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Regulatory Notice 22-29

FINRA Alerts Firms to Increased Ransomware Risks

Published Date:


FINRA has received reports about increasing numbers and sophistication of ransomware incidents. Ransomware typically involves bad actors gaining unauthorized access to firm systems and encrypting or otherwise accessing sensitive firm data or customer information, then holding that hijacked data for ransom. Some ransomware attacks have become significant threats that include theft of data and bad actors’ ongoing network access.

Ransomware attacks have proliferated due to, in part, increased use of technology and continued adoption of cryptocurrencies, which bad actors use to hide their identities when collecting ransom payments. Further, Ransomware-as-a-Service (RaaS) models, where bad actors purchase attack services on the dark web,1 have helped execute attacks on a much larger scale and make attacks available to less technologically savvy bad actors.

Rule 30 of the U.S. Securities and Exchange Commission’s (SEC) Regulation S-P requires firms to have written policies and procedures that are reasonably designed to safeguard customer records and information. FINRA Rule 4370 (Business Continuity Plans and Emergency Contact Information) also applies to ransomware attacks that include denials of service and other interruptions to members’ operations.

This Notice provides questions firms can use to evaluate their cybersecurity programs in light of the increased ransomware threat, lists possible additional firm controls and provides relevant resources.

This Notice, including the questions for consideration, does not create new legal or regulatory requirements or new interpretations of existing requirements, nor does it relieve firms of any existing obligations under federal securities laws and regulations. Member firms may consider the information in this Notice in developing new, or modifying existing, practices that are reasonably designed to achieve compliance with relevant regulatory obligations based on the member firm’s size and business model. Moreover, some questions may not be relevant due to certain firms’ business models, size or practices.

Questions regarding this Notice should be directed via email.

Background and Discussion

Ransomware, a type of highly sophisticated malware, can quickly impair firms’ business operations and expose firms to risks of data theft or publication (on the dark web or publicly available internet) to coerce a ransom payment. The malware encrypts firms’ files, databases and applications to prevent firm employees from accessing them until the firms pay a ransom to the bad actors. In addition to encrypting sensitive data, bad actors may copy firms’ data to a storage location on the internet, leading to breaches that could result in reputational harm, federal and state legal and regulatory consequences, and significant financial costs. Bad actors exploit firm systems through phishing, as well as several common attack types that capitalize on known system vulnerabilities (including aging systems), inadequate remote-access controls and compromised login credentials. Ransomware threats may impact firms’ internal networks, as well as data stored by their cloud service providers and third parties, and in mobile devices and related mobile applications.

Ransomware attacks have grown in frequency, sophistication and scope in recent years because they are profitable, relatively easy to execute compared to other attacks and often use cryptocurrency payment methods that allow bad actors to hide their identities. As firms become increasingly reliant on digital infrastructures, some have become more willing to pay ransoms to minimize downtime in operations, thereby increasing bad actors’ incentives to pursue ransomware compared to other strategies. Bad actors continue to increase their use of ransomware for cybersecurity attacks and RaaS has made ransomware attacks more accessible for less technologically savvy bad actors because they can rely on others for assistance. Further, bad actors using ransomware—including sophisticated cyber criminals, organized crime syndicates and state actors—have increasingly targeted small and mid-size firms.

Ransom Payment Risks

Paying ransom demands does not guarantee a return to normal operations for firms. FINRA has observed instances where firms pay ransoms, but fraudsters:

  • failed to provide, or only provided a portion of, the promised recovery keys to decrypt and recover the firms’ files and data; and
  • completed subsequent successful ransomware attacks shortly after the initial attack and demanded additional ransom payments

In the event of a ransomware attack, FINRA reminds firms that FinCEN has issued guidance describing when broker-dealers and other financial institutions must file Suspicious Activity Reports (SARs) and immediately notify law enforcement of ransomware incidents. Firms should also consult Office of Foreign Assets Control’s (OFAC) guidance when making or facilitating a ransomware payment may violate sanctions regulations.


Common Attack Types and Considerations for Firms’ Ransomware Threat Defenses

The broad scope and complexity of ransomware attacks require firms to implement strategies that include maintaining security with multiple layers of defense. Firms may use the following questions to evaluate their cybersecurity controls addressing ransomware risks. This Notice’s Appendix 1—Ransomware Controls provides additional information regarding controls.

  • Governance and Risk Assessment. Do your firm’s policies and procedures clearly define responsibilities for cybersecurity controls and related breaches, including ransomware attacks? Does your firm require staff to report ransomware risks, as well as related steps to address those risks, to senior management? Does your firm use tools, such as penetration testing and vulnerability scanning, to support your firm’s risk assessment?
  • Asset Management Inventory. Does your firm maintain a comprehensive inventory of its hardware, software, data and applications? As part of your firm’s inventory and related reviews, has your firm identified and addressed any at-risk hardware or software that are vulnerable to a ransomware attack?
  • Technical Preventive and Detective Controls. Does your firm prioritize implementing controls on commonly targeted systems and devices?
    • Does your firm require multi-factor authentication to access firm systems or devices? Has the firm evaluated its capabilities to detect and block sophisticated attacks using tools, such as endpoint detection and response, a host-based intrusion detection system and a host-based intrusion prevention system?
    • Is sensitive data encrypted to prevent it from being readable if a bad actor copies this information outside of your firm’s network as part of a ransomware attack?
    • Has your firm enabled the latest tools to restrict or limit access to firm systems, such as PowerShell and logging, restricting access to Remote Desktop Protocol services and access for admin tools, as well as using a file server resource manager (with restrictions on writing ransomware extensions)?
  • Social Engineering and Phishing.2 Does your firm address social engineering and phishing risks for firm staff, including:
    • Addressing such risks in your firm’s policies and procedures or by, for example:
      • identifying phishing emails;
      • clarifying that staff should not click on any links or open any attachments in phishing emails;
      • requiring deletion of phishing emails;
      • developing a process to securely notify Information Technology (IT) administrators or compliance staff of phishing attempts; and
      • ensuring proper resolution and remediation after phishing attacks?
    • Training firm staff on such threats, tactics and procedures used by bad actors and regularly conducting phishing email campaign simulations to evaluate employee understanding of and compliance with your firm’s phishing policies and procedures?
    • Implementing email scanning and filtering to monitor and block phishing and spam communication, including blocking known malicious sites and ransomware files, unmasking URLs, and noting risk and reputation ratings and previews of the target pages; and
    • Maintaining controls to review and approve access requests, particularly those made through customer service channels?
  • Third-Party Vendors. Does your firm have procedures to evaluate and, as appropriate, test vendors’ cybersecurity controls, including the vendor’s ability to protect sensitive firm and customer nonpublic personal information?
    • Does your firm establish written contractual terms with vendors appropriate to the sensitivity of the information to which the vendor has access and which govern the ongoing relationship with the vendor and the vendor’s responsibilities after the relationship ends?
    • Are vendors required to notify the firm of cybersecurity events and their
      efforts to remediate those events?
    • Does your firm conduct independent, risk-based reviews to determine if vendors have experienced any cybersecurity events, data breaches or other security incidents? If so, does your firm evaluate the vendors’ response to such events for firm and customer impact?
  • Branch Controls. Does your firm require a minimum set of cybersecurity controls for all locations, including branch and non-branch locations? How does your firm verify and monitor compliance with these controls?
    • Does your firm require that branch and non-branch locations use firm-approved vendors or vendors meeting specified standards?
    • How does your firm address risks for any branch and non-branch locations that purchase their own hardware or software?
    • Does your firm require branch and non-branch locations to conduct virus scans and software security patching and encrypt laptops and other devices?
    • For locations connecting remotely to your firm systems, does your firm require a Virtual Private Network (VPN) connection or use a Mobile Device Management tool that enforces hygiene requirements on “Bring Your Own Device” devices connecting remotely to your firm?
    • Does your firm require branch and non-branch locations to regularly back up data, including requiring that these backups are not connected the existing branch technology environment?
    • Does your firm provide training to branch and non-branch staff to address identifying and reporting potential ransomware incidents?
  • Backups and Recovery. Does your firm keep offline encrypted backups of systems and data, which are not connected to the primary data source, to prevent bad actors from locking up the back-up data with the primary data? Does your firm test its data recovery capabilities and backup processes on a regular basis, such as those referenced in the firm’s business continuity (BCP), disaster recovery or incident response plans (IRP)?
  • Incident Response. Does your firm’s IRP address potential ransomware attacks? If so, does your plan include:
    • prioritizing higher impact incidents, such as ransomware attacks—which may be followed by a Distributed Denial of Service (DDoS) attack, or simultaneous attacks, which can distract your firm’s IT or cybersecurity resources—rather than remediating all attacks, regardless of risk level, in sequential or chronological order;
    • engaging cybersecurity experts to conduct forensics investigations and to assist in recovery efforts;
    • assessing and mitigating the impact of these attacks;
    • notifying affected parties (e.g., customers, employees, regulators, law enforcement) as required by data breach notification laws applicable to your firm;
    • filing SARs on ransomware activity; and
    • if applicable, making cybersecurity insurance claims?

Reporting Ransomware Attacks

In addition to making any required immediate notifications to law enforcement and SAR filings, FINRA urges firms to protect customers and other firms by immediately reporting ransomware attacks to:

  • FINRA’s Regulatory Tip Form found on;
  • U.S. Securities and Exchange Commission’s tips, complaints and referral system or by phone at (202) 551-4790;
  • the Federal Bureau of Investigation’s (FBI) tip line at (800) CALL-FBI (225-5324) or a local FBI office;
  • the Internet Crime Complaint Center for cyber-crimes (particularly if a firm is trying to recall a wire transfer to a destination outside the United States);
  • Office of Foreign Assets Control, if there is any reason to suspect the cyber actor demanding ransomware payment may be sanctioned or otherwise have a sanctions nexus;
  • local state securities regulators; and
  • local law enforcement.

Firms should also consider whether ransomware attacks may require firms to report the event pursuant to FINRA Rule 4530 (Reporting Requirements).


1The dark web includes websites that are not indexed by search engines and only accessible via specialized web browsers.

2In a phishing event, bad actors may try to disguise themselves as trustworthy entities or individuals via email, electronic message, phone call or other communication, where they request sensitive firm data or customer information (such as Social Security numbers, usernames or passwords), direct the recipient to click on a malicious link, open an infected attachment or application or attempt to initiate a fraudulent wire transfer. Although some phishing emails are distributed to millions of recipients, other attempts are thoroughly researched and carefully customized to reach one or more selected individuals (e.g., an individual who attackers have determined is likely to have administrator privileges), while a related attack targets one or more senior firm personnel (e.g., the CEO, CFO). (These types of attacks are referred to as “spear phishing” and “whaling” respectively, but we refer to them collectively as “phishing” in this document.)