Incident Response Management Best Practices for Financial Services Compliance Executives
TL;DR: Financial services firms must treat incident response management as a compliance-driven, enterprise-wide discipline — not just an IT cleanup effort — to safeguard sensitive data, meet regulatory demands, and maintain client trust.
It’s no surprise that the financial services industry is a prime target for cyberattacks, given the immense value of the information held by these institutions. According to recent studies, financial institutions accounted for nearly a third of all data breaches globally in 2024, with the average cost of a single breach across all industries reaching an unprecedented $6.08 million in 2024.
These incidents — ranging from system disruptions or security controls to large-scale data breaches — not only inflict financial, regulatory, and reputational damage and disruption, but can also impact client relationships if not communicated and remediated effectively.
For compliance executives, incident response management requires a new approach. It’s no longer enough to let Infosec manage a post-breach cleanup. Instead, compliance leaders must drive a proactive strategy centered on:
- Strong information governance
- Rigorous third-party risk management tailored for regulated environments
- Adherence to recognized standards and playbooks
Today, many firms have programs short on specifics, or worse, lack any formal program. An effective Incident Response Management (IRM) program should not only move beyond reactive, post-incident cleanup, but also become a core component of business resilience and regulatory compliance.
This post outlines financial services incident response best practices to help compliance officers enhance their IRM frameworks, safeguard sensitive information, and quickly determine if regulatory outreach is needed. It also highlights what should be expected from critical third-party suppliers and business partners that deliver sensitive information assets to the firm.
What do regulators and industry advocacy organizations say about incident response?
In short, plenty. Here is a summary, followed by three best practices we can draw from all:
Why incident response management matters for compliance executives
Effective incident response management goes far beyond technical fixes — it requires compliance leaders to drive strong information governance, rigorous third-party oversight, and structured communication protocols. Regulators worldwide are increasingly mandating detailed incident response policies, vendor accountability, and timely reporting. For financial institutions, proactive IRM is no longer optional; it is essential for operational resilience, regulatory alignment, and preserving client confidence in an AI-enabled, high-risk environment.
Global regulators and advocacy organizations provide clear direction:
Regulatory guidance on incident response
Global regulators and advocacy organizations provide clear direction:
| Regulator / guidance | Requirements |
|---|---|
|
Establish and regularly test written formal incident response plans (IRPs), emphasizing both the assignment of roles and responsibilities as well as the importance of incident reporting. |
|
|
SEC Regulation S-P (US) |
Recent amendments require firms to maintain incident response written policies and procedures. This program must be designed to detect, respond to, and recover from unauthorized access to or use of customer information. |
|
SIFMA, in collaboration with industry experts, developed this framework in response to after-action reports from exercises that highlighted the need for reconnection protocols. |
|
|
Proposes mandatory reporting of operational incidents and material third-party arrangements. The FCA defines events as any that disrupt a firm's operations, either affecting client services or impacting the availability, authenticity, integrity, or confidentiality of data. |
|
|
DORA (EU) |
The EU’s Digital Operational Resilience Act mandates that firms establish an incident management process, frameworks for response and recovery, and written response plans to investigate and mitigate cybersecurity events. |
|
NIS2 (EU) |
The Network and Information Systems 2 Directive requires that firms establish a comprehensive incident handling policy, including policies, procedures and communications plans in response to incidents |
Best practices for compliance-driven incident response
Best practice 1: Information governance as the foundation
Incident response is not just an Infosec responsibility. Many frameworks addressing security aspects exist, including the NIST Cybersecurity Framework (CSF) 2.0, which provides best practices to govern, protect, detect, respond, and recover, highlighting the use of endpoint security and encryption, rigorous patch management, and identity and access controls.
However, the governance steps in frameworks such as this can often be most critical: unclear responsibilities are a common weakness in incident plans. That starts with ensuring that IRM plans are tailored to the specific mix of financial regulatory obligations, such as those noted above, including guidelines for those incidents requiring self-reporting.
Best practice 2: Identification of information and third-party vendor risks
Proactive steps include:
- Mapping sources of sensitive data (third-party managed cloud repositories, legacy data sources, mobile devices, AI-enabled applications)
- Identifying and mapping sources to individuals who have access to them, assessing the adequacy of existing data protection controls
- Regularly updating them to ensure those maps remain accurate
IRM also entails “knowing who you’re doing business with,” as it is easy to select vendors based upon price or feature innovation, despite not being best suited for a highly regulated environment. Review of their incident response plans must be a key consideration for their selection, including SOC or SSAE 18 attestations. Ongoing assessment should include review of information accessibility methods, including APIs, and identification of a vendor’s own third-party dependencies, including those providing AI-enabled features.
Regulatory obligations, such as the EU’s DORA, mandate specific contractual provisions covering service-level descriptions, business contingency plans, and full cooperation with the firm’s resilience testing, while the SEC has highlighted the importance of testing vendor controls as part of a firm's incident response plan.
Best practice 3: Enhancing and testing communications playbooks
A mature IRM program relies on structured and repeatable communications protocols, with a communications process that compliance executives can use to guide stakeholder information flows. This is a regulatory expectation and requires clear protocols for notifying stakeholders and potentially affected customers.
Communications protocols with critical third-party cloud providers should be defined and frequently revisited, with a definition of clear roles and responsibilities, including identification of incident contacts and back-ups. Communications methods should also be defined based upon the severity of the incident, such as the use of email, webinars, or direct outreach, along with secure access to status pages where authorized individuals can locate current incident assessments and timelines toward remediation and recovery.
Proactive management of sensitive financial services information requires that firms view incident response as a team sport. For compliance executives, it must be integrated into the fabric of enterprise risk management, guided by proactive information governance, rigorous vendor oversight, and adherence to proven standards. This proactive posture is not just a matter of compliance; it is essential for preserving client and regulatory trust in an increasingly AI-enabled world.
How Smarsh can help
As noted in an earlier post, Comprehensive Risk Management for Financial Firms, incident response at Smarsh is integrated into a proactive, holistic information risk management approach. Building on independently audited security infrastructure, robust policy and access controls, and technologies designed to meet the rigors of complex regulatory environments, Smarsh aligns its Incident Response Plan (IRP) to support customers in their journeys toward proactively governing sensitive information.
Based upon industry standards including the NIST Incident Response Life Cycle, the IRP includes:
- Defined roles for incident detection and analysis, containment, escalation and recovery
- Compilation and documentation of post-incident lessons learned to reduce risks of reoccurrence
- Defined communications protocols specific to a particular incident to ensure the appropriate parties are notified at the appropriate times
- Ongoing training and tabletop exercises to further harden incident response processes
This shared goal with customers ensures financial services firms can better prepare, detect, and respond to security incidents — while meeting evolving regulatory and AI-driven compliance expectations.
Share this post!
- In Case You Missed It: Key Compliance and AI Insights from AFME C&L 2025 - October 21, 2025
- Incident Response Management Best Practices for Financial Services Compliance Executives - October 7, 2025
- Comprehensive Information Risk Management for Financial Firms - August 22, 2025
Smarsh Blog
Our internal subject matter experts and our network of external industry experts are featured with insights into the technology and industry trends that affect your electronic communications compliance initiatives. Sign up to benefit from their deep understanding, tips and best practices regarding how your company can manage compliance risk while unlocking the business value of your communications data.
Ready to enable compliant productivity?
Join the 6,500+ customers using Smarsh to drive their business forward.
More Resources
Subscribe to the Smarsh Blog Digest
Subscribe to receive a monthly digest of articles exploring regulatory updates, news, trends and best practices in electronic communications capture and archiving.
Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. You may withdraw your consent at any time by emailing privacy@smarsh.com.
FOLLOW US