The final New York Department of Financial Services cybersecurity rules have now been issued. Covered entities – banks, Insurance companies, and financial service firms operating in the state of New York must now comply with new rules. The financial services cybersecurity rules are the first to be introduced at the state level in the U.S.
The purpose of the cybersecurity rules is to make it harder for cybercriminals to gain access to confidential consumer data. The new rules require companies to adopt a host of cybersecurity measures to keep consumer data confidential and secure.
The financial services cybersecurity rules were first announced last fall. Following the announcement and publication of the draft cybersecurity rules on September 13, 2016, there followed a 45-day comment period. A revised version of the DFS cybersecurity rules was published in late December, which was followed by a further 30-day comment period. The comments received have been considered and now final changes to the cybersecurity rules have been made.
The final financial services cybersecurity rules are effective as of March 1, 2017. Covered entities have up to 6 months to ensure compliance, after which non-compliance could result in a significant financial penalty and other sanctions.
New York state governor Andrew Cuomo announced the release of the final financial services cybersecurity rules saying “New York is the financial capital of the world and it is critical that we do everything in our power to protect consumers and our financial system from the ever-increasing threat of cyber-attacks.”
The new rules should not pose too many problems for the majority of firms in the financial sector, provided that they have already adopted best practices issued by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). However, where the new cybersecurity rules differ is their specificity. The FINRA and SEC guidelines do not specify the measures that must be adopted, whereas the DFS cybersecurity rules are much more specific about the measures that must be adopted to keep data secure.
The final version of the financial services cybersecurity rules has seen an easing of document retention requirements. In previous versions of the rules, covered entities were required to keep all categories of records for a period of five years. In the final version of the rules, the 5-year retention period only applies to records that are necessary to reconstruct financial transactions to support the normal operations of the company. Records of cybersecurity events that could materially harm the company need only to be kept for three years.
The new rules require the DFS to be notified of a cybersecurity event within 72 hours of it occurring, if the event has a reasonable likelihood of materially harming any part of the normal operations of the covered entity or if the entity has a pre-existing duty to notify another government or regulatory agency.
While the financial services cybersecurity rules are strict, there are many exemptions. Several security experts have suggested the new rules do not go far enough for this very reason.
Many of the exemptions apply to smaller companies. For instance, in order for a company to be a covered entity, the annual turnover must be more than 5 million dollars. Smaller firms employing fewer than 10 individuals are similarly exempt. That effectively means a company with 9 employees does not need to implement as stringent data security measures as a company that employs 10 individuals; however, a line must be drawn somewhere.
There are also exemptions for firms that do not possess or control non-public information. There are further exemptions for charitable organizations and insurance companies that operate in the state of New York, but are not chartered in New York state, and for reinsurers that accept credits or assets from an assuming insurer not authorized in the state. However, further updates of the rules may see some of the exemptions removed.
The Cybersecurity Requirements for Financial Services Companies can be viewed on this link.
