One of the harshest cybersecurity regulations to hit companies in the US recently went into effect in New York. The state regulator, the New York Department of Financial Services, introduced its Cybersecurity Requirements for Financial Services Companies (23 NYCRR Part 500), a regulation designed to tighten cybersecurity practices across a wide selection of companies, which became effective on March 1, 2017.
Part 500 covers anyone "operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization under the Banking Law, the Insurance Law or the Financial Services Law." In practice, this includes banks, investment firms, insurers and licensed lenders, holding companies, charities, and service contractors. They should all be watching this regulation and preparing themselves for compliance.
The rules are highly prescriptive, going into substantial detail about the cybersecurity requirements for covered entities and imposing significant reporting requirements on those companies.
Covered entities must assess internal and external cybersecurity risks, and then use technology and policy to mitigate them. They must also detect and recover from cybersecurity events. All of this must be overseen by a designated senior official (effectively, a chief information security officer or CISO). This official is not only responsible for the cybersecurity program but also for submitting annual reports to the regulator. Under section 17, the CISO must also report a cybersecurity event within 72 hours.
This increase in cybersecurity reporting requirements removes any chance of plausible deniability for companies covered by the rule. It defines a cybersecurity event as any event that another regulator would deem reportable. The blanket coverage means that a company cannot claim ignorance of reporting standards as an excuse for not reporting an event.
These reporting rules are already in place now, with the first section 17 reports due in February 2018. In February 2019, the burden on covered companies will increase further when reporting on several other sections comes due.
These reports include:
In February 2020, the reporting requirements ramp up again, when companies will have to extend some of these security considerations outside their own walls. They will be forced to file reports about their third-party service providers' cybersecurity, too. This involves assessing the cybersecurity risks at companies processing their data, and explaining how they did it. The regulations require periodic risk assessments, and measures such as encryption, access controls, and cybersecurity event reporting must also be built into service provider contracts.
In practice, this means that should a service provider managing a company's data suffer a security breach, the company itself will come under scrutiny, and must prove that it conducted proper due diligence on the service provider.
While companies must file reports by various dates, Part 500 requires them to be compliant well before those reporting deadlines. The 180-day transition period for NYCRR began on March 1, meaning that they must prove by the end of August that they have a compliance program, effective policies, and a CISO in place, even though the first reports aren't due until the following February.
Other compliance deadlines loom one year after Part 500's effective date, which requires compliance around March 2018, and there are more in September that year. In practice, companies must be able to prove that they are able to scrutinize cybersecurity practices at their third-party providers a full year before they are due to report on them.
What this means is that companies must be working now to assess their sensitive data and how they are protecting it. They must then conduct a gap analysis to see what measures are necessary to meet Part 500's many requirements.
NYCRR is one of the strictest cybersecurity regulations at a federal or state level, and each of the requirements discussed here could take months of work. Take it seriously, and bring in a third-party advisor where necessary, because the regulator will not take kindly to those companies that violate its new rules.