Finra Approved Cloud Storage: Everything You Need to Know

What is Finra?

The Financial Industry Regulatory Authority (Finra) is a not-for-profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly. Finra oversees about 4,250 brokerage firms, 158,000 branch offices and 630,000 registered securities representatives. As a self-regulatory organization, they write and enforce rules governing the activities of more than 3,600 broker-dealer members.

Finra Data Security Requirements

Finra rules require member firms to preserve records and data related to their business activities and communications, and make them available for regulatory review. This includes electronic records like emails, instant messages, Bloomberg communications, and any other electronic communication.

Finra has specific requirements for how firms store these records to ensure their integrity, security, accessibility, and retrievability. They also require firms to supervise the activities of their associated persons and govern the conduct of business relating to customer accounts and transactions.

Finra Approved Cloud Storage Providers

Finra recognizes that many firms are moving storage and applications to the cloud. They provide guidance on how firms can comply with data security requirements when using cloud computing services.

Finra does not maintain a specific “approved” list of cloud service providers. Rather, firms must conduct appropriate due diligence in selecting a reputable cloud provider that can meet their regulatory obligations for data security, integrity and retrieval.

Some examples of well-established, enterprise-grade cloud service providers used by financial firms include:

– Amazon Web Services (AWS)
– Microsoft Azure
– IBM Cloud
– Google Cloud Platform

These providers allow firms to store data in encrypted formats across global data centers for redundancy. They also enable robust user access controls and activity logging to meet Finra compliance needs.

Meeting Finra Data Security Requirements with Cloud Storage

When evaluating a cloud provider, firms should ensure the provider has security controls and design architecture to meet the following Finra requirements:

– **Data encryption** – Data at rest and in transit should be encrypted. Only authorized users should have access to encryption keys.

– **Data access controls** – Granular user and role-based access controls on a need-to-know basis. Activity logging and audit trail of access.

– **Data loss prevention** – Features to prevent accidental or malicious data destruction, such as versioning and snapshots.

– **Resiliency** – Redundant infrastructure across multiple geographic regions to prevent data loss. Failover capacity ensuring continuity of operations.

– **Retrievability** – Ability to promptly retrieve records for regulatory audits and eDiscovery requests in required formats.

– **Supervision** – Tools for monitoring user activities and accessing audit logs for records management oversight.

Firms should consult Finra Rule 4511 and Regulatory Notices 17-28 and 19-12 for full details on data security requirements. They should work closely with the cloud provider to ensure all controls are properly configured and verified through independent security assessments.

Conclusion

Finra provides guidelines but does not pre-approve specific cloud providers. Firms can leverage leading enterprise cloud platforms to meet Finra data security and records management requirements through proper configuration. Maintaining close oversight and governance of the cloud environment is critical for demonstrating regulatory compliance. Consulting legal counsel and compliance teams when evaluating cloud services is highly recommended.

Expanded Guidance on Cloud Security Controls

Data Encryption

Finra requires encryption both at rest and in transit. Firms should ensure the cloud provider offers robust encryption key management, supporting features like envelope encryption, bring your own key (BYOK), and integrated hardware security modules (HSMs). Multi-factor delete actions may be required before encryption keys can be destroyed.

Access Management

Configure least privilege access strictly based on roles and responsibilities. Provision and deprovision user access immediately when joining/leaving the firm. Enforce strong password policies and multi-factor authentication. Privileged access to infrastructure should be monitored.

BCDR Resiliency

Validate that the cloud provider has geographically diverse data centers allowing synchronous replication for high availability. Confirm they have capacity to run entire workloads out of a secondary site if the primary location fails.

Supervision and Governance

Implement tools to monitor user activities, unauthorized access attempts, and high risk events. Central logging with quick search helps reconstruct events during investigations. Change control processes should be in place.

Cloud Benefits for Financial Firms

Cost Savings

Cloud eliminates large capital outlays for on-premise infrastructure. It converts fixed costs to variable, pay as you go pricing. The autoscaling nature provides efficiency and supports growth.

Security

Cloud providers have massive security teams constantly implementing cutting edge protections at scale not achievable on-premise. Extensive compliance certifications provide independent validation.

Agility and Innovation

The on-demand self-service nature of cloud combined with rapid provisioning enables business agility. Highly scalable platforms allow quick innovation and new initiatives.

Disaster Recovery

Built-in data center redundancy and regional failover capabilities offer robust BCDR protection, exceeding what most firms can achieve themselves. Virtualization and snapshots facilitate quick recovery.