With the future of federal regulations uncertain, the New York Department of Financial Services (NYDFS) has taken cybersecurity matters into its own hands. Effective March 1,, 2017, banks, insurers and other financial services regulated by the NYSDFS must maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry.
New York is the first state to adopt comprehensive cybersecurity regulation. Others are watching closely. The National Association of Insurance Commissioners (NAIC) is still crafting its own highly anticipated cybersecurity model law, and comparisons between the two frameworks will continue. We will be following up on these developments as they happen, as well as monitoring whether other states will follow New York’s lead.
Much more than a ritual box-checking exercise, the New York regulation requires the state’s banks, insurance companies and other financial service providers to each conduct a thorough cybersecurity risk assessment and design a robust cybersecurity program based on the findings.
Risk assessments will vary according to the individual risk profile of each covered entity but, generally, the documented risk assessment needs to do the following:
- Provide criteria for the evaluation and categorization of identified cybersecurity risks or threats which the entity may face.
- Design criteria for the assessment of the confidentiality, integrity, security and availability of the entity’s information systems and nonpublic information, including the adequacy of existing controls in the context of identified risks.
- Develop a risk mitigation program that describes how actual risks will be mitigated (or accepted) and how the company will monitor these risks. It is important to document the systems that are in place to detect and defend against cyberattacks, and test employee response to ensure that protocols are both followed and effective.
- Develop policies and procedures for the implementation and operation of the cybersecurity program, and train employees in these procedures.
In addition, each entity must designate a qualified chief information security officer (CISO) to administer the cybersecurity program. This may not be news to larger financial institutions, but for a smaller entity it may be a brand new requirement that requires some restructuring.
A CISO doesn’t have to come from within the entity’s ranks. Third parties can provide the CISO oversight services in an outsourced capacity. It is important to note, however, that while the responsibility for the oversight can be delegated, liability for the risk as well as for compliance is not transferable and remains with the entity.
There are many more specific details in the NYDFS regulation that covered entities will need to carefully look into as they shape their cybersecurity programs. Among them are specific initiatives that companies will either need to undertake now, or review to make sure they comply with the rule: incident response plan, data encryption, multi-factor authentication, third-party service provider security policies, penetration testing and vulnerability assessments, access privileges, and an audit trail for all these efforts, among others.
Covered entities have until February 15, 2018, to submit their first certification of compliance (annual requirement). This is a very short timeframe. I would urge companies to begin their risk assessments with utmost speed to ensure adequate time to identify and remediate any security gaps before the 2018 compliance deadline.
You can read the full regulation here.