New York is the latest state to adopt a law that requires businesses that collect private information on its residents to implement reasonable cybersecurity safeguards to protect that information. New York now joins California, Massachusetts and Colorado in setting these standards. New York’s law mandates the implementation of a data security program, including measures such as risk assessments, workforce training and incident response planning and testing. Businesses should immediately begin the process to comply with the Act’s requirements effective March 21, 2020. Notably, New York’s law covers all employers, individuals or organizations, regardless of size or location, which collect private information on New York State residents.
The “Stop Hacks and Improve Electronic Data Security Act” (SHIELD ACT), signed into law on July 25, 2019, requires implementation of an information security program to protect “private information” defined as:
- any individually identifiable information such as name, number or other identifier coupled with social security number, driver’s or non-driver identification card number or account number, credit or debit card number in combination with any security code, access code, password or other information that would permit access to the individual’s financial account, or biometric information (such as fingerprint, voice print, retina or iris image);
- individually identifiable information coupled with an account number, credit or debit card number if circumstances exist wherein such number could be used to access an individual’s financial account even without additional identifying information, or a security code, access code or password; or
- a username or email address in combination with a password or security question and answer that would permit access to an online account.
The law broadly requires that “any person or business” that owns or licenses computerized data which includes private information of a New York State resident “shall develop, implement and maintain reasonable safeguards to protect the security, confidentiality and integrity of the private information.”
In order to achieve compliance, an organization must implement a data security program that includes:
- reasonable administrative safeguards that may include designation of one or more employees to coordinate the security program, identification of reasonably foreseeable external and insider risks, assessment of existing safeguards, workforce cybersecurity training, and selection of service providers capable of maintaining appropriate safeguards and requiring those safeguards by contract;
- reasonable technical safeguards that may include risk assessments of network, software design and information processing, transmission and storage, implementation of measures to detect, prevent and respond to system failures, and regular testing and monitoring of the effectiveness of key controls; and
- reasonable physical safeguards that may include detection, prevention and response to intrusions, and protections against unauthorized access to or use of private information during or after collection, transportation and destruction or disposal of the information.
Small businesses of fewer than 50 employees, less than three million dollars in gross revenues in each of last three fiscal years, or less than five million dollars in year-end total assets may scale their data security program according to their size and complexity, the nature and scope of its business activities and the nature and sensitivity of the information collected.
Organizations that are covered by and in compliance with the Gramm-Leach-Bliley Act, the Health Insurance Portability and Accountability Act (HIPAA), and/or the New York State Department of Financial Services cybersecurity regulations shall be deemed in compliance with the SHIELD Act.
Failure to implement a compliant information security program is enforced by the New York State Attorney General and may result in injunctive relief and civil penalties of up to $5,000 imposed against an organization and individual employees for “each violation.” Depending on how the Attorney General seeks to apply this provision, this could potentially lead to significant monetary penalties for entities and their employees who fail to take required protective measures, including when those failures lead to a data breach. We can expect vigorous enforcement because the Attorney General submitted the SHIELD Act as an agency sponsored bill to keep pace with the use and dissemination of private information. Indeed, absent future clarification, the Attorney General may seek civil penalties to enforce reasonable cybersecurity safeguards even in the absence of a data breach. Of course, any enforcement activity by the Attorney General’s office will also have other damaging consequences, such as reputational harm and raise supply chain issues with the firm’s business partners.