United States: New York State Department Of Financial Services Modifies Proposed Cybersecurity Regulations And Pushes Implementation Date Back To March 1, 2017

On Dec. 28, 2016, the New York State Department of Financial Services (NYDFS) published a revised version of its "Cybersecurity Requirements for Financial Services Companies" (the "Regulations"). The revised Regulations preserve the intent and core requirements of the original proposal, issued Sept. 13, 2016, while incorporating certain changes intended to ease compliance burdens raised by some regulated entities during the comment period. These proposed modifications are aimed at enhancing the ability of regulated entities to tailor cybersecurity programs and policies to counter their own particularized risks and threats.

Changes in the Revised Requirements

While the revised Regulations retain most of the content set forth in the proposed rules promulgated last summer, which were summarized in a prior Kramer Levin Alert, there are important modifications of which regulated entities should be aware. Following criticisms that the original rules imposed strict, one-size-fits-all requirements on the variety of businesses that qualify as Covered Entities, some of the Regulations have been relaxed or made more nuanced. Significantly, many of the steps that Covered Entities were previously required to take are now tied to "the Covered Entity's Risk Assessment." These changes may afford Covered Entities additional flexibility in implementing the Regulations in a manner appropriate to their business operations and the particular cybersecurity threats presented.

The following list summarizes some of the most significant changes to the Regulations:

  • Particularized Risk Assessment: As noted, certain mandated programs and policies are now directly tied to "the Covered Entity's Risk Assessment." (500.02(b); 500.03) Covered Entities must conduct a "periodic" Risk Assessment, not necessarily on an annual basis, but as necessary in order to "address changes to the Covered Entity's Information Systems, Nonpublic Information or business operations" and allow for "revision of controls to respond to technological developments and evolving threats." Consistent with the more prominent position that the Risk Assessment occupies in the revised Regulations, the Risk Assessment must be robust enough to "inform the design of the cybersecurity program," and the Regulations outline specific criteria that need to be met. (500.09) 
  • Nonpublic Information: The definition of Nonpublic Information has been clarified to include only identifying information with one or more of the following: (i) Social security number; (ii) driver's license number or nondriver card number; (iii) account numbers, including credit or debit card numbers; (iv) security codes, including passwords to financial accounts; or (v) biometrics. (500.01(g)(2)) 
  • Third Party Service Provider (TPSP): A definition has been added to the Regulations, clarifying that in order to qualify as a covered TPSP, the provider must "maintain, process, or otherwise [be] permitted access to Nonpublic Information" through its provision of services. (500.01(n)) 
  • Chief Information Security Officer (CISO): Covered Entities that do not qualify for one of the exemptions remain obligated to designate a qualified individual to serve as a CISO, charged with "overseeing and implementing the Covered Entity's cybersecurity program and enforcing its cybersecurity policy." The CISO may be employed by the Covered Entity, an affiliate or a TPSP. The CISO must report to the Covered Entity's board of directors "or an equivalent governing body" on the cybersecurity program and "material" cybersecurity risks on at least an annual basis. (500.04) 
  • Penetration Testing: Requirements regarding penetration testing and vulnerability assessments have been honed. Unlike the previously proposed Regulations, the amended Regulations provide that the monitoring and testing "shall include continuous monitoring or periodic penetration testing and vulnerability assessments." Where effective continuous monitoring is not feasible, certain tests should be conducted annually or biannually. (500.05) 
  • Audit Trail: The original rule required Covered Entities to maintain an audit trail that allowed "for the complete and accurate reconstruction of all financial transactions and accounting necessary to enable the Covered Entity to detect and respond to a Cybersecurity Event." The amendment relaxes this requirement by allowing companies to implement systems "designed to reconstruct material financial transactions" and that "include audit trails designed to detect and respond to Cybersecurity Events that have a reasonable likelihood of materially harming any material part of the normal operations of the Covered Entity." The audit trail systems are also to be implemented "to the extent applicable" and based on the Covered Entity's Risk Assessment. The retention period for related data has been reduced from six to five years. (500.06) 
  • TPSP: While the requirements concerning TPSPs remain largely intact, the revised Regulations now direct Covered Entities to "include relevant guidelines for due diligence and/or contractual protections relating to Third Party Service Providers," in its policies, instead of requiring "preferred provisions" to be "included in contracts with third party service providers." The "relevant guidelines" include consideration of the TPSP's policies and procedures regarding encryption and access controls (including multifactor authentication). In addition, they require notice be provided to the Covered Entity in case of a Cybersecurity Event "directly impacting ... Nonpublic Information and Information Systems," as well as "representations and warranties addressing the Third Party Service Provider's cybersecurity policies and procedures that relate to the security of the Covered Entity's Information Systems or Nonpublic Information." (500.11) 
  • Multi-Factor Authentication: The mandate that Covered Entities use multi-factor authentication or an equivalent level of protection to guard against unauthorized access to Nonpublic Information or Information Systems is now tethered to circumstances in which internal networks are accessed externally, though multi-factor authentication may be appropriate in other contexts, depending on the Covered Entity's Risk Assessment. (500.12) 
  • Data Retention/Destruction: The Regulations continue to require Covered Entities to limit the retention of Nonpublic Information. They must have "policies and procedures in place for the secure disposal on a periodic basis" of Nonpublic Information "no longer necessary for business operations or for legitimate business purposes," unless its preservation is required by law or other regulation or if targeted disposal is not reasonably feasible. (500.13) 
  • Training and Monitoring: Covered Entities must provide "regular cybersecurity awareness training" for all personnel that reflects the vulnerabilities identified in the Covered Entity's Risk Assessment. (500.14) 
  • Encryption: Rather than requiring Covered Entities to "encrypt all Nonpublic Information," the revised Regulations require that Covered Entities "implement controls, including encryption, to protect Nonpublic Information both in transit and at rest." If encryption is not feasible for the Covered Entity (the cost and burden of encryption — in transfer and at rest — were among the key concerns raised during the comment period), other "effective alternative compensating controls" over Nonpublic Information are permissible, provided that they are reviewed and approved by the Covered Entity's CISO at least annually. (500.15) 
  • Incident Response Plan (IRP): The Regulations concerning the IRP remain mostly unchanged, though they now mandate that the IRP need only address those Cybersecurity Events that may "materially" affect the "confidentiality, integrity or availability of the Covered Entity's Information Systems or the continuing functionality of any aspect of the Covered Entity's business operations." (500.16) 
  • Notices: In addition to the annual Certification of Compliance that must be submitted to the NYDFS Superintendent (now due on Feb. 15 of each year), Covered Entities must notify the NYDFS Superintendent no later than 72 hours after it has been determined that a Cybersecurity Event has occurred that either (i) must be reported to any other governmental, regulatory or supervisory body or (ii) has a "reasonable likelihood of materially harming any material part of the normal operations of the Covered Entity." (500.17) 
  • Confidentiality: The Regulations now include a confidentiality provision that indicates information provided by Covered Entities under the Regulations is subject to exemptions from disclosure under state and federal laws. (500.18) 
  • Exemptions: The Regulations include modified exemptions that may remove some companies from obligations to comply, but the exemptions remain fairly limited. A notable revision to the exemptions is that small businesses with fewer than 10 employees or independent contractors (instead of Covered Entities with fewer than 1,000 customers per year) are now exempt from most provisions (alongside those with less than $10,000,000 in assets or less than $5,000,000 in gross annual revenue), though such Covered Entities must still maintain a Cybersecurity Program and Cybersecurity Policy. The Regulations also exempt Covered Entities that do not "directly or indirectly operate, maintain, utilize or control any Information Systems," and that do not "directly or indirectly control, own, access, generate, receive or possess Nonpublic Information." Covered Entities that qualify for exemptions must file a Notice of Exemption with the Superintendent. (500.19) 
  • Effective Date: The effective date of the Regulations has been pushed back to March 1, 2017. Covered Entities must supply their first annual Certification of Compliance to NYDFS by Feb. 15, 2018. (500.21) 
  • Transitional Periods: The revised Regulations provide not only the original 180-day transition period, but also grant longer transitional periods for implementation of specific parts of the Regulations. (500.22)

A More Flexible but Still Demanding Regulatory Framework

With the Dec. 28 revisions, the NYDFS has modified the compliance burden imposed by the Regulations by introducing more flexible language into some of the requirements and directing Covered Entities to calibrate the parameters of their cybersecurity programs to the results of a Risk Assessment. Nonetheless, the core requirements contained in the original version of the Regulations have been preserved. As a result, banks, insurance companies and financial services companies regulated under the corresponding New York laws that do not qualify for the limited exemptions must assess their cybersecurity vulnerabilities on an ongoing basis, take proactive measures to address them and certify that they have done so to the NYDFS.

Following the end of a 30-day notice and public comment period on Jan. 27, 2017, the revised Regulations are presently scheduled to become effective March 1, 2017.

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions