On November 18, 2021, a group of federal bank regulators announced a final rule requiring banks to notify their primary federal regulator of any “significant computer-security incidents.” Regulators must be notified no later than thirty-six hours after the bank has determined that the incident triggers the rule’s notification requirement. Further, bank service providers are now required to promptly notify all affected banks whenever a cybersecurity disruption lasts for four or more hours.

The rule is the latest regulation requiring entities who have suffered a cybersecurity incident to promptly notify a government agency. Unlike some of those regulations, this rule is not linked to compromised consumer data.

Background

The rule was initially proposed in January 2021. In the intervening months, both President Biden and Federal Reserve Chair Powell have described cyber-attacks as a major threat to the private and public sectors. In May 2021, President Biden issued an executive order to bolster federal cybersecurity standards. Congress, as part of its annual defense policy bill, is currently debating a proposal to require certain entities to report cyber intrusions to the federal government.

The rule was jointly issued by the Board of Governors of the Federal Reserve (“Board”), the Federal Deposit Insurance Corporation (“FDIC”), and the Office of the Comptroller of the Currency (“OCC”). All three have adopted nearly identical versions of the rule, differing only to identify the specific banking organizations subject to their individual authority. Each regulator cites different statutes as the basis of its authority, including the Federal Deposit Insurance Act, the Home Owners’ Loan Act, the Bank Service Company Act, and the Federal Reserve Act. The Gramm-Leach-Bliley Act is not a basis of the rule’s authority.

The agencies note the increasing frequency and severity of cyberattacks on the financial services industry as a key motivator for the rule. They write that the new rule will allow them to better detect and assess cybersecurity threats, facilitate assistance to victims, and provide information to other banks.

The rule has two prongs: (1) banks are now required to notify their primary federal regulator when they suffer from certain disruptive cybersecurity incidents; and (2) bank service providers must notify affected customer banks when an incident disrupts covered services for four or more hours.

Banks Must Notify Their Primary Federal Regulator

Each regulator defined a banking organization according to their jurisdiction.

  • For the OCC, this includes national banks, federal savings associations, and federal branches of foreign banks.
  • The Board subjects all U.S. bank holding companies, state member banks, and U.S. operations of foreign banks to the regulation.
  • The FDIC defines “banking organizations” to include all insured state nonmember banks and insured state-licensed branches of foreign banks.

The rule does not apply to financial market utilities, financial technology firms, and non-bank OCC-chartered entities. Altogether, the regulation will apply to most traditional depository institutions.

The rule is concerned about actual harm to the confidentiality, integrity, or availability of an information system – or the information on the system. These occurrences are “computer-security incidents.”

When a “computer-security incident” materially disrupts a bank’s ability to carry out ordinary operations, results in a material loss in revenue, or poses a threat to the financial stability of the United States, the bank must notify its primary federal regulator. These kinds of computer-security incidents are referred to as “notification incidents.”

The rule provides a non-exhaustive list of “notification incidents” that would require notification:

  • large scale distributed denial of service attacks that disrupt customer access for more than 4 hours;
  • a bank service provider experiences widespread system outages with no determinable recovery time;
  • a failed system upgrade results in widespread user outages;
  • an unrecoverable system failure that triggers the bank’s disaster recovery plan;
  • a computer hacking incident that disables banking operations for an extended period of time;
  • malware on a bank’s network that is an imminent threat to core business lines or operations;
  • a ransom malware attack that encrypts a core banking system or backup data.

Once a bank determines that a notification incident has occurred, it must alert its primary federal regulator promptly and no later than thirty-six hours after the determination was made.

Bank Service Providers Must Notify Banks

The second prong of the rule requires bank service providers to notify banks affected by a disruption as soon as possible. A bank service provider is a “bank service company” or a person that performs services subject to the Bank Service Company Act, except for financial market utilities.

Once a service provider has determined that a “computer-security incident” is likely to materially disrupt or degrade covered services for four or more hours, it must notify affected banks as soon as possible. This requirement is independent of any existing contractual provisions. The rule does not apply to scheduled maintenance or tests. Bank service providers do not have to determine whether the incident is a “notification incident.”

After receiving a notification from the provider, a bank must determine whether the incident is a “notification incident.” If it is, the bank has thirty-six hours to notify the regulator from once it has made that determination. The agencies have stated they will not penalize a bank because the service provider fails to comply with the notification requirement.

Next Steps

The rule is effective April 1, 2022; entities must be compliant by May 1, 2022.

Banks will want to revise their internal policies to ensure they are promptly identifying and assessing cyber incidents. Additionally, banks and bank service providers will want to assess whether any existing notification processes are designed to ensure that the banks are receiving timely notice.

All banking entities subject to the jurisdiction of the Board, FDIC, or the OCC should promptly review the rule to ensure they are compliant by May 1.