SEC Cybersecurity Disclosure Rules: 9 Key Questions to Ask Third Parties
In 2023, the U.S. Securities and Exchange Commission (SEC) adopted new rules and amendments to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies. The SEC publication notes that cybersecurity risks have recently escalated for various reasons, including companies’ increasing reliance on third-party service providers for IT services and a growing number of incidents traced to service providers.
These new rules took effect in December 2023, and we are starting to see the effects of not following them. The SEC has announced enforcement actions against four software companies for making misleading statements about cybersecurity risks and incidents related to the 2020 SolarWinds Breach. By downplaying how this breach affected their systems, the regulators found these companies in violation of federal securities laws, and one company also faced charges for having inadequate disclosure controls.
SEC Cybersecurity Disclosure Rules Implications on Third-Party Risk Management
These recent charges reinforce the critical importance of robust cybersecurity risk management within third-party risk management (TPRM) programs. Some key implications to highlight include:
- Enhance Cybersecurity Disclosures: Organizations must provide transparent and accurate disclosures about their cybersecurity posture, particularly regarding risks associated with third-party vendors. Misleading information can lead to significant regulatory penalties.
- Strengthen Due Diligence Processes: Companies should improve their due diligence when onboarding third-party vendors. This includes assessing vendors’ cybersecurity practices and ensuring they have robust measures to mitigate risks. Regular assessments and audits of vendor compliance are essential.
- Implement Stronger Controls and Procedures: Organizations need to establish and maintain effective internal controls for reporting cybersecurity incidents. Ensure you report all breaches involving third-party vendors promptly and accurately and establish clear communication protocols.
- Conduct Comprehensive Vendor Risk Assessments: Companies should evaluate the risks associated with each vendor based on their cybersecurity capabilities. Categorizing vendors by risk level allows organizations to tailor their risk management strategies and impose stricter cybersecurity requirements on higher-risk vendors.
- Provide Ongoing Training and Awareness: Organizations must offer employees regular training and awareness programs on the significance of accurate cybersecurity disclosures and the consequences of misleading information. Staff should understand the legal obligations related to cybersecurity risks and the importance of transparency.
- Develop Robust Incident Response Plans: Companies should create effective incident response plans that include third-party vendors. Ensure these plans address potential breaches through third-party channels, outlining communication strategies and escalation protocols.
- Stay Compliant with Regulatory Requirements: Organizations must remain vigilant about changing regulatory expectations regarding cybersecurity. The SEC’s actions indicate a trend toward increased regulatory scrutiny, making compliance with applicable laws and guidelines crucial.
Organizations should reassess and strengthen their third-party risk management programs, ensuring they can effectively manage and disclose cybersecurity risks. By doing so, they can better protect their reputation, maintain investor confidence, and mitigate potential legal and financial repercussions.
Comply with the Latest SEC Cybersecurity Disclosure Rules
This guide is ideal for any security, compliance or risk management professional who needs to prepare their organization to meet the latest SEC requirements.
Address the Updated SEC Cybersecurity Disclosure Rules with this Third-Party Assessment
To help public companies address these updated requirements, Prevalent has created a 9-question assessment for the security and risk management community. Use the assessment to:
- Determine the extent of third-party cybersecurity incident management
- Identify how third parties report on the operational impacts of cyber incidents
- Examine third-party cybersecurity risk assessment and risk identification programs
- Clarify remediation actions taken as part of cybersecurity incident response
- Reveal the level of management oversight into third-party cybersecurity incidents
| Questions | Answer Choices |
|---|---|
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1) Has the organization established a formal cybersecurity incident management process? |
Please select one of the following: a) Yes, a formal cybersecurity incident management process has been developed. b) No, a formal cybersecurity incident management process has not been developed. |
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2) Would the organization disclose the following information about a material cybersecurity incident? |
Please select all that apply. a) When the incident was discovered and whether it is ongoing. b) A brief description of the nature and scope of the incident. c) Whether any data was stolen, altered, accessed, or used for any other unauthorized purpose. d) The effect of the incident on the registrant’s operations. e) Whether the registrant has remediated or is currently remediating the incident. |
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3) Following identification of a cybersecurity incident, is the material impact and potential impact on operations and financial condition recorded and disclosed? |
Please select one of the following: a) Yes, both material and potential impact to operational and financial conditions are recorded. b) No, impact to operational and financial conditions are not recorded or disclosed. |
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4) Do disclosures of cybersecurity incidents include remediation actions taken, and where changes to policy or procedure have been made as a result of these incidents? Help text: Any changes in the registrant’s policies and procedures as a result of a cybersecurity incident should be recorded. |
Please select one of the following: a) Yes, remediation actions are taken, and changes to policy or procedures are disclosed. b) No, remediation actions are not taken, and changes to policy or procedures are not disclosed. |
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5) Does the organization have a cybersecurity risk assessment program? |
Please select one of the following: a) Yes, a cybersecurity risk assessment program has been developed. b) No, a cybersecurity risk assessment program has not been developed. |
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6) Has the organization established any policies and procedures to oversee and identify the cybersecurity risks associated with its use of third-party service providers? |
Please select all that apply. a) A set of policies and procedures for managing risks associated with third-party service providers is established. b) Results of risk assessments support the decision for the selection and oversight of third-party service providers. c) Risks associated with the use of third-party service providers are actioned, and security and privacy controls are defined within third-party contracts. |
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7) Do the results of cybersecurity risk assessments factor into decisions regarding governance policies and procedures, technologies and business strategies? |
Please select one of the following: a) Yes, the results of cybersecurity risk assessments are considered when reviewing governance policies and procedures, technologies and business strategies. b) No, results of cybersecurity risk assessments are not considered when reviewing governance policies and procedures, technologies and business strategies. |
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8) Does the organization's management, board or designated committee have responsibility for the oversight of cybersecurity risks? |
Please select one of the following: a) Yes, management, the board or a designated committee has responsibility for cybersecurity risks. b) No designated group or committee has overall responsibility for cybersecurity risks. |
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9) Please state how the board and management receive information regarding cybersecurity risks. |
Please select all that apply. a) The board and management receive notifications about cybersecurity risks on a frequent basis. b) Cybersecurity risks are considered as part of business strategy, risk management and financial oversight planning. |
Best Practices for Third-Party Cybersecurity Risk Management, Governance, Strategy and Incident Disclosure
A well-governed third-party risk management program includes processes and technology that supports identifying, triaging, and remediating risks across the third-party lifecycle. Here are several best practices to consider as you evaluate your third-party governance program:
- Profile and tier all third parties, gaining inherent risk scores that indicate the likelihood and impact of a cybersecurity incident and enable you to right-size ongoing due diligence activities
- Automate third-party risk assessment, risk scoring and remediation processes to expedite risk mitigation
- Continuously monitor third parties for cybersecurity risks and correlate risks against assessment results to validate findings
- Automate incident response processes to speed reporting and time to resolution
- Simplify board and executive reporting to enable clear and efficient decision making
- Continually benchmark your program against accepted best practices with compliance reporting against several frameworks and regulations
Next Steps: Download the SEC Cybersecurity Disclosure Rules Checklist
For more on how Prevalent can help your organization meet SEC reporting requirements, download our SEC Cybersecurity Disclosure Rules checklist. Or, contact us to schedule a demo today.
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