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Regulators Approve Cybersecurity Incident Reporting Notification Rule (“CIRN”) for Banks

Author: Scarinci Hollenbeck, LLC

Date: January 13, 2022

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Regulators Approve Cybersecurity Incident Reporting Notification Rule (“CIRN”) for Banks

A Final Rule requiring banks to report certain cybersecurity incidents within 36 hours was approved by the FDIC, the Board of Governors of the Federal Reserve System, and the OCC…

A Final Rule requiring banks to report certain cybersecurity incidents within 36 hours was approved by the Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (Board), and the Office of the Comptroller of the Currency (OCC). April 1, 2022, is the Rule’s effective date. According to the agencies, the new rule will “promote early awareness of emerging threats to banking organizations and the broader financial system,” as well as “help the agencies react to these threats before they become systemic.”

CIRN Rule Objectives

The Computer-Security Incident Notification Final Rule establishes computer-security incident notification requirements for banking organizations and their bank service providers. In support of the rule, the regulators note that computer-security incidents have become more common, particularly as cyberattacks targeting the financial services industry have increased in frequency and severity in recent years.  Cyber-attacks have included destructive malware or malicious software (cyberattacks), as well as nonmalicious failure of hardware and software, personnel errors, and other causes.

The trio of regulators also highlights that computer-security incidents can adversely affect a bank’s networks, data, and systems and, its ability to resume normal operations. They maintain that prompt incident notification will achieve early awareness of emerging threats to banks and the broader financial system, as well as capabilities to assess and respond to computer-security breaches.

Who Is Covered by the New Reporting Rule?

The Final Rule new requirements apply to banking organizations and their bank service providers as defined by the primary regulators.

  • For the OCC, “banking organizations” includes national banks, federal savings associations, and federal branches and agencies of foreign banks.
  • For the Board, “banking organizations” includes all U.S. bank holding companies and savings and loan holding companies, state member banks, the U.S. operations of foreign banking organizations, and Edge and agreement corporations.
  • For the FDIC, “banking organizations” includes all insured state nonmember banks, insured state-licensed branches of foreign banks, and insured State savings associations.

The term “bank service provider” refers to a company or person that performs services for a banking organization that is subject to the Bank Service Company Act. According to the regulators, the notification requirement for bank service providers is important given that banking organizations have become increasingly reliant on third parties to provide essential services. “Such third parties may also experience computer-security incidents that could disrupt or degrade the provision of services to their banking organization customers or have other significant impacts on a banking organization,” the Final Rule states.

Incident Notification is Required within 36 Hours.

A banking organization must notify its primary federal regulator of any computer-security incident that rises to the level of a notification incident as soon as possible and no later than 36 hours after the banking organization determines that a notification incident has occurred

As defined by the Final Rule, a computer-security incident is an occurrence that results in actual harm to the confidentiality, integrity, or availability of an information system or the information that the system processes, stores, or transmits. Meanwhile, a notification incident is a computer-security incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, a banking organization’s:

  • Ability to carry out banking operations, activities, or processes, or deliver banking products and services to a material portion of its customer base, in the ordinary course of business;
  • Business line(s), including associated operations, services, functions, and support, that upon failure would result in a material loss of revenue, profit, or franchise value; or
  • Operations, including associated services, functions and support, as applicable, the failure or discontinuance of which would pose a threat to the financial stability of the United States.

The Final Rule also requires a bank service provider to notify at least one bank-designated point of contact at each affected customer bank as soon as possible when it determines it has experienced a computer-security incident that has materially disrupted or degraded, or is reasonably likely to disrupt or degrade, covered services provided to the bank for four (4) or more hours. If the bank has not previously provided a designated point of contact, the notification must be made to the bank’s chief executive officer and chief information officer or to two individuals of comparable responsibilities.

The Rule Compliance Deadline is May 1, 2022.

Conclusions:

Banking organizations and bank service providers have approximately five (5) months to assess the institutions existing cybersecurity breach incident policies/procedures and training programs to assure compliance by Final Rule’s May 1, 2022 compliance deadline.  The two (2) critical components are:  timely incident notification and assessment of capabilities to respond to breaches and restore the organization’s capabilities.

If you have questions, please contact us

If you have any questions or if you would like to discuss these issues further,
please contact Paul A. Lieberman or the Scarinci Hollenbeck attorney with whom you work, at (201) 896-4100.

No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.

Scarinci Hollenbeck, LLC, LLC

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