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Financial Services Law Insights and Observations

NYDFS Landmark Cybersecurity Rule Set to Take Effect on March 1

State Issues Agency Rule-Making & Guidance Bank Regulatory NYDFS Privacy/Cyber Risk & Data Security Vendor Management 23 NYCRR Part 500

State Issues

On February 16, New York Governor Andrew Cuomo announced that with the New York Department of Financial Services’ (NYDFS) publication of a Final Regulation, New York’s “First-in-the-Nation Cybersecurity Regulation” is set to take effect on March 1.  As discussed previously in InfoBytes, the regulation—which requires banks, insurance companies, and other financial services institutions regulated by NYDFS to establish and maintain a cybersecurity program designed to protect consumers’ private data—imposes broad and, in some cases proscriptive, data security and cybersecurity requirements on Covered Entities that venture into new territory for both state and federal financial regulators. Indeed, as described by Governor Cuomo, the regulation reflects New York’s efforts to “lead[] the nation” through “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.”  

Moreover, as detailed in a follow-up InfoBytes Special Alert, NYDFS issued a updated proposed regulation on December 28 in response to over 150 comments and testimony presented at a hearing before New York State lawmakers. Though the updated proposed regulation did not differ drastically from the original, the revised proposed regulation provided for somewhat greater flexibility in how covered entities could go about implementing the requirements. Among other things, the December 28 revisions provided for: (i) longer timeframes for compliance with its requirements; (ii) more flexibility for compliance with certain requirements and acknowledgement that some requirements may not be applicable to all financial institutions; and (iii) clarifications to certain key definitions.

The newly released Final Regulation retains the revisions incorporated in the December 28 revision, but also contains the following notable revisions:

  • Record retention requirements for audit trail materials relating to Cybersecurity Events were reduced from five years to three years.
  • Clarification that Covered Entities’ policies and procedures for reporting by Third Party Service Providers of Cybersecurity Events only apply to the Covered Entity’s Nonpublic Information.
  • The limited exemption for small businesses to certain requirements of the rule has been narrowed by including a Covered Entity’s New York affiliates when calculating its number of employees and annual revenue.
  • Further clarification on the exemptions for companies regulated under New York’s Insurance Law.

With the expiration of the 30-day comment period and the publication of the Final Rule, New York’s Cybersecurity regulation is officially cleared to become effective upon publication in the New York State Register on March 1.

InfoBytes will continue to monitor the rollout of this pioneering regulation as it progresses.

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