On June 30, 2022, the Department of Justice (“DOJ”) announced four enforcement actions involving allegations of fraud in the cryptocurrency space. The enforcement actions, which collectively bring criminal charges against six individuals, demonstrate the breadth of potential conduct that may expose participants in the blockchain industry to regulatory and enforcement risk. In connection with these
A federal court recently rejected a jury’s verdict concluding that a disputed digital asset was not a security, and ordered a new trial to reconsider the issue. In November 2021, a federal jury in the District of Connecticut had become one of the first to deliver a verdict on the frequently discussed issue of whether
The FTC’s recent publication, FTC Safeguards Rule: What Your Business Needs to Know (the “Guide”), provides a helpful overview of the FTC’s recent Safeguards Rule amendments. The FTC’s Safeguards Rule is applicable to “financial institutions,” such as private funds, subject to the FTC’s jurisdiction but not the jurisdiction of another regulator under the Gramm-Leach-Bliley Act (GLBA). Ropes & Gray has previous reviewed the Safeguards Rule amendments here and here. The Guide does not break any substantial new ground but does provide a useful summary of the Safeguards Rule’s security requirements along with additional details regarding the controls the FTC considers part of a reasonable information security program.
The Guide identifies nine elements of an information security program required under the Safeguards Rule. Companies that maintain personal information regarding fewer than 5,000 consumers are not subject to all of these requirements, as summarized further here. Additionally, companies are not required to have in place all of the controls described until December of this year, but should work toward implementation now, as many will require time intensive processes.
Continue Reading FTC Publishes Guide to Safeguards Rule Compliance Applicable to Private Funds
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.
Continue Reading Banks Must Comply with 36-Hour Notification Rule for Certain Cyber Incidents
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
Private funds that are excluded from the definition of “investment company” under sections 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 (“ICA”) will face significantly stricter cybersecurity requirements under the FTC’s revised Safeguards Rule, which comes into full effect as of December 9, 2022. The FTC’s updated Safeguards Rule breaks new ground for
Federal banking regulators have recently moved the goal post for financial institutions that suffer a data breach with approval of a new rule mandating the disclosure of certain cyber incidents within 36 hours after banks determine that a triggering incident has occurred. The rule, which puts in place the fastest regulatory notification clock we have seen in the U.S., was issued by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury Department’s Office of the Comptroller of the Currency, and largely conforms to the notice of proposed rulemaking that the agencies issued in January. The new rule goes into effect April 1, 2022, and covered banks must begin compliance by May 1, 2022—leading many banks to revamp systems designed to give notice in 30 days.
The new rule comes at a time in which cyberattacks are a larger problem than ever and show no sign of slowing. Financial institutions have always been major targets but have recently suffered an even greater barrage. While the Bank Secrecy Act and the Interagency Guidance on Response Programs for Unauthorized Access to Consumer Information and Customer Notice already require banks to provide the agencies with information regarding certain computer security incidents, the new rule encapsulates regulators’ desire for even more rapid alerts regarding a wider range of such events. According to the banking regulators, the new rule will promote early agency awareness of the most serious threats, helping banks and their supervisory agencies address these threats before they endanger the entire financial system.
Continue Reading Banking Rule Sets a New Bar for Cyber Incident Notification Timelines
On October 27, 2021, the FTC updated its financial services cybersecurity Safeguards Rule and made other revisions to its associated privacy rule. The FTC also issued a request for comment on a new proposed 30-day data breach notification rule for financial institutions subject to its jurisdiction. The updated Safeguards Rule breaks new ground for the FTC by requiring specific security controls and accountability measures expressly modeled on the New York Department of Financial Services cybersecurity rule. For entities covered by the Safeguards Rule, these changes will require prompt review, since many of the newly required controls will take time to implement if they are not already in place. Among other things, the Safeguards Rule will now require multifactor authentication for any individual accessing information systems storing customer information (or compensating controls), encryption of all customer information both in transit and at rest (again with the option of alternative compensating controls), and updates to record retention procedures. The revisions also dictate specific governance controls by requiring reporting, at least annually, to a board of directors or senior officer about the institution’s security posture and the adoption of a formal incident response plan.
Continue Reading FTC Updates Safeguards Rule To Specify Security Requirements
Data security notification requirements could become much stricter under a proposed rulemaking from the Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation. The proposal, published January 12, 2021, would impose new security incident notification requirements on federally regulated “banking organizations” and, notably, their service providers. If adopted, the proposed rule would expand upon existing notification requirements—adding a 36-hour notice window—and would, for the first time, impose direct notification obligations on service providers.
Continue Reading New Security Incident Notification Requirements for Federally Regulated Banks
On July 22, 2020, New York’s Department of Financial Services (NYDFS) filed its first cybersecurity enforcement action against First American Title Insurance Company (First American), seeking civil monetary penalties for several violations of its cybersecurity regulation, 23 NYCRR §500. Entities subject to New York’s Financial Services Law, such as First American, may be subject to a civil penalty up to $1,000 per violation or up to $5,000 per intentional violation, and according to NYDFS, each instance of unauthorized disclosure of NPI constitutes a separate violation. Therefore, an enforcement action under 23 NYCRR §500 may result in a hefty fine, particularly in the even of a large-scale data breach.
Continue Reading NYDFS Brings its First Cybersecurity Enforcement Action