Voya Financial Advisors will pay $1 million to settle Securities and Exchange Commission charges regarding a data security breach that compromised the personal information of thousands of customers.
An SEC order says that over a period of six days in April 2016, criminals impersonating independent advisers called the firm's support line and requested new passwords. The passwords gave the intruders access to the personal information of 5,600 Voya Financial customers, the SEC alleges.
The imposters used this information to create new online customer profiles. They also obtained access to three customers' account documents.
Within hours of the first fraudulent reset request, the targeted adviser received an email notification and informed Voya. According to the SEC order, VFA took steps to respond to the intrusion but did not prevent the attackers from accessing the VFA portal through other compromised adviser logins.
The SEC claims the intruders gained access through weaknesses in VFA's cybersecurity procedures, some of which had previously been exposed in similar frauds. In two instances when the intruders calling VFA's support line, they used phone numbers previously identified as being associated with fraudulent activity.
The order says VFA also failed to apply its procedures to systems used by independent contractors, who make up the largest part of VFA's workforce.
"This case is a reminder to brokers and investment advisers that cybersecurity procedures must be reasonably designed to fit their specific business models," Robert A. Cohen, chief of the SEC enforcement division's cyber unit, said in a statement. "They also must review and update the procedures regularly to respond to changes in the risks they face."
It's the SEC's first action charging violations of its "identity theft red flags rule," which requires firms to develop and implement a written program to prevent identity theft. VFA was also charged with violating the "safeguards rule" on protecting customer records and information.
A company spokesperson released a statement saying that the firm is pleased to have resolved the matter, that no personal information was downloaded from its systems, and that there was no evidence of financial harm to consumers.
"Voya promptly addressed and reported the incident when it occurred 2 years ago, and we notified the individuals who were involved," the spokesperson wrote. "We have also enhanced our measures so that a similar situation does not reoccur.
The firm also acknowledged that independent advisers and other third parties are increasingly targets for fraud. "As part of our efforts, Voya continues to work with and support these partners to help protect their identify and client information," according to the statement.
Sid Yenamandra, CEO of cybersecurity firm Entreda, expects to see more violations of the identity theft rule in the future because many firms haven't been focusing on risks from independent contractors or other third parties. Mr. Yenamandra said it is an operational challenge to enforce security rules for entities that aren't in-house.
He hopes enforcement actions like this one will get broker-dealers and RIAs to take the issue more seriously.
"When there's no police on the highway, folks are going to speed," Mr. Yenamandra said. "The minute you see an enforcement action like this, the issue becomes front and center."