New Cybersecurity Requirements for New York Financial Companies

by Snell & Wilmer

The New York Department of Financial Services has 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 state-enacted financial institution regulations of their kind in the country, and the final set of regulations can be accessed here.  Key highlights include the following:

What businesses and organizations are covered? The rules 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 are limited exemptions (such as entities with fewer than 10 employees, or with less than $5 million in gross annual revenue for each of the last three fiscal years, or with less than $10 million in year-end assets).

What type of cybersecurity program and plans are required? The rules require a mandatory cybersecurity program and that it be in writing. Among the requirements and to the extent applicable to their operations, 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 require companies to ensure secure development practices for apps that they develop themselves. Companies must utilize “qualified cybersecurity personnel” as their own employee, of an affiliate, or of a third party service provider. The company may designate a Chief Information Security Officer who is responsible for overseeing and implementing the program, but is not required to designate someone with this title. 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 or otherwise protected? New York’s rules tell covered entities to encrypt nonpublic information to the extent feasible, or to use effective alternative compensating controls as approved by the CISO. Nonpublic information is defined to track that in other state and federal laws, focusing on various identifiers in combination with sensitive information categories such as Social Security numbers, driver license numbers, account information and biometric records. Healthcare information is defined to include such information in any form or medium. Data need to be protected in these ways 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 or alternative controls of data at rest, however, may be a new requirement for some. Financial institutions have until September 1, 2018 (eighteen months from the effective date) to comply with this particular requirement.

What kind of data breach notification are required? The rules require notification of the superintendent of specific types of “cybersecurity events.” Such an event is one “that has a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity.” It also includes those that would require notice to any other regulatory entity. Notification must be made within 72 hours of the company determining that an event triggering notification has occurred.

What must a covered entity do to certify compliance? Every year by February 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 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 new rules become the de facto standard, potentially all U.S. financial institutions could be required to adhere to them. The new rules became effective on March 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.

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