With cyberattacks continuing to plague the financial services industry, the New York Department of Financial Services (NYDFS) recently released new guidance for regulated entities related to the use of Multi-Factor Authentication (MFA) and cybersecurity frameworks.

On December 7, 2021, NYDFS issued a formal Industry Letter entitled Guidance on Multi-Factor Authentication. According to the Industry Letter, MFA “is an essential part of cybersecurity hygiene . . . which is why it was one of the few technical controls explicitly required by” the NYDFS Cybersecurity Regulation, 23 NYCRR Part 500 (the Cybersecurity Regulation). However, the Industry Letter goes on to note that “MFA weaknesses are the most common cybersecurity gap exploited at financial services companies,” most often due to MFA “being absent, not fully implemented, or configured improperly.” Specifically, NYDFS noted that, from January 2020 to July 2021, more than 18.3 million consumers were impacted by cybersecurity incidents reported to NYDFS that were linked to an MFA failure.

The Industry Letter went on to highlight several recurring MFA failures which correlate to an increased risk of being victimized by a cybersecurity incident, including, among others, the following:

• Use of legacy or outmoded systems that do not support MFA
• Failure to require MFA for all of a company’s applications or systems
• Failure to require MFA for third parties with access to a company’s applications or systems
• Slow or incomplete rollouts of MFA protocols
• Allowance of numerous exceptions to MFA protocols

Per the Industry Letter, “Covered Entities that have not filed a Notice of Exemption pursuant to Section 500.19 [of the Cybersecurity Regulation] must use MFA for remote access to all internal networks, including applications and systems, unless their CISOs have approved ‘the use of reasonably equivalent or more secure access controls.’” Moreover, MFA should “be implemented beyond that as necessary to ensure effective access controls based on a comprehensive risk assessment.”

In particular, the Industry Letter noted that MFA is especially important for privileged accounts. Given that malicious actors often seek to exploit privileged or administrator accounts in their attacks, failure to implement MFA on these accounts is particularly glaring and dangerous. In addition, companies should give careful consideration to what form of MFA is appropriate for their risk tolerance. Push-based and token-based MFA configurations are the most commonly used. However, push-based configurations are susceptible to human error and, thus, are easier for malicious actors to exploit. NYDFS also warned regulated entities to “test and validate the effectiveness of MFA implementation.”

Finally, the Industry Letter recommended that even small businesses exempt from the MFA requirement of the Cybersecurity Regulation implement MFA given the fact that such businesses “find themselves increasingly in the crosshairs of cyber criminals eager to exploit a lack of MFA” and “are being aggressively targeted because ‘they have information cybercriminals want, and they typically lack the security infrastructure of larger businesses.’”

The risk of noncompliance with the MFA requirements of the Cybersecurity Regulations is significant, as NYDFS noted in the Industry Letter that MFA will be “a focus of [NYDFS’s] cybersecurity supervisory and enforcement work.” Notably, at least two cybersecurity enforcement actions resolved by NYDFS in the past year involved companies that “were required to implement MFA but had not fully done so and that failed to prevent unauthorized access to their nonpublic information.” Moreover, NYDFS noted that it “is also increasing its review of MFA during examinations, with a particular emphasis on probing for the common MFA failures[.]”

The Industry Letter was followed by a December 9, 2021 update to NYDFS’s online Cybersecurity FAQs. Specifically, NYDFS added the following question and answer to the list on its website:

Q: Should Covered Entities use a cyber assessment framework as part of their risk assessment process?

A: The risk assessments required by Sections 500.9 & 500.2(b) are the foundation of the comprehensive cybersecurity program required by DFS’s Cybersecurity Regulation, and a cyber assessment framework is a useful component of a comprehensive risk assessment. DFS does not require a specific standard or framework for use in the risk assessment process. Rather, we expect Covered Entities to implement a framework and methodology that best suits their risk and operations. Among the widely used frameworks Covered Entities employ are the FFIEC Cyber Assessment Tool, the CRI Profile, and the NIST Cybersecurity Framework.

While stopping short of requiring utilization of a specific framework, the new question and answer indicate that NYDFS expects regulated entities to implement and employ some framework as part of the comprehensive risk assessments required under the Cybersecurity Regulations.

Regulated financial services companies should pay careful attention to NYDFS’s recent guidance on both MFA and cybersecurity frameworks. Given the increasing number of cyberattacks and NYDFS’s active enforcement posture, failures to implement MFA and an adequate cybersecurity framework as part of a comprehensive risk assessment would leave a company open to a public enforcement action and significant financial penalties. Moreover, the use of both MFA and a cybersecurity framework can reduce risk of and mitigate damage caused by cyberattacks.