Q: Do we need SOC 2 or ISO 27001 for our hedge fund?
A: SOC 2 Type II is preferred by US institutional investors and often required by fund administrators. ISO 27001 is more common for European limited partners and regulatory compliance (MiFID II alignment). Many established funds pursue both certifications to maximize investor confidence and market access.
SOC 2 advantages: Preferred by US investors, fund administrator requirement, specific trust services criteria
ISO 27001 advantages: European standard, regulatory alignment (MiFID II), comprehensive ISMS framework
Decision factors: Investor requirements, jurisdiction, regulatory obligations, market positioning
Q: How long does SOC 2 Type II certification take?
A: Complete SOC 2 Type II certification typically takes 6-9 months:
- 3 months: Implementation (gap analysis, policy development, control implementation, evidence collection)
- 3-6 months: Monitoring period (demonstrating control effectiveness over time - Type II requirement)
- Audit: CPA firm examination (parallel to monitoring period)
Type I (point-in-time): Can be completed faster (3-4 months) but provides less assurance to investors.
Note: Expedited timelines possible for urgent fundraising or client requirements, but 3-month monitoring period is minimum for Type II.
Q: What are the main cybersecurity threats to investment firms?
A: Primary threats include:
- Business Email Compromise (BEC): Fraudulent wire transfers, CEO fraud (average loss: $50K-$5M+)
- Ransomware: Encryption of trading systems, client data (downtime costs)
- Insider Threats: Employees with privileged access, intellectual property theft
- Third-Party Breaches: Fund administrators, prime brokers, SaaS providers
- Social Engineering: Targeting portfolio managers, finance teams
- APT (Advanced Persistent Threat): Industrial espionage, trading algorithm theft
- Market Manipulation: Compromised trading algorithms, unauthorized trades
Defense-in-depth required: MFA, email security, endpoint protection, network segmentation, privileged access management, continuous monitoring, incident response planning.
Q: How much does SOC 2 certification cost?
A: Total SOC 2 Type II investment: €30,000-€80,000 depending on organization size and complexity.
Breakdown:
- Security Consultant: €15,000-40,000 (gap analysis, policy development, control implementation, evidence preparation)
- CPA Audit Firm: €12,000-30,000 (Type II examination with 3-6 month monitoring period)
- Ongoing Annual Costs: €8,000-15,000 (recertification audits)
ROI: Investor confidence, reduced due diligence friction, competitive advantage in fundraising, potential for higher AUM and management fees, reduced cyber insurance premiums.
Q: What security measures are required for a crypto exchange?
A: Essential crypto exchange security measures:
- Cold Wallet Storage: 95%+ of assets stored offline (air-gapped)
- Multi-Signature Wallets: Multiple approvals required for transactions (2-of-3, 3-of-5)
- Hot Wallet Hardening: Minimal online funds, rate limiting, real-time monitoring
- DDoS Protection: Exchanges are high-value targets for disruption
- KYC/AML Compliance: Identity verification, transaction monitoring (5AMLD, 6AMLD)
- Withdrawal Security: Multi-factor authentication, withdrawal whitelisting, time delays for large amounts
- API Security: Rate limiting, authentication, authorization controls
- Incident Response: Breach response plan, insurance coverage for custody assets
Additional: Bug bounty program, penetration testing, security audits by specialized blockchain security firms, proof of reserves.
Q: What's the difference between SOC 2 Type I and Type II?
A:
- SOC 2 Type I: Point-in-time assessment (controls are properly designed and implemented at a specific date)
- SOC 2 Type II: Period of time assessment (controls are operating effectively over 3-6 months minimum)
Investor preference: Type II provides more assurance (controls work consistently, not just on audit day). Most institutional investors require Type II for fund selection.
Timeline: Type I = 3-4 months, Type II = 6-9 months (includes monitoring period)