Cybersecurity Requirements Proposed for New York Financial Companies

by Snell & Wilmer

The New York Department of Financial Services has proposed new cybersecurity regulations “designed to promote the protection of customer information as well as the information technology systems of regulated entities [financial institutions].” These are the first proposed state-enacted financial institution regulations of their kind in the country, and the complete set can be accessed here.  Key highlights include the following:

What businesses and organizations will be covered? The rules would cover any person “operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law.” This means large and small banks, insurance companies, New York-licensed lenders, and mortgage companies. There is only a limited exemption (entities with fewer than 1000 customers in the last three years, less than $5 million gross annual revenue, plus less than $10 million total assets).

What type of cybersecurity program and plans will be required? The rules would require a mandatory cybersecurity program and that it be in writing. Among the requirements, companies must have a program that identifies internal and external cyber risks; uses defensive infrastructure to protect information system and nonpublic information; detects “cybersecurity events” (defined below); responds and recovers from cybersecurity events; and fulfills regulatory reporting obligations. The rules would require companies to ensure secure development practices for apps that they develop themselves.

Covered entities must designate a Chief Information Security Officer who is responsible for overseeing and implementing the program and reviewing and reporting on it to the company’s governing body. Mandatory and regular cybersecurity education and training will be required for employees. The rules give a call to action to covered entities that have not already done so to “move swiftly and urgently to adopt a cybersecurity program.”

What systems must be protected?  The rules cover information systems containing electronic data. That includes resources for the collection, processing, maintenance, use, sharing, dissemination or disposition of electronic information. The rules also go further to cover environmental systems (such as HVAC systems), which have in recent years been a favorite of hackers. Also included are industrial/process controls systems and telephone systems.

What data must be encrypted? New York’s proposed rules tell covered entities to encrypt all nonpublic information, meaning “all electronic information that is not publicly available.” The regulation gives a broad definition of what this would include. Examples include business-related information that would cause a material adverse impact if disclosed or used, or information the regulated entity received about a person in connection with providing a financial product or service. It includes information linkable to a person including social security number, date and place of birth, mother’s maiden name, biometric records, medical, educational, financial, occupational or employment information, password or other authentication factor.

Data would need to be encrypted whether at rest or in transit. Data “at rest” means data stored locally.  Data “in transit” means data sent from one computer to another.  Massachusetts already requires encryption of data in transit and many companies may already have encryption for data in transit. Encryption of data at rest, however, may be a new requirement for some.

There is a phase-in of the encryption requirement. If the rules take effect as planned, financial institutions would have until January 1, 2018 (one year from the effective date) to encrypt all nonpublic data in transit. Financial institutions would have until January 1, 2022 to encrypt all nonpublic data at rest.

What kind of data breach notification will be required? The rules require notification of the superintendent of any “cybersecurity event”, which defined to be broader than a data breach. Such an event is one “that has a reasonable likelihood of materially affecting the normal operation of the Covered Entity or that affects Nonpublic Information.” Such an event can also include “the actual or potential unauthorized tampering with, or access to or use of, Nonpublic Information.” Thus note that even “potential” access to such information triggers notification. Notification must be made within 72 hours and as promptly as possible.

What must a covered entity do to certify compliance? Every year by January 15, a covered entity must submit to the New York Superintendent of Financial Services, a certification that it is in compliance with the rules. A specific form is prescribed in the rule. The Board of Directors or a named senior officer certify that they have reviewed the documents and opinions necessary to do so. The company must maintain its supporting documentation and data for five years. The rules caution, “senior management must take this issue seriously and be responsible for the organization’s cybersecurity program and file an annual certification confirming compliance with these regulations.”

What are the potential implications of these proposed regulations?  As California has done in other aspects of privacy and data security, New York’s rules could evolve into part of the standard for reasonableness in data security in the financial sector. Under the Gramm-Leach-Bliley Act, Congress requires financial institutions to have a data security program that is consistent with what’s reasonable in that industry. If New York’s proposed rules take effect and become the de facto standard, potentially all U.S. financial institutions could be required to adhere to them.

The proposal is open to comments for 45 days, until November 12. The proposed rules are set to go into effect on January 1, 2017.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Snell & Wilmer | Attorney Advertising

Written by:

Snell & Wilmer

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.