SEBI’s CSCRF Regulation

India's Securities and Exchange Board (SEBI) has introduced a new regulatory framework called the Cyber Security and Cyber Resilience Framework (CSCRF). The regulation aims to tighten cybersecurity and data governance for capital market participants. As cyber threats increase globally, the CSCRF is poised to create a stronger defense line for organizations operating in India’s capital markets.

This article will explore who the CSCRF applies to, the main tenets of the regulation, and why the need for automated discovery of third-party data exchanges is paramount. We will also discuss the importance of assigning ownership of sensitive data and governance workflows around it, while considering how data sovereignty and real-time cataloging are necessary components for compliance.

Applicability of CSCRF: Who Is Affected?

The CSCRF regulation primarily applies to the following capital market participants in India:

1. Stock Exchanges: Both large national exchanges and smaller, regional players.
2. Depositories: Organizations tasked with holding and safeguarding securities.
3. Clearing Corporations: Entities that handle post-trade activities, such as clearing and settlement.
4. Mutual Funds and Asset Management Companies (AMCs): Participants managing the pooled funds of investors.
5. Stockbrokers and Sub-brokers: Intermediaries involved in the buying and selling of securities.

Each of these participants plays a crucial role in maintaining the integrity of India’s financial markets, which underscores the importance of adhering to stringent cybersecurity measures.

Key Points of the CSCRF

SEBI’s CSCRF introduces several important guidelines aimed at strengthening cybersecurity for capital market participants:

1. Comprehensive Cybersecurity Policy: All participants must implement a cybersecurity policy outlining the risk management approach, roles, and responsibilities.
2. Cybersecurity Audits: Regular audits are mandatory to assess the efficiency of cybersecurity systems, vulnerability management, and incident response plans.
3. Data Encryption and Security: Sensitive data must be encrypted at rest and in transit, particularly for personally identifiable information (PII) and sensitive financial data.
4. Third-Party Risk Management: Participants must ensure that third-party vendors or partners comply with the same cybersecurity standards, particularly those who handle sensitive data or have access to critical systems.
5. Incident Reporting and Response: In the event of a cyber attack or data breach, participants must have protocols in place for rapid incident response and must report the incident to SEBI within a set timeframe.

The Importance of Third-Party Discovery and Data Flow Posture

One of the most critical components of the CSCRF relates to third-party risk management. This is where many capital market participants may find themselves vulnerable—without a clear, real-time understanding of what data is exchanged with external parties, participants risk falling out of compliance.

Building an automated catalog that discovers and tracks which third parties are involved in data exchanges becomes essential. This catalog needs to work continuously and in real time, ensuring that capital market participants can provide proof of compliance when audited. A manual approach is simply not sufficient, especially when considering the scale and complexity of modern digital ecosystems, which often involve dozens or even hundreds of third parties.

Identifying and Governing Sensitive Data Exchanges

Capital market participants must go beyond just knowing who they are exchanging data with; they need to understand what type of data is being exchanged. This involves not just transactional data but also personal information like client identities, financial details, and proprietary market research. Once the data is identified, companies must assign ownership to it, determining which department, system, or individual is responsible for that data.

Data governance workflows must then be created around this sensitive information. These workflows are necessary to manage access control, encryption policies, and incident response plans. Failure to do so could lead to unauthorized access or data breaches, both of which are serious violations under CSCRF.

Automating API Discovery and Governance

Another critical aspect of this conversation is discovering API calls to third parties. These APIs, whether used for trading, market data, or analytics, often form the backbone of financial systems. Many organizations fail to document all API interactions in both their development and production environments, which creates gaps in security.

For SEBI's CSCRF compliance, it is critical to identify and catalog all third-party API connections. This process must be embedded in the company’s software development life cycle (SDLC) from code inception through to production. Automated tools that track API calls and data flow can help identify vulnerabilities early, providing an additional layer of security.

Assigning Responsibility for Compliance

Compliance with CSCRF is not just a technical issue; it requires organizational commitment at all levels. The following roles are primarily responsible for ensuring CSCRF compliance:

• Chief Information Security Officer (CISO): The CISO is responsible for overseeing all cybersecurity measures and ensuring the company’s cybersecurity posture meets regulatory standards.
• Chief Risk Officer (CRO): This role ensures that cyber risks, particularly those related to third-party vendors, are adequately managed.
• Chief Technology Officer (CTO): The CTO must ensure that technical systems, including APIs, data flows, and encryption mechanisms, are compliant with the regulatory requirements.
• Governance, Risk, and Compliance (GRC) Teams: These teams are responsible for monitoring and auditing compliance activities, ensuring that all third-party data exchanges and cybersecurity protocols are well-documented.

The Role of Data Sovereignty and Evidencing Controls

In addition to third-party discovery, companies must also be mindful of data sovereignty. Given the cross-border nature of financial markets, sensitive data may be stored or processed in multiple jurisdictions. Ensuring compliance with local data privacy laws is essential, particularly in regions with strict data localization mandates. 

Capital market participants must be able to provide evidence of their data governance practices, including how they control access to sensitive information, encryption standards, and the monitoring of third-party interactions. This is where data flow posture management plays a vital role—it helps organizations not only catalog third-party exchanges but also track compliance with sovereignty requirements in real time.

Conclusion: The Need for Automation and Real-Time Governance

The introduction of CSCRF by SEBI signals a new era of stringent cybersecurity requirements for India’s capital market participants. While the regulation is comprehensive, its successful implementation will depend heavily on a company’s ability to manage and govern its third-party data exchanges. The creation of an automated, real-time catalog of third-party interactions, along with robust data governance workflows, is essential for maintaining compliance. Identifying API calls right from code inception and continuously monitoring production environments are critical steps toward ensuring that sensitive data is always protected.