New cybersecurity rules for some financial services providers are set to take effect March 1 for firms doing business in New York, and the new requirements may be showing up around the nation before too long.
The fairly prescriptive proposed rules, initially published in September by New York's Department of Financial Services and updated last month, require banks, insurance companies and other financial services institutions regulated by the department to have a cybersecurity program aimed at protecting consumers.
Since investment advisers and broker-dealers aren't licensed by the DFS, financial advisers would only be covered by the rule if they are licensed by the department in some other capacity, like as an insurance broker or agent, said Ron Klug, a spokesman for the DFS.
In addition to written policies and procedures, firms must have a designated chief information security officer to oversee and enforce the program, train employees and report hacking attempts to the state within 72 hours if the hacks have a reasonable likelihood of harming the firm's normal operations.
The rules, officially under comment until Jan. 27, would be the first in the U.S., and are expected to be a model for other states.
“In essence they're creating a national law, like California did in writing their privacy laws,” said John Cunningham, chief information security officer at Docupace Technologies. “New York is creating a standard that will probably be a catalyst for a national change.”
The requirement that firms have a C-suite-level employee in charge of the cybersecurity program could be challenging. That person will need to be trained and qualified to take on this role, Mr. Cunningham said. Even finding someone to act as CISO — let alone the cost if one needs to be hired — could be difficult.
“There will be a significant cost to find people with those skills and it will create a bidding war for them,” he said.
Many firms have written cybersecurity policies today, but the new rules hold firms accountable for making sure they're complied with, Mr. Cunningham said.
As part of protecting client data, for example, firms will need to monitor all data leaving the firm and have systems in place for email that blocks certain types of information, such as Social Security numbers.
Firms also will need to gauge their security through penetration testing, which typically costs between a few thousand dollars to $15,000, he said.
New York regulators said the revised proposal, which delayed implementation of the rules by two months, gives firms enough time to ready their systems.
“New Yorkers must be confident that the banks, insurance companies and other financial institutions that they rely on are securely handling and establishing necessary protocols that ensure the security and privacy of their sensitive personal information,” said Maria T. Vullo, superintendent of the financial services department.
Her department said it surveyed about 200 of the financial firms it regulates to evaluate cybersecurity progress and develop the requirements.
(Correction: An earlier version of this story suggested advisers in New York would have to meet the new cybersecurity requirements, when, in fact, only advisers who are separately licensed by the Department of Financial Services will come under the rules.)