Legal Compliance Can Help You Improve Cybersecurity And Customer Confidence

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In today’s cybersecurity threat environment, financial institutions—including banks and credit unions—are frequent targets.  Banks, for instance, have been increasingly falling prey to a variety of cyber-attacks, including malware infections, phishing scams, denial-of-service attacks, and cyber-extortion.  Such cyber-attacks not only cause a financial institution to experience monetary losses and expend numerous resources on incident response, but they also unfortunately contribute to an erosion of trust between the institution and its customers. By proactively taking steps to comply with cybersecurity laws and regulations, your financial institution may mitigate the likelihood of a cyber-attack.

Given the proliferation of cyber-crime in virtually every business sector, both state and federal regulators have ramped up their efforts to ensure that financial institutions, in particular, prioritize cybersecurity in their risk management strategies.  For example, the New York State Department of Financial Services (DFS) issued the nation’s first state cybersecurity regulation aimed at protecting financial institutions from cyber-crime.1  The regulation requires financial institutions that are within DFS’ jurisdiction to implement comprehensive information security programs that will help to prevent and defend them against cyber-crime. It is possible that other state regulators will issue similar regulations in the years to come.

Federal regulators are already more rigorously scrutinizing financial institutions’ compliance with the Gramm-Leach-Bliley Act (GLBA),2 which includes requirements that banks and credit unions meet certain standards to protect the “non-public personal information” of consumers of their financial services and products.  While the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Reserve System are generally the primary enforcers of the GLBA against banking institutions, the National Credit Union Administration (NCUA) enforces the GLBA against federally-insured credit unions.  Each enforcement body has promulgated regulations based on the GLBA Financial Privacy and Safeguards Rules.

In part, the GLBA Financial Privacy Rule requires financial institutions to annually disseminate a notice of its privacy practices to its customers that describe how their information will be used, disclosed, and shared with third parties, such as affiliated or nonaffiliated companies.  More notably, the GLBA Safeguards Rule consists of specific steps banks and credit unions must take to build a comprehensive, written information security program that outlines administrative, technical, and physical security controls designed to minimize the risks to the data they hold about their customers.  As part of its information security program, the Safeguards Rule requires a financial institution to: (1) designate an information security coordinator, (2) require the undertaking of a “risk assessment” to evaluate the risks and vulnerabilities to all customer data, (3) require the development of a “risk management plan” to mitigate identified risks to the data to reasonable levels; (4) require an assessment of its relationships and contracts with third-party service vendors to ensure they are safeguarding the data; and (5) require the periodic evaluation and adjustment of its information security program to account for changes in business operations and the threat environment.  Additionally, the federal “Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice” requires banks and credit unions to have procedures for responding to security incidents and breaches and notify the affected individuals, as well as appropriate regulatory and law enforcement agencies.3

Although achieving GLBA compliance is a seemingly daunting task, it is a necessary step for a financial institution to take to minimize its chances of experiencing a cyber-attack, data breach, or a regulatory action or lawsuit stemming from a breach.  Fortunately, the GLBA Safeguards Rule allows a bank or credit union the flexibility to tailor its information security program to the size and complexity of its operations.  Investing in GLBA compliance will not only serve to keep regulators and lawsuits at bay, but also will improve your customers’ confidence that their information will be secure. 

Nick Merker is a partner and Deepali Doddi is an attorney in Ice Miller’s Data Security and Privacy Practice Group. They may be reached at nick.merker@icemiller.com and deepali.doddi@icemiller.com.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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