New York has once again positioned itself as a leader among states by recently implementing one of the most detailed and stringent data security regulations to date. It should come as no surprise that New York is a prime target for those looking to steal financial information. The Big Apple is one of the, if not the, center of the world's financial community, and a massive volume of financial data is stored and processed there.
To bolster the security of this information, the New York Department of Financial Services has created and implemented a new set of regulations designed to force certain regulated businesses to employ necessary policies, procedures and technologies to protect consumer and corporate financial information. While not necessarily controversial, the requirements of this statute could be confusing and potentially onerous to those unfamiliar with cybersecurity best practices.
What is the new cybersecurity regulation?
The new regulation is entitled "Cybersecurity Requirements for Financial Services Companies" and can be found at 23 NYCRR § 500 et seq.
Who is covered by the new regulations?
The Cybersecurity Regulation applies to all "covered entities," which includes all individuals and non-governmental entities (i.e., corporations, partnerships, associations, etc.) "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." Thus, essentially any company or other entity that is not a government agency doing business in the insurance and financial services industry in New York is covered by this new regulation. This regulation casts a very broad net, as many organizations that are not traditional banks or insurance companies are still required to obtain certificates, permits or other authorizations under the applicable laws and will be required to comply with the regulations.
What does the cybersecurity regulation cover?
The Cybersecurity Regulation imposes new requirements on those covered by the regulation, designed to impose new policies, procedures and technical protections to prevent and limit unauthorized access to protected data. Among these requirements are the following:
- Cybersecurity Program -- Covered entities must create, document and implement an internal cybersecurity policy. This policy must be based on a risk assessment (described below), and implements "defensive infrastructure and ... policies and procedures" to protect the financial data the entity possesses.
- Cybersecurity Policy -- The Cybersecurity Program described above is documented in the form of a comprehensive Cybersecurity Policy. This policy must be approved by company leadership and address the following:
- Information security
- Data governance and classification
- Asset inventory and device management
- Access controls and identity management
- Business continuity and disaster recovery
- System operations and availability measures
- System and network security
- Systems and network monitoring
- Systems and application development and quality assurance
- Physical records security
- Vendor and third party service provider management
- Risk assessment
- Incident response
- Chief Information Security Officer -- Each entity must appoint a Chief Information Security Officer ("CISO"), whose role it is to lead the company's Cybersecurity Program and oversee the creation and implementation of the Cybersecurity Policy.
- Penetration Testing and Vulnerability Assessment - The entity's program must include annual penetration testing of vital systems and bi-annual system scans to assess the system and network requirements for known vulnerabilities.
- Risk Assessment -- The Cybersecurity Regulation includes a requirement that each entity perform a risk assessment based on written policies and procedures created and documented within the Cybersecurity Policy. This risk assessment is performed on the entity's computer and network systems and forms the backbone of the Cybersecurity Program. The risk assessment is designed to highlight the major risks to the entity's financial data, customer data, and other sensitive data and assist the entity in understanding how data flows through its systems and where it is most vulnerable. The Risk Assessment should be periodically revisited and updated as necessary.
- Third-Party Service Provider Security Policy -- The Cybersecurity Regulation specifically identifies the risks posed by the use of third parties in handling financial or customer data. Whenever data is moved between systems, risks and vulnerabilities are often exposed and can be exploited. Entities are expected to incorporate third parties into the Risk Assessment described above, as well as perform the necessary due diligence to ensure that third party service providers provide sufficient security to the data they are handling.
- Multi-factor Authentication -- Now, under the Cybersecurity Regulation, all covered entities must utilize multi-factor authentication technologies for all remote-access services, unless the entity's CISO has approved the use of reasonably equivalent remote access controls.
- Encryption -- The Cybersecurity Regulation also requires that nonpublic information is encrypted while in motion and while at rest unless this encryption is infeasible. If such a determination is made, it must be documented and revisited by the CISO at least annually. The kind and strength of the encryption is not provided by the Cybersecurity Regulation.
- Incident Response Plan -- All covered entities must create and implement an incident response plan ("IRP"). An IRP is a documented, practices and tested policy that outlines the steps that are taken by all relevant employees in the event of a suspected or actual data breach.
Recognizing that not all companies are built alike, the regulations permit the covered entity to use an affiliate or "qualified" third-party service provider to assist in complying with the regulation. This alleviates the burden on smaller organizations that may not have the infrastructure or resources to implement all requirements with in-house personnel.
The Cybersecurity Regulation went into effect March 1, 2017, and represents a first in the nation approach to targeting a specific industry. New York has already signaled that it aims to be aggressive and vigilant in its enforcement of the regulations and there is little reason to think otherwise. Which means covered entities who have not already complied should do so as quickly as possible.
The requirements, long considered best practices in the cybersecurity world, will be new and potentially confusing to many companies. At Thompson Coburn, we have a team of attorneys with experience implementing corporate programs like New York's Cybersecurity Program, including the creation and implementation of IRPs.
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.