United States: First Compliance Hurdle For New York Department Of Financial Services Cybersecurity Regulations Due August 28

Last Updated: September 5 2017
Article by Joseph J. Lazzarotti and Damon W. Silver

The New York State Department of Financial Services (DFS) has set cybersecurity regulations that require minimum standards for protecting the customer information and information systems of the financial services industry. Unless an exemption applies, the deadline to comply with the first set of requirements under the new DFS Cybersecurity Regulations is August 28, 2017.

Businesses "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 Financials Services Law" (each a "Regulated Entity" or "RE") are covered by the Regulations. The broad array of entities covered is listed on the DFS website.

Upcoming Deadlines

While the three requirements below must be completed by August 28, the Regulations permit REs a longer transition period to become compliant with other requirements (see our NY DFS Compliance Timeline). For example, an RE's senior officer or board of directors must certify that the business is compliant with the obligations discussed below by the next deadline, February 15, 2018. This certification process will be annual, confirming continued compliance with the Regulations. We will provide guidance on the other obligations imposed under the Regulations as deadlines approach.

First Set of Requirements

If your business qualifies as an RE, the following are required by August 28:

1. Designate a Chief Information Security Officer (CISO). The CISO oversees and implements your cybersecurity program. He or she enforces your cybersecurity policy and, the Regulations emphasize, must be qualified for the position. The person within your organization must be carefully evaluated for expertise and experience to serve in this role. If your organization does not have such an individual, or if the only persons with the requisite expertise and experience are too busy in their current roles, the Regulations permit designating an employee of your affiliate or a third-party service provider instead. However, even if an external person is the CISO, you (a) retain responsibility for compliance with the Regulations, (b) must designate a senior member of your organization to direct and oversee the external CISO's work, and (c) if the CISO is employed by a third-party service provider, must require the provider to maintain an adequately robust cybersecurity program.

2. Establish a Cybersecurity Program. A key element of the Regulations requires REs to establish a cybersecurity program. This program must address your organization's obligations: (a) to identify and assess internal and external cybersecurity risks, (b) to use defensive infrastructure and implement protective policies and procedures, (c) to detect, respond to, and recover from cybersecurity events, and (d) to fulfill regulatory reporting requirements. While certain parts of the cybersecurity program are allowed a longer implementation period under the Regulations, the following must be done by August 28:

  • Limit and periodically review user access privileges to your Information Systems with Nonpublic Information;
  • Utilize qualified cybersecurity personnel to manage risk and perform or oversee cybersecurity functions (as is the case for the CISO, token designations will not satisfy this requirement; however, you may draw from personnel employed by affiliates or third-party service providers);
  • Ensure the above personnel is appropriately trained and stay up-to-date on evolving threats and countermeasures; and
  • Maintain a written incident response plan for promptly (in some cases, within 72 hours) responding to and recovering from Cybersecurity Events that materially affect the confidentiality, integrity, and availability of your Information Systems or the functionality of your operations.

3. Develop a Written Cybersecurity Policy. This policy will provide the roadmap your organization follows to ensure that it addresses its wide-ranging obligations under the Regulations. This roadmap, which must be approved by a Senior Officer, the board of directors, or an equivalent governing body, must address each of the following (unless it is inapplicable to your operations):

  • Information security – e.g., do you utilize encryption and multi-factor authentication?
  • Data governance and classification – e.g., have you taken steps to identify and classify, by level of sensitivity, the Nonpublic Information you hold so that you can safeguard it?
  • Asset inventory and device management – e.g., have you identified all desktops, laptops, tablets, phones, printers, and so on that hold Nonpublic Information and developed policies to regulate who can use them and where?
  • Access controls and identity management – e.g., do you have mechanisms in place to restrict access to your Information Systems and Nonpublic Information to those who need such access for legitimate business purposes?
  • Business continuity and disaster recovery planning and resources – e.g., do you have an offsite backup system in place so you can recover quickly from a flood, fire, power outage, or cyberattack?
  • Systems operations and availability concerns – e.g., do you have a plan in place to maintain business operations and ensure protection of your Nonpublic Information should you lose access to your Information Systems?
  • Systems and network security – e.g., have you installed and updated your firewalls and antivirus software?
  • Systems and network monitoring – e.g., do you have the technical capacity and personnel expertise to identify suspicious or unauthorized activity on your Information Systems?
  • Systems and application development and quality assurance – e.g., do you have processes in place to regularly test the effectiveness of your systems and applications so that you can promptly identify vulnerabilities and adapt to changes in your business or threats to your data?
  • Physical security and environmental controls – e.g., are the physical areas holding your Nonpublic Information protected against unauthorized access, floods, and fires?
  • Customer data privacy – e.g., do you clearly and accurately communicate to customers how their data will be used and what safeguards you employ to protect that data?
  • Vendor and third-party service provider management – e.g., have you bound your service providers by contract to adequately safeguard the Nonpublic Information you share with them, to promptly notify you of Cybersecurity Events, and to assist you in responding to Cybersecurity Events?
  • Risk assessment – e.g., how often will you conduct risk assessments, what personnel will be involved, and have you updated your assessment process to address changes to your Information Systems, Nonpublic Information, or business operations?
  • Incident response – e.g., who should potential Cybersecurity Events be reported to, who is responsible for ensuring that a Cybersecurity Event is contained and for mitigating the impact, and who is in charge of coordinating your post-event communications with IT and legal advisors and, if necessary, with affected individuals and government agencies?

Thoroughly evaluating and addressing your organization's initial set of obligations under the Regulations is critical. DFS is serious about enforcing its new, much-publicized Regulations and likely will commence compliance investigations and take strong remedial action against organizations it deems non-compliant.

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.

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