United States: NY Cyber Regs Compliance Deadline Looms For Financial Firms

August 28, 2017, marks the end of the initial 180-day transition period for covered entities to come into compliance with New York's new financial cybersecurity regulations.

Protecting sensitive customer and business information from data thieves is nothing new for the financial industry. But come August 28, 2017, banking, insurance, and other financial services companies in the Empire State must implement specific cyber protections and policies to be in compliance with cybersecurity regulations promulgated earlier this year.

On March 1, 2017, new cybersecurity regulations issued by the New York Department of Financial Services (DFS) (23 NYCRR 500) went into effect, requiring banks, insurers, and other financial services institutions licensed in New York to implement measures to protect the integrity of their systems and sensitive information. The new DFS regulations also make financial services firms' officers and boards of directors responsible for approving company cyber policies and annually certifying their compliance with the new regulations.

But financial service companies are not the only entities affected by the new regulations. Indeed, third-party service providers — including law firms, accounting firms, and other professions that regularly access sensitive, nonpublic information held by a regulated financial services company as part of their services — also have to meet certain cybersecurity benchmarks.

Financial services firms regulated by the state of New York were given an initial 180-day transition period to review and augment their cybersecurity policies and programs to come into compliance with the majority of the new regulations' provisions. The Empire State has set staggered deadlines — March 1, 2018, September 3, 2018, and March 1, 2019, respectively — to implement the remainder of the required cybersecurity policies, procedures, and measures.

Security controls cannot mitigate all the risk from current online threats, however. Firms subject to New York's cyber regulations should also review their insurance coverages to mitigate the economic risk posed by the evolving digital threats. In our ever-evolving digital environment, insufficient insurance coverage can result in catastrophic economic consequences.

New Duties for Financial Firms

Under DFS' new regulations, a company operating under New York's banking, insurance, or financial services laws ("covered entity") must take a number of measures to protect the information systems and the nonpublic information it holds. This includes personally identifiable information or health information related to an individual, as well as critical business information where the disclosure would adversely impact the covered entity.

For instance, a covered financial services company must create a cybersecurity program designed to protect the confidentiality, integrity, and availability of its information systems. The cybersecurity program must be based on the company's risk assessment and must:

  • Identify cybersecurity risks to nonpublic information stored on the covered entity's information systems;
  • Protect the covered entity's information systems and any nonpublic information from unauthorized access, use, or other malicious acts;
  • Detect, respond to, and mitigate any negative effects from a "cyber event" ­— that is, any attempt to gain unauthorized access to or disrupt the covered entity's system or information stored therein;
  • Recover from and return to normal operations after a cyber event; and
  • Fulfill the covered entity's regulatory reporting obligations.

As part of the cybersecurity program, a covered entity must also develop a written incident response plan, and must create a cybersecurity policy addressing information security, customer data privacy, incident response, and a host of other cyber-related issues. Moreover, a covered entity must implement minimum cybersecurity standards established by the new regulations, including but not limited to:

  • Performing periodic risk assessments;
  • Conducting periodic penetration tests and bi-annual vulnerability assessments of identified risks;
  • Imposing restrictions on nonpublic information access privileges;
  • Establishing an audit trail to reconstruct "material financial transactions" and maintain such records for at least five years;
  • Encrypting nonpublic information both in transit and at rest or protecting by other controls; and
  • Utilizing multi-factor authentication.

Other important requirements include:

  • Designating a chief information security officer;
  • Employing cybersecurity personnel to manage the cybersecurity program;
  • Implementing third-party provider security policies and requiring vendors to follow minimum cybersecurity practices;
  • Conducting cybersecurity training for employees;
  • Notifying the DFS Superintendent within 72 hours after discovery of a cyber event; and
  • Annually certifying the covered entity's compliance with the regulations.

Officers Must Now Certify and Sign Off on Cyber Policies and Practices

The DFS' new regulations also now make cybersecurity a C-Suite responsibility. A covered entity's board of directors or designated senior officer(s) must approve its cybersecurity policies and sign off on the entity's annual compliance certification to DFS starting in 2018.

The overall effect of these duties is to ensure that a covered entity's senior leadership is aware of — and ultimately responsible for — its cybersecurity practices, policies, and vulnerabilities. Yet this may ultimately open a covered entity's officers or board up to new legal and regulatory liabilities, even if the firm does not suffer a data breach. As an example, a covered entity may be subject to a DFS investigation if a senior officer certifies the existence of a cybersecurity policy that does not accurately reflect the entity's actual practices or policies.

Additionally, an inaccurate representation of the existence a cybersecurity policy approved by a covered entity's higher echelon officer, or a failure to meet the cybersecurity standards outlined in New York's rules, could expose the firm, its board, and its officers to greater liability following a breach. In the end, any financial firm covered by the new regulations should examine the downstream liabilities that may result if they do not meet their new cybersecurity duties.

Third-Party Service Providers Must Also Meet Cyber Standards

The cyber practices of financial service companies' third-party service providers are also affected by the new rules. As part of its own policies and procedures, a covered entity now must have a "Third-Party Service Provider Security Policy" — i.e., relevant due diligence guidelines or contractual provisions to ensure its third-party service providers have sufficient cybersecurity measures in place. Such measures include, where applicable:

  • Controlling and limiting access to sensitive information — including the use of multi-factor authentication;
  • The use of encryption to protect nonpublic information in transit and at rest; and
  • Appropriate consumer and regulatory notification processes in the event of a cyber event.

Moreover, the covered entity's policies must detail representations and warranties requirements from third-party service providers as to their cyber policies and procedures.

In addition, a covered entity must now conduct oversight of their third-party service providers' cybersecurity programs. Importantly, a covered entity must address in its policies and procedures the minimum cybersecurity practices it requires of its third-party service providers, as well as the due diligence processes the covered entity uses to evaluate whether its providers' cyber practices are adequate. Finally, a covered entity has to periodically assess the risks presented by, and the continued adequacy of, its providers' practices.

A third-party vendor's own cybersecurity is a crucial link in a company's overall cyber defenses, to be sure. As recent history has shown, the cyber vulnerabilities of an outside vendor can have disastrous consequences for the company that hired them, even if it did not suffer a direct cyber event itself. And vendors who routinely have access to their clients' sensitive information are increasingly targets of cybercriminals seeking backdoor access to a company's confidential data. Law firms and similar vendors are especially sensitive targets, as they typically contain data on not one, but hundreds — or even thousands — of clients whose information could be exploited by data thieves. Indeed, the U.S. Department of Justice indicted three foreign nationals in 2016, accusing the defendants of hacking into law firms to steal and exploit their clients' sensitive and confidential information.

But all of these duties — upon both the third-party service providers and the covered entities themselves — impose substantial burdens on any provider that works for a financial institution regulated by the Empire State. First, third-party providers now must take a hard look at their cybersecurity practices and policies to ensure that they are in line with the DFS' rules. Second, covered entities must be involved in their third-party providers' cyber practices by setting standards for their providers to meet. Thus, third-party providers should expect covered entities to routinely scrutinize their cybersecurity measures and policies. Finally, third-party providers may be exposed to greater legal liabilities following a cyber event if they are not fully in line with their duties under New York's cyber regulations.

Key Compliance Target Dates for Financial Services Companies

Under 23 NYCRR 500, covered entities have until August 28, 2017, to come into compliance with the bulk of the new regulations' requirements unless as specified otherwise below. Furthermore, the Empire State has set additional compliance and reporting deadlines for covered entities to meet their remaining obligations under its new cybersecurity requirements:

  • September 27, 2017: The initial 30-day period for a covered entity to file a Notice of Exemption with the DFS stating that it meets a compliance exemption ends.
  • February 15, 2018: A covered entity must submit its first annual certification to the DFS Superintendent, certifying its compliance with 23 NYCRR 500.
  • March 1, 2018: The one-year transition period ends. A covered entity will be required to, among other things:
    • Provide the first annual report from its chief information security officer to the entity's board of directors
    • Create policies and procedures for and conduct periodic risk assessments;
    • Implement multi-factor authentication for external access to the entity's network; and
    • Provide "cybersecurity awareness" training for all personnel.
  • September 3, 2018: The 18-month transition period ends. A covered entity will be required to:
    • Implement and maintain systems designed to reconstruct material financial transactions sufficient to support normal operations, and audit trials to detect and response to cybersecurity events;
    • Develop written procedures ensuring secure development practices used for in-house developed applications;
    • Create data retention policies;
    • Implement risk-based policies, procedures, and controls to monitor authorized users and detect unauthorized users; and
    • Encrypt non-public information in transit and at rest.
  • March 1, 2019: The two-year transition period ends. A covered entity will be required to have developed and implemented its Third-Party Service Provider Security Policy.

Review Practices and Coverage in Light of New Cyber Responsibilities

Whether a covered entity or third-party provider, a firm encompassed by DFS' cyber rules may be asking, "What do we do now?" First and foremost, financial services firms and their vendors should review their current cyber policies and security measures to ensure that they are in line with the new rules and sufficient to meet their particular cybersecurity risk tolerances. Companies should weigh whether their cyber policies meet current security standards and best practices, ensure that periodic risk assessments are conducted, and develop or revise their incident response plan to ensure they can effectively respond to a cyber event.

Such companies should also engage outside counsel well-versed in cybersecurity issues and liabilities to assess their compliance with the New York cybersecurity rules, as well as standards set forth by the Federal Trade Commission and other data security and privacy regulators.

Second, businesses affected by these rules should bear in mind that claims which may arise out of or relate to New York's cyber rules may not be covered by traditional commercial general liability policies, as such policies generally exclude cyber-related claims and losses from coverage.

Third, covered firms should examine their Directors' and Officers' policies carefully to ensure that their D&O coverages include possible liabilities that may result from directors and officers attesting to their companies' cyber practices.

Finally, financial services firms should ensure that their current cyber insurance policies are robust enough to cover their potential liabilities. Technology can mitigate only so much risk associated with current online threats. The remaining risk should be transferred to cyber insurance, and acquiring sufficient coverage should be a priority.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions