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Katherine Mooney Carroll’s practice focuses on advising U.S. and international financial institutions on U.S. regulatory matters, including recent reforms pursuant to the Dodd-Frank Act, regulatory aspects of bank M&A, cybersecurity and privacy matters, and compliance with U.S. sanctions and anti-money laundering laws.

On January 22, the Financial Industry Regulatory Authority (“FINRA”)[1] released its 2019 Risk Monitoring and Examination Priorities Letter (the “Letter”).  The Letter highlights material new priorities for FINRA examinations in the coming year, as well as priorities in areas of ongoing concern.  The topics highlighted in this year’s Letter reflect FINRA’s increasing focus on its members’ interaction with, and adoption of, innovative financial technologies, as well as its implicit acknowledgement of the ability for such innovations to assist in regulatory compliance.  The new priorities highlighted in the Letter include several related to FinTech, including online distribution platforms, use of regulatory technology (or “RegTech”), and supervision of digital asset businesses.  In priority areas of ongoing concern, the Letter confirmed that FINRA will continue to focus on reviewing the adequacy of firms’ cybersecurity programs.  Below we detail FINRA’s discussion of these priorities and analyze them in the context of other recent guidance and enforcement actions. Continue Reading FINRA 2019 Examination Priorities Letter Includes Focus on FinTech and Cybersecurity

In 2018, data privacy and cyber breaches made headlines throughout the year.

Major companies continued to suffer data breaches, highlighting the risks and potential costs of cyber incidents across industries.  At the same time, a growing and overlapping thicket of data security and privacy regulations—within the U.S., European Union, Latin America, and elsewhere—continued to increase compliance costs and regulatory risks.  This memo surveys some of the key cybersecurity and data privacy developments of 2018, including the major data breaches and cyberattacks, regulatory and legislative actions, and notable settlements and court decisions.

In addition, we identify some key takeaways from 2018, which include the importance of rapid response and timely disclosure, cyber diligence in M&A transactions, effective management of third-party vendor risk, and protecting privilege.  We also highlight key areas to watch in 2019, including GDPR enforcement, efforts to pass a U.S. federal privacy law, responses and potential changes to California’s new privacy law, the adoption of comprehensive privacy laws in more U.S. states and non-U.S. jurisdictions, and heightened U.S. litigation and enforcement risk.  Data security and privacy will undoubtedly remain a priority for boards and senior management, as well as regulators and enforcement authorities.

Please click here to read the full alert memorandum.

On January 7, 2019 the National Futures Association (“NFA”) provided additional guidance on the required cybersecurity practices of certain NFA members by amending its Interpretive Notice entitled NFA Compliance Rules 2-9, 2-36 and 2-49: Information Systems Security Programs (the “Interpretive Notice”).  The Interpretive Notice currently requires each NFA member futures commission merchant (“FCM”), commodity trading advisor, commodity pool operator, introducing broker (“IB”), retail foreign exchange dealer, swap dealer (“SD”) and major swap participant to implement a written information systems security program (“ISSP”) and enact other cybersecurity procedures sufficient to identify, address and respond to cybersecurity incidents.  The amendments to the Interpretive Notice are informed by NFA examinations of member ISSPs since the Interpretive Notice became effective in March 2016.  They are intended to clarify certain common questions posed by NFA members related to internal approvals of the ISSP and employee training.  The amendments additionally impose a new notification requirement for specified cybersecurity incidents. Continue Reading NFA Amends Interpretive Notice Regarding Cybersecurity Programs

On December 20, 2018, the Financial Industry Regulatory Authority (“FINRA”) released a Report on Selected Cybersecurity Practices for broker-dealer firms.  This report reflects FINRA’s current perspective on the cybersecurity threat landscape based on observations from its examinations of securities firms.  Below we discuss the report’s key observations and contextualize these insights for members of the financial industry. Continue Reading FINRA Provides Updated Cybersecurity Guidance to Broker-Dealer Firms

On November 28, 2018, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) identified for the first time digital currency addresses associated with sanctioned persons.  The newly sanctioned individuals, Iran-based Ali Khorashadizadeh and Mohammad Ghorbaniyan, were accused of converting digital currency payments into Iranian rial as part of a widespread ransomware scheme.  Since 2015, the ransomware scheme (known as “SamSam”) has infected the data networks of corporations, hospitals, universities, and government agencies.  According to OFAC’s announcement, the identified bitcoin addresses were used with over 40 digital currency exchangers to process more than 7,000 illicit transactions in bitcoins worth millions of U.S. dollars. Continue Reading OFAC Lists Digital Currency Addresses for First Time, Releases New Guidance

On the heels of the European Union’s implementation of the General Data Protection Regulation (“GDPR”) and public outcry over the Cambridge Analytica scandal, on June 28, 2018, California enacted the most comprehensive data privacy law to date in the United States. The California Consumer Privacy Act of 2018 (the “CCPA”) was hastily passed by the California legislature to secure the withdrawal of an even more far-reaching measure that had qualified for the November ballot. Legislative amendments to the law are expected before it goes into effect on January 1, 2020.

The CCPA requires covered businesses to comply with requirements that give California consumers broad rights to know what personal information has been collected about them, the sources for the information, the purpose of collecting it, and whether it is sold or otherwise disclosed to third parties. It also gives consumers the right to access personal information about them held by covered businesses, to require deletion of the information and/or to prevent its sale to third parties. Other key provisions limit the ability of a covered business to discriminate against consumers who exercise their rights under the statute by charging them higher prices or delivering lower quality products or services.  The rights provided under the CCPA are similar in many respects to those afforded EU residents under the GDPR, but there are distinctions in approach on some key issues.

Please click here to read the full alert memorandum.

In the aftermath of the Facebook-Cambridge Analytica data privacy controversy, Senators Edward J. Markey (D-Mass.) and Richard Blumenthal (D-Conn.) introduced a federal data privacy bill on April 10, 2018 titled the Customer Online Notification for Stopping Edge-provider Network Transgressions Act, or the CONSENT Act (the “Act”).  While the Act is unlikely to pass in the near term given the lack of a Republican sponsor, it reflects increasing attention to privacy concerns in the United States, including consideration by both federal and state legislatures of significantly more prescriptive privacy requirements. Continue Reading CONSENT Act: Proposed Legislation a Sign of Potential U.S. Consent to Greater Privacy Protections?

On October 27, 2017, the Hong Kong Securities and Futures Commission (“SFC”) issued Guidelines for Reducing and Mitigating Hacking Risks Associated with Internet Trading (the “Guidelines”), a set of baseline cybersecurity requirements that all persons licensed or registered with the SFC and engaged in internet trading will be required to implement. The Hong Kong Monetary Authority (“HKMA”) simultaneously issued a circular to CEOs of Registered Institutions requiring them to apply the Guidelines.

The new guidelines should be viewed as requirements for securities and futures dealers and asset managers registered with the SFC and banks supervised by the HKMA (which include a number of foreign banks that operate branches in Hong Kong). For e-commerce firms and other companies that do business in or have connections to Hong Kong, the new guidelines should additionally be viewed as relevant guidance for best practices in cybersecurity.

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On October 18, the Consumer Financial Protection Bureau (the “CFPB”) released the Consumer Protection Principles: Consumer-Authorized Financial Data Sharing and Aggregation (the “Principles”).  The Principles represent a cautious step forward by the CFPB in providing guidance on how institutions holding customer accounts (such as banks) should share information with service providers, including “fintech” companies that obtain customer authorization to access their account information in order to provide services to such customers.  Such data aggregation-based service providers can provide useful products and services to consumers, such as fraud screening, identity verification, personal financial management and bill payment, and promote competition in the financial services market.  With respect to fraud screening and identity verification services in particular, in the aftermath of the recent Equifax breach, the appeal of such services is obvious.  However, with additional sharing of data comes additional risks—the increase in data access points, albeit consumer-authorized, presents new challenges from a cybersecurity and privacy perspective, increasing the possibility of consumers inadvertently losing control of their information. Continue Reading CPFB Releases Consumer Protection Principles for Consumer-Authorized Financial Data Sharing and Aggregation

Last week, the Financial Stability Board (“FSB”) released the results of its stocktake on existing regulations and supervisory practices in G20 jurisdictions with respect to cybersecurity in the financial sector.  The FSB is an international body that coordinates the work of national financial authorities and international standard-setting bodies, and the stocktake — essentially a survey — was requested by the G20 Finance Ministers and Central Bank Governors in March 2017. Continue Reading Financial Stability Board Highlights Multiplicity of Cybersecurity Regulations in the Financial Sector