The New SEC Cybersecurity Rules

In July 2023, the U.S. Securities and Exchange Commission (SEC) introduced new cybersecurity rules, marking a significant shift in disclosure requirements for public companies. The 2023 Guidance builds upon the 2018 Guidance and imposes additional obligations on businesses, emphasizing the need for timely and detailed reporting of material cybersecurity incidents.?

Understanding the Key Changes

The 2023 SEC cybersecurity rules introduce several noteworthy modifications. The first includes a narrowed scope of the incident disclosure and a limited delay for disclosing risks to the public or national security. These rules have been the most controversial and have drawn scrutiny because of how quickly the SEC wants cybersecurity reporting to happen. There are also updated incident disclosures that the SEC has issued; instead of Form 10-Q/10-K/20-F, an amended Form 8-K/6-K should be completed. The next significant update is a streamlined risk management, strategy, and governance disclosure process.??

Detailed Changes in Disclosures

The 2023 Guidance focuses on four key areas of disclosure:

• Risk Management and Strategy:Registrants must describe their processes for assessing and managing material risks from cybersecurity threats.Enlisting third-party cyber experts is recommended for drafting and implementing strategies.
• Governance:Registrants must describe the Board of Directors' oversight of cybersecurity and management's role in assessing and managing risks.
• Material Cybersecurity Incidents:Disclosure of material incidents within four business days, with the possibility of a limited delay for national security.Material incidents are defined as those affecting the organization strategically, operationally, or financially.
• Foreign Private Issuers:FPIs must promptly disclose material cybersecurity incidents on Form 6-K after publicizing them in a foreign jurisdiction.

Impact on Organizations

The 2023 SEC rules necessitate swift and detailed disclosure of cybersecurity incidents. This shift aims to create a more accessible repository for such incidents, ensuring investors and the public receive timely and accurate information. However, determining materiality remains challenging, requiring organizations to consider various factors affecting operations, reputation, data release, recovery time, costs, and legal obligations.

Boards must disclose their oversight of cybersecurity risks, although the proposed requirement for disclosing board cybersecurity expertise was dropped. This emphasizes the importance of boards exercising effective oversight and staying informed about the evolving cybersecurity landscape.

Navigating Rule Changes

To navigate the 2023 SEC cybersecurity rules effectively, organizations should consider the following approaches:

• Proactive ApproachProactively address cybersecurity, setting standards and ensuring compliance.Evaluate board members' cybersecurity knowledge and consider external expertise.
• Audit and ComplianceConduct evidence-based audit and compliance testing to evaluate cybersecurity standards.Engage independent specialists for objective evaluations.
• Periodic Cybersecurity Risk AssessmentDocument and update periodic cybersecurity risk assessments aligned with industry frameworks.
• Effective Incident Response and Disclosure ControlsImplement effective incident response plans.Enhance disclosure controls and procedures for accurate and timely reporting.

The 2023 SEC cybersecurity rules bring substantial changes, emphasizing the need for transparent and timely disclosure of cybersecurity incidents. By proactively addressing these changes and collaborating with trusted security partners, businesses can meet SEC requirements and enhance their overall cybersecurity posture in an evolving threat landscape.?

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