Cybersecurity And Financial Institutions: How New York’s “First-In-The-Nation” Data Security Regulations May Impact You

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March 1, 2017 marked the implementation of New York’s cybersecurity regulations, subjecting covered financial institutions to arguably the most burdensome cybersecurity regime yet.

The regulations, promulgated by the New York State Department of Financial Services (“NYDFS”), require banks, insurance companies, and other entities regulated by NYDFS to establish substantive cybersecurity programs and policies and to annually certify their compliance with the regulations.  Governor Cuomo touted the rules as “strong, first-in-the-nation protections [that] will help ensure [the financial services industry] has the necessary safeguards in place in order to protect themselves and the New Yorkers they serve from the serious economic harms caused by these devastating cyber-crimes.”  Additionally, Manhattan District Attorney Cyrus R. Vance, Jr. stated that the “cybersecurity regulation will be a crucial tool in the ongoing battle against cyber-crime and identity theft by mandating that New York’s financial services industries adopt and put in place robust and appropriate controls to detect, thwart, and report cyber incidents.” 

Key Provision Highlights:

Entities operating in New York under authorization of the Banking, Insurance, or Financial Services Laws - referred to as “covered entities” - now have significant new obligations, one of which requires the creation of a new position: Chief Information Security Officer (“CISO”).  23 NYCRR § 500.04.  The CISO must annually report to the entity’s Board of Directors regarding cybersecurity issues and compliance with the regulations.  Id.

In addition, covered entities must conduct a periodic risk assessment with the purpose of providing the covered entity’s management with information about the entity’s specific cybersecurity risks.  23 NYCRR § 500.09(a).

Based on the identified cybersecurity risks, the covered entity must create and implement written cybersecurity policies and a cybersecurity program for the organization.  The regulations provide that the cybersecurity policies and program should aim to protect the data and information systems from cybersecurity threats.  See 23 NYCRR §§ 500.02, 500.03.

Cybersecurity programs also must address issues of multi-factor authentication, data retention, employee training and supervision, encryption of nonpublic information, and cybersecurity incident response plans.  23 NYCRR § 500.12–16.  Once developed, the cybersecurity program must be subject to scheduled periodic penetration tests and assessments of vulnerability or otherwise be continuously monitored.  23 NYCRR § 500.05.

Another provision requires a covered entity to notify the NYDFS Superintendent “as promptly as possible but in no event later than 72 hours from a determination that a Cybersecurity Event has occurred.”  23 NYCRR § 500.17(a).  A Cybersecurity Event triggers the notice requirement once the determination is made that the event qualifies as one of the following: “(1) Cybersecurity Events of which notice is required to be provided to any government body, self-regulatory agency or any other supervisory body,” or “(2) Cybersecurity Events that have a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity.”  Id.

Important Deadlines for Compliance:

Covered entities must move quickly to comply with tight deadlines:

  • By August 28, 2017, covered entities must at a minimum have the following requirements in place: 1) a cybersecurity program; 2) cybersecurity policies; 3) a Chief Information Security Officer; and 4) an Incident Response Plan.
  • By February 15, 2018, a covered entity must file its first annual certification of compliance.
  • By March 1, 2018, covered entities must have in place periodic vulnerability assessments and risk assessments for the cybersecurity program, multifactor authentication, and a cybersecurity training program.
  • By September 1, 2018, covered entities must have implemented limitations on data retention, have in place an audit trail, encrypted nonpublic information, and established a monitoring program.
  • By March 1, 2019, covered entities must have in place a third party service provider security policy.

Entities with fewer than ten employees (including independent contractors), less than $5 million in gross revenue for New York business operations during each of the last three years (including affiliates), or less than $10 million in year-end total assets (including affiliates) are exempt from certain requirements.  23 NYCRR § 500.19(a).  Further exemptions are available for entities that do not handle particular classes of nonpublic information.  See 23 NYCRR § 500.19(c), (d).  Note that exempted entities have an obligation to file a Notice of Exemption within thirty (30) days.  23 NYCRR § 500.19(e).  In addition, exempted entities may still be subject to certain provisions requiring risk assessments and cybersecurity policies, among others.

In A Nutshell:

The new requirements are substantial and it is anticipated that they will become more meaningful for covered entities as they are implemented.  It is imperative to examine the new rules and track deadlines for compliance.  Covered entities should anticipate changes in the requirements over time and should expect to continuously monitor the new cybersecurity programs and policies they develop.

 

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