Proposed SHIELD Act Would Have Broad Reach

In Response To Recent Equifax Breach, SHIELD Act Has Been Proposed in New York

The massive Equifax data breach continues to spur regulatory reforms. New York, which already has one of the country’s strongest cybersecurity regulations for financial services institutions, is considering additional data protection measures. Of particular interest to businesses in New Jersey and elsewhere, the proposed data breach notification requirements would apply to entities operating outside New York.

Regulatory Response to Equifax Breach

As discussed in prior articles, the Equifax breach reportedly disclosed the personal information of 145.5 million Americans. The credit reporting company has also come under fire for failing to promptly notify consumers and regulators about the breach. In New York alone, eight million residents were impacted.

In response to the Equifax breach, New York Gov. Andrew Cuomo proposed regulations that would subject consumer credit reporting agencies to the state’s recently enacted cybersecurity regulations for financial companies. Most recently, New York Attorney General Eric Schneiderman announced The Stop Hacks and Improve Electronic Data Security Act (SHIELD Act). The proposed bill broadens the scope of information covered under the state’s existing data breach notification law and updates the notification requirements when there has been a breach of data.

Data Breach Requirements Under SHIELD Act

In support of the new requirements, Schneiderman noted that existing regulations only apply to personally identifying information that includes social security numbers. “It’s clear that New York’s data security laws are weak and outdated. The SHIELD Act would help ensure these hacks never happen in the first place. It’s time for Albany to act, so that no more New Yorkers are needlessly victimized by weak data security measures and criminal hackers who are constantly on the prowl,” said Attorney General Schneiderman in a press statement announcing the SHIELD Act.

Under the proposed bill, businesses would be required to adopt “reasonable administrative, technical and physical protections for data.” Small businesses, defined as those with fewer than 50 employees and less than $3 million in gross revenue; or less than $5 million in assets, would be deemed compliant if they “implement and maintain reasonable safeguards that are appropriate to the size and complexity of the small business to protect the security, confidentiality and integrity of the private information.”

The bill also contains a carve-out for certain other businesses. It provides that “certified compliant entities,” defined as those already regulated by, and compliant with, existing or future regulations of any federal or New York State government entity (including NYS DFS regulations; regulations under Gramm-Leach-Bliley; Health Insurance Portability and Accountability Act of 1996 (HIPAA) regulations, or with International Organization for Standardization (ISO)/National Institute of Standards and Technology (NIST) cybersecurity standards, would receive safe harbor status from enforcement actions under the SHIELD Act. 

Below are several other key components of the proposed SHIELD Act:

• The scope of information subject to the current data breach notification law would be expanded to include biometric information, email addresses and their corresponding passwords or security questions and answers, and protected health information as defined under HIPAA.
• The definition of a data breach would be expanded to include unauthorized access to private information.
• Data breach notification requirements would apply to any person or entity with private information of a New York resident, not just to those that conduct business in New York State.
• Failure to provide required, reasonable data security would be a violation of section 349 of the General Business Law, thereby authorizing the attorney general to file suit for noncompliance. Businesses could be fined $5,000 for each violation or up to $20 per instance of failed notification, provided that the latter’s aggregate amount does not exceed $250,000.

We will continue to monitor the SHIELD Act as it makes its way through the legislative process. It will be particularly interesting to see how the state plans to enforce the law against businesses that do not have operations in New York.