March 1, 2017 marked the implementation of New York’s cybersecurity regulations, subjecting covered financial institutions to arguably the most burdensome cybersecurity regime yet.
The regulations, promulgated by the New York State Department of Financial Services (“NYDFS”), require banks, insurance companies, and other entities regulated by NYDFS to establish substantive cybersecurity programs and policies and to annually certify their compliance with the regulations. Governor Cuomo touted the rules as “strong, first-in-the-nation protections [that] will help ensure [the financial services industry] has the necessary safeguards in place in order to protect themselves and the New Yorkers they serve from the serious economic harms caused by these devastating cyber-crimes.” Additionally, Manhattan District Attorney Cyrus R. Vance, Jr. stated that the “cybersecurity regulation will be a crucial tool in the ongoing battle against cyber-crime and identity theft by mandating that New York’s financial services industries adopt and put in place robust and appropriate controls to detect, thwart, and report cyber incidents.”
Key Provision Highlights:
Entities operating in New York under authorization of the Banking, Insurance, or Financial Services Laws – referred to as “covered entities” – now have significant new obligations, one of which requires the creation of a new position: Chief Information Security Officer (“CISO”). 23 NYCRR § 500.04. The CISO must annually report to the entity’s Board of Directors regarding cybersecurity issues and compliance with the regulations. Id.
In addition, covered entities must conduct a periodic risk assessment with the purpose of providing the covered entity’s management with information about the entity’s specific cybersecurity risks. 23 NYCRR § 500.09(a).
Based on the identified cybersecurity risks, the covered entity must create and implement written cybersecurity policies and a cybersecurity program for the organization. The regulations provide that the cybersecurity policies and program should aim to protect the data and information systems from cybersecurity threats. See 23 NYCRR §§ 500.02, 500.03.
Cybersecurity programs also must address issues of multi-factor authentication, data retention, employee training and supervision, encryption of nonpublic information, and cybersecurity incident response plans. 23 NYCRR § 500.12–16. Once developed, the cybersecurity program must be subject to scheduled periodic penetration tests and assessments of vulnerability or otherwise be continuously monitored. 23 NYCRR § 500.05.
Another provision requires a covered entity to notify the NYDFS Superintendent “as promptly as possible but in no event later than 72 hours from a determination that a Cybersecurity Event has occurred.” 23 NYCRR § 500.17(a). A Cybersecurity Event triggers the notice requirement once the determination is made that the event qualifies as one of the following: “(1) Cybersecurity Events of which notice is required to be provided to any government body, self-regulatory agency or any other supervisory body,” or “(2) Cybersecurity Events that have a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity.” Id.