If you are involved in creating, maintaining, operating or acquiring risk-appropriate software, this short blog about the recent wannacry ransomware exercise is worth reading.
A couple weeks ago I received a letter from Wells Fargo. After mentioning some brokerage account details there were a couple paragraphs of disclosure about $2.5 M in penalties for failing to effectively protect business-related electronic records. Wells Fargo has been having a rough time lately. But this situation is just so self-inflicted, and so likely to happen elseware as Financial Services organization’s technology personnel attempt to demonstrate that they can “deliver more for less…” that I thought it might be worth sharing as a cautionary tale.
The disclosures outlined that the bank’s brokerage and independent wealth management businesses paid $1 million and another $1.5 million in fines & penalties because they failed to keep hundreds of millions of electronic documents in a “write once, read many” format — as required by the regulations under which they do business.
Federal securities laws and Financial Industry Regulatory Authority (FINRA) rules require that electronic storage media hosting certain business-related electronic records “preserve the records exclusively in a non-rewriteable and non-erasable format.” This type of storage media has a legacy of being referred to as WORM or “write once, read many” technology that prevents the alteration or destruction of the data they store. The SEC has stated that these requirements are an essential part of the investor protection function because a firm’s books and records are the “primary means of monitoring compliance with applicable securities laws, including anti-fraud provisions and financial responsibility standards.” Requiring WORM technology is associated with maintaining the integrity of certain financial records.
Over the past decade, the volume of sensitive financial data stored electronically has risen exponentially and there have been increasingly aggressive attempts to hack into electronic data repositories, posing a threat to inadequately protected records, further emphasizing the need to maintain records in WORM format. At the same time, in some financial services organizations “productivity” measures have resulted in large scale, internally-initiated customer fraud, again posing a threat to inadequately protected records.
My letter resulted from a set of FINRA actions announced late last December that imposed fines against 12 firms for a total of $14.4 million “for significant deficiencies relating to the preservation of broker-dealer and customer records in a format that prevents alteration.” In their December 21st press release FINRA said that they “found that at various times, and in most cases for prolonged periods, the firms failed to maintain electronic records in ‘write once, read many,” or WORM, format.”
FINRA reported that each of these 12 firms had technology, procedural and supervisory deficiencies that affected millions, and in some cases, hundreds of millions, of records core to the firms’ brokerage businesses, spanning multiple systems and categories of records. FINRA also announced that three of the firms failed to retain certain broker-dealer records the firms were required to keep under applicable record retention rules.
Brad Bennett, FINRA’s Executive Vice President and Chief of Enforcement, said, “These disciplinary actions are a result of FINRA’s focus on ensuring that firms maintain accurate, complete and adequately protected electronic records. Ensuring the integrity of these records is critical to the investor protection function because they are a primary means by which regulators examine for misconduct in the securities industry.”
FINRA reported 99 related “books and records” cases in 2016, which resulted in $22.5 million in fines. That seems like real money…
Failure to effectively protect these types of regulated electronic records may result in reputational (impacting brand & sales) and financial (fines & penalties) harm. Keep that in mind as vendors and hype-sters attempt to sell us services that persist regulated data. New technology and service options do not supersede or replace established law and regulations underwhich our Financial Services companies operate.
“FINRA Fines 12 Firms a Total of $14.4 Million for Failing to Protect Records From Alteration.”
December 21, 2016
“Annual Eversheds Sutherland Analysis of FINRA Cases Shows Record-Breaking 2016.”
February 28, 2017
“Is Compliance in FINRA’s Crosshairs?”
SEC Rule 17a-4 & 17a-3 of the Securities Exchange Act of 1934:
“SEC Rule 17a-4 & 17a-3 – Records to be made by and preserved by certain exchange members, brokers and dealers.” (vendor summary)
“SEC Interpretation: Electronic Storage of Broker-Dealer Records.”
“(17a-3) Records to be Made by Certain Exchange Members, Brokers and Dealers.”
“(17a-4) Records to be Preserved by Certain Exchange Members, Brokers and Dealers.”
The Cloud Security Alliance published “The Treacherous 12 – Cloud Computing Top Threats in 2016” last year. I just saw it cited in a security conference presentation and realized that I had not shared this reference. For those involved in decision-making about risk management of their applications, data, and operations, this resource has some value. If you have not yet experienced a challenge to host your business in “the cloud”** it is likely you will in the future.
In my opinion, the Cloud Security Alliance is wildly optimistic about the business and compliance costs and the real risks associated with using shared, fluid, “cloud” services to host many types of global financial services business applications & non-public data. That said, financial services is a diverse collection of business activities, some of which may be well served by credible “cloud” service providers (for example, but not limited to, some types of sales, marketing, and human resource activities). In that context, the Cloud Security Alliance still publishes some content that can help decision-makers understand more about what they are getting into.
“The Treacherous 12 – Cloud Computing Top Threats in 2016” outlines what “experts identified as the 12 critical issues to cloud security (ranked in order of severity per survey results)”:
- Data Breaches
- Weak Identity, Credential and Access Management
- Insecure APIs
- System and Application Vulnerabilities
- Account Hijacking
- Malicious Insider
- Advanced Persistent Threats (APTs)
- Data Loss
- Insufficient Due Diligence
- Abuse and Nefarious Use of Cloud Services
- Denial of Service
- Shared Technology Issues
For each of these categories, the paper includes some sample business impacts, supporting anecdotes and examples, candidate controls that may help address given risks, and links to related resources.
If your role requires evaluating risks and opportunities associated with “cloud” anything, consider using this resource to help flesh out some key risk issues.
**Remember, as abstraction is peeled away “the cloud” is an ecosystem constructed of other people’s “computers” supported by other people’s employees…
Cloud Security Alliance:
“The Treacherous 12 – Cloud Computing Top Threats in 2016”
I have a sticker on my laptop reminding me that “The cloud is just other people’s computers.” (from StickerMule) There is no cloud magic. If you extend your global Financial Services operations into the cloud, it needs to be clearly and verifiably aligned with your risk management practices, your compliance obligations, your contracts, and the assumptions of your various constituencies. That is a tall order. Scan the rest of this short outline and then remember to critically evaluate the claims of the hypesters & hucksters who sell “cloud” as the solution to virtually any of your challenges.
Amazon reminded all of us of that fact this week when maintenance on some of their cloud servers cascaded into a much larger 2 hour service outage.
No data breach. No hack. Nothing that suggests hostile intent. Just a reminder that the cloud is a huge, distributed pile of “other people’s computers.” They have all the hardware and software engineering, operations, and life-cycle management challenges that your staff find in their own data centers. A key difference, though, is that they are also of fantastic scale, massively shared, and their architecture & operations may not align with global Financial Services norms and obligations.
Amazon reported that the following services were unavailable for up to two and half hours Tuesday Morning (28 Feb, 2017):
- S3 storage
- The S3 console
- Amazon Elastic Compute Cloud (EC2) new instance launches
- Amazon Elastic Block Store (EBS) volumes
- AWS Lambda
This resulted in major customer outages.
Here is how Amazon described the outage:
- “…on the morning of February 28th. The Amazon Simple Storage Service (S3) team was debugging (a billing system) issue…”
- “At 9:37AM PST, an authorized S3 team member using an established playbook executed a command which was intended to remove a small number of servers for one of the S3 subsystems that is used by the S3 billing process.”
- “Unfortunately, one of the inputs to the command was entered incorrectly and a larger set of servers was removed than intended.”
- “The servers that were inadvertently removed supported two other S3 subsystems.”
- “One of these subsystems, the index subsystem, manages the metadata and location information of all S3 objects in the region. This subsystem is necessary to serve all GET, LIST, PUT, and DELETE requests.”
- “The second subsystem, the placement subsystem, manages allocation of new storage and requires the index subsystem to be functioning properly to correctly operate. The placement subsystem is used during PUT requests to allocate storage for new objects.”
- “Removing a significant portion of the capacity caused each of these systems to require a full restart.”
- “While these subsystems were being restarted, S3 was unable to service requests.”
- “Other AWS services in the US-EAST-1 Region that rely on S3 for storage, including the S3 console, Amazon Elastic Compute Cloud (EC2) new instance launches, Amazon Elastic Block Store (EBS) volumes (when data was needed from a S3 snapshot), and AWS Lambda were also impacted while the S3 APIs were unavailable.”
There is no magic in the cloud. It is engineered and operated by people. Alignment between your corporate culture, your corporate compliance obligations, your contractual obligations, and those of your cloud providers is critical to your success in global Financial Services. If those cloud computers and the activities by armies of humans who manage them are not well aligned with your needs and obligations, then you are simply depending on “hope” — one of the most feeble risk management practices. You are warned — again.
What do you think?
“The embarrassing reason behind Amazon’s huge cloud computing outage this week.”
By Brian Fung, March 2
“Summary of the Amazon S3 Service Disruption in the Northern Virginia (US-EAST-1) Region.”
The research team at security & risk data aggregator (and more) Risk-Based Security (RBS) published a couple of their observations this month — observations that should be a reminder to all of us involved in global Financial Services risk management. RBS catalogs & analyzes thousands of breaches every year. They suggest that ad-hoc, personality-based, or other types of company-unique security practices put companies at a self-inflicted and avoidable level of risk. RBS researchers summarize their findings into a couple central themes:
- “Breaches can happen at even the most security-conscious organizations.”
- “The tenacity and skill of attackers when it comes to searching out weaknesses in organizational practices and processes is unrelenting.”
There are a couple key components to their follow-on recommendation:
- Employ a methodical and risk-based approach to security management, where risk assessments incorporate both:
- The organization’s security practices, and
- Downstream risk posed by vendors, suppliers and other third parties.
To address these risks and add structure to day-to-day risk management work, RBS researchers recommend that we:
- Define security objectives and
- Select and implement security controls.
The content of the memo describing RBS research observations is useful at the most high levels as a reminder in global Financial Services. While this seem a little like recommending we all continue to breath, eat well, and sleep enough. Their guidance to leverage mature security frameworks “to create robust security programs based on security best practice” is a long bumper sticker. In Financial Services at global scale, we all know that and our various constituencies regularly remind us of those types of requirements. Sometimes they even show up in our sales literature, contracts, and SEC filings.
Bumper stickers may still have their place. RBS observations and recommendations may not be what we need for implementation, but they can help with our elevator speeches & the tag-lines required in a number of frequently encountered risk management interactions.
Here is one way to use summarize their observations and recommendations:
Breaches continue to happen. Attackers are tenacious and unrelenting. Employ risk-appropriate levels of rigor and risk-based prioritization in the application your security practices, as well as in downstream risk posed by vendors, suppliers and other third parties.
“Risk Based Security, NIST and University of Maryland Team Up To Tackle Security Effectiveness.”
February 17, 2017; By RBS
Another key message in the blog was to highlight a joint research project by “NIST’s Computer Security Resource Center and the University of Maryland, known as the Predictive Analytics Modeling Project (http://csrc.nist.gov/scrm/pamp-assessment-faqs.htm). The aim of the project is to conduct the primary research needed in order to build tools that can measure the effectiveness of security controls.” The project web site also says their mission includes seeing “how your organization compares to peers in your industry.” For more on this project see “CyberChain” at: https://cyberchain.rhsmith.umd.edu/.
Effective information and operations security is essential for all global financial services enterprises.
Even so, in my workplace it seems like we rarely summarize ways that it delivers value in that arena.
Last week Identity Solutions Strategist at Micro Focus, Travis Greene shared his list:
#1 IT security saves money
#2 IT security retains customers
#3 IT security improves productivity
#4 IT security will help you keep your job
#5 IT security is ethical
Take a look at the full article to see why he poses these assertions.
Five Reasons to be Thankful for IT Security
By Travis Greene
I received a link this morning from a colleague about office space. it was an entertaining and interesting diversion from the all too often inward-focused grind.
It reminded me that other fields, not only Information Security, seem to suffer from unproductive, unbusiness-like amounts of “hope as a strategy”, unearned & misplaced trust, faith-based belief systems, flimflam, misdirection, puff, raw emotion, as well as lots of hype & hype-sters.
The article linked below is a quick read about alternative ways to frame some of the current blather about how reshaping the office environment necessarily leads to business benefits. If you find this topic of interest, it appears to be the focus of some adult attention & analysis — see your favorite search engine for more. If you are really interested, search on “herd behavior” and on “cognitive traps.” There are many paths to broadly shared beliefs in “solutions” that are both unsupported by and contradicted by what often seem to be easy to grasp facts. We still face lavish challenges.
“The Myths behind Brainstorming, Open Office Plans, and Collaboration.”
By Linda Hayes – November 3, 2016