Since 2000, technological advances have transformed how customers interact with financial institutions and how such firms store, process and protect personal information. The proliferation of large-scale hacks and data breaches throughout this time simultaneously demonstrated the difficulty of data protection given the ever-evolving nature of cybercrime. Despite these developments, the SEC has failed to update
Solving the Cybercrime Collective Action Problem
Blackbeard may not be the first name that comes to mind when considering cybercrime, but prior international efforts to stop stateless rogue actors can point us toward the proper focus for cybersecurity—governments taking responsibility to solve a classic collective action problem by direct action, supporting existing industry defense measures, and leading multilateral cooperation efforts. This…
NYDFS Proposes Significant Amendments to its Cybersecurity Rules
On November 9, 2022, the New York Department of Financial Services (“NYDFS”) announced proposed amendments to its Part 500 Cybersecurity Rules (“Proposed Amendments”), revising an initial set of draft amendments released in July 2022. While NYDFS may have relatively limited jurisdiction, its emphasis on rapid breach reporting and data governance have had considerable influence on other U.S. financial services regulators. The current Cybersecurity Rules impose a 72-hour reporting requirement for cybersecurity events, and the Proposed Amendments go farther, creating an additional 24-hour notification obligation in the event a ransomware payment is made. Additionally, the Proposed Amendments create new requirements for larger “Class A” companies, including a risk assessment by an external expert every three years and an independent audit of cybersecurity programs annually.…
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Four Months after Dobbs, Privacy Concerns Remain in the Spotlight
On June 24, 2022, the U.S. Supreme Court issued its ruling in Dobbs v. Jackson Women’s Health Organization, overturning Roe v. Wade and holding that there is no constitutionally protected right to abortion. The significance of the decision cannot be overstated. Dobbs not only rolled back the Court’s prior protection of reproductive rights, it also raised still-unanswered questions about the privacy of digital data and could lead to the overturning of other previous Court opinions that are similarly grounded in privacy interests. In sparking such questions, Dobbs appears to have reinvigorated a national conversation regarding the protection of personal information and, more generally, the need for stronger data privacy safeguards in the United States.…
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Banks Must Comply with 36-Hour Notification Rule for Certain Cyber Incidents
Banking organizations and their service providers are now subject to a tight 36-hour breach notification timeframe—the shortest timeline of any U.S. data breach notification law. Starting earlier this month, on May 1, covered banks and providers were required to be in full compliance with a new cyber incident notification rule (“Banking Rule”), issued by the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”), and the Treasury Department’s Office of the Comptroller of the Currency (“OCC”) (“the Agencies”), mandating disclosure of triggering cybersecurity incidents (“notification incidents”) within 36 hours after an organization determines such an incident has occurred.
As we observed in a previous post, the Banking Rule, which became effective on April 1, comes at a time when cyberattacks are on the rise and when regulators have, in response to increasing cyber intrusions, enacted or proposed a series of stringent incident reporting requirements. In December 2021, the Federal Trade Commission (“FTC”) proposed an amendment to the recently updated Safeguards Rule that, if adopted, would require covered financial institutions to report to the FTC any security event involving the misuse of customer information of at least 1,000 consumers. Shortly thereafter, in February, the Securities and Exchange Commission (“SEC”) proposed extensive new rules for registered investment advisers and registered investment companies (“funds”) that would, among other things, require advisers to report “significant adviser cybersecurity incidents” and “significant fund cybersecurity incidents” to the SEC within 48 hours of concluding an incident occurred. A month later, the SEC followed up with proposed updates its public-company cybersecurity disclosure rules, which, if adopted, would compel issuers to file an amended Form 8-K within four business days after a triggering material cybersecurity incident took place.
Notably, the final Banking Rule, as well as the flurry of recently proposed cyber reporting regulations, surfaced against the backdrop of the Cyber Incident Reporting for Critical Infrastructure Act of 2022 (“CIRCIA”), which President Biden signed into law in March, that requires owners and operators of critical infrastructure to report cyber incidents to the Cybersecurity and Critical Infrastructure Agency (CISA) within 72 hours. CIRCIA’s 72-hour timeframe is in line with the breach reporting timeline of the EU’s Global Data Protection Regulation (“GDPR”) and the New York Department of Financial Services (“NYDFS”) Cybersecurity Regulation, which applies to certain insurance and other financial services companies licensed in New York.…
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Utah Passes Comprehensive Privacy Law
On March 24, 2022, Utah Governor Spencer Cox signed into law the Utah Consumer Privacy Act (“UCPA”), which was unanimously passed by the state legislature earlier this month. Utah is the fourth U.S. state to pass a comprehensive privacy law, following California, Virginia, and Colorado. The UCPA will go into effect on December 31, 2023.
The Utah law generally resembles the three existing state privacy models, but closely tracks with the Virginia Consumer Data Protection Act (CDPA) and Colorado Privacy Act (CPA), suggesting that states are shifting away from California’s more stringent strand of privacy regulation toward a version that balances the spirit of the EU’s General Data Protection Regulation (GDPR), in terms of purpose limitation and consumer protection, against the need to avoid overly burdening companies. In fact, the UCPA is seen by some as more business-friendly than legislation passed in Virginia and Colorado: Utah’s law does not require businesses to conduct data protection assessments and does not compel companies to provide a mechanism for consumers to appeal denials of requests to exercise personal data rights.…
SEC Proposes Cybersecurity Risk Management Rules for Registered Funds and Advisers
On February 9, 2022, the SEC published a release addressing Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies (“Release”). The Release contained proposed new rules under the Advisers Act (Rules 206(4)-9 and 204-6) and the Investment Company Act of 1940 (Rule 38a-2) and amendments (collectively, the “Proposals”), which would require…
State Privacy Law Developments: The New York Privacy Act
Since the passage of the California Consumer Privacy Act (CCPA) in 2018, many states have proposed sweeping data protection legislation, but only two others, Colorado and Virginia, have so far succeeded in passing such laws. That may soon change. In 2021, several states came close to enacting comprehensive privacy legislation and that momentum has continued into this year, with data protection bills being carried over, introduced, and reintroduced in state legislatures across the country. As the possibility of a federal privacy law dwindles—particularly during this midterm year—state legislatures are poised to be the source of major data protection developments in 2022. Throughout the year, Ropes & Gray will monitor and analyze these developments in state privacy laws, beginning with a discussion of the latest iteration of the proposed New York Privacy Act.
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Marriott Data Breach Ruling Puts Corporate Boardrooms on Notice
In the wake of major cybersecurity incidents, it is becoming increasingly common for shareholders to bring derivative lawsuits alleging that the officers or board members failed to exercise proper governance over cybersecurity. Some companies have paid settlements to resolve such matters, but few derivative actions have ended in judgment on the merits in favor of plaintiffs, largely because plaintiffs are rarely able to show that directors failed to execute their oversight responsibilities. A recent ruling by the Delaware Court of Chancery dismissing a derivative lawsuit against Marriott International, Firemen’s Ret. Sys. of St. Louis v. Sorenson, No. 2019-0965-LWW (Del. Ch. Oct. 5, 2021), reiterates that directors who monitor cybersecurity governance, work to mitigate cyber risks, and seek outside advice on data protection issues will usually not face liability.
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