Yesterday, New York’s Department of Financial Services (“DFS”) announced another enforcement action under the state’s Cybersecurity Requirements for Financial Services Companies, 23 N.Y.C.R.R. Part 500 (“Reg 500”).  According to the press release, OneMain Financial Group LLC (“OneMain”) will pay a $4.25 million penalty to New York State for alleged violations of Reg 500.  

In the Consent Order, DFS pointed to several provisions of Reg 500 for which it alleged OneMain came up short:

  • 23 NYCRR § 500.03: requires all covered entities to implement and maintain a cybersecurity policy that is based on the covered entity’s risk assessment and addresses business continuity and disaster recovery planning and resources.
  • 23 NYCRR § 500.07: requires covered entities to limit user access privileges to information systems that provide access to Nonpublic Information (“NPI”);
  • 23 NYCRR § 500.08: requires covered entities to implement and maintain policies and procedures to protect information systems and NPI during application development and quality assurance operations;
  • 23 NYCRR § 500.10(a)(3): requires covered entities to provide cybersecurity personnel with cybersecurity training and verify that key cybersecurity personnel take steps to maintain current knowledge of changing cybersecurity threats and countermeasures; and
  • 23 NYCRR § 500.11(a): requires covered entities to implement written policies and procedures that address, among other things, due diligence processes used to evaluate the adequacy of cybersecurity practices of third-party service providers.

These provisions of Reg 500 describe controls one might find in just about any cybersecurity framework, not just one focused on entities that provide financial services. For example, under the HIPAA Privacy and Security Rules, simply adopting a set of policies and procedures that address the standards under the Security Rule would be insufficient if they were not based on a risk assessment. That is, cybersecurity policies and procedures should reflect the threats and vulnerabilities to the organization identified in a risk assessment. Likewise, the New York SHIELD Act requires covered entities to “select[] service providers capable of maintaining appropriate safeguards,” not just require those safeguards by contract. The same is true for fiduciaries of ERISA-covered retirement plans – fiduciaries must exercise prudence in the selection of entities providing services to the plan.  

Among the examples provided in the Consent Order was a folder containing passwords, that was named “PASSWORDS.” DFS acknowledged the folder was encrypted and password protected, but cautioned that “anyone with access to that internal shared drive, which included personnel in OneMain’s call center, could rename, move, or delete the folder.” New York’s Attorney General recently released a guide for businesses on effective data security that addresses strong password hygiene.

Another area of concern cited by DFS was the management of third-party service providers. Having a written vendor assessment policy is not enough. According to DFS, the required due diligence to assess the cybersecurity risk of vendors must be performed timely. Allowing vendors to commence work prior to completing the assessment process is problematic. Also problematic is failing to adjust a cybersecurity risk score assigned to a third-party vendor after the vendor experience a cybersecurity event that arguably warrants a change to its risk profile.  

This settlement demonstrates the Department’s ongoing dedication to upholding the responsibility of licensees, particularly those with access to personal financial information of consumers.” Superintendent of Financial Services Adrienne A. Harris.

The Consent Order points out that it is not enough to establish a written cybersecurity program. That program must be actively managed and adjusted based on changing circumstances.

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.