23 NYCRR 500 New York State Cyber Regulations
Another set of regulations, another set of discussions between attorneys and clients, now requiring very detailed insight into what is possible on the market from the cybersecurity engineering world: How to make the response practical, effective and valuable is, of course, the goal. Read this blog to the end, and I will show you that the goal is readily attainable.
New cybersecurity regulations first introduced by the New York State Department of Financial Services (“NYDFS”) in September 2016 and taking effect in their final form on March 1 represent the dawn of a new era of cybersecurity regulation. Formally titled “Cybersecurity Requirements for Financial Services Companies” (the “NY Regulations”), these rules are the first foray by a state into the realm of cybersecurity regulation. (The full NY Regulations can be found here and a NYDFS summary here.) They leave behind the tried but not-particularly-true approaches of voluntary risk evaluation (e.g., the NIST Cybersecurity Framework) and post-breach remedial action (such as those regularly required by the Federal Trade Commission) and instead create a comprehensive system, based on periodic mandated risk assessment, designed to result in robust cybersecurity systems capable of preventing cyber incidents, rather than merely evaluating cyber maturity or reacting to data security breaches.
In introducing the draft Regulations, New York Governor Andrew Cuomo asserted that:
New York, the financial capital of the world, is leading the nation in taking decisive action to protect consumers and our financial system from serious economic, harm that is often perpetrated by state-sponsored organizations, global terrorist networks, and other criminal enterprises.
Clearly, Mr. Cuomo had no illusions about the potential reach or significance of the Regulations, and neither should practitioners, wherever located, with clients in, or even proximate to, the financial services industry. The Regulations contemplate a new, holistic approach to cybersecurity apply to a broad universe of industries operating in the State of New York and are likely to affect regulation far beyond that state’s borders.
Who must comply with the Regulations?
The reach of the Regulations appears to be extraordinarily broad, as might be expected for regulators in “the financial capital of the world.” They apply to “Covered Entities,” defined as “any Person operating under or required to operate under a license, registration, charter, certificate, permit, accreditation or similar authorization [from the NYDFS] under the Banking Law, the Insurance Law or the Financial Services Law,” but exempt certain very small Entities—those with (1) fewer than 10 employees or independent contractors; (2) less than $5 million in gross annual revenue each of the past three fiscal years; or (3) less than $10 million in it and its affiliates’ GAAP year-end total assets. (Note that these small concerns are still considered “Covered Entities.” and so still must comply with certain portions of the NY Regulations.) It is important to read and consider that definition carefully—it covers a much larger universe than one may expect. Besides banks and other obvious financial institutions, the NYDFS also regulates insurance companies, including health insurers, mortgage lenders, mortgage brokers and any other businesses covered by any of the New York Banking, Insurance or Financial Services Laws. And, because the touchstone of the Regulations is authorization from the NYDFS, the Regulations, by their terms, apply to national and international concerns with headquarters and even substantially all operations, outside of New York, so long as they are operating within the State of New York, under NYDFS authorization and do not fall within the de minimis exceptions provided in the Regulations.
When do the Regulations take effect?
The Regulations become effective March 1, 2017 and, with certain exceptions, are subject to a 180-day transition period. Covered Entities must file their first annual certifications with the NYDFS no later than February 15, 2018.
What do the Regulations require?
The Regulations are intended to create an expansive, integrated, risk-based system to ensure that regulated entities develop and maintain robust cybersecurity capabilities and, therefore, are able to properly safeguard sensitive nonpublic information in their possession. Not surprisingly, with such a lofty goal, they have a large number of largely interconnected “moving parts,” which must fit, and work, together seamlessly. The following are some of the most critical elements of the Regulations.
- Cybersecurity Program. Each Covered Entity must develop, implement and maintain a Cybersecurity Program, based on its Risk Assessment (discussed below), that performs these core functions:
- Identify and assess internal and external cyber risks to the security or integrity of information stored on the Entity’s information systems;
- Create infrastructure and implement policies and procedures to prevent unauthorized access to the Entity’s information systems and use of nonpublic information on such systems;
- Detect cybersecurity events, respond to such events to mitigate adverse effects and recover and restore normal operations and services; and
- Meet regulatory reporting obligations.
- Cybersecurity Policy. Each Covered Entity must adopt a written Cybersecurity Policy, made up of policies and procedures for the protection of its information systems and of nonpublic information stored on those systems. The Cybersecurity Policy must be based on the Entity’s Risk Assessment (discussed below), approved by a senior officer (as defined) or the Entity’s board of directors and must address the following areas to the extent applicable:
- Information security;
- Data governance and classification;
- Asset inventory and device management;
- Access controls and identity management;
- Business continuity and disaster recovery planning and resources;
- Systems operations and availability concerns;
- Systems and network security;
- Systems and network monitoring;
- Systems and application development and quality assurance;
- Physical security and environmental controls;
- Customer data privacy;
- Vendor and third-party service provider management;
- Risk assessment; and
- Incident response.
- Monitoring, Penetration and Vulnerability Testing. The Cybersecurity Program for each Covered Entity (other than those exempt under the de minimis standard) must include a program of ongoing monitoring and testing, developed in accordance with the Entity’s Risk Assessment (discussed below), to assess the effectiveness of the Entity’s Cybersecurity Program. This monitoring and testing regime must include either (1) continuous monitoring or (2) periodic penetration testing (in which the assessors “attempt to circumvent or defeat the security features of an information system”) and vulnerability assessments. In the absence of continuous monitoring, penetration testing must be performed at least annually, to identify vulnerabilities of the Covered Entity’s network security systems and vulnerability testing, including systematic scans or reviews of information systems to identify known vulnerabilities, must be undertaken at least twice annually.
- Risk Assessment. Each Covered Entity must undertake a periodic Risk Assessment to reassess the cybersecurity risks inherent in its business operations, including its information systems and the nonpublic information it collects and stores. Compliance with a number of other requirements is, under the Regulations, explicitly dependent on the Risk Assessments. These requirements include the Cybersecurity Program, Cybersecurity Policy, Penetration Testing and Vulnerability Assessment and Third-Party Service Provider Security Policy (all discussed herein), as well as Multi-Factor Authentication, Encryption of Non-Public Information and Training and Monitoring. While the original proposal for the Regulations called for the Risk Assessment to be performed annually, the final Regulations remove the “annual” requirement. Instead, the Regulations indicate that the Risk Assessment must be “sufficient to inform the design” of the required Cybersecurity Program. In other words, Covered Entities must undertake Risk Assessments with sufficient frequency to ensure that other provisions of their Cybersecurity Plans remain in compliance with the Regulations.
Other notable requirements under the Regulations include:
- Chief Information Security Officer. Each Covered Entity (other than those exempt under the de minimis standard) must designate a Chief Information Security Officer (CISO) responsible for overseeing and implementing the institution’s Cybersecurity Program and enforcing its Cybersecurity Policy. The CISO must report to the Entity’s Board of Directors, at least twice annually, on a list of prescribed matters.
- Third-Party Service Provider Security Policy. Each Covered Entity must have in place policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third parties.
- Reporting Requirements. Covered Entities are required to report to the DFS as follows:
- Within 72 hours after a determination that a “Cybersecurity Event” has occurred. A Cybersecurity Event is an event “that has a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity.”
- No later than February 15 of each year, each Covered Entity must certify that it is in compliance with the requirements of the Regulations.
Each Cybersecurity Program also must include:
- Implementation and maintenance of an audit trail system to reconstruct transactions and log access privileges;
- Limitations and periodic reviews of access privileges;
- Written application security procedures, guidelines and standards that are reviewed and updated by the CISO at least annually;
- Employment and training of cybersecurity personnel;
- Multi-factor authentication for individuals accessing internal systems who have privileged access or to support functions including remote access;
- Timely destruction of nonpublic information that is no longer necessary;
- Monitoring of authorized users and cybersecurity awareness training for all personnel;
- Encryption of all nonpublic information held or transmitted; and
- Written incident response plan to respond to, and recover from, any cybersecurity event.
What should a Covered Entity do now?
It is clear that the Regulations are here to stay and that compliance will require many Covered Entities to act fast to develop and implement or revise and upgrade their processes and procedures. And, with an initial phase-in period of only six months, they had better act fast. The key is finding a trusted cybersecurity advisor without fail. While law firms and accounting firms may wish to fill this need, the fact is that only genuine cybersecurity engineers can best address many of the requirements.
As noted above, the foundation of the Regulations’ is the Risk Assessment. Everything from the Cybersecurity Program, Cybersecurity Policy, Penetration Testing and Vulnerability Assessment and Third-Party Service Provider Security Policy, to Multi-Factor Authentication and Encryption of Non-Public Information Policies and Training and Monitoring requirements are dependent on the Risk Assessment’s results. So the logical—and necessary—first step is for the Entity to undergo a thorough, state-of-the-art and unassailable Risk Assessment.
Assured Enterprises, Inc. (“Assured”), through its TripleHelixSM and AssuredScanDKV® tools, delivers the state-of-the-art and up-to-the-minute assessment of a Covered Entity’s cyber risk profile based on (1) criteria for the evaluation and categorization of identified cybersecurity risks and threats facing the entity, (2) criteria for the assessment of the confidentiality, integrity, security and availability of the Entity’s information systems and nonpublic information, including the adequacy of existing controls in the context of identified risks, and (3) recommendations for how identified risks should be mitigated or accepted. Although it is uncanny, the NY Regulations are actually perfectly geared for these tools from Assured.
Assured’s deep scanning tool, AssuredScanDKV®, provides a critical, and heretofore unobtainable, deliverable for an effective Risk Assessment—an inventory of all known cybersecurity vulnerabilities hidden within the Covered Entity’s software applications. AssuredScanDKV® searches within bundled binary executable files, libraries and DLLs throughout the Entity’s enterprise network, detecting all known vulnerabilities residing in the software. The AssuredScanDKV® output report provides a prioritized list of the identified vulnerabilities, along with the remediation pathway for each. An AssuredScanDKV® scan is an invaluable element of a Risk Assessment, as it illuminates the previously dark and inaccessible corners of the Entity’s cybersecurity infrastructure and provides the Entity acquirer with inputs necessary to construct an effective—and compliant—Cybersecurity Program.
Assured’s proprietary approach enables a thorough understanding of a Covered Entity’s security profile and provides a comprehensive roadmap for mitigating risk and improving its security posture. TripleHelixSM evaluates three strands of essential information:
- Cyber Maturity Report. Identifies existing vulnerabilities, gaps and weaknesses.
- Threat Report. Heightens understanding of potential risks by identifying bad actors, state-sponsored hackers, “hacktivists,” organized crime, commercial espionage experts, insider threats and more.
- Impact Report. Aids in prioritizing mitigation and resource allocation by quantifying the impact a successful data breach could inflict on the Entity.
And, in short order the Covered Entity receives three deliverables:
An Actionable Roadmap
Takes into account the actual cost-effectiveness and workflow issues facing the Covered Entity, and which makes concrete recommendations to improve the cyber health of the Covered Entity. This roadmap takes into account hardware, software, policies, procedures, training, network connections and much more.
Just like a FICO® score, Assured’s CyberScore® provides a 3- digit representation of the cyber health of the Covered Entity. The CyberScore® serves as a benchmark of where a Covered Entity is today, and serves to inform the Roadmap of what is possible to do to improve. Then, by refreshing the CyberScore® every six months, just as the NY Regulations call for, it is possible for the board of directors and senior management to measure improvements and make additional, informed decisions, now armed with accurate information. The CyberScore® is backed up by actuarial data and is based on the thousands of data points evaluated by TripleHelixSM.
The Covered Entity’s own Regulatory Compliance Dossier
This Dossier is populated with virtually all of the regulatory, compliance, best standards reports which any Covered Entity may need. PCI, HIPAA, SOX, GLBA, SEC, FFIEC, NCUA, ISO 27001/01, CoBit5 and many more are available and will be all delivered in proper form and with certifications as part of the deliverables. Naturally, the NY Regulations are already incorporated into TripleHelixSM. This is truly one-stop shopping, which reduces impact on the workflow at the Covered Entity and which provides for consistency and accuracy in evaluation.
Assured has already built the precise tools—TripleHelixSM and AssuredScanDKV® to fully satisfy the NY Regulations and to satisfy much more. The company was founded by top notch cybersecurity engineers with extensive experience within the US DoD and Intelligence Community and with a team of professional leaders, which is nothing short of first rate.
If you want to get the best, most comprehensive solution for not only the NY Regulations, consider Assured Enterprises’ solutions. For more information contact us or schedule a demo today.