August 24, 2019

August 23, 2019

Subscribe to Latest Legal News and Analysis

August 22, 2019

Subscribe to Latest Legal News and Analysis

August 21, 2019

Subscribe to Latest Legal News and Analysis

New York Releases Revised Proposed Cybersecurity Regulations

The New York State Department of Financial Services (“DFS”) has released a revised version of its proposed cybersecurity regulations, which set regulatory minimum standards for protecting the customer information and information systems of the financial services industry. The Revised Proposed Regulations will become effective on March 1, 2017.

According to its press release, DFS considered public comments from the first 45-day public comment period, which ended on November 14, and updated its proposed regulations in response. (For more on the original proposed regulations, see our article, Getting Prepared for the New York Department of Financial Services’ Proposed Cybersecurity Regulations.) The Revised Proposed Regulations will be subject to an additional 30-day notice and comment period.

In addition to minor wording changes throughout, the Revised Proposed Regulations substantially revised the sections on exemptions, internal reports of the Chief Information Security Officer (“CISO”), third-party service providers, encryption, notices to the Superintendent, penetration testing, and the transitional periods.

Exemptions

The original proposal’s exemptions have been expanded to exempt more entities from different aspects of the regulations’ requirements.

The Revised Proposed Regulations revised the limited exemptions by substituting entities with fewer than 1,000 customers with entities with fewer than 10 employees (including independent contractors) and changed the requirements from which these entities would be exempt.

Covered Entities with fewer than 10 employees, with less than $5 million in gross annual revenue in each of the last three years, or with less than $10 million in year-end total assets (including assets of an Affiliate) are exempt from the following sections of the regulations:

  • CISO,
  • penetration testing and assessments,
  • audit trail,
  • application security,
  • cybersecurity personnel and intelligence,
  • multi-factor authentication,
  • training and monitoring,
  • encryption of Nonpublic Information, and
  • incident response plan.

In addition, the Revised Proposed Regulations added limited exemptions for Covered Entities that do not “directly or indirectly operate, maintain, utilize or control any Information Systems,” and that do not, and are not required to, “directly or indirectly control, own, access, generate, receive or possess Nonpublic Information.” These entities are exempt from the following sections of the regulations:

  • cybersecurity program,
  • cybersecurity policy,
  • CISO,
  • penetration testing and vulnerability assessments,
  • audit trail,
  • access privileges,
  • application security,
  • cybersecurity personnel and intelligence,
  • multi-factor authentication,
  • training and monitoring,
  • encryption of Nonpublic Information, and
  • incident response plan.

Further, the Revised Proposed Regulations added unlimited exemptions for an employee, agent, representative, or designee of a Covered Entity who itself is a Covered Entity. In other words, those categories are wholly exempt from the regulations.

Chief Information Security Officer (“CISO”)

The requirement for Covered Entities to designate a qualified CISO has not changed, nor has its core role. The reporting requirements of a CISO to its Covered Entity, however, have changed.

Under the Revised Proposed Regulations, reports are required at least annually, as opposed to bi-annually in the original proposal. The CISO’s report also no longer needs to propose remedial steps for inadequacies identified in a Covered Entity’s cybersecurity program.

In addition, the Revised Proposed Regulations removed language requiring the CISO’s report be made available to the Superintendent upon request (although this appears to be a reshuffling as the new § 500.02(d) of the Revised Proposed Regulations requires that “all documentation and information relevant to [a] Covered Entity’s cybersecurity program shall be made available to the superintendent upon request”).

Under the Revised Proposed Regulations, the CISO need not be employed by the Covered Entity, but can be employed by an Affiliate of the Covered Entity or a Third Party Service Provider.

Third Party Service Provider

Third Party Service Provider is now defined in the Revised Proposed Regulations as:

… a Person that (i) is not an Affiliate of the Covered Entity, (ii) provides services to the Covered Entity, and (iii) maintains, processes or otherwise is permitted access to Nonpublic Information through its provision of services to the Covered Entity.

This is narrower than the original proposal, which stated that third party information security policy requirements applied to “third parties doing business” with a Covered Entity.

The Revised Proposed Regulations also did away with ascribing a time period on periodic reviews of Third Party Service Providers. They similarly removed Covered Entities’ obligations to establish guidelines in their policies on preferred contractual provisions on providing identity protection services to customers materially affected by a Third Party Service Provider’s negligence or willful misconduct, as well as guidelines on preferred contractual provisions relating to the right of a Covered Entity to perform cybersecurity audits of Third Party Service Providers. The rest of the guidelines on preferred contractual provisions remain, including the use of multi-factor authentication and access controls, notice to the Covered Entity for certain Cybersecurity Events, representations and warranties, and the use of encryption.

The Revised Proposed Regulations specifically referenced the section on encryption of Nonpublic Information, against which Covered Entities will assess Third Party Service Providers’ policies and procedures.

Encryption

Section 500.15 on Encryption of Nonpublic Information is one of the sections that DFS announced in its State Register publication as being substantially revised. Under the Revised Proposed Regulations, that section requires Covered Entities to “implement controls, including encryption, to protect Nonpublic Information….” This demonstrates a more flexible approach by DFS, as the original proposal stated that “each Covered Entity shall encrypt all Nonpublic Information….” The section in the Revised Proposed Regulations went on to state that Covered Entities can use “effective alternative compensating controls reviewed and approved by the Covered Entity’s CISO” in place of encryption when a Covered Entity determines encryption is not feasible. In those cases, the CISO must nevertheless review the feasibility of encryption and the effectiveness of the compensating controls at least annually.

Although the original proposal also allowed for alternative compensating controls, it had deadlines after which encryption would be required. The Revised Proposed Regulations are more flexible both in what they require and when they require it according to the Transitional Periods section.

Notices

DFS also has demonstrated some flexibility in the Notices to Superintendent section of the Revised Proposed Regulations. While the requirement to notify the Superintendent within 72 hours of specific Cybersecurity Events is unchanged, one of the criteria of qualifying events has changed. Under the Revised Proposed Regulations, qualifying events include “Cybersecurity Events that have a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity” — much narrower than the original language.

Penetration Testing

The Penetration Testing and Vulnerability Assessments section also is more flexible under the Revised Proposed Regulations. It provides for:

  • annual penetration testing and bi-annual vulnerability assessments (reduced from quarterly), or
  • continuous monitoring or systems that detect changes in Information Systems that may show vulnerabilities on an ongoing basis.

Transitional Periods

Substantial revisions were made to the Transitional Periods section. Covered Entities will have 180 days from the March 1, 2017, effective date to comply with these regulations. Again demonstrating some flexibility, the Revised Proposed Regulations give even longer transitional periods in certain parts. For example:

  • 1 year – provisions on CISO reporting, penetration testing, vulnerability assessments and risk assessment provisions;
  • 1.5 years – provisions on audit trail, data retention, and encryption/controls provisions; and
  • 2 years – provisions on Third Party Service Provider Security Policy provisions.

Confidentiality

The Revised Proposed Regulations added a confidentiality section. It states that information Covered Entities provide under the regulations is subject to exemptions from certain disclosure laws.

Overall, these revisions appear to take into account some of the concerns voiced during the original public comment period, notably in the Notices to Superintendent section and internal CISO reporting requirements.

Jackson Lewis P.C. © 2019

TRENDING LEGAL ANALYSIS


About this Author

Principal

Joseph J. Lazzarotti is a Principal in the Morristown, New Jersey, office of Jackson Lewis P.C. He founded and currently helps to co-lead the firm's Privacy, e-Communication and Data Security Practice, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals.

In short, his practice focuses on the matrix of laws governing the privacy, security and management of data, as well as the impact and regulation of social media. He also...

973- 538-6890
Frank J. Fanshawe, Jackson Lewis, Hospital Payment System Lawyer, public policy issues attorney
Principal

Frank J. Fanshawe is a Principal in the Albany, New York, office of Jackson Lewis P.C. His practice focuses on health care law and privacy and data security. He has 25 years of experience, including significant real-world legal and executive-level experience with a nationally recognized health insurer in the northeastern United States.

Mr. Fanshawe previously served as a senior adviser to the New York State Senate Health Committee chair on legislative and public policy issues in connection with New York's deregulation of the hospital payment methodology system (Health Care Reform Act) and other major health care initiatives. He also practiced law with other national law firms, where he represented hospitals, medical groups, independent practice associations, physician organizations, home health agencies and other health care providers.

518-512-8700
Rosemary McKenna, Health Care Lawyer, Jackson Lewis, Law firm
Principal

Rosemary McKenna is a Principal in the Albany, New York, office of Jackson Lewis P.C. She has more than 25 years of experience working with charitable, business and professional health care and commercial entities.

Ms. McKenna’s practice focuses on representing health care and commercial entities in transactional and operational matters. She has worked with national, state and regional organizations in all areas of their operations, including formation (drafting organizational documents, applications for tax-exempt status, policy/practice...

518-512-8700
Damian J. Privitera, Jackson Lewis, Health Care Providers lawyer, HIPAA Matters Attorney
Associate

Damian J. Privitera is an Associate in the Albany, New York, office of Jackson Lewis P.C.

Mr. Privitera advises health care entities, including hospitals, nursing homes, urgent care centers, health plans and health care trade associations in a variety of compliance transitional contexts. He regularly advises clients on compliance with HIPAA and HITECH, the Stark Law and Anti-Kickback Statute, and other federal and state statutes and regulations concerning licensed health care organizations, health care payments, data privacy and security,...

518-512-8700
Damon Silver, Employment Lawyer, Corporate Matters, Jackson Lewis
Associate

Damon W. Silver is an Associate in the New York City, New York, office of Jackson Lewis P.C.

In his Privacy, e-Communication and Data Security practice, Mr. Silver advises clients in various industries on compliance with federal and international privacy laws, including HIPPA, the ADA, GINA, FMLA, the TCPA, FCRA, and the EU-U.S. Privacy Shield. He also provides guidance to organizations on data breach prevention and response. 

In the area of employment litigation, Mr. Silver defends...

212-545-4063