Your hedge fund's information security plan likely includes details on where information is stored, how it is accessed and who it is accessible to. But a critical component of this plan often overlooked is how and why data is destroyed when it is no longer needed. Including data destruction procedures in your WISP or as a separate document is vital to ensuring your firm’s sensitive data and intellectual property does not fall into the hands of the wrong people. Unfortunately, in today’s technology-driven, cyber-aware environment, simply hitting the delete key is not enough.
There are a few different scenarios that warrant secure data destruction maneuvers:
Changing service providers
Retiring a service/product
Your methods and policies for secure destruction may vary according to the above scenarios, or they may be standard across the firm. Your hedge fund should also consider if there are any regulatory implications. Do you need to maintain/archive data for a prescribed period of time in order to comply with state, federal or other compliance or auditing standards?
In any case, you’ll want to consider a variety of methods in the beginning to ensure your firm’s confidential data (e.g. investment portfolio, investor contact information, etc.) is thoroughly destroyed, preventing unwanted breaches or thefts.
When most people envision Business Continuity Planning (BCP) and testing, they conjure up images of conference rooms, hardcopy documents, projectors and key personnel. But the real world is a different reality.
In recent memory, there have been many situations that have disrupted businesses - be it by natural disaster or as a result of human interference. In either event, people need to be able to reestablish essential business functions, communicate, and make decisions as quickly and easily as possible.
Although many organizations do an annual BCP review, the big question is whether they truly test the process, ease of accessibility, and the time it takes an organization/leadership group to go from unsure about the situation to confidently executing a thoughtful game plan.
What can make a considerable difference in terms of functionality and familiarity with the plans and recovery procedures is to practice -- not only verbally in the conference room setting, but also by taking time to troubleshoot and brainstorm to determine what works and what may need a second look. There is a lot that can be learned from being unplugged and “kicked” out of the conference room and asked to assume a role outside of the comfort zone. This can be done simply by taking away some of the accepted norms during a test. The following scenario illustrates issues that arise when the accepted norms are chipped away.
We spend a lot of time educating our clients about security best practices and encouraging them to implement comprehensive security policies and procedures to mitigate risk and protect both the firm and its employees. And for good reason. Just today, New York Attorney General Eric Schneiderman released a report stating data breaches across the state more than tripled from 2006 to 2013 and cost businesses more than $1.37 billion last year alone.
While companywide policies should reflect long-range expectations and corporate best practices, they should also include tactical recommendations that employees can follow to ensure they are complying with the company’s overall risk strategy. In addition to providing employees with security best practices they should follow, don’t forget to also include a list of actions they should not. Here are just a few pieces of advice we regularly offer our investment firm clients:
Lock your computer and mobile phone(s) when you leave your desk and/or office
Use care when entering passwords in front of others
Create and maintain strong passwords and change them every 60-90 days (We recommend a combination of lowercase & uppercase letters and special characters)
One of the first questions on the SEC’s cybersecurity questionnaire for financial firms asks firms to "indicate whether they conduct periodic risk assessments to identify cybersecurity threats, vulnerabilities and potential business consequences", and if so, who conducts them and how often. Clearly the goal behind this question is to ensure that firms are taking a proactive approach to security. But what exactly does this assessment entail?
Here’s a quick overview.
The type of risk assessment typically associated with information technology/security is an external vulnerability assessment. Essentially, this is the process of identifying and categorizing vulnerabilities related to a system or infrastructure. Typical steps associated with a vulnerability scan or assessment include:
Identifying all appropriate systems, networks and infrastructures;
Scanning networks to assess susceptibility to external hacks and threats;
Classifying vulnerabilities based on severity; and
Making tactical recommendations around how to eliminate or remediate threats at all levels.
We continue to speak with clients and prospects on a regular basis on the topic of cybersecurity, and with the expectation that the SEC will start security exams sometime around September, it’s evident that firms are working diligently to answer the questionnaire and shore up internal practices.
To continue fostering education around this topic, we hosted two events last week dedicated to cybersecurity for hedge funds and investment firms. For your convenience, you can read a brief recap of some of the key topics discussed or scroll down to watch our full webinar replay.
Cybersecurity a Hot Topic on State & Federal Level
By now, we all know the SEC has taken steps to assure that hedge funds and investment advisers put security mechanisms and practices in place to protect against cyber threats. SEC Commissioner Luis Aguilar said there is “substantial risk that a cyber-attack could cause significant and wide-ranging market disruptions and investor harm.” Even beyond the federal level, some states are chiming in on the cybersecurity front. Earlier this month, Massachusetts and Illinois acknowledged that they were polling investment advisers about their security practices, and that based on responses, state regulations could be impacted.
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Hedge funds have known for some time the importance of effective cybersecurity, and regulation increasingly enforces this as a requirement. For any practice to be effective, however, there are a number of factors which need to be considered prior to implementation. Eze Castle’s Lisa Smith recently sat down with HFMWeek Magazine to talk about how to meet and understand the new cybersecurity guidelines advised by the SEC. Following is an excerpt of the article.
The SEC's cybersecurity questionnaire sets the framework and best practices for the financial industry. When you consider the type of information that hedge funds are handling on a day-to-day basis, it's really important that they have security controls in place. The questionnaire is a way for the SEC to ensure that hedge funds, private equity and investment management companies are taking security controls seriously and are aware of what's in place for their company.
HFMWeek (HFM): Within the sample SEC cybersecurity request document, questions were divided into five categories. What is the SEC looking for in these categories?
Lisa Smith (LS): Identification of risk in cybersecurity governance - this involves an analysis of what's in place. So for instance - when I conduct a business assesment I'll focus on what's currently in place versus what should be in place in accordance with the recommendations from the SEC. Anything that is not in place that should be goes into our risk assesssment summary and is categorized as low, medium or high. It's about ensuring that hedge funds have certain controls and security policies in place to protect their environment and data.
As your firm evaluates moving to the cloud – as most firms today will inevitably do – your list of priorities will likely include:
Regulatory and investor impact
Migration plans and operational effects
Hardware disposal and infrastructure changes
But another critical business area your firm should put some thought into is the effect of the cloud movement on your internal IT department (assuming you have one). What exactly happens to a firm’s IT team once it moves operations into a cloud environment? Is there still value in maintaining an in-house staff?
The simple answer is ‘yes,’ but the day-to-day responsibilities for those staffers may not look quite the same post-cloud. With a fully managed service provider, everyday management is typically taken care of – leaving internal resources with a lot more time on their hands. But that doesn’t mean there’s no longer a need for an IT department.
Cybersecurity is a hot topic these days, so I thought it was important to touch on the importance of including cybersecurity in your firm’s Business Continuity Planning (BCP). Ideally, firms should have two separate plans: a Written Information Security Plan (WISP) and a Business Continuity Plan, keeping in mind there will be some high-level overlap.
Let’s start with the basics, such as access controls and permissions required for accessing data that is considered confidential. Access controls focus on preventing unauthorized use of an application, service, website, etc., to gain access to confidential data. Only specific users will have a business need to access confidential data. During the Business Impact Analysis (BIA) phase of business continuity planning, be sure to identify applications, services or websites that require at least one level of authentication (e.g. password protection, PC certificate, or security tokens).
We’re back for Part Two of our UK Cloud Summit seminar recap. Last week on Hedge IT, we explored connecting to the cloud. In today's article, we will dive into the most talked about UK regulation: the Financial Conduct Authority’s (FCA) Dear CEO letter. We will cover how the letter affects IT outsourcing and the steps firms can take to mitigate service provider risk and adhere to the Dear CEO letter guidance.
The “Dear CEO” letter was issued in December 2012 to all UK asset managers and expressed concern about the endemic outsourcing risk in the sector, particular around asset managers having effective business continuity plans (BCP) and exit strategies in place with their service providers in the event of service provider failure.
Since the letter was issued, the FCA has asked firms to demonstrate they have a clear handle on what they outsource and why, a full understanding of the potential impacts of failure, and contingency plans that are viable, robust, and realistic.
Last month, the Eze Castle Integration London team hosted their second annual Cloud Summit at the Royal Academy of Engineering. The half-day conference featured industry experts from Eze Castle Integration, Apex Fund Services, Black Mountain Systems, Bloomberg, eSentire, Eze Software Group, Markit, and Simmons & Simmons to discuss topics surrounding cloud accessibility, the delivery of financial and trading applications and the Financial Conduct Authority’s (FCA) “Dear CEO” letter.
In today's blog, we will take a look at cloud accessibility and how firms can connect to the cloud securely.
Five years ago, firms were making substantial investments in on-premise technology. In most cases, firms were building out intricate Comm. Rooms right in their offices. With the emergence of cloud technology, there has been a dramatic shift in how efficient firms can become, particularly as they realise the inherent benefits of the cloud, including the transition from upfront capital expenditures to ongoing operating expenses. Results from our 2013 Cloud Usage Survey found:
87% – nearly 9 out of 10 firms – are currently using the cloud in some way
74% of firms are using the private cloud, either exclusively or as part of a hybrid solution
Only 26% of firms are using the public cloud
The top business needs driving cloud adoption are:
Simplified application management
IT costs and budget predictability
Reduced complexity and management of IT
Improved disaster recovery and business continuity
93% of firms believe the cloud is just as secure or more secure than an on-premise IT environment
- More than 90% of firms say their chosen cloud deployment model is meeting or exceeding their expectations