NY DFS Publishes Cybersecurity FAQs

As Compliance Deadline Approaches, NY DFS Publishes Cybersecurity FAQs

The New York Department of Financial Services’ (DFS) cybersecurity regulations took effect on March 1, 2017, and the first compliance deadline is fast approaching. To help with compliance, DFS recently published answers to several frequently asked questions (FAQs). These cybersecurity FAQs should be considered a “must read” for all entities licensed or registered under the state’s banking, insurance or financial services laws.

DFS Cybersecurity Regulations

New York’s new cybersecurity regulations (23 NYCRR Part 500) require that financial service companies “establish and maintain a cybersecurity program designed to ensure the confidentiality, integrity and availability of the Covered Entity’s Information Systems.” The programs must address five key areas: identification of cyber risks; implementation of policies and procedures to protect unauthorized access/use or other malicious acts; detection of cybersecurity events; responsiveness to identified cybersecurity events to mitigate any negative events; and recovery from cybersecurity events and restoration of normal operations and services.

The cybersecurity requirements for financial services companies further mandate that covered entities implement cybersecurity policies that are tailored to their unique risks and needs. They must also appoint a chief information security officers to implement and enforce the policies. Other requirements under the regulation include: adopting policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties; requiring multi-factor authentication for individuals accessing internal systems who have privileged access or to support functions including remote access; drafting an incident response plan to recover from any cybersecurity event; and conducting annual penetration testing and vulnerability assessments.

DFS Posts Cybersecurity FAQs

On June 29, 2017, DFS provided further guidance by posting responses to several “Frequently Asked Questions” to its website. Below are several of the most useful FAQs responses:

When is a covered entity required to report a cybersecurity event?

DFS highlights that 23 NYCRR 500.17(a) requires covered entities to notify the Superintendent of Financial Services of certain cybersecurity events as promptly as possible but in no event later than 72 hours from a determination that a reportable incident has occurred. A cyberattack is reportable if it falls into at least one of the following categories: 1. the cybersecurity event impacts the entity and notice of it is required to be provided to any government body, self-regulatory agency or any other supervisory body; or 2. the cybersecurity event has a reasonable likelihood of materially harming any material part of the normal operation(s) of the entity.

Regarding unsuccessful cyberattacks, DFS further advises that it “anticipates that most unsuccessful attacks will not be reportable, but seeks the reporting of those unsuccessful attacks that, in the considered judgment of the Covered Entity, are sufficiently serious to raise a concern.” The FAQs further state that the “Department trusts that Covered Entities will exercise appropriate judgment as to which unsuccessful attacks must be reported and does not intend to penalize Covered Entities for the exercise of honest, good faith judgment.”

Is notice required when a cybersecurity event involves harm to consumers?

The short answer is yes. DFS advises that its cybersecurity regulations must be read in combination with other laws and regulations that apply to consumer privacy. It specifically notes that under 23 NYCRR 500.17(a)(1), a covered entity must give notice to the Department of any cybersecurity event “of which notice is required to be provided to any government body, self-regulatory agency or any other supervisory body,” which includes many cybersecurity events that involve consumer harm, whether actual or potential. By way of example, DFS notes that New York’s information security breach and notification law requires notices to affected consumers and to certain government bodies following a data breach. Such breaches must also be reported to the Department.

What constitutes “continuous monitoring?”

According to DFS, “[e]ffective continuous monitoring could be attained through a variety of technical and procedural tools, controls and systems. There is no specific technology that is required to be used in order to have an effective continuous monitoring program.” The FAQs further advise that effective continuous monitoring generally can continuously, on an ongoing basis, detect changes or activities within a company’s information systems that may create or indicate the existence of cybersecurity vulnerabilities or malicious activity. Conversely, periodic manual review of logs and firewall configurations, would not be considered to constitute “effective continuous monitoring” under the regulation.

For many New York financial services companies, the new cybersecurity regulations present a significant compliance challenge. To determine what your business needs to do to satisfy its obligations, it is imperative to consult with an experienced attorney.

Do you have any feedback, thoughts, reactions or comments concerning this topic? Feel free to leave a comment below for Fernando M. Pinguelo. If you have any questions about this post, please contact me or the Scarinci Hollenbeck attorney with whom you work.