United States: NYDFS: A Lawyer's Responsibility

Key Points

  • A lawyer's role in cybersecurity is critical for Covered Entities.  The New York Department of Financial Services recently revised cybersecurity regulations, which will require Covered Entities to implement a number of data security measures by March 1, 2017 and certify compliance as early as February 15, 2018.
  • Key requirements of the revised regulations include: (i) incident response, (ii) breach notification, (iii) vendor management and (iv) compliance policies.
  • Lawyers – whether in-house or external – must ensure that their multidisciplinary team has complied with standards imposed by regulators and ensure that the privilege is structured to maximize its protection in breach and compliance scenarios.

New York Financial Regulator to Enforce First-of-Its-Kind Cybersecurity Regulations in Coming Weeks

On December 28, 2016, the New York Department of Financial Services (NYDFS) issued revised cybersecurity regulations that, as of March 1, 2017, will require Covered Entities—which broadly includes "any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the Banking Law, the Insurance Law or the Financial Services Law"—to implement a number of data security measures and certify compliance as early as February 15, 2018.  The revised regulations were issued following an initial draft released on September 13, 2016 (Akin Gump blog post here), and a comment period during which more than 150 public comments regarding the initial regulations released on September 13, 2016, were filed.

Because the final NYDFS regulations will likely largely reflect the current draft of the regulations, companies subject to these regulations should immediately begin to tackle compliance requirements.  By now, in-house counsel understand that cybersecurity is both a legal and a technical issue, where lawyers are a necessary and integral part of mitigating cybersecurity attacks and ensuring that reasonable security controls have met regulatory standards.  Not only should lawyers ensure that their information security/technology departments are compliant with emerging regulations, but our lawyers consistently take the lead with respect to the following issues discussed more fully below: (1) incident response, (2) breach notification, (3) vendor management and (4) compliance.

Incident Response

Among other things, the regulations require each Covered Entity to "establish a written incident response plan designed to promptly respond to, and recover from, any Cybersecurity Event materially affecting 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 or operations."  The NYDFS added the materiality threshold as part of its revisions to the rules, which should have a significant limiting effect, given the broad definition of a Cybersecurity Event: "any act or attempt, successful or unsuccessful, to gain unauthorized access to, disrupt or misuse an Information System or information stored on such Information System." 

The regulations also require the incident response plan to address areas including the internal processes for responding to a Cybersecurity Event, goals of the plan, external and internal communications and information-sharing, and the evaluation and revision as necessary of the incident response plan following a Cybersecurity Event.

Since the regulation requires Covered Entities to regularly train all personnel, we assist daily with tailored scenario-planning and running tabletop exercises for all types of employees in connection with their cybersecurity awareness training. 

Breach Notification

The NYDFS's original proposal required notification to DFS of a Cybersecurity Event within 72 hours and had encompassed "actual or potential authorized tampering with, or access to, or use of, Nonpublic Information."  Following comments claiming that this was unduly burdensome and would result in over reporting of immaterial incidents, the revised regulations now set forth a materiality standard for reporting within 72 hours of a determination that the Event either (1) requires notice to any government body, self-regulatory agency or any other supervisory body; or (2) has a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity.  

One of our most important roles as lead breach counsel is determining whether the legal requirement to notify has been triggered and how other circumstances influence this decision-making process.  The revised regulation still has a relatively broad notification trigger involving a "reasonable likelihood of materially harming any material part of the operations," and sound judgment is required to navigate the countless factors that impact notification considerations.

Vendor Management

Based on its Risk Assessment, each Covered Entity is required to implement written policies and procedures designed to ensure the security of information accessible to, or held by, "Third-Party Service Providers" (namely, a nonaffiliate that maintains, processes or otherwise is permitted access to Nonpublic Information through its provision of services to the Covered Entity).  The policies and procedures should address the identification and risk assessment of Third-Party Service Providers, Third-Party Service Providers' minimum cybersecurity practices, due diligence processes and periodic assessment. 

Our lawyers consistently help with development of third-party management programs and contract management, conducting diligence on, and negotiating, provisions that provide better oversight and control over Third-Party Service Providers relating to, among other things, access controls and encryption, representations and warranties concerning those policies and procedures, and notice of Cybersecurity Events. 

Compliance Policies

The revisions establish a risk-based approach to cybersecurity policies, tying many of the requirements to the results of the Covered Entity's Risk Assessment, which must be conducted at least annually to "inform the design of the cybersecurity program" that is "updated as reasonably necessary to address changes to the Covered Entity's Information Systems, Nonpublic Information or business operations."

The rules require a Covered Entity to designate an individual responsible for overseeing and implementing the Covered Entity's cybersecurity program and enforcing its cybersecurity policy.  This individual is referred to as a "CISO" (or Chief Information Security Officer) in the rules, although the CISO may be employed by an affiliate or Third-Party Service Provider.  The CISO must submit written reports to the board of directors on an annual basis.

***

The role of the lawyer does not end there.  Legal and compliance officers for Covered Entities should ensure that their information security/technology departments are aware that these standards exist and are implementing appropriate technical measures, and to whom and when they apply.  For instance, the NYDFS regulations emphasize the importance of the following:

Data Retention

Each Covered Entity must include policies and procedures for the periodic disposal of nonpublic information that is no longer necessary for business operations or for other legitimate business purposes.  The NYDFS previously exempted disposal where such information is otherwise required to be retained by law or regulation, and added to the revised version that disposal is not required where targeted disposal is not reasonably feasible due to the manner in which the information is maintained.

Encryption and Multifactor Authentication

The NYDFS's original proposal broadly required multifactor authentication for virtually all network access and encryption for nearly all data.  The revisions relax these requirements by requiring multifactor authentication for only individuals accessing internal networks from an external network when the CISO has not approved "reasonably equivalent or more secure access controls."  Otherwise, only "effective controls" are required, which may include multifactor authentication or risk-based authentication.  Further, where encryption is "infeasible," "effective alternative compensating controls reviewed and approved" by the CISO may be used.

Application and Exemptions

The NYDFS added a number of exemptions to the proposed regulations.  In addition to exempting Covered Entities with less than $5 million in gross annual revenue in each of the last three fiscal years, several other Covered Entities are exempt: (1) fewer than 10 employees; (2) less than $10 million in year-end total assets; (3) employee, agent, representative or designee of a Covered Entity, who is itself a Covered Entity and is covered by the cybersecurity program of the Covered Entity; and (4) a Covered Entity that does not operate, maintain, utilize or control any Information Systems, and that does not control, own, access, generate, receive or possess Nonpublic Information. 

Timeline

Covered Entities will have 180 days to comply with the requirements.  However, the rules allow for extended implementation of some requirements, including the following:

Requirement

Deadline

CISO report

one year

Penetration testing

one year

Vulnerability assessments

one year

Risk assessments

one year

Multifactor authentication

one year

Updated cybersecurity awareness training

one year

Audit trail requirements

18 months

Application security

18 months

Data retention

18 months

Monitoring unauthorized access

18 months

Encryption

18 months

Policies and procedures for handling Third-Party Service Providers

two years*

 
*Although significant time is allowed for compliance with the Third-Party Service Provider provisions as compared to other requirements, we would recommend taking steps to implement this requirement sooner, given the high risk of third-party vendors, as well as the amount of time it takes to develop tailored written policies, conduct appropriate diligence efforts and negotiate protective contract language.

A lawyer's role in cybersecurity is critical for Covered Entities.  In addition to taking the lead investigative role on data breach investigations and follow-on litigation, lawyers must ensure that their multidisciplinary team has complied with standards imposed by regulators and ensure that the privilege is structured to maximize its protection in breach and compliance scenarios.

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
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
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.