Historically, private equity firms have focused on deal performance, with little attention to cybersecurity. But we’ve quickly entered a world of deepening complexity and far vaster breadth regarding data security for modern financial organizations.
Cyber attacks are on the rise. And private equity firms are a prime target for the increasingly sophisticated and bold cyber attacks. According to
CSO, damages from cybercrime are estimated to hit $6 trillion annually by 2021.
Top 3 Private Equity Cybersecurity Risks
Unethical hackers have ample opportunities for attacks. These include:
I. Viruses, Spyware, and Malware
By far, the most common forms of cybersecurity attacks come from viruses, spyware, and malware. Spyware, a malicious tool used to retrieve sensitive data from unsuspecting users, accounts for more than 80% of reported security incidents. According to CSO, $17,700 is lost every minute due to this form of attack.
Cybercriminals may install this software in a company’s networks to steal valuable assets from their database or encrypt the information and demand a ransom before opening access.
II. Distributed Denial of Service DDoS Attacks
Unlike most cyber-attacks initiated to steal sensitive data, a distributed denial-of-service (DDoS) attack restricts network access to its legitimate users by overloading the network with fake system requests.
When this happens, the network server experiences downtime. The hacker may tamper with the network’s firewalls and security codes to enable easy penetration in the future.
III. Digital Impersonation
This form of cyberattack infiltrates high-level corporate email accounts using similar domains that mimic the rightful entities’ original domains. Hackers use this technique to launch a man-in-the-middle attack by sending emails from the fake account on both parties’ behalf.
Compliance & Regulation
Due to the escalating incidences of data security breaches, regulation including legislation such as the California Consumer Privacy Act (CCPA) and the EU General Data Protection Regulation (GDPR) is increasingly tightening cybersecurity policies.
Governmental and regulatory agencies like the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regard cybersecurity as a top priority. These organizations formulate regulatory standards and guidelines to ensure that every market participant is doing their best to manage cyber risks and mitigate the damage from a breach if one were to occur.
One of these guidelines includes having an adequate internal controls system to prevent losses from business email compromise and similar schemes. Failure to make provisions for such internal controls could result in issues with the SEC or state government, usually in the form of a litigation process.
Need to Adapt Remote Ways of Working Presents New Challenges
According to the FBI, cyber crimes accelerated by 300 percent during the lockdown, while VMWare Carbon Black found that 52% of all cyberattacks in March 2020 were targeted at finance institutions.
But what’s the correlation? The COVID-19 pandemic forced companies to adopt remote working practices, potentially widening the threat landscape and leaving investments exposed.
Establishing a remote working model leads to integrating legacy data centers and networks with the cloud and the Internet of Things (IoT). Such integrations create additional remote accesses, which increase security risks.
Moreover, working from remote locations increases the tendencies for workers to leave access open to others. High-level executives with access to valuable data and administrative IT clearance may stray a little and leave their work devices in the hands of children or untrained individuals.
Assessing Your Cybersecurity Risk
Today there are too many threats and too many sophisticated ways to breach a computer’s network. The bad news is that 100 percent of cybersecurity is unattainable. But by recognizing that hackers will find vulnerabilities, private equity firms investing in cybersecurity can improve the way they manage risks and train their teams.
Managing Risk to Your Firm and Portfolio Companies
To maximize cyber protection, private equity firms investing in cybersecurity must ensure that their due diligence processes include assessments of cybersecurity risks on potential portfolio companies. If a company in a private equity’s portfolio develops cybersecurity issues, it might constitute legal repercussions and loss of reputation for the private equity company. And The fundholder will lose the investment in the business.
To maximize private equity firms’ cybersecurity, IT leaders should conduct regular evaluations of their cybersecurity policies. Formal policies concerning asset access, identity management, permission management, and audit are vital.
They should also encourage cybersecurity awareness by organizing tabletop exercises with employees to simulate potential threats and respond correctly.
Managing Insider Threats
A data security breach isn’t just a networking problem. It includes mischievous operations from internal sources either unintentionally, resulting from an employee’s carelessness, or in the form of a malicious attack by a disgruntled employee.
Disgruntled employees can pose threats ranging from insider trading and theft to cybervandalism and damage its reputation.
There is also a risk of less privileged employees being able to access confidential data and critical systems. Zero Trust architecture can minimize this risk by continuously verifying user permissions and comparing user behavior to baseline data. If anomalies are spotted, action is taken immediately.
As part of the private equity security protocol, IT leaders should channel a greater focus on internal risk analysis to protect against mischievous conduct and uncover moles within the organization. They should consistently execute thorough penetration testing and audit to scan internally developed systems and find possible vulnerabilities before cyber assailants can exploit them.
During this test, a security incident and event management (SIEM) tool are relevant to detect abnormal patterns across systems, such as a burst of unsuccessful login attempts or admin login at an undesignated hour.
More effective strategies on tightening cybersecurity are outlined in this private equity cybersecurity blog post.
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Cybercriminals tirelessly create and improve mischievous schemes to target the financial assets and wealth of sensitive data in your possession. To withstand these threats, you need to have a cybersecurity team that constantly evolves and guides your private equity firm through the ever-changing cyber threat landscape.
Triada Networks is one of such teams. They offer tailor-made solutions for private equity firms investing in cybersecurity—everything from data backup and malware defense to disaster recovery and cloud security services. Contact them today to find out more about ensuring data protection for your firm while maintaining regulatory compliance standards.
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