QUESTION
Our Cybersecurity Policy is a good one. I know
this because we have had an examination, and the regulator approved it.
Although we are a mid-west company, I notice
that New York requires an update to its cybersecurity rule. That makes me nervous
since New York’s cybersecurity requirements influence many states.
I want to update our Cybersecurity Policy to
reflect New York’s requirements. Sooner or later (probably sooner), our state
is going to adopt the same requirements.
What are the new Cybersecurity Policy requirements
in New York?
ANSWER
New York’s Department of Financial Services
(DFS) has been quite active in requiring its licensees to comply with its Cybersecurity
Rule (“Rule”). Effective March 1, 2017, the DFS promulgated a regulation[i] implementing the Rule.
I published a White Paper about the Rule in advance of its effective compliance date,
entitled
Cybersecurity Guidelines – "First-in-the-Nation" Regulation.
You’re
welcome to download it HERE.
From its inception, the DFS requires individuals
and entities to comply with the Rule. These are called “Covered Entities.” A Covered
Entities include, but are not limited to, partnerships, corporations, branches,
agencies, and associations 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.
I agree that the DFS influences other state
banking departments vis-Ã -vis cybersecurity regulations. Now, the DFS is proposing
to update the Rule.[ii]
So, it’s a good time to anticipate policy and procedure revisions. Even if the
proposed Amendments (“Amendments”) are not adopted in full or at all, given the
rapidly evolving cyber threat landscape and, in particular, the growing
prevalence of ransomware incidents, many aspects of the Amendments reflect Best
Practices.
Some of the proposed changes are rather
significant. For instance, the updated Rule will have such requirements as a
mandatory 24-hour notification for cyber ransom payments, heightened cyber
expertise requirements for board members, and new access restrictions to
privileged accounts.
I will provide a brief summary of the proposed
updates. Covered entities should monitor whether the DFS formally proposes amendments
to ensure they are equipped technically, organizationally, and financially to
meet the heightened governance, technical, and notification obligations.
Notification Obligations
The
Amendments will create new requirements to notify the DFS of certain incidents. Specifically,
there will be a requirement to notify the DFS within 72 hours of any unauthorized access to
privileged accounts or deployment of ransomware within a material part of the covered
entity’s information systems.
Furthermore, covered entities will be required
to notify the DFS within 24 hours of a covered financial institution making
a ransomware payment connected to a cybersecurity event; additionally, there
will be a requirement to provide the DFS within 30 days with an explanation of (a)
why the payment was necessary, (b) whether alternatives were considered, and (c)
what sanctions diligence was conducted.
Risk Assessments
There are risk assessment requirements under
the current Cybersecurity Rule. Under the Rule, a covered entity must
conduct a periodic risk assessment of its information systems “sufficient to
inform the design of” its cybersecurity program required by the Rule and must
update the risk assessment to address various changes, developments, and
threats. The Amendments will expand upon the Rule’s definition of a “Risk
Assessment” and more clearly articulate that an assessment must “take into account
the specific circumstances of the covered entity.” And the Amendments also
would clarify that a covered entity’s risk assessment must be updated at least
annually or whenever a change in business or technology “causes a material
change to the covered entity’s cyber risk.”
Heightened Monitoring
The Amendments will add several new monitoring
requirements to the Rule, including:
· Completion of an asset
inventory that tracks
information (e.g., owner, location, classification or sensitivity,
support expiration date, and recovery time requirements) for each technology
asset (e.g., hardware, operating systems, applications,
infrastructure devices, APIs, and cloud services), and requirements for
updating and validating the asset inventory;
· Heightened access controls for
privileged accounts, such as limiting
access to a need-to-know basis, implementing multifactor authentication, and
securely configuring or disabling protocols that permit remote control of
devices;
· Regular phishing training and
exercises for all personnel; and
· Monitoring and filtering of
emails to
block malicious content.
Governance
Governance will be updated in the Amendments to
include new obligations, including:
· CISO independence and authority to ensure that cyber risks are appropriately managed;
· Additional CISO reporting
obligations to the board of directors include plans for remediating inadequacies and timely reporting
on material cybersecurity issues or major cybersecurity events (which are not
defined);
· Expertise and knowledge
thresholds for board members (or requirements
that persons with such expertise and knowledge advise them) such that they can
exercise effective oversight of cyber risk;
· Cybersecurity policy approval by the board (i.e., not senior management);
· Annual certification of
compliance with the Cybersecurity Rule by CEO and CISO, as differentiated from a senior officer;
· Required business continuity
and disaster recovery (“BCDR”) plans, which would be necessary
to include certain prescribed content, such as identification of essential
data, personnel, and infrastructure, a communications plan in the event of a
disruption, and procedures for the maintenance of backup infrastructure;
· Periodic testing of incident
response and BCDR plans, and ability to restore systems from backups, including to address ransomware incidents and the ability to
recover from backups; and
· Annual review by CISO of the
feasibility of encryption and
effectiveness of the compensating controls, as well as a requirement to implement
a written policy requiring industry-standard encryption to protect nonpublic
information held at rest or transmitted over external networks by the covered
entity.
Larger (Class A) Companies
The Amendments will impose additional cybersecurity obligations
on a new category of covered entities, so-called “Class A
Companies.” Under the Amendments, a “Class A Company” would be a covered
entity with: (1) over 2,000 employees; or (2) over $1 billion in gross
annual revenues averaged over the last three years from all of its business
operations and those of its affiliates.
These Class A Companies would be subject to additional
cybersecurity obligations, including:
· Annual independent audits of the company’s cybersecurity program;
· Weekly vulnerability assessments
will be conducted, including systematic
vulnerability scans and reviews of information systems, and documentation and
reporting to the board and senior management of material gaps identified by
these assessments;
· Password controls, including a “vaulting
solution” for privileged accounts and an automated method for blocking commonly
used passwords;
· Monitor anomalous activity by way of endpoint detection and response solution, with a
centralized solution for logging and security event alerting; and
· Risk assessments by external experts at least once every three years.
Even if a covered entity is not a large company, smaller companies should consider implementing at least some of the Class A obligations.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director Lenders Compliance Group
[ii]
Announced by the DFS on July 29, 2022
