Sunday, November 27 2022

The U.S. Securities and Exchange Commission (SEC) recently proposed new cybersecurity regulations for investment funds and third-party service providers.

The agency advocated that any “significant cybersecurity incidents”—incidents that significantly disrupt an adviser’s or fund’s ability to carry out critical operations, or that result in unauthorized access to adviser or fund information—must be disclosed to investors and reported to regulators within 48 hours of their occurrence. Additionally, funds and advisers must develop written policies and procedures to address cybersecurity risks—in particular, user security and access, information protection, risk assessments, threats and vulnerability management, and incident response and recovery.

The fund’s board must oversee and approve these policies and procedures, and review the annual report that assesses them. Funds and advisers would also be required to maintain detailed records and documentation of cyber incidents, cybersecurity risk assessments, and regulatory filings related to cybersecurity incidents.

The draft regulation, if adopted as it is written, will result in greater risk transparency of investment funds as they must disclose cybersecurity risks and incidents from the past two fiscal years to current and prospective clients.

The SEC’s newest proposal comes during a time of continued emphasis on cybersecurity enforcement by the U.S. government, and is part of a broader aim of protecting investors and maintaining orderly markets.  “The proposed rules and amendments are designed to enhance cybersecurity preparedness and could improve investor confidence in the resiliency of advisers and funds against cybersecurity threats and attacks,” said SEC Chair Gary Gensler.

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