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Data, Privacy & Security Practice Report – March 6, 2017


06 Mar 2017
NEWSLETTER

Cybersecurity And Financial Institutions: How New York’s “First-In-The-Nation” Data Security Regulations May Impact You—March 1, 2017 marked the implementation of New York’s cybersecurity regulations, subjecting covered financial institutions to arguably the most burdensome cybersecurity regime yet.

The regulations, promulgated by the New York State Department of Financial Services (“NYDFS”), require banks, insurance companies, and other entities regulated by NYDFS to establish substantive cybersecurity programs and policies and to annually certify their compliance with the regulations.  Governor Cuomo touted the rules as “strong, first-in-the-nation protections [that] will help ensure [the financial services industry] has the necessary safeguards in place in order to protect themselves and the New Yorkers they serve from the serious economic harms caused by these devastating cyber-crimes.”  Additionally, Manhattan District Attorney Cyrus R. Vance, Jr. stated that the “cybersecurity regulation will be a crucial tool in the ongoing battle against cyber-crime and identity theft by mandating that New York’s financial services industries adopt and put in place robust and appropriate controls to detect, thwart, and report cyber incidents.” 

Key Provision Highlights:

Entities operating in New York under authorization of the Banking, Insurance, or Financial Services Laws - referred to as “covered entities” - now have significant new obligations, one of which requires the creation of a new position: Chief Information Security Officer (“CISO”).  23 NYCRR § 500.04.  The CISO must annually report to the entity’s Board of Directors regarding cybersecurity issues and compliance with the regulations.  Id.

In addition, covered entities must conduct a periodic risk assessment with the purpose of providing the covered entity’s management with information about the entity’s specific cybersecurity risks.  23 NYCRR § 500.09(a).

Based on the identified cybersecurity risks, the covered entity must create and implement written cybersecurity policies and a cybersecurity program for the organization.  The regulations provide that the cybersecurity policies and program should aim to protect the data and information systems from cybersecurity threats.  See 23 NYCRR §§ 500.02, 500.03.

Cybersecurity programs also must address issues of multi-factor authentication, data retention, employee training and supervision, encryption of nonpublic information, and cybersecurity incident response plans.  23 NYCRR § 500.12–16.  Once developed, the cybersecurity program must be subject to scheduled periodic penetration tests and assessments of vulnerability or otherwise be continuously monitored.  23 NYCRR § 500.05.

Another provision requires a covered entity to notify the NYDFS Superintendent “as promptly as possible but in no event later than 72 hours from a determination that a Cybersecurity Event has occurred.”  23 NYCRR § 500.17(a).  A Cybersecurity Event triggers the notice requirement once the determination is made that the event qualifies as one of the following: “(1) Cybersecurity Events of which notice is required to be provided to any government body, self-regulatory agency or any other supervisory body,” or “(2) Cybersecurity Events that have a reasonable likelihood of materially harming any material part of the normal operation(s) of the Covered Entity.”  Id.

Important Deadlines for Compliance:

Covered entities must move quickly to comply with tight deadlines:

  • By August 28, 2017, covered entities must at a minimum have the following requirements in place: 1) a cybersecurity program; 2) cybersecurity policies; 3) a Chief Information Security Officer; and 4) an Incident Response Plan.
  • By February 15, 2018, a covered entity must file its first annual certification of compliance.
  • By March 1, 2018, covered entities must have in place periodic vulnerability assessments and risk assessments for the cybersecurity program, multifactor authentication, and a cybersecurity training program.
  • By September 1, 2018, covered entities must have implemented limitations on data retention, have in place an audit trail, encrypted nonpublic information, and established a monitoring program.
  • By March 1, 2019, covered entities must have in place a third party service provider security policy.

Entities with fewer than ten employees (including independent contractors), less than $5 million in gross revenue for New York business operations during each of the last three years (including affiliates), or less than $10 million in year-end total assets (including affiliates) are exempt from certain requirements.  23 NYCRR § 500.19(a).  Further exemptions are available for entities that do not handle particular classes of nonpublic information.  See 23 NYCRR § 500.19(c), (d).  Note that exempted entities have an obligation to file a Notice of Exemption within thirty (30) days.  23 NYCRR § 500.19(e).  In addition, exempted entities may still be subject to certain provisions requiring risk assessments and cybersecurity policies, among others.

In A Nutshell:

The new requirements are substantial and it is anticipated that they will become more meaningful for covered entities as they are implemented.  It is imperative to examine the new rules and track deadlines for compliance.  Covered entities should anticipate changes in the requirements over time and should expect to continuously monitor the new cybersecurity programs and policies they develop.

Reporter, Brittany N. Clark, Washington, D.C., +1 202 626 5528, bclark@kslaw.com.

FCC Votes To Block Its Own Privacy Rule—New Federal Communications Commission (“FCC”) Chairman Ajit Pai signaled last week that he is planning to take the first step to return authority over broadband providers’ privacy and data security practices to the Federal Trade Commission (“FTC”).  Consistent with that directive, on March 1, 2017, the FCC Commissioners voted 2-1 to stay the implementation of an Obama-era FCC data security rule that would have required internet service providers (“ISPs”) to take more stringent steps to protect consumers’ personal data.

The FTC arguably already regulates consumer privacy and data security on the Internet, both for ISPs (cable and wireless companies) and “edge providers” (other companies and platforms on the Internet).  Critics of the FCC broadband privacy rules, which were adopted in October 2016, believe the ISP data security rule would have unfairly subjected ISPs to stricter privacy requirements than edge providers, since the rule only applies to ISPs and the FTC already has rules that arguably apply to ISPs and edge providers.  For example, the rule would have required ISPs to obtain consent before using certain consumer data for advertising and internal marketing.  The reason the FTC only “arguably” has the authority to regulate both ISPs and edge providers is that the FCC’s Open Internet Order of 2015 reclassified ISPs as Title II common carriers.  In FTC v. AT&T Mobility LLC, the U.S. Court of Appeals for the Ninth Circuit held in August 2016 that common carriers are exempt from the FTC’s jurisdiction; however, this decision appears to be ripe for U.S. Supreme Court review, as other courts have disagreed with the Ninth Circuit.

After the vote on Wednesday, FTC Chairman Maureen K. Ohlhausen and FCC Chairman Pai issued a joint statement saying that they “disagreed with the FCC’s unilateral decision in 2015 to strip the FTC of its authority over broadband providers’ privacy and data security practices, removing an effective cop from the beat.”  Furthermore, they “still believe that jurisdiction over broadband providers’ privacy and data security practices should be returned to the FTC, the nation’s expert agency with respect to these important subjects” because “all actors in the online space should be subject to the same rules, enforced by the same agency.”  Ohlhausen and Pai explained that the vote to stay the implementation of the data security rule was based on the rule’s inconsistency with the FTC’s privacy framework (i.e. stricter requirements for ISPs).  Until jurisdiction over broadband providers’ privacy and data security practices is returned to the FTC, Ohlhausen and Pai promised to “work together on harmonizing the FCC’s privacy rules for broadband providers with the FTC’s standards for other companies in the digital economy.”

FCC Commissioner Mignon Clyburn, the only Democratic Commissioner, issued a strong dissent that condemned the vote as leaving no option to ensure the protection of personal data online.  Clyburn wrote, “Because of the 9th Circuit decision [FTC v. AT&T Mobility LLC] that seriously called into question the ability of the FTC to regulate any business that has a common carrier component, the Commission’s action today means that a voluntary industry code is the only comprehensive federal protection for broadband data security.”  Senator Ed Markey (D-MA), who has been critical of Chairman Pai since he took the position, described the vote as an attack on privacy rights and net neutrality, stating, “Chairman Pai has fired his opening salvo in the war on the Open Internet Order, and broadband privacy protections are the first victim.”

Others have praised the vote as ensuring a uniform set of privacy protections for consumers.  For example, The Internet & Television Association (“NCTA”) stated, “Today’s FCC action to issue a temporary stay of the data security regulation is a welcome recognition that consumers benefit most when privacy protections are consistently applied throughout the internet ecosystem.”  The NCTA also recently argued in a letter to Congress that the FCC rule “would create confusion and interfere with the ability of consumers to receive customized services and capabilities they enjoy and be informed of new products and discount offers.”

Meanwhile, industry lobby groups, including the NCTA, are asking Congress to consider using the Congressional Review Act to do away with the Open Internet Order of 2015 and prevent the FCC from revisiting such privacy rules for ISPs in the future.  Senator Markey has promised to “oppose any efforts to roll back these important rules [both the Open Internet Order and the FCC broadband privacy rules] either by Congress or by the [FCC], and [to] rally millions of Americans to this cause.”

Reporter, Bethany Rupert, Atlanta, +1 404 572 3525, brupert@kslaw.com.

ALSO IN THE NEWS 

King & Spalding’s 2017 Cybersecurity & Privacy Summit – On Monday, April 24, 2017, please join the cybersecurity and privacy experts at King & Spalding for the 2017 Cybersecurity & Privacy Summit.  This event is for legal and business professionals who want to participate in a discussion about the latest developments and strategies for data protection.  King & Spalding will provide a registration link in the coming weeks.

PEOPLE