On February 16, the New York State Department of Financial Services (NYDFS) issued cybersecurity regulations for banks, insurance companies and other financial institutions subject to NYDFS jurisdiction. The regulations, which take effect March 1, 2017, are available here. Entities subject to the regulations will have 180 days from the effective date to come into compliance with most requirements, though certain provisions allow up to two years after the effective date.1

First proposed in September 2016 and revised after two rounds of public comment, the regulations establish requirements that in some respects duplicate federal data security obligations for financial institutions, but in some important respects differ from and go beyond federal requirements. Notably, the NYDFS regulations rely on a definition of “Nonpublic Information” that must be protected that is considerably broader than the definition of “customer information” under the federal Interagency Guidelines Establishing Information Security Standards,2 and the regulations impose (i) obligations to report cybersecurity incidents to NYDFS, (ii) an annual certification requirement concerning compliance with the regulations, (iii) requirements concerning oversight of third-party service providers, (iv) obligations concerning use of multi-factor authentication and encryption, and (v) requirements concerning audit trail maintenance and document destruction.

Covered Entities. The regulations apply to persons and organizations “operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under” New York's Banking Law, Insurance Law, or Financial Services Law, with several exemptions. Smaller entities will be exempted from most of the regulations' specific requirements but will still have to establish a cybersecurity program, undertake regular risk assessments, use encryption, and report to NYDFS annually and in the event they suffer a breach meeting certain characteristics.3

Substantive Requirements. “Covered entities” are required:

  • to “conduct a periodic Risk Assessment of the Covered Entity's Information Systems sufficient to inform the design of the cybersecurity program . . . updated as reasonably necessary to address changes to the Covered Entity's Information Systems, Nonpublic Information or business operations . . . carried out in accordance with written policies and procedures and . . . documented”; (500.09)
  • to “maintain a cybersecurity program” designed “to protect the Covered Entity's Information Systems, and the Nonpublic Information stored on those Information Systems, from unauthorized access, use or other malicious acts”; (500.02)
  • “to implement and maintain a written” cyber policy “approved by a Senior Officer or the Covered Entity's board of directors (or an appropriate committee thereof) or equivalent governing body, setting forth the Covered Entity's policies and procedures for the protection of its Information Systems and Nonpublic Information stored on those Information Systems,” addressing 14 functions, including data classification, access controls, business continuity, application development and security, and incident response; (500.03)
  • to “designate a qualified individual responsible for overseeing and implementing the Covered Entity's cybersecurity program and enforcing its cybersecurity policy (for purposes of this Part, 'Chief Information Security Officer' or 'CISO')”; (500.04)
  • to undertake penetration testing and vulnerability assessments; (500.05)
  • to maintain audit trails “designed to reconstruct material financial transactions sufficient to support normal operations and obligations” for five years and “designed to detect and respond to Cybersecurity Events that have a reasonable likelihood of materially harming any material part of . . . normal operations” for five years; (500.06)
  • to establish access privileges; (500.07)
  • to maintain policies and procedures to ensure the security of applications developed in-house or purchased externally; (500.08)
  • to hire and train qualified cybersecurity personnel; (500.10)
  • to “implement written policies and procedures designed to ensure the security of Information Systems and Nonpublic Information that are accessible to, or held by, Third Party Service Providers,” including “relevant guidelines for due diligence and/or contractual protections” relating to access controls, including multi-factor authentication, encryption and breach notification; (500.11)
  • to use multi-factor authentication “for any individual accessing the Covered Entity's internal networks from an external network, unless the Covered Entity's CISO has approved in writing the use of reasonably equivalent or more secure access controls”; (500.12)
  • to adopt “policies and procedures for the secure disposal on a periodic basis” of certain categories of personally identifiable information; (500.13)
  • to “implement risk-based policies, procedures and controls designed to monitor the activity of Authorized Users and detect unauthorized access or use of, or tampering with, Nonpublic Information by such Authorized Users; and provide regular cybersecurity awareness training”; (500.14)
  • to encrypt Nonpublic Information “held or transmitted by the Covered Entity both in transit over external networks and at rest,” unless it determines that encryption is “infeasible” and its Chief Information Security Officer approves “effective alternative compensating controls”; (500.15) and
  • to “establish a written incident response plan designed to promptly respond to, and recover from, any Cybersecurity Event materially affecting the confidentiality, integrity or availability of the Covered Entity's Information Systems or the continuing functionality of any aspect of the Covered Entity's business or operations.” (500.16)

Reporting Requirements. Covered entities will also face new reporting requirements:

  • Covered entities must notify NYDFS “as promptly as possible but in no event later than 72 hours from a determination that a Cybersecurity Event has occurred that either triggers an obligation to give notice to any government body, self-regulatory agency or any other supervisory body,” or that has “a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity”; (500.17(a)) and
  • By February 15 each year, covered entities must submit a form certifying that the covered entity is in compliance with the regulations; covered entities must maintain for examination by NYDFS “all records, schedules and data supporting this certificate for a period of five years”; “[t]o the extent a Covered Entity has identified areas, systems or processes that require material improvement, updating or redesign, the Covered Entity shall document the identification and the remedial efforts planned and underway to address such areas, systems or processes” and make the documentation “available for inspection by the superintendent.” (500.17(b))