Canada: Cyber Risk Management – New York State Regulation For Financial Institutions

Last Updated: September 20 2016
Article by Bradley J. Freedman

Most Read Contributor in Canada, October 2017

On September 13, 2016, the New York State Department of Financial Services published for comment a proposed cybersecurity regulation for the financial industry. The regulation provides important, detailed guidance for all organizations to help manage cyber risks.


Cyber risks are the risks of loss and liability (e.g. business disruption, financial loss, loss to stakeholder value, reputational harm, trade secret disclosure and other competitive harm, legal noncompliance liability and civil liability to customers, business partners and other persons) to an organization resulting from a failure or breach of the information technology systems used by or on behalf of the organization, including incidents resulting in unauthorized access, use or disclosure of sensitive, regulated or protected data. Cyber risks can result from internal sources (e.g. employees, contractors, service providers and suppliers) or external sources (e.g. nation-states, terrorists, hacktivists, competitors and acts of nature).

Cyber risks are increasing in frequency, intensity and harmful consequences as a result of various circumstances, including increasing sophistication and complexity of cyber-attacks, increasing use of information technology and data, increasing regulation and increasing legal liability. Commentators have said that there are only two kinds of organizations – those that have been hacked and know it, and those that have been hacked and don't know it yet.


The proposed regulation titled "Cybersecurity Requirements for Financial Services Companies" was issued by the New York State Department of Financial Services to address the ever-growing cyber risk threat to information and financial systems. The regulation is intended to set minimum cybersecurity standards for banks, insurance companies and financial services companies to protect customer information and information technology systems. The regulation requires each regulated institution to implement a robust cybersecurity program designed for the institution's specific risk profile to ensure the safety and soundness of the institution and protect its customers, and to cause the institution's senior management to take cybersecurity seriously and to be responsible for the institution's cybersecurity program. Following is a summary.

A. Cybersecurity Program

A regulated institution will be required to establish and maintain a cybersecurity program designed to ensure the confidentiality, integrity and availability of information systems and to perform the following core cybersecurity functions: (1) identify internal and external cyber risks; (2) use defensive infrastructure and implement policies and procedures to protect its information systems and nonpublic information from unauthorized access, use or other malicious acts; (3) detect, respond to and recover from cybersecurity events; and (4) fulfil reporting obligations.

B. Cybersecurity Policy

A regulated institution will be required to establish and maintain a written cybersecurity policy setting out the institution's policies and procedures for the protection of its information systems and nonpublic information. The policy must address, at a minimum: (1) information security; (2) data governance and classification; (3) access controls and identity management; (4) business continuity and disaster recovery planning and resources; (5) capacity and performance planning; (6) systems operations and availability concerns; (7) systems and network security; (8) systems and network monitoring; (9) systems and application development and quality assurance; (10) physical security and environmental controls; (11) customer data privacy; (12) vendor and third-party service provider management; (13) risk assessment; and (14) incident response. As frequently as necessary, and at least annually, the policy must be reviewed by the institution's board of directors or equivalent governing body and approved by a senior officer of the institution.

C. Chief Security Officer

A regulated institution will be required to designate a qualified Chief Information Security Officer ("CISO") responsible for overseeing and implementing the institution's cybersecurity program and enforcing its cybersecurity policy. At least bi-annually, the CISO must present to the institution's board of directors or equivalent governing body a written report to: (1) assess the confidentiality, integrity and availability of the institution's information systems; (2) detail exceptions to the institution's cybersecurity policies and procedures; (3) identify cyber risks to the institution; (4) assess the effectiveness of the institution's cybersecurity program; (5) propose steps to remediate identified deficiencies; and (6) summarize all material cybersecurity events that affected the institution during the reporting period.

D. Specific Requirements for Cybersecurity Program

A regulated institution's cybersecurity program must include the following:

  • Testing/Assessments: Annual penetration testing of the institution's information systems, and quarterly vulnerability assessments of the institution's information systems.
  • Audit Trail: Audit trail systems to enable reconstruction of transactions to detect and respond to cyber events, to log privileged user access to critical systems, to protect audit trail data from alteration, to protect hardware integrity, to log system events and to maintain audit data for at least six years.
  • Access Privileges: Limited access privileges to the institution's information systems that contain nonpublic information, and periodic review of those access privileges.
  • Application Security: Written procedures, guidelines and standards for the security of software applications (both internally and externally developed) that are reviewed and updated by the CISO at least annually.
  • Risk Assessment: A documented annual risk assessment of the institution's information systems in accordance with written policies and procedures setting out: the criteria for evaluating and categorizing risks; the criteria for assessing the confidentiality, integrity, and availability of the institution's information systems; and requirements for documenting how identified risks will be mitigated or accepted, justifying those decisions, and assigning accountability for the identified risks.
  • Personnel/Intelligence: Employment of knowledgeable and trained cybersecurity personnel, or engagement of third party service providers, to manage cybersecurity risks, perform cybersecurity functions and to be aware of changing cybersecurity threats and countermeasures.
  • Third Parties: Written policies and procedures to ensure the security of information systems and nonpublic data accessible to, or held by, third parties doing business with the institution. The policies and procedures should address: risk identification and assessment; minimum required cybersecurity practices; due diligence processes; annual reassessments; and preferred contract provisions dealing with use of multi-factor authentication and encryption, notice and response to cybersecurity events, assurances regarding anti-malware protection and audit rights.
  • Authentication: The use of multi-factor authentication and risk-based authentication in various circumstances.
  • Data Retention: The timely destruction of nonpublic information that is no longer necessary, except where a legal retention requirement applies.
  • Monitoring/Training: The monitoring of authorized users to detect misconduct and unauthorized access, and regular cybersecurity awareness training for all personnel.
  • Encryption: The protection of all nonpublic information, held or transmitted by the institution, by using encryption or appropriate alternative compensating controls.
  • Incident Response Plan: A written incident response plan for the institution to promptly respond to, and recover from, any cybersecurity event.

E. Reporting/Records

A regulated institution will be required to give the regulator prompt notice (within 72 hours) of any cybersecurity event that is reasonably likely to materially affect the normal operation of the institution or that affects nonpublic information.

On an annual basis, a regulated institution will be required to submit to the regulator a written compliance certificate, signed by the chairperson of the institution's board of directors or a senior officer, certifying that the institution is in compliance with the regulation and providing details of planned remedial efforts for identified deficiencies. The institution will also be required to retain all records and data supporting the certificate.

F. Application/Transition/Enforcement

The regulation is effective January 1, 2017, but provides a 180-day transition period. The regulation applies to any person or legal entity regulated by New York state banking, insurance or financial services laws. There is a limited exemption from compliance with a few elements of the regulation for smaller institutions (less than 1,000 customers, and less than $5 million gross annual revenue and less than $10 million in total assets). The regulator may enforce the regulation using the regulator's authority under any applicable laws.


Cybersecurity regulations and guidance issued by domestic and foreign government agencies, industry organizations and regulators will likely be considered by Canadian courts when determining whether an organization and its directors and management used reasonable care to manage cyber risks. The proposed New York state regulation provides a helpful checklist of some cyber risk management practices and considerations that are useful for all organizations. For more information regarding cyber risk management guidance from investment and financial industry regulators, see the following BLG bulletins: Cybersecurity Guidance From Investment Industry Organization (May 2016), Cybersecurity Guidance From Investment Industry Organization (January 2016), U.S. Securities and Exchange Commission Issues Cybersecurity Guidance Update (May 2015), Cyber-Risk Management – Guidance For Corporate Directors (April 2015), Cyber-Risk Management Guidance From Financial Institution Regulators (March 2015) and Regulatory Guidance for Cyber Risk Self-Assessment (November 2013).

About BLG

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.