‘Cyclops Blink’ Shows Why the SEC’s Proposed Cybersecurity Disclosure Rule Could Undermine the Nation’s Cybersecurity

**This article originally appeared on Lawfare

As nation-state actors increase their malicious cyber capabilities toward companies, U.S. regulators such as the SEC have understandably increased their regulatory focus on cybersecurity. The SEC is of course a well-intended member of Team Cyber, and investors in public companies might benefit from some aspects of the SEC’s proposal: Increased knowledge of a company’s cybersecurity risks, experience, governance, and resiliency could be important to their decision-making. But the proposal is dangerous to the extent that it jeopardizes important safety, security, and geopolitical interests in the name of disclosure. Put simply, the SEC’s proposal must be revised to assure responsible (not reckless) public disclosure. The SEC should not force public companies to choose between SEC liability and effective collaboration with the government’s cybersecurity-focused agencies. As is, the proposed rule could increase the risk to the U.S.’s critical infrastructure, economy, homeland, and allies. The proposal should include deference for exigent law enforcement, national security, and judicial needs, and allow delay where appropriate for ongoing, unpatched incidents when premature disclosure could harm a broad swath of vulnerable companies and even government agencies.

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SEC Requests Comment on Regulation of Information Providers Under the U.S. Investment Advisers Act

On June 15, 2022, the U.S. Securities and Exchange Commission (Commission) issued a request for comment with respect to whether certain index, model, pricing, and other information providers should be regulated as investment advisers under the Investment Advisers Act of 1940. The Commission suggests fresh consideration is needed in light of changes in technology and market practices in the decades since these topics were last given significant attention — especially given the continuing expansion of index-based investment strategies. Responses to the request for comment are due the later of August 16, 2022, or 30 days after publication of the release in the Federal Register. (more…)

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SEC Announces 2022 Examination Priorities: Private Funds, ESG, Retail, Cyber, Digital Assets Top the List

On March 30, 2022, the U.S. Securities and Exchange Commission (SEC) Division of Enforcement (EXAMS or Division) issued its annual examination priorities.1 Consistent with its recent rulemaking activity, in its accompanying release, the SEC highlighted private funds; Environmental, Social and Governance (ESG) investing; retail; cyber; and digital assets as key examination priorities. This article provides a concise summary of upcoming examination priorities and perennial issues registrants can anticipate in the following year’s examinations.

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Newly Proposed SEC Cybersecurity Risk Management and Governance Rules and Amendments for Public Companies

On March 9, 2022, the U.S. Securities and Exchange Commission (SEC) proposed new cybersecurity rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies. The text of the proposed rules is available here. The SEC proposal would continue to ratchet up cybersecurity as an increasingly critical dimension of corporate governance.

Key takeaways from the SEC’s release include the following: (more…)

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Data Protection in Financial Services Week 2022

WEBINAR

From February 28-March 3, Sidley and OneTrust DataGuidance hosted their annual Data Protection in Financial Services (DPFS) Week, a series of webinars looking at the impacts of data privacy across the financial sector. Industry speakers covered a range of issues including:

  • How the latest privacy and cybersecurity developments in Europe and the U.S. have impacted financial services
  • How new and existing privacy and cyber requirements intersect with finance-specific regulation
  • What financial organizations can do to keep ahead of the curve in the ever-evolving data privacy and cyber landscape
  • How to deal with and manage the key issues for 2022, such as AI, data governance, and international transfers

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Newly Proposed SEC Cybersecurity Risk Management Rules and Amendments for Registered Investment Advisers and Funds

On February 9, 2022, the U.S. Securities and Exchange Commission (SEC) proposed comprehensive rules for registered advisers and funds. Among other things, these rules will require advisers and funds to implement written policies and procedures designed to address cybersecurity risks, report significant cybersecurity incidents to the SEC within 48 hours using a proposed form, and keep enumerated cybersecurity-related books and records. Initial reactions have been mixed, including a published dissent from Commissioner Hester Peirce. A public comment period is ongoing.

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SEC Chair: Sweeping New Cybersecurity Rules Are Coming Soon

On Monday, January 24, 2022, in a speech at the Northwestern University Pritzker School of Law annual Securities Regulation Institute conference, Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), announced that he has asked SEC staff to provide sweeping rulemaking recommendations to modernize and expand the agency’s rules relating to cybersecurity.1 Stressing that cybersecurity is a matter of national security, Chair Gensler signaled that new guidance or proposed rules would enhance or expand public company cybersecurity programs and risk disclosures; cybersecurity program requirements and breach notification obligations for SEC regulated entities under Reg S-P; and the scope of registrants covered under Regulation Systems Compliance and Integrity (Reg SCI). He also signaled the SEC’s continued focus on enforcement and cooperation with other law enforcement agencies.2 (more…)

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Preparing Your 2021 Form 10-K: A Summary of Recent Key Disclosure Developments, Priorities, and Trends

This Sidley Practice Note highlights certain key disclosure considerations for preparing your annual report on Form 10-K for fiscal year 2021, including recent amendments to U.S. Securities and Exchange Commission (SEC) disclosure rules and other developments that impact 2021 Form 10-K filings, as well as certain significant disclosure trends and current areas of SEC staff focus for disclosures. (more…)

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Caremark’s Comeback Includes Potential Director Liability in Connection With Data Breaches

Caremark­-based claim against a board of directors alleging a failure to monitor corporate operations has been said to be “the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment,” or at least to withstand a motion to dismiss.  Yet, Caremark has taken on renewed importance — as noted by this blog — following recent high-profile successes on duty-to-oversee claims, most notably in Marchand v. Barnhill in 2019 and In re Boeing in September 2021, and recent shareholder lawsuits alleging that data breach- and cybersecurity-related failures would have been preventable were it not for oversight failures by corporate officers and directors, are being plead asserting Caremark claims. (more…)

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SEC Encourages Self-Reporting of Recordkeeping Violations Resulting From Employees’ Use of Personal Devices for Business Communications

On December 17, 2021, the U.S. Securities and Exchange Commission (SEC) announced settled charges against a broker-dealer firm for recordkeeping violations arising from its employees’ use of personal devices for business communications. The firm agreed to pay a $125 million penalty and to retain a compliance consultant to conduct a comprehensive review of its policies and procedures relating to the retention of electronic communications found on personal devices. In announcing this enforcement action, the SEC encouraged registrants to self-report similar failures to the SEC. (more…)

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