By: Jack Hewitt

Public companies must report their cybersecurity risk management, governance and strategy on their annual filings for fiscal years ending on or after Dec. 15, 2023, to comply with the recently imposed Securities and Exchange Commission (SEC) rules.

In the U.S., almost all publicly traded companies with a focus on consumers and a large number of financial services corporations have experience in cybersecurity. This results from cybersecurity regulations being implemented by various federal agencies and all states. Specifically, the Safeguards Rule in Gramm-Leach-Bliley (GLB) requires the following types of  financial institutions to address cybersecurity to establish extensive measures:


  • Banks
  • Savings and loans
  • Insurance companies
  • Broker-dealers
  • Investment advisers

The SEC implemented a prior set of disclosure rules for reporting firms to give investors the necessary data to evaluate the impact of a cyberattack. Further, many other registered firms have enacted cyber procedures on their own initiative, based on responsible legal guidance.

As a result, following the introduction of the new law, financial services firms, consumer-oriented reporting firms and businesses that have independently implemented cyber policies shouldn’t have any significant implementation issues. However, those that haven’t will have a considerable undertaking to address these new requirements. Therefore, the 10K revisions will have an extensive impact on these companies.

The rule’s provisions will likely sanction those failing to comply with the change. This could involve letters of caution, fines and suspension.


Navigate the Cybersecurity Requirements by Taking Steps

Here are some steps to help your company navigate the new cybersecurity requirements:

Ensure a written information security policy (WISP) is in place. This creates a framework for cyber management and typically calls for creating and upkeeping a risk assessment manual and a written asset inventory.

The WISP also includes procedures addressing access controls, identity and access management, entitlement transparency, and other important topics listed below:


Access to Entitlement Transparency

Human Resources (HR) should be able to provide immediate access to your company’s entitlement transparency structure, including a complete listing of access by each employee to the firm’s system from initial employment to departure.

Upon employee advancement or transfer, the employee’s new superior, HR and an appropriate senior techie should reassess the employee’s access. This should be an established firm procedure and not a one-off. If an employee has been reprimanded in any way or has a questionable employment history, this should be maintained in their file.


Departure/Termination Procedures

Creating definitive procedures that can be immediately implemented upon termination plays a significant role in your company’s cybersecurity. These procedures should include immediate notification company-wide of an announced departure, especially if it’s a termination for cause.

Upon notification of an employee’s departure, immediately implement access restrictions. Upon departure, execute an immediate and complete access shutdown. It’s important to understand that current employee’s access to a former employee’s HR files is often a critical factor in illegal intrusions into the firm’s systems. In all of this, consider when a current or former employee is involved in a breach and what you would want to know about him/her to evaluate the situation properly.


Password Protection Policy

A strong password protection policy is mandatory for access security and should incorporate a requirement for multi-factor verification, including a user code and a password. The password should have eight alphanumeric characters with at least one symbol, should be changed every 90 days and not repeated for at least six months. Three errors in an attempted entry should suspend use for at least an hour and be reported to IT.

Data Loss Protection

One of WISP’s primary functions is to ensure that your company’s designated information requiring security is adequately protected in accordance with its degree of risk.

This review should be based on:


  • Guidance from National Institute of Standards and Technology (NIST) releases and guidelines
  • Relevant industry guidelines
  • Operational manuals
  • Data maps
  • Audits (internal and external)
  • Testing (internal and external)
  • Other appropriate mechanisms


Finally, determine if the company’s personal identifiable information (PII) and other designated data are being properly identified, maintained and protected within the firm’s systems.


Security Devices and Review

To accomplish compliant, sophisticated protection, the company should employ technology such as encryption, firewalls, intrusion detection and protection systems, as well as monitoring and auditing devices. One approach is to institute a defense-in-depth strategy using the devices above layered within the firm’s systems. This review’s determination is vital to your company and should be documented and maintained in the WISP Manual.

After an incident, the entire team should conduct follow-up reviews to make recommendations for corrective and remedial action, and it should then oversee and approve this action.



In conjunction with legal, IT and outside IT forensic vendors, your company should develop cybersecurity training programs, including mock and tabletop sessions. Develop and provide regular cybersecurity awareness training for all personnel and regularly update this to reflect current risks.

The chief compliance officer (CCO), in conjunction with the chief information security officer (CISO), should conduct follow-up reviews. To establish an effective training program, they should work with legal and IT and outside legal and IT advisers.

Training should also discuss the appropriate handling of customer’s requests for username and password changes, wire transfers and identity verification—particularly those involving large money transfers to an overseas location or third parties. This should include sound practices regarding opening e-mail attachments and links, including using simulated phishing campaigns where the firm identifies and retests employees who failed the exercise.


Vendor Selection and Management

Vendors play an essential role in a company’s business and, as a result, have a significant involvement in cybersecurity. Vendors and employees are two major risk factors in cybersecurity breaches.

As such, have an established due diligence process for the selection of vendors, which should focus on cybersecurity awareness. As a part of your cybersecurity program, develop a strong vendor management plan. Finally, ensure all vendor contracts contain pertinent provisions and employ regular oversight practices.



Check your existing policies for their cyber insurance coverage. If appropriate, discuss with your insurer to address any areas requiring additional coverage. You don’t necessarily need to obtain a separate cybersecurity policy if you have proper coverage otherwise. Also, the employment of a WISP can significantly assist a firm in evaluating the need for and securing appropriate insurance.



No U.S. business, small or large, can escape phishing attacks. These can result in the loss of substantial sums of money, often in six and seven figures, and valuable, susceptible company information. As a result, phishing problems can be reduced through training and testing, which includes demonstrations of various attacks experienced by peer firms. Although there’s no easy solution, regular and informed testing and training can effectively address this problem.



Regular testing is required of all WISPs and involves internal testing by firms and independent outside vendors. Most testing aims to ensure that key controls, systems and procedures of a WISP meet established standards.

One of the most important types of testing is third-party penetration testing. Penetration testing is an essential element in any cybersecurity program. It simulates an internal or external attack on a company’s computer network to detect its vulnerabilities and evaluate your firewall system’s effectiveness.

In conjunction with legal, compliance and a trusted outside vendor, IT should develop cybersecurity training and testing programs, including mock and tabletop sessions. These tests should be administered periodically (annually, quarterly and when necessary) by capable internal or outside technology experts and can be invaluable to your cybersecurity program.


Incident Response Plan

Lastly, a major element of a WISP is its Incident Response Plan, which provides a procedural structure for your company to respond to a cybersecurity incident expeditiously. The plan should contain specific policies and procedures for responding to a cyber incident with specific provisions.


The plan should require the firm to establish an incident response team (IRT) responsible for addressing all cyber incidents. Depending on the company and the cyber incident, the IRT can comprise members from IT, compliance, legal, HR and other relevant departments. Each member should be a seasoned officer sophisticated in the firm’s technical systems and operations.


Partner with Legal Experts for Assistance

A law firm with a sophisticated cybersecurity group can assist with all the undertakings described above and do so expeditiously and cost-effectively. Pastore LLC has a sophisticated group of seasoned counsel who can direct the development and completion of a WISP and be crucial players in effectively advising on any cyber incident.


This article is intended for informational purposes and does not constitute legal advice.


(Jack Hewitt is a securities lawyer and focuses on securities litigation and regulatory advice and counsel to broker-dealers, investment banks and investment advisers. His work involves virtually every aspect of the federal and state securities laws, including equity, fixed income and derivatives trading, market manipulation, net capital, short-selling, suitability, record retention, insider trading, cybersecurity and registration issues.)

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