On May 6, New York Governor Andrew Cuomo announced that the New York Department of Financial Services (DFS) will soon begin examining financial institutions for their cybersecurity preparedness. Governor Cuomo stated that, “Targeted cybersecurity assessments for banks will better safeguard financial institutions from attacks and secure personal bank records from being breached.” DFS has yet to release details about the timing and content of the assessments, but all financial institutions should consider the extent to which their own cybersecurity preparedness is sufficiently tailored to respond to the risks presented by the increasing frequency and sophistication of cyberattacks.

The announcement was accompanied by the release of a report capturing the results of a DFS survey about the challenges posed by cybersecurity threats at the 154 banks that DFS regulates. Financial institutions should carefully consider the findings of the report as a benchmark against their own cybersecurity programs.
The report identified “key pillars” for any information security framework:

(1) A written information security policy
(2) Security awareness education and employee training
(3) Risk management of cyber-risk, inclusive of identification of key risks and trends
(4) Information security audits
(5) Incident monitoring and reporting

Additional key components of an information security framework identified by the report include compliance audits of third parties that handle personal data of customers and employees, membership in an information-sharing organization, a designated communications officer responsible for responding to inquiries in the event of a cybersecurity breach, and a communications plan for addressing stakeholders affected in the event of a cybersecurity breach.

The report also detailed the use of some security technologies currently in place at New York banks, including anti-virus software, spyware and malware detection, firewalls, server-based access control lists, intrusion detection tools, intrusion prevention systems, vulnerability scanning tools, encryption for data in transit, encrypted files, smart cards, one-time password tokes, two-factor authentication processes, public key infrastructure systems, the use of biometrics, and penetration testing.

Several observations are made in the report about cybersecurity programs that may signal areas of focus for future cybersecurity assessments by DFS. 

  • Budget: The report shows that most institutions (77%) expect an increase within the next year to their budgets for information security and cybersecurity management. Regardless of the size of the budget, financial institutions should be prepared to demonstrate to DFS that an appropriate amount has been allocated to cybersecurity.
  • Governance: The report observes that certain divisions and employees that could strengthen cybersecurity governance are notably absent from most financial institutions’ current structure: general counsel, public information/communications, and corporate insurance.
  • Reporting: The report concludes that there is widespread lack of information security reporting being conducted. The report calls for periodic security updates to be provided to all levels of managements, including the Board of Directors.
  • Breaches: The report found that most institutions, irrespective of size, experienced intrusions or attempted intrusions over the past three years. Based on the findings in the report, DFS may be considering looking more closely at monetary losses resulting from cyber breaches and whether financial institutions are adequately and timely informing law enforcement and regulators about a breach, as well as appropriately notifying consumers and/or investors or only doing so when they are directly affected. Moreover, they may be looking at what proactive steps financial institutions are taking in response to a breach to ensure that they ascertain what caused the breach and prevent it from occurring again. The steps they may be looking for are internal investigations, and appropriately implementing the conclusions of any such investigation.
  • Information Sharing: The report recommends that all financial institutions become members of Financial Services Information Sharing and Analysis Center, which can provide timely notifications and authoritative information about protecting critical systems and assets from the latest cybersecurity threats.
  • Vendor Oversight: The report states that, “To the extent that institutions do not have adequate insight into the sufficiency of the processes and controls of their third-party service providers, this may represent an area in need of heightened due diligence and monitoring. Cybersecurity and data protection requirements should be incorporated into institutions’ third-party contracts from the outset.”

DFS Superintendent Benjamin Lawsky commented that, “Hackers spend day and night trying to think up new ways to steal consumers’ personal information and disrupt our nation’s financial markets, and it’s more important than ever that we rise to meet that challenge.” Recognizing that some companies may have limited resources, the report notes that, “the amount of money spent on a cyber program is by no means the best reflection of its strength.” The report emphasizes instead that companies should be designing cyber programs that can be updated regularly to identify and respond to risks. Whether a large depository institution or a smaller financial institution, every company should devote sufficient time and resources to develop its cybersecurity program.

Ballard Spahr's Privacy and Data Security Group includes experienced lawyers who provide a range of cybersecurity legal services to help clients navigate the many laws and regulations that impose requirements on financial institutions and their vendors to safeguard financial information, as well as to help clients identify and comply with industry technical standards, including PCI compliance. We also regularly counsel clients on data mining, behavioral marketing, privacy, and management of technology vendors, and are the go-to resource for many clients who have experienced a data security breach.

Attorneys in the firm's national White Collar Defense/Internal Investigations practice regularly conduct internal investigations and represent clients facing actual or threatened government enforcement. We have represented public figures, political leaders, and Fortune 500 corporations and executives in a range of high-profile, high-stakes criminal, regulatory, and civil matters.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance. Our attorneys, including the attorneys who joined us from the New York City litigation firm Stillman & Friedman, P.C., to form Ballard Spahr Stillman & Friedman LLP, have substantial experience in handling matters involving DFS and the New York Attorney General.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Charles A. Stillman at 212.223.0200 x8015 or stillmanc@bssfny.com, or Marjorie J. Peerce at 212.223.0200 x8039 or peercem@bssfny.com.  

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Consumer Financial Services 
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Privacy and Data Security 
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