Imminent New SEC Cyber Security Rules

Uploaded on 2023-11-20 in FREE TO VIEW, BUSINESS-Services-Financial

The U.S. Securities and Exchange Commission (SEC) is recognising the growing threat cyberattacks pose to the financial markets and investor interests. As a result, the regulatory body is taking a more proactive stance on cybersecurity. The imminent rule changes include stricter requirements for reporting, disclosure, and safeguarding sensitive financial and customer data.

Risk professionals across the US must have been high fiving at the acknowledgement that cybersecurity is not just an IT issue; it’s a fundamental business risk. And yes, the new rules do place additional pressure on CISOs, whose role it is to identify, mitigate and manage cyber security risk.

But crucially, compliance with SEC rules also points to the fact that risk management must come from the top. The very top.

With increased regulatory scrutiny comes the requirement for improved accountability and governance. Companies are required by the Cyber Disclosure rule to describe the processes they have in place for assessing, identifying, and managing material cybersecurity risks as well as the material effects of risks from cybersecurity threats, including previous incidents. Crucially, what the cyber disclosure rule demands is board oversight. Responsibility does not rest solely with the CISO. The board must understand and engage with and manage cyber security risk.

For the first time the board must be able to talk confidently and knowledgeably about cyber security and risk. And rightly so. Cybersecurity incidents can significantly damage a company's reputation, causing a loss of investor trust. High-profile breaches can lead to lawsuits, fines, and significant loss of market value. The SEC's rules focus on material disclosures that could impact an investor's decision. In the context of cybersecurity, it is crucial for senior leadership to recognise the materiality of cyber risks and ensure that these risks are accurately disclosed in financial reports and disclosures to investors.

For many, this will require a dramatic shift in mindset. The idea that the board and the IT department can continue to operate in their respective silos has been destroyed.

Cyber risk is everybody’s department. Cybersecurity risks are complex and evolving. Effective, comprehensive risk management requires a strategic approach that can only be achieved with the involvement of senior leadership and the board.

By requiring public companies to disclose cybersecurity-related information and by emphasizing the board's oversight role, the SEC's cyber disclosure rule is intended to break down the walls between IT and the boardroom.

CEOs, boards, and executive management must be actively involved in setting the cybersecurity agenda, ensuring compliance with regulatory requirements, and protecting the company's reputation and investor trust. It promotes a more holistic and transparent approach to cybersecurity, recognising it as a critical business risk that requires attention and understanding at all levels of the organization.

Miguel Clarke is GRC and Cyber Security lead for Armor

Image: Expect Best

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