Private Equity Navigates Evolving Cybersecurity Landscape: Insights from SEC Advisor

Navigating the Evolving Cybersecurity Landscape: Insights from a Former SEC Advisor

In today's world of private equity PE, it is not uncommon for cyber threats to be lurking in the shadows, seeking out vulnerable targets. As a result, PE firms are being compelled to adapt and shift their cybersecurity strategies amidst the evolving landscape. This includes enhancing oversight over portfolio companies' security practices, as regulatory expectations expand to protect investor assets beyond traditional boundaries.

To shed light on this critical issue and offer actionable guidance, Chad Neale, Senior Vice President at Alliant CyberMA, recently engaged in a discussion with Chris Hetner - a former advisor for cybersecurity policy to the SEC.

Hetner's insights pnt an evolving picture of the regulatory environment where private equity firms now face increased scrutiny over how they manage cyber risks across their investment portfolios.

Traditionally, under Regulation S-P Reg S-P, the Securities and Exchange Commission SEC focused on safeguarding sensitive investor data like social security numbers and account detls. The proposed amments to Reg S-P are set to introduce a paradigm shift by placing emphasis not just on data protection but also on ensuring the integrity of investment portfolios themselves.

PE firms must now demonstrate a thorough understanding of their portfolio companies' cybersecurity postures, as well as how they mitigate cyber risks affecting their investments:

1. Active Board Involvement and Due Diligence

   Hetner underscores the need for boards to be actively involved in overseeing cybersecurity practices within their portfolio companies. This includes integrating discussions on cybersecurity risk into board meetings and conducting deep dives during due diligence processes that go beyond mere financial health checks.

2. Ongoing Risk Assessment Across the Portfolio

   Cybersecurity is a continuous process rather than an isolated effort. Hetner stresses the importance of performing ongoing assessments across each company in their portfolio to understand specific industry threats. This enables fir prioritize investments in cybersecurity controls based on their unique risk profiles and needs.

3. Clear Communication with Boards

   can create barriers in communicating cyber risks to non-technical stakeholders, including board members. Hetner advocates for clear and concise communication that translates technical risks into business language comprehensible by the board, ensuring that cybersecurity strategies are aligned with financial objectives.

4. Efficiency Through Streamlined Technology Stack

   Managing cybersecurity across a diverse portfolio can be complex and resource-intensive. Hetner suggests streamlining technology stacks where possible to reduce management overhead and costs, ming for scalability and efficiency.

5. Creating a Dedicated Cybersecurity Team

   In light of increased responsibilities, PE firms face the challenge of allocating resources effectively. Hetner recomms establishing a dedicated team focused on operational risk oversight within the firm. This team would manage cybersecurity risks across the portfolio while integrating it with other critical areas like legal compliance and supply chn management.

A Proactive Approach is Key

Chris Hetner's advice highlights that private equity firms must adopt proactive strategies in addressing the evolving cybersecurity landscape. By implementing a comprehensive program that includes board oversight, due diligence assessments tlored to each company's needs, clear communication practices, efficient technology stacks, and dedicated operational risk teams, firms can demonstrate strong cybersecurity governance and protect their investments agnst cyber threats.

To achieve these objectives, private equity firms should seek specialized insurance brokerage services that understand their unique risks and provide tlored solutions for risk management and transfer. By doing so, they ensure resilience in the face of emerging cybersecurity challenges.

: In today's environment, a robust cybersecurity posture is not just a best practice; it’s essential to safeguarding investments and mntning business continuity. Alliant Insurance Services stands ready to support private equity firms on their journey towards secure digital transformation with and strategic insurance solutions.

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