United States: Banking Regulators Release Advanced Notice Of Proposed Rulemaking On Enhanced Cyber Risk Management Standards

Yesterday, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (Fed), and the Federal Deposit Insurance Corporation (FDIC) issued a joint advanced notice of proposed rulemaking (ANPRM) seeking comment on possible enhanced cybersecurity risk management standards for (i) institutions under their supervision with total consolidated assets of $50 billion or more; (ii) "sector-critical firms," i.e., firms whose systems support the clearing or settlement of at least five percent of the value of transactions in one or more of the markets for federal funds, foreign exchange, commercial paper, U.S. Government and agency securities, and corporate debt and equity securities; and "other large, interconnected financial systems where a cyber-attack or disruption also could have a significant impact on the U.S. financial sector"; and (iii) service providers to companies in the first two categories. The ANPRM is available here.1 The agencies are considering establishing two tiers of enhanced standards—basic enhanced standards for all covered firms and even more stringent enhanced standards for systems that are "sector-critical."

Although the agencies are proceeding through an ANPRM, they remain undecided about the regulatory approach they will use to put the enhanced standards in place. The possible approaches "range from establishing the standards through a policy statement or guidance to imposing the standards through a detailed regulation." The ANPRM seeks responses to 39 questions. Comments are due by January 17, 2017.

Categories of Enhanced Cyber Risk Management Standards

The agencies are considering establishing enhanced standards in five areas.

Cyber risk governance. The agencies are considering requiring covered firms to develop a written, board-approved, enterprise-wide cyber risk management strategy that is incorporated into the overall business strategy and risk management of the firm. Elements of the proposal under consideration would include requirements for:

  • articulating how the entity intends to address its inherent cyber risk (that is, its cyber risk before mitigating controls or other factors are taken into consideration), how the entity would maintain an acceptable level of residual cyber risk through mitigation, and how the entity would maintain resilience going forward;
  • Board approval of the strategy and of policies and procedures to carry it out;
  • Board approval of the enterprise-wide cyber risk appetite and tolerances of the covered entity;
  • reducing the firm's cyber risk to the appropriate level approved by the Board;
  • having senior leaders with responsibility for cybersecurity who are independent of business line management and who have direct reporting access to the Board; and
  • Board development of sufficient cyber expertise or independent access to such expertise to challenge management effectively on oversight of cyber risk.

Cyber risk management. The ANPRM considers risk management standards that would require at least three independent functions of covered entities to include cyber risk management as part of their responsibilities, serving as "three lines of defense." Covered firms' independent risk management function would be required to report to the chief risk officer or the Board, as appropriate, on implementation of the firm's cyber risk management framework. Covered firms' audit function would be required to assess whether the firm's cyber risk management framework complies with applicable laws and regulations and is appropriate for the firm's size, complexity, interconnectedness, and risk profile. The audit function would also be required to incorporate an assessment of cyber risk management into the overall audit plan of the covered entity.

Internal dependency management. The internal dependency management considerations in the ANPRM address the cyber risks related to a company's internal assets, such as employees, data, technology, and facilities. The ANPRM notes that this type of management would be designed to address risks arising from a wide range of sources, including data transmission errors and the use of legacy systems integrated with the company through a merger. Elements of the proposal would include requirements for:

  • ensuring that covered entities continually assess and improve, as necessary, their effectiveness in reducing the cyber risks associated with internal dependencies on an enterprise-wide basis;
  • maintaining an inventory of all business assets on an enterprise-wide basis prioritized according to the assets' criticality to the business functions they support, the firm's mission and the financial sector;
  • establishing and applying appropriate controls to address the inherent cyber risk of their assets; and
  • periodically testing back-ups to business assets to achieve resilience.

External dependency management. The external dependency management considerations in the ANPRM address cyber risks arising from "an entity's relationships with outside vendors, suppliers, customers, utilities, and other external organizations and service providers that the entity depends on to deliver services, as well as the information flows and interconnections between the entity and those external parties." Elements of the proposal would include requirements for:

  • integrating an external dependency management strategy into the entity's overall strategic risk management plan to address and reduce cyber risks associated with external dependencies and interconnection risks;
  • maintaining a current, accurate, and complete awareness of, and prioritizing, all enterprise-wide external dependencies and trusted connections based on their criticality to the business functions they support, the firm's mission, and the financial sector; and
  • establishing and applying appropriate controls to address the cyber risk presented by each external partner throughout the lifespan of the relationship.

Incident response, cyber resilience, and situational awareness. Elements of the response, resilience, and awareness standards under consideration would include requirements for:

  • establishing and implementing plans to identify and mitigate the cyber risks they pose through interconnectedness to sector partners and external stakeholders to prevent cyber contagion, including effective escalation protocols linked to organizational decision levels, cyber contagion containment procedures, communication strategies and processes to incorporate lessons learned back into the program;
  • establishing and implementing strategies to meet the entity's obligations for performing core business functions in the event of a disruption, including the potential for multiple concurrent or widespread interruptions and cyber-attacks on multiple elements of interconnected critical infrastructure, such as energy and telecommunications;
  • establishing protocols for secure, immutable, off-line storage of critical records, including financial records of the institution, loan data, asset management account information, and daily deposit account records, including balances and ownership details, formatted using certain defined data standards to allow for restoration of these records by another financial institution;
  • establishing plans and mechanisms to transfer business, where feasible, to another entity or service provider with minimal disruption and within prescribed time frames if the original covered entity or service provider is unable to perform; and
  • maintaining an ongoing situational awareness of their operational status and cybersecurity posture to pre-empt cyber events and respond rapidly to them, including through the maintenance of threat profiles and threat modeling.

Standards for Sector-Critical Systems

The higher tier standards applicable to sector-critical systems would require covered entities:

  • to implement "the most effective, commercially available controls" to minimize residual cyber risk;
  • to establish a recovery time objective (RTO) of two hours for sector-critical systems to return to normal after a cyber-attack, validated by testing; and
  • to measure quantitatively the ability of the firm, at the holding company level, to reduce cyber risk to minimal levels.

Approach to Quantifying Cyber Risk

Finally, the agencies are seeking to develop a consistent, repeatable methodology for measuring cyber risk in covered firms. The ANPRM notes the existence of the FAIR Institute's Factor Analysis of Information Risk standard and Carnegie Mellon's Goal-Question-Indicator-Metric process, but states that the agencies "are not aware of any consistent methodologies to measure cyber risk across the financial sector using specific cyber risk objectives." The agencies appear to be particularly eager for private-sector input on this score.

1 Office of the Comptroller of the Currency, Federal Reserve System, and the Federal Deposit Insurance Corporation, Enhanced Cyber Risk Management Standards, Joint Advance Notice of Proposed Rulemaking (October 19, 2016), available at  https://www.fdic.gov/news/board/2016/2016-10-19_notice_dis_a_fr.pdf. The definition of sector-critical firms and systems draws on the 2003 Interagency Paper on Sound Practices to Strengthen the Resilience of the U.S. Financial System (published by the Fed, OCC, and Securities and Exchange Commission), available at  http://www.sec.gov/news/studies/34-47638.htm.

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.

Jonathan G. Cedarbaum
Benjamin A. Powell
Leah Schloss
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

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.


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 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.


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.


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.