FSA Report on Data Security

April 23, 2008

On 24 April, to coincide with their annual financial crime conference, the FSA published a report, Data Security in Financial Services: Firms’ controls to prevent data loss by their employees and third-party suppliers. The report mainly focuses on technical and managerial data security issues but has obvious implications in terms of legal liability.

As a result of the report’s findings, the FSA is urging firms to change their attitude to data security and do more to help prevent their customers falling victim to identity fraud and other types of financial crime.

The report was based on a review of systems and controls for data security at 39 firms including banks, building societies, insurance companies and financial advisers. The report gives examples of good practice across the industry however it claims that many firms still underestimate the risk of data loss and fraud to their businesses, and especially to their customers.  This includes senior management at firms not recognising the value of their customers’ data to fraudsters or that staff could pose a threat to data security similar to that posed by computer hackers and burglars.  The report also conlcudes that, on occasions of significant data loss, firms seem more concerned about adverse media coverage than on being open and transparent with their customers.  Following the review, one firm has been referred to enforcement.

Speaking at the FSA’s annual conference on financial crime, Philip Robinson, Director of its Financial Crime and Intelligence Division, said:
It is worrying that despite increased public awareness of the impact that identity theft can have on customers, many firms are still not taking this risk seriously.  Customers have a right to be confident that firms are doing everything reasonably possible to keep their personal and financial details safe. Some firms have made progress by adopting good practice while others need to do more in this area to ensure that they are treating their customers fairly. Firms getting data security right is a key priority for the FSA and we expect the industry to raise its standards.
This report provides a wealth of information including examples of good practice that could help firms benchmark their own systems and controls and make necessary improvements.  We will follow up on this work with firms and will not hesitate to take action if future breaches are found.’

The findings showed that:
• Many firms are not proactively checking that third-party suppliers vet their employees or have adequate security arrangements in place to prevent unnecessary access to customer data.
• Many large and medium sized firms devote adequate resources to data security risk but placed too much emphasis on IT controls and not enough on staff awareness and training or regular risk assessments.
• Many small firms were wholly reliant on compliance consultants, who did not understand the importance of data security within the firm.
Examples of good practice found at the firms visited included:
• Encrypting laptops and transferring data via secure internet links to third parties.
• Masking financial details where they are not necessary for staff to do their jobs.
• Appointing a senior manager with overall responsibility for data security.

The full report can be accessed here.