In a move that could have ramifications for many businesses, particularly those publicly traded, on November 9, Anthony J. Albanese, Acting Superintendent of Financial Services for the New York State Department of Financial Services (NYDFS), sent a letter to the Financial and Banking Information Infrastructure Committee (FBIIC)1 concerning potential regulations to be issued by the NYDFS to increase "cyber security defenses within the financial sector." The intent of the letter was to "spark additional dialogue, collaboration and, ultimately, regulatory convergence" on "new, strong cyber security standards for financial institutions." In May 2014 and February 2015, the NYDFS published its findings from extensive cybersecurity surveys conducted of those financial institutions and insurers it regulated. The NYDFS supplemented its reports in April 2015 following an additional survey on the cybersecurity challenges faced by financial institutions when relying on third party service providers.
Based on those surveys, the NYDFS concluded there was a "demonstrated need for robust regulatory action in the cyber security space." While focusing on promulgating its own regulations, the NYDFS recommended there be a "comprehensive cyber security framework" for federal and state financial institutions.
Superintendent Albanese's letter set out a detailed set of required cybersecurity policies and procedures for financial institutions to implement internally, and to include in contracts with third party service providers. Among these requirements, the institution is to designate a Chief Information Security Officer (CISO); implement multi-factor authentication; perform annual penetration tests and quarterly vulnerability assessments; and employ encryption to protect data both at rest and in transit. Moreover, under the regulations, agreements between third party service providers and financial institutions must include cybersecurity representations and warranties by the vendors, and must obligate the vendors to indemnify the institution from loss resulting from a cybersecurity incident. Importantly, many of the listed duties have application to businesses other than financial institutions.
For entities not governed by the NYDFS, these recommendations are just that – recommendations. However, the NYDFS has been the leader in the field of financial institution cybersecurity issues, and its findings and proposals carry great weight among industry regulators. Financial institutions will be well-served to consider the impact the detailed proposals have on those financial institutions regulated by the NYDFS, and note the reception of those proposals by members of the FBIIC. All businesses, especially public companies (as the SEC is a member of the FBIIC), should study the recommendations closely, and determine those it can and should adopt, particularly those relating to third party service provider management.
We will continue to monitor and provide updates on the NYDFS recommendations as we track cybersecurity developments affecting financial institutions and other businesses at risk for cyber intrusion. If you have questions regarding the NYDFS proposals, or any other cybersecurity concerns related to your organization, please contact an attorney on our Data Security & Privacy Team.
The FBIIC is composed of the Federal Reserve and the Treasury Department, as well as the SEC; OCC; FDIC; CFPB; NAIC; CFTC; SIPC and a host of other agencies. For a complete list of members, visit the FBIIC website