[BreachExchange] The Wide-Ranging Impact of New York's Cybersecurity Regulations
audrey at riskbasedsecurity.com
Tue May 16 20:44:49 EDT 2017
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
These reports include:
- Penetration testing: Companies must provide annual proof of penetration
tests, which use specialists to test weaknesses in company infrastructure.
- Audit trails: The regulation requires covered entities to prove audit
systems showing how they detect cybersecurity events.
- Secure development: Under section 8, regulated companies will have to
prove that they use secure software development processes for in-house
applications and that they test the cybersecurity of external software.
- Periodic risk assessments: Cybersecurity assessment is not a one-shot
deal. February 2019 will also see companies submit their first reports
under section 9, which demands periodic risk assessments to show that they
are still compliant.
- Multifactor authentication: Under section 12, they will need to use
stringent multifactor authentication (for example, the use of hardware
tokens or risk-based access controls).
- Encryption: Section 15 will also need companies to report on the adequate
encryption of sensitive data by this date.
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
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
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.
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