SEC Discloses Cybersecurity Breach That May Have Led to Insider Trading

The determination of hackers to exploit existing cybersecurity vulnerabilities of government agencies and businesses shot to the forefront again last Wednesday, when SEC Chair Jay Clayton revealed that the commission’s EDGAR database had been hacked in 2016 through a software vulnerability in the test filing component of the system.

According to Clayton, the breach was originally discovered last year and the vulnerability was patched soon afterward. However, just last month as part of an ongoing assessment of the SEC’s cybersecurity risk profile that the chairman initiated upon taking office, it was determined that the hack “may have provided the basis for illicit gain through trading.” Specifically, the SEC said while they did not believe the intrusion resulted in unauthorized access to personally identifiable information, jeopardized the Commission’s operations or resulted in any systemic risk, it did lead to unauthorized access to nonpublic information.

According to the SEC’s statement, the EDGAR system receives and processes over 1.7 million corporate disclosure filings per year, an invaluable collection of documents that includes quarterly earnings reports and mergers and acquisitions statements.

Clayton said that an investigation into the matter is continuing, and that the Commission is coordinating with the appropriate authorities as it continues to prioritize efforts to promote effective cybersecurity practices.

“Cybersecurity is critical to the operations of our markets and the risks are significant and, in many cases, systemic,” Clayton said. “We must be vigilant. We also must recognize—in both the public and private sectors, including the SEC—that there will be intrusions, and that a key component of cyber risk management is resilience and recovery.”

Clayton reiterated principles and components of the SEC’s internal cyber initiative, which should sound familiar to industry participants, including:

  • A focus by senior management on cybersecurity is important to identify and mitigate risk;
  • The SEC “periodically assesses the effectiveness of its cybersecurity efforts” through penetration testing, monitoring, independent verification, and third party assessments and audits; and
  • The SEC’s Information Security Program follows the NIST framework.

Notably, Clayton did not discuss encryption.

He also stated that the SEC recognizes there is “no single correct approach to cybersecurity” and said the OCIE Risk Alert published in August “was not intended to provide a checklist of required practices, but rather to share” information that may be to useful to firms’ cybersecurity planning.

A breach at the SEC is especially distressing news to the industry, as it’s coming at a time when more information than ever is being sent to regulators, including personally identifiable information, nonpublic information and specific firm trading data. The SEC is aware of the enormous risk to the industry; a breach could result in identify theft, insider trading/market manipulation, and discovery and use of trade secrets and other proprietary data, for example.

The SEC’s news also comes on the heels of the disclosure of the recent Equifax breach, which compromised the personal information of as many as 143 million people.

These incidents coincide with National Cybersecurity Awareness Month coming up in October and serve as important reminders to all companies who have access to sensitive information: work on cybersecurity is both crucial and continuous. As hackers evolve, so must we.

Please contact Ascendant at info@ascendantcompliance.com if you are interested in receiving information about our cybersecurity testing and cybersecurity risk assessment services, including network penetration testing, vulnerability scanning, social engineering testing, NIST cybersecurity framework compliance, and cybersecurity policy gap analysis.


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CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.

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