By George Lynch
New York’s landmark cybersecurity regulation mandating that insurance companies, banks and other financial institutions establish a cybersecurity program takes effect March 1.
The regulation has limited flexibility for companies to tailor cybersecurity programs to their specific needs. But they all must have a program, regardless of the outcome of their respective risk assessments.
Nearly every large U.S. bank has operations in New York, including J.P.Morgan Chase Co., Citigroup Inc. and Bank of New York Mellon Corp. Hundreds of other companies that fall under the jurisdiction of the N.Y. Department of Financial Services (NYDFS) are also covered by the mandate. Deadlines for various compliance elements of the regulation aren’t entirely clear, but all covered entities must complete a risk assessment within one year.
The regulation has been called a first-in-the-nation of its kind “because it sets new novel standards that haven’t been required by other financial regulators,” such as the requirement that by Feb. 15, 2017, all covered entities need to certify their cybersecurity programs to NYDFS, Mark Krotoski, cybersecurity and privacy partner at Morgan, Lewis & Bockius in Palo Alto, Calif., told Bloomberg BNA Feb. 28.
“The regulation is a positive step in that it gets everyone on the same page, regardless of size or financial industry segment,” Steven Grossman, vice president of strategy and enablement at Bay Dynamics Inc. in New York, told Bloomberg BNA Feb. 28.
The greatest impact will likely be on small- and medium-sized financial services companies and third-party vendors, Steven Chabinsky, partner and chair of White & Case LLP’s Global Data, Privacy and Cybersecurity Practice in New York, told Bloomberg BNA Feb. 28. The larger companies “already have mature, well-resourced program in place,” but small and medium-sized firms haven’t had the workforce, budget or business need, so “the question will be whether this regulation is too onerous for them to comply with,” Chabinsky said.
The regulation allows institutions to “modulate their approach based on their individual needs versus the one-size-fits-all approach that many older regulations take,” Grossman said. The mandatory risk assessment needs to be “comprehensive and structured” so it can be used to develop a compliance plan, Grossman said.
In the face of industry complaints over the first draft, regulators took a more tailored approach in the final regulation. However, the regulation “is going to take some significant compliance efforts because of its highly prescriptive nature,” Krotoski said.
The risk assessment requirement, among other timing aspects, is inconsistent, though. Some parts of the regulation that depend on the risk assessment require compliance within 180 days—nine months before the risk assessment needs to take place, Chabinsky said.
“As a result, covered entities should consider starting their risk assessments earlier than the regulation allows or risk getting caught in a catch-22,” he said.
The board, or an equivalent governing body, will need to sign off on a statement assuring that they have reviewed all documents demonstrating that the organization is in compliance with the regulation.
The regulation forces C-suite executives back into the loop and gives them responsibility over cybersecurity preparedness, Grossman said.
But in order to perform this duty, organizations are going to need to hire forensic and technical experts to guide them, Krotoski said.
“The biggest beneficiaries of this regulation may not be consumers, but rather the insurers, cybersecurity firms, newly established CISOs, and legal advisers that will be needed to drive compliance,” Chabinsky said.
To contact the reporter on this story: George Lynch in Washington at gLynch@bna.com
To contact the editor responsible for this story: Donald Aplin at email@example.com
The regulation is available at http://www.dfs.ny.gov/legal/regulations/adoptions/rf23-nycrr-500_cybersecurity.pdf.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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