United States: New York State Department Of Financial Services Proposes Cybersecurity Regulations For Financial Services Companies

On Sept. 13, the New York State Department of Financial Services ("DFS") published its proposed new regulation "Cybersecurity Requirements for Financial Services Companies." The regulation was first announced in a statement from Governor Cuomo's office. Prompted by recent cyberattacks on DFS-regulated entities and the "ever-growing threat posed to information and financial systems," the DFS proposal requires covered entities — including state-chartered banks, insurance companies, and mortgage brokers, originators and servicers — to adopt a cybersecurity program designed to support the safety and soundness of the financial services industry. The baseline requirements for the proposed cybersecurity regulation build upon those previously outlined by DFS in a November 2015 letter to other federal and state regulators, as reported in a Nov. 13, 2015 Kramer Levin Alert.

If adopted, the proposed regulation would create a two-tiered compliance structure in which larger financial services companies face additional cybersecurity requirements. Many of these new measures are similar to recommended guidance from federal regulatory entities such as the Federal Financial Institutions Examination Council. While some financial services companies with extensive existing cybersecurity policies and programs may be well-positioned to comply with these minimum standards, others may be required to significantly expand their cybersecurity efforts.

Covered Entities

The proposed regulation covers any individual or entity operating under a license, registration, charter, certificate, permit, accreditation or similar authorization under New York banking, insurance and financial services laws.

Cybersecurity Minimum Standards in the Proposed Regulation

All Covered Entities, regardless of size, would be required to undertake the following actions under the minimum standards enumerated in the proposed regulation:

  • Implement a cybersecurity program, including the "core cybersecurity functions" of risk identification; defensive infrastructure; detection of, response to and recovery from Cybersecurity Events (generally, data breaches or attempted breaches and other unauthorized uses of data); and fulfillment of reporting obligations.
  • Implement a cybersecurity policy covering 14 areas, to be approved at the highest levels of the Covered Entity.
  • Restrict access to sensitive Nonpublic Information (as defined in the regulation).
  • Complete a risk assessment, on an annual or more frequent basis.
  • Create a third-party information security policy requiring due diligence on third parties that have access to a Covered Entity's Information Systems or Nonpublic Information, and including preferred provisions to be incorporated into third-party contracts.
  • Ensure limitations on data retention, including timely destruction of Nonpublic Information when retention is no longer necessary.
  • Notify the Superintendent of Financial Services within 72 hours of a Cybersecurity Event (for a Cybersecurity Event that has a reasonable likelihood of materially affecting normal operations or affecting Nonpublic Information).
  • Certify to the Superintendent the Covered Entity's compliance with the regulation annually beginning Jan. 15, 2018.

Covered Entities of a certain size face additional cybersecurity mandates because they do not meet the criteria for the "Limited Exemption," outlined in Section 500.18 of the regulation. Under this exemption, a Covered Entity with fewer than 1,000 "customers" in each of the past three years, less than $5 million in gross annual revenue for the past three fiscal years, and less than $10 million in year-end total GAAP assets (including assets of affiliates) would be relieved of the obligation to comply with the additional minimum standards outlined below. Larger financial services companies that do not meet these criteria must also:

  • Designate a Chief Information Security Officer ("CISO"), responsible for overseeing and reporting on compliance with the entity's cybersecurity program and policy (note that the regulation contemplates that this may be accomplished through the use of third-party service providers).
  • Conduct annual penetration testing (in which assessors attempt to circumvent or defeat security features) and quarterly vulnerability assessments.
  • Implement audit trail systems that track and maintain data so as to allow for a complete and accurate reconstruction of all financial transactions and accounting.
  • Create procedures to ensure secure development practices for applications developed in-house and conduct an annual review to ensure its effectiveness.
  • Employ cybersecurity personnel sufficient to perform the "core cybersecurity functions" enumerated in Section 500.02 of the regulation and discussed in the previous bulleted section.
  • Implement multifactor authentication in certain areas (requiring verification through a password and real-time generated PIN, for example).
  • Monitor the activity of Authorized Users of Information Systems and detect unauthorized access of Nonpublic Information.
  • Provide cybersecurity awareness training to personnel.
  • Encrypt certain Nonpublic Information (at rest and in transit), with a phase-in period for these requirements to the extent encryption is "currently infeasible."
  • Create an incident response plan, including protocols for external and internal communications and information-sharing concerning Cybersecurity Events.

Implications of the Proposed Regulation

According to the DFS, the proposed regulation is the result of significant research, including a survey of more than 200 banks and insurance companies that would be subject to the new provisions. This survey revealed that many firms have already implemented cybersecurity programs. Those financial services companies that have done so may already be in compliance with many of the regulation's provisions, while other firms may soon need to enhance their cybersecurity efforts. To the extent that the proposed regulation generates criticism or opposition, would-be regulated entities will have the opportunity to register their concerns during the 45-day notice and public comment period that will commence following the publication of the proposed regulation in the New York State register on Sept. 28, 2016.

Conclusion

As proposed, the regulation will become effective on Jan. 1, 2017, initiating a 180-day transition period, during which time Covered Entities must bring themselves into compliance. The full text of the proposed regulation can be accessed here.

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 Mondaq.com.

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

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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