NYDFS Part 500: A Guide to Cybersecurity Regulations for Financial Services

NYDFS Part 500 is a set of cybersecurity regulations for financial services in New York State. It was established by the New York State Department of Financial Services (NYDFS) in 2017.

The regulation applies to all financial institutions operating in New York State, including banks, credit unions, and insurance companies. These institutions must implement robust cybersecurity measures to protect sensitive customer data.

NYDFS Part 500 requires financial institutions to have a Chief Information Security Officer (CISO) who is responsible for overseeing the institution's cybersecurity program. The CISO must report directly to the board of directors or a senior executive.

In addition to the CISO requirement, NYDFS Part 500 also mandates that financial institutions have a cybersecurity program that includes risk assessment, vulnerability management, and incident response plans. These measures are designed to detect and respond to cyber threats in a timely manner.

The NYDFS Part 500 regulation is a law that demands financial companies implement a detailed framework to better protect consumer data privacy.

It was rolled out by the state of New York on March 1, 2017. This regulation is formally known as 23 NYCRR 500.

NYDFS Part 500 affects a wide range of financial service providers in New York.

Licensed lenders are among the entities that must comply with this law.

State-chartered banks, trust companies, and service contract providers are also covered.

Private bankers and mortgage companies are subject to the requirements of NYDFS Part 500.

Insurance companies doing business in New York must also comply.

Non-U.S. banks licensed to operate in New York are included in the scope of this regulation.

Here's a list of the entities that apply to NYDFS Part 500:

To ensure compliance with NYDFS Part 500, covered entities must assess their cybersecurity risk profiles and implement a comprehensive plan that recognizes and mitigates that risk. This includes creating risk-based minimum standards for information technology systems, including data protection and encryption, access controls, and penetration testing.

Covered organizations need to document their cybersecurity policies, ensure their security program is adequately funded, and designate a chief information security officer (CISO) or a third-party service provider. They must also put qualified cybersecurity personnel in charge of their security program.

To comply, covered entities must meet the standards set in the law, submit certification of compliance, and file a set of reports with the Department of Financial Services through the NYDFS website every year following initial compliance.

Here are the key requirements for NYDFS Part 500 compliance:

The New York Department of Financial Services (NYDFS) takes non-compliance with NYDFS Part 500 very seriously.

The NYDFS has the authority to issue a consent order, impose a civil penalty, or revoke the license of a financial institution according to NY Banking law.

Up to $2,500 per day can be imposed for each day a violation continues.

A reckless practice or pattern of misconduct can result in a daily fine of up to $15,000.

A knowing or willful violation can result in a daily fine of up to $75,000.

Company executives must certify compliance with the NY DFS regulations on an annual basis.

Should those certifications prove incorrect, they could provide the basis for the DFS or consumers to make claims against banks, insurers and other financial services firms for breach of such certification.

The proposal notes that its requirements will be enforced “under any applicable laws,” which include laws that allow for civil penalties.

Hyperproof makes NYDFS Part 500 compliance simple by providing an out-of-the-box framework template that lets you get started quickly and easily.

With Hyperproof, you can effortlessly map controls to multiple regulatory standards, maintaining a robust compliance posture and reducing the time and effort required to achieve compliance with all relevant regulations.

Hyperproof maximizes efficiency with seamless integrations with your existing project management tools, such as ServiceNow, Jira, and Asana.

You can reuse evidence across various frameworks and controls, simplifying the documentation process and collecting and documenting evidence swiftly to demonstrate your compliance with NYDFS Part 500 regulations.

Hyperproof helps you identify, prioritize, and manage your critical cybersecurity workflows to ensure your organization stays secure and compliant.

Here are the benefits of using Hyperproof for NYDFS Part 500 compliance:

Financial services companies in New York must comply with NYDFS Part 500, which requires them to assess their cybersecurity risk profiles and implement a comprehensive plan to mitigate those risks.

To meet these requirements, covered entities must create risk-based minimum standards for information technology systems, including data protection and encryption, access controls, and penetration testing.

Documenting cybersecurity policies is also a must, as is ensuring that the security program is adequately funded.

A chief information security officer (CISO) must be designated, and qualified cybersecurity personnel must be in charge of the security program.

Incident response plans must be created, including preserving data in case of a breach and notifying the NYDFS within 72 hours of a material event.

Audit trails must be designed to detect and respond to cybersecurity events, and annual reports must be filed covering the risks faced, all material events, and the impact on protected data.

Covered entities must also develop and implement training to make employees aware of the organization's cybersecurity program.

Here are the key requirements for financial services companies under NYDFS Part 500:

The adoption of the new rules, known as NYDFS Part 500, is the result of a year-long process starting with the publication of a "pre-proposed" draft amendment on July 29, 2022.

The final version of the rules, which were revised on November 9, 2022 and June 28, 2023, will take effect over the next 2 years with gradual implementation of certain rules.

On December 1, 2023, the initial updates to existing reporting requirements will go into effect, with additional changes to required policies and procedures not beginning to take effect until April 2024 and rolling thereafter.

Here are the implementation timelines for different categories of organizations subject to the new rules:

The new rules are designed to hold banks, insurers, and other financial services firms strictly accountable for shielding both in-transit and at-rest data, and will affect Wall Street and about 1,900 companies with $2.9 Trillion (USD) in assets.

The adoption of new rules was a year-long process that started on July 29, 2022, with the publication of a "pre-proposed" draft amendment.

The draft amendment was revised on November 9, 2022, and June 28, 2023, before the final version was released.

The proposal in question has some key highlights that are worth noting.

It's derived from NIST standards, which is a good starting point for any regulatory framework.

The proposal aims to hold banks, insurers, and other financial services firms accountable for protecting sensitive data.

This includes encrypting data both in-transit and at-rest, a crucial step in preventing breaches.

The proposal affects Wall Street and around 1,900 companies with a whopping $2.9 trillion in assets.

Here are the key responsibilities outlined in the proposal:

These requirements are designed to ensure that financial institutions take data protection seriously.

The NYDFS Part 500 regulation places a strong emphasis on the protection of the identity attack surface, in response to the alarming rise in compromised credentials being used for malicious access.

Identity protection has emerged as a critical component of any robust cybersecurity strategy, and the regulation requires the implementation of comprehensive Multi-Factor Authentication (MFA) to address this issue.

MFA is a security measure that requires users to provide two or more authentication factors to gain access to a resource, providing an additional layer of security that can protect against compromised credentials.

The specific requirements for MFA in NYCRR Part 500 are as follows:

By requiring MFA for these accounts, the regulation aims to provide an additional layer of security and protect against the increased risk associated with remote access and third-party applications.

Identity Protection is a critical component of any robust cybersecurity strategy. The amended Part 500 regulation places a strong emphasis on protecting the identity attack surface, which has emerged as a critical component of cybersecurity due to the alarming rise in compromised credentials.

The regulation mandates the implementation of comprehensive Multi-Factor Authentication (MFA) and protection for privileged accounts. MFA requires users to provide two or more authentication factors to gain access to a resource, providing an additional layer of security that can protect against compromised credentials.

Remote access is a high-risk area that requires MFA, as it can often be exploited by cybercriminals to gain unauthorized access to systems. MFA should be utilized for remote access to the covered entity’s information systems, as well as for third-party applications that provide access to nonpublic information.

Privileged accounts often have access to sensitive information and systems, making them a prime target for cybercriminals. To address this, the regulation requires MFA for all privileged accounts other than service accounts that prohibit interactive login.

Here are the specific requirements for MFA in the regulation:

Data encryption is a crucial aspect of identity and security. It's essential to protect sensitive information from unauthorized access.

A Kingston and IronKey Encrypted USB drive is one of the solutions to standardize on for data encryption compliance. This is a great option for organizations looking to secure their data.

Organizations are required to encrypt sensitive data both in-transit and at-rest. This means that data should be encrypted when it's being transmitted (in-transit) and when it's stored (at-rest).

Implementing adequate security to protect personal data loss is a must. This includes encrypting sensitive data to prevent unauthorized access.

Organizations will be required to include enhanced data encryption standards in their contracts with third-party service providers. This ensures that all parties involved in data handling are committed to protecting sensitive information.

Here's a summary of the data encryption requirements:

In the event of a data breach, it's essential to notify affected parties in a timely manner. Notifications of data breaches must be accomplished within 72 hours of learning of the breach, where feasible.

This timeframe is not always a hard and fast rule, as notification need not be made to the DPA if it is unlikely to result in risk to the rights or freedoms of individuals.