “Cyber Meets the Physical World,” and is intended to examine how the NIST framework can be applied to the Internet of Things (IoT) sector:

The diverse use and rapid proliferation of connected devices – typically captured by the “Internet of Things (IoT)” – creates enormous value for industry, consumers, and broader society. At the same time, emerging threats, such as last year’s Mirai DDoS attacks, highlight the critical need to develop and apply guidance to maintain the cybersecurity of devices and the ecosystems into which they are deployed. NIST is seeking feedback on how the Framework may be applied to the IoT, both in terms of the devices themselves, as well as their integration into broader enterprise and network environments. Topics in this breakout may include: existing IoT definitions and taxonomies and their consistency with the Framework; IoT specific threats and constraints; sector-specific considerations for IoT security; and the integration of IoT – specific threats into the Framework model.

NIST’s focus on IoT at its workshop this week comes on the heels of its new draft NIST cybersecurity guidance on securing wireless infusion pumps in the healthcare industry. NIST is accepting public comment on the new draft guidance through July 7, 2017.

NIST’s focus on the IoT sector also comes as the IoT sector is coming under greater regulatory scrutiny in the US. In 2015, the US Federal Trade Commission (FTC) issued guidance encouraging certain best practices in the IoT sector. In January 2017, the FTC brought its first enforcement action against a computer networking equipment manufacturer for failing to undertake what the FTC considers reasonable steps needed to secure wireless routers or IP cameras from “widely known and reasonably foreseeable” risks of unauthorized access by failing to proactively address “well-known and easily preventable security flaws.” And in California, a new bill is being considered by the California legislature (Cal. Senate Bill 327) that would impact the manufacturers and sellers of IoT connected devices by requiring them to:

  • Equip the device with reasonable security features appropriate to the nature of the device and the information it collects, contains or transmits;
  • Design the device to indicate to the consumer when it is collecting information;
  • Obtain consumer consent before the device collects or transmits information;
  • Provide an explicit privacy notification to the consumer about what data is collected by the device; and
  • Directly notifies consumers of security patches and updates intended to make the device more secure on an ongoing basis.

If you or your business is engaged in the IoT space, the Dentons Privacy and Cybersecurity Group can help you navigate the growing regulatory environment and understand and implement the new NIST framework standards, as they are developed and adopted. We will also continue to monitor the NIST / IoT developments and report any further developments coming out of the NIST conference this week.

NIST Plans To Examine Internet of Things (IoT) For Its Cybersecurity Framework

White House Signs New Cybersecurity Executive Order

On May 11, 2017, President Donald Trump signed a new Executive Order on cybersecurity entitled Strengthening the Cybersecurity of Federal Networks and Critical Infrastructure. The new order is split up into three sections, and addresses cybersecurity in (1) federal networks, (2) critical infrastructure, and (3) the nation.

Section 1 – Cybersecurity of Federal Networks

Under Section 1, entitled “Cybersecurity of Federal Networks,” the President announced he “will hold heads of executive departments and agencies (agency heads) accountable for managing cybersecurity risk to their enterprises.” Agency heads will be “held accountable by the President for implementing risk management measures commensurate with the risk and magnitude of the harm that would result from unauthorized access, use, disclosure, disruption, modification, or destruction of IT and data.” Agency heads will also be “held accountable by the President for ensuring that cybersecurity risk management processes are aligned with strategic, operational, and budgetary planning processes[.]”

Effectively immediately, every federal agency head must use the Framework for Improving Critical Infrastructure Cybersecurity developed by the National Institute of Standards and Technology (NIST) to manage their agency’s respective cybersecurity risk. Each agency must provide a “risk management report” to the Secretary of Homeland Security and the Director of the Office of Management and Budget (OMB) within 90 days of the new Executive Order. That risk management report must document the risk mitigation and acceptance choices made by each agency head as of May 11, 2017, and must include: (1) the strategic, operational, and budgetary considerations that informed those choices; and (2) any accepted risk, including from unmitigated vulnerabilities. The report must also describe the agency’s action plan to implement the NIST framework.

Once received, the Secretary of Homeland Security and the Director of OMB will jointly assess each agency’s risk management report to determine “whether the risk mitigation and acceptance choices set forth in the reports are appropriate and sufficient to manage the cybersecurity risk to the executive branch enterprise in the aggregate (the determination).” The Director of OMB, in coordination with the Secretary of Homeland Security, and with appropriate support from the Secretary of Commerce and the Administrator of General Services, will then be required, within 60 days of receipt of the agency risk management reports, to submit to the President, through the Assistant to the President for Homeland Security and Counterterrorism, the agency determination and a plan to:

  1. Adequately protect the executive branch enterprise, should the determination identify insufficiencies;
  2. Address immediate unmet budgetary needs necessary to manage risk to the executive branch enterprise;
  3. Establish a regular process for reassessing and, if appropriate, reissuing the determination, and addressing future, recurring unmet budgetary needs necessary to manage risk to the executive branch enterprise;
  4. Clarify, reconcile, and reissue, as necessary and to the extent permitted by law, all policies, standards, and guidelines issued by an agency, and, as necessary and to the extent permitted by law, issue policies, standards, and guidelines in furtherance of this order; and
  5. Align these policies, standards, and guidelines with the NIST Framework.

The Director of the American Technology Council is also directed to coordinate a report to the President from the Secretary of Homeland Security, the Director of OMB, and the Administrator of General Services, in consultation with the Secretary of Commerce, as appropriate, regarding the modernization of the federal IT ecosystem. That report must be completed within 90 days of the new Executive Order and describe the legal, policy, and budgetary considerations “relevant to — as well as the technical feasibility and cost effectiveness, including timelines and milestones, of — transitioning all agencies, or a subset of agencies, to” (1) one or more consolidated network architectures; and (2) shared IT services, including email, cloud, and cybersecurity services.

Section 2 – Cybersecurity of Critical Infrastructure

Under Section 2, entitled “Cybersecurity of Critical Infrastructure,” the White House makes clear it is the “policy of the executive branch to use its authorities and capabilities to support the cybersecurity risk management efforts of the owners and operators of the Nation’s critical infrastructure (as defined in section 5195c(e) of title 42, United States Code)[.]” In carrying out this policy, the new Executive Order identifies five critical areas for focus: (1) supporting critical infrastructure at greatest risk; (2) supporting transparency in the marketplace; (3) resilience against botnets and other automated, distributed threats; (4) assessment of electricity disruption incident response capabilities; and (5) Department of Defense warfighting capabilities and industrial base.

Support to Critical Infrastructure at Greatest Risk

To support critical infrastructure at greatest risk, the Secretary of Homeland Security, in coordination with the Secretary of Defense, the Attorney General, the Director of National Intelligence, the Director of the Federal Bureau of Investigation, the heads of appropriate sector-specific agencies, and all other appropriate agency heads, shall:

  • Identify authorities and capabilities that agencies could employ to support the cybersecurity efforts of critical infrastructure entities to be at greatest risk of attacks that could reasonably result in catastrophic regional or national effects on public health or safety, economic security, or national security;
  • Engage said entities and solicit input as appropriate to evaluate whether and how the authorities and capabilities might be employed to support cybersecurity risk management efforts and any obstacles to doing so;
  • Provide a report to the President, which may be classified in full or in part, through the Assistant to the President for Homeland Security and Counterterrorism, within 180 days of the date of the new Executive Order, that includes: (1) the authorities and capabilities identified in the Executive Order; (2) the results of the engagement and determination as defined in the Executive Order; and (3) findings and recommendations for better supporting the cybersecurity risk management efforts of critical infrastructure entities; and
  • Provide an updated report to the President on an annual basis thereafter.

Supporting Transparency in the Marketplace

To support transparency in the marketplace, the Secretary of Homeland Security, in coordination with the Secretary of Commerce, is required to provide a report to the President, through the Assistant to the President for Homeland Security and Counterterrorism, that “examines the sufficiency of existing Federal policies and practices to promote appropriate market transparency of cybersecurity risk management practices by critical infrastructure entities, with a focus on publicly traded critical infrastructure entities, within 90 days” of the date of the Executive Order.

Resilience Against Botnets and Other Automated, Distributed Threats

The Secretary of Commerce and the Secretary of Homeland Security are required to jointly lead an “open and transparent process to identify and promote action by appropriate stakeholders to improve the resilience of the internet and communications ecosystem and to encourage collaboration with the goal of dramatically reducing threats perpetrated by automated and distributed attacks (e.g., botnets).” The Secretary of Commerce and the Secretary of Homeland Security are also required to consult with the Secretary of Defense, the Attorney General, the Director of the Federal Bureau of Investigation, the heads of sector-specific agencies, the Chairs of the Federal Communications Commission and Federal Trade Commission, other interested agency heads, and appropriate stakeholders in carrying out the Executive Order. Within 240 days of the date of the Executive Order, the Secretary of Commerce and the Secretary of Homeland Security shall also make publicly available a preliminary report on this effort. And within 1 year of the date of the Executive Order, the Secretaries shall submit a final version of the report to the President.

Assessment of Electricity Disruption Incident Response Capabilities

The Secretary of Energy and the Secretary of Homeland Security, in consultation within the Director of National Intelligence, with State, local, tribal, and territorial governments, and with others as appropriate, are required to jointly assess: (1) the potential scope and duration of a prolonged power outage associated with a significant cyber incident against the United States electric subsector; (2) the readiness of the United States to manage the consequences of such an incident; and (3) any gaps or shortcomings in assets or capabilities required to mitigate the consequences of such an incident. The assessment must be provided to the President, through the Assistant to the President for Homeland Security and Counterterrorism, within 90 days of the date of the Executive Order, and may be classified in full or in part.

Department of Defense Warfighting Capabilities and Industrial Base

Within 90 days of the date of the Executive Order, the Secretary of Defense, the Secretary of Homeland Security, and the Director of the Federal Bureau of Investigation, in coordination with the Director of National Intelligence, shall provide a report to the President, through the Assistant to the President for National Security Affairs and the Assistant to the President for Homeland Security and Counterterrorism, on cybersecurity risks facing the defense industrial base, including its supply chain, and United States military platforms, systems, networks, and capabilities, and recommendations for mitigating these risks.

Section 3 – Cybersecurity for the Nation

Section 3 of the Executive Order, entitled “Cybersecurity for the Nation,” provides that it is the policy of the executive branch to promote an “open, interoperable, reliable, and secure internet that fosters efficiency, innovation, communication, and economic prosperity, while respecting privacy and guarding against disruption, fraud, and theft.” This section focuses on: (1) deterrence and protection; (2) international cooperation; and (3) workforce development.

Deterrence and Protection

Within 90 days of the date of the Executive Order, the Secretary of State, the Secretary of Treasury, the Secretary of Defense, the Attorney General, the Secretary of Commerce, the Secretary of Homeland Security, and the United States Trade Representative, in coordination with the Director of National Intelligence, shall jointly submit a report to the President, through the Assistant to the President for National Security Affairs and the Assistant to the President for Homeland Security and Counterterrorism, on the Nation’s strategic options for deterring adversaries and “better protecting the American people from cyber threats.”

International Cooperation

Within 45 days of the date of the Executive Order, the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, the Secretary of Commerce, and the Secretary of Homeland Security, in coordination with the Attorney General and the Director of the Federal Bureau of Investigation, shall submit reports to the President on international cybersecurity priorities, including those concerning investigation, attribution, cyber threat information sharing, response, capacity building, and cooperation. Within 90 days of the submission of those reports, and in coordination with the agency heads, the Secretary of State must provide a report to the President, through the Assistant to the President for Homeland Security and Counterterrorism, documenting an engagement strategy for international cooperation in cybersecurity.

Workforce Development

Commerce and Homeland Security

The Secretary of Commerce and the Secretary of Homeland Security, in consultation with the Secretary of Defense, the Secretary of Labor, the Secretary of Education, the Director of the Office of Personnel Management, and other agencies identified jointly by the Secretary of Commerce and the Secretary of Homeland Security shall:

  • Jointly assess the scope and sufficiency of efforts to educate and train the American cybersecurity workforce of the future, including cybersecurity-related education curricula, training, and apprenticeship programs, from primary through higher education; and
  • Within 120 days of the date of the Executive Order, provide a report to the President, through the Assistant to the President for Homeland Security and Counterterrorism, with findings and recommendations regarding how to support the growth and sustainment of the Nation’s cybersecurity workforce in both the public and private sectors.

Office of National Intelligence

The Director of National Intelligence, in consultation with the heads of other agencies, shall:

  • Review the workforce development efforts of potential foreign cyber peers in order to help identify foreign workforce development practices likely to affect long-term United States cybersecurity competitiveness; and
  • Within 60 days of the date of the Executive Order, provide a report to the President through the Assistant to the President for Homeland Security and Counterterrorism on the findings of the review.

Department of Defense

The Secretary of Defense, in coordination with the Secretary of Commerce, the Secretary of Homeland Security, and the Director of National Intelligence, shall:

  • Assess the scope and sufficiency of United States efforts to ensure that the United States maintains or increases its advantage in national-security-related cyber capabilities; and
  • Within 150 days of the date of the Executive Order, provide a report to the President, through the Assistant to the President for Homeland Security and Counterterrorism, with findings and recommendations on the assessment carried out.

The Dentons Privacy and Cybersecurity Group will continue to monitor the respective agency reports, as they are issued, and examine any additional efforts relating to this new Executive Order and its impact on industry as they develop.

 

 

 

White House Signs New Cybersecurity Executive Order

New ABA Opinion – Attorneys Must Take Reasonable Cybersecurity Measures To Protect Client Data

On May 11, 2017, the American Bar Association (ABA) issued Formal Opinion 477, making clear that a lawyer may transmit information relating to the representation of a client over the Internet without violating the Model Rules of Professional Conduct so long as the lawyer takes reasonable efforts to prevent inadvertent or unauthorized access to client information. Lawyers may also be required to take special security precautions to protect against the inadvertent or unauthorized disclosure of client information when required by an agreement with the client or by law, or when the nature of the information requires a higher degree of security. This new opinion updates a prior opinion issued by the ABA in 1999 (Formal Opinion 99-413), in which the ABA concluded that attorneys may use the Internet to transmit unencrypted communications relating to a client without running afoul of the Model Rules of Professional Conduct.

According to the ABA, in the “technical landscape of Opinion 99-413,” unencrypted email posed “no greater risk of interception or disclosure than other non-electronic forms of communication.” Although this premise remains true today for routine communication with clients, and the use of unencrypted routine email generally remains an acceptable method of lawyer-client communications, cyber-threats and the proliferation of electronic communications devices have “changed the landscape and it is not always reasonable to rely on the use of unencrypted email.” As an example, the ABA notes that electronic communication through certain mobile applications or on message boards or via unsecured networks may lack the basic expectation of privacy afforded to email communications. Lawyers must therefore, on a case-by-case basis, constantly analyze how they communicate electronically about client matters.

Although the ABA does not provide specific steps for attorneys to take in this regard, it does provide the following considerations as guidance:

Understand the Nature of the Threat

The ABA says that understanding the nature of the threat includes consideration of the sensitivity of the client’s information and whether the client’s matter is a higher risk for cyber intrusion. Client matters involving proprietary information in highly sensitive industries such as industrial designs, mergers and acquisitions or trade secrets, and industries like healthcare, banking, defense or education, may present a higher risk of data theft.

Understand How Client Confidential Information is Transmitted and Where It Is Stored

The ABA says a lawyer should understand how their firm’s electronic communications are created, where client data resides, and what avenues exist to access that information. Every “access point is a potential entry point for a data loss or disclosure.” Every access point, and each device, should therefore be evaluated for security compliance.

Understand and Use Reasonable Electronic Security Measures

Model Rule 1.6(c) requires a lawyer to make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information relating to the representation of a client. What is “reasonable” will vary depending on the facts of each case. The ABA indicates that making reasonable efforts may include “analysis of security measures applied to both disclosure and access to a law firm’s technology system and transmissions.” A lawyer should also understand and use electronic security measures to safeguard client communications and information, including using secure internet access methods to communicate, access and store client information, using unique complex passwords, changed periodically, implementing firewalls and anti-malware/spyware/antivirus software on all devices, and applying necessary security patches and updates to software when required.

Determine How Electronic Communications About Client Matters Should Be Protected

Different communications require different levels of protection. The ABA recommends that the lawyer and client discuss what levels of security will be necessary for each electronic communication about client matters. For example, if client information is of sufficient sensitivity, the ABA says a lawyer should encrypt the transmission and determine how to do so to sufficiently protect it, and consider the use of password protection for any attachments. Lawyers can also consider the use of well vetted and secure third-party cloud based file storage systems to exchange documents normally attached to emails. Lawyers should also be cautious in communicating with a client if the client uses computers or other devices subject to the access or control of a third party.

Label Client Confidential Information

The ABA recommends lawyers follow the “better practice” of marking privileged and confidential client communications as “privileged and confidential” and using disclaimers in client emails.

Train Lawyers and Nonlawyer Assistants in Technology and Information Security

The ABA recommends lawyers establish policies and procedures, and periodically train employees, subordinates and others assisting in the delivery of legal services, in the use of reasonably secure methods of electronic communications with clients.

Conduct Due Diligence on Vendors Providing Communication Technology:

The ABA recommends lawyers examine a vendor’s reference checks and credentials, security protocols and policies, hiring practices, and the use of confidentiality agreements when determining which vendors to use in supplying communications technologies.

Takeaways

Although most enterprises and firms use some level of protection in their electronic communications, this new opinion highlights the growing focus on cybersecurity across all industries and professions. Encryption is increasingly becoming the industry standard in securing electronic data and communications, and is often the first line of defense when facing a data breach scenario.

New ABA Opinion – Attorneys Must Take Reasonable Cybersecurity Measures To Protect Client Data

HHS Plans To Launch Cybersecurity Center Focused On Medical App Security

The US Department of Health and Human Services (HHS) announced on April 20 that it plans to launch a cybersecurity initiative modeled on the US Department of Homeland Security’s National Cybersecurity and Communications Integration Center (NCCIC) that will be aimed at educating healthcare organizations and consumers about the risks of using mobile applications and data. The new center, which will be called the Health Cybersecurity and Communications Integration Center (HCCIC), is intended to be a collaborative effort between public and privacy industry. A similar cybersecurity initiative is being developed by the Centers for Medicare & Medicaid Services (CMS).

Chris Wlaschin, the chief information security officer for HHS, says this type of collaborative center is needed because approximately 50% of US healthcare organizations lack the adequate tools to deter and manage cyber breaches. As mobile health applications become more prevelant, the HHS sees the HCCIC as an opportunity to help developers secure patient data.

The new HHS center represents a continual effort by the federal government to address healthcare app cybersecurity. In December 2016, the FDA released guidance on “Mobile Medical Applications.” The HHS Office of Civil Rights and Federal Trade Commission  have also launched online resources for medical app cybersecurity. And HHS’s Health Care Industry Cybersecurity Task Force recently submitted a draft report to Congress that laid out six “imperatives” for lawmakers and executive branch officials to consider when seeking to secure patient data, including security surrounding applications.

If you or your company is developing, or has implemented a medical app, the Dentons Privacy and Cybersecurity Group can help you navigate this constantly developing federal landscape. We will also provide further updates as the HCCIC becomes operational this summer.

HHS Plans To Launch Cybersecurity Center Focused On Medical App Security