Financial Services

New Cybersecurity Reporting Requirements? FinCEN Advisory Identifies Cybersecurity Events for Financial Institutions to Report

FinCEN Advisory Identifies Cybersecurity Events for Financial Institutions to Report Financial Building Facade

Last week, FinCEN (Financial Crimes Enforcement Network) issued a formal Advisory to Financial Institutions and published FAQs outlining specific cybersecurity events that should be reported through Suspicious Activity Reports (SARs).  This Advisory follows former FinCEN Director Jennifer Shasky Calvery’s recent statements reminding “financial institutions to include cyber-derived information (such as IP addresses or bitcoin wallet addresses) in suspicious activity reports.”  It also follows the launch of the Federal Financial Institutions Examination Council (FFIEC) Cybersecurity Assessment Tool (CAT).  Although the Advisory does not change existing Bank Secrecy Act (BSA) requirements or other regulatory obligations, the Advisory highlights a series of cybersecurity events–such as Distributed Denial of Service (DDoS) attacks and ransomware incidents–that should be reported on SARs filed with FinCEN, even though they often (but not always) fall outside the traditional notion of a data breach or a compromise of personal information.

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A New Chapter in Cybersecurity? Is There a Role for Active Deterrence?

A new chapter in cybersecurity? Is there a role for active deterrence? Butch Cassidy Wanted Dead or Alive Poster

In the 1969 film Butch Cassidy and the Sundance Kid, after Butch and Sundance rob Union Pacific Railroad (“Union Pacific”) the first time, Union Pacific employs a stronger safe.  After Butch and Sundance rob Union Pacific a second time, Union Pacific forgoes the safe and hires a posse of unrelenting gunmen, hell bent on capturing and/or killing the duo.  The posse ultimately forces Butch and Sundance to flee to Bolivia—where they resume their bank-robbing antics.  Ultimately, it takes the Bolivian army to stop them. In their case, albeit fictional, the active deterrent (the posse) was more effective at protecting Union Pacific’s money than the passive deterrent (the safe), in part, because Butch and Sundance were highly-motivated actors.

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Financial Institutions Going First? New York Proposes Mandatory Minimum Cybersecurity Compliance Standards

Cybersecurity Standards Financial Services Institutions

Just as it promised a year ago, New York State proposed new proscriptive, minimum cybersecurity requirements for regulated financial services institutions.  The regulations go final after a 45-day notice and public comment period.  At that point, entities regulated by the NYDFS will be subject to the nation’s first proscriptive set of cybersecurity requirements in contrast to the usual risk-based cybersecurity programs mandated by other financial regulators to date.  Thus, unlike previous guidance and reports issued by financial regulators such as FINRA and the SEC, New York’s rules are specific requirements that all regulated financial institutions must adopt..  In this Part I, we review the proposed requirements, and offer some specific steps that regulated financial services institutions should begin to consider for compliance readiness.

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Eighth Circuit Affirms Coverage for Fraudulent Wire Transfer Despite Employee Negligence

financial services

A recent Eighth Circuit ruling on cybercrime coverage held that the issuer of a financial institution bond must cover a bank’s losses after a hacker’s malware attack resulted in unauthorized fund transfers. The court rejected the insurer’s claim that employee negligence—a factor in the loss—excluded coverage. This is a good decision for financial institutions and crime insurance policyholders, and Orrick attorneys Russell Cohen, Darren Teshima, and Harry Moren discuss the decision and its potential impact on coverage for the trending Business E-mail Compromise (BEC) scam.

Treasury Cites Cyber Challenges for Online Marketplace Lending Industry

Financial Institutions

On May 10, 2016, the United States Department of Treasury (Treasury) became the latest federal agency to highlight the importance of cybersecurity in the financial services industry.  In its white paper, which follows last year’s request for information to the online marketplace lending industry, Treasury addressed the opportunities and challenges of technological advancements and data availability that have driven change to the way in which consumers and businesses secure financing.

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CFPB Jumps Into Cyber Enforcement Pool

Financial Institutions

In a much anticipated move, on March 2, 2016, the Consumer Financial Protection Bureau (CFPB) entered the cybersecurity foray with its first enforcement action against Dwolla, Inc., an online payment processing start-up.  Pursuant to its authority under Sections 1031(a) and 1036(a)(1) of the Consumer Financial Protection Act of 2010, the CFPB fined Dwolla $100,000 and secured a five-year consent order imposing strict requirements on management and the Board of Directors.  This CFPB enforcement action offers important insights into the contours of “reasonable cybersecurity” for certain financial services entities, and important lessons for conducting cybersecurity risk assessments.  These issues dovetail with significant activity we recently reported on in the cybersecurity arena by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Federal Trade Commission (FTC), the Department of Health and Human Services’ Office of Civil Rights (HHS-OCR), and a host of other state and federal regulators.

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FinCEN to Financial Institutions: Include Cyber Data in Suspicious Activity Reports (SARs)

cyber data

As new legislation aimed at facilitating greater cybersecurity information sharing between private industry and government takes effect (i.e., Cybersecurity Information Sharing Act), FinCEN Director Jennifer Shasky Calvery recently called for “financial institutions to include cyber-derived information (such as IP addresses on bitcoin wallet addresses) in suspicious activity reports.”  Director Shasky Calvery’s statement dovetails with the Federal Financial Institutions Examination Council (FFIEC)  Cybersecurity Assessment Tool (CAT) launched last year that we discussed previously, which lists “threat intelligence and collaboration” through information-sharing forums as one of five key “domains” for assessing cybersecurity preparedness.  Regulated entities should take stock of this shifting risk management and compliance landscape, and evaluate the need for changes (and investments) to existing cybersecurity tools necessary for information collection, analysis and sharing.

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PRIVACY POLICIES AND THE SALE OF CORPORATE ASSETS: It pays to plan ahead to preserve the value of your data assets

privacy policy

Personal data is a valuable corporate asset.  At times, the personal information collected from customers (such as email address, mailing address, phone number, etc.) can be a company’s most valuable asset.  Unfortunately, when a company attempts to sell this asset, it can find the value of the data significantly diminished due to promises made in a privacy policy the company implemented years before it ever contemplated such a sale.

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The SEC Opens Up a New Front in the Cybersecurity Wars

cybersecurity

For the last few years, the SEC has been issuing guidance as to appropriate cybersecurity policies and procedures for financial firms.  In a move that signal’s the regulator’s willingness to put muscle into its cybersecurity guidance, the SEC announced an agreement with St. Louis-based investment company, R.T. Jones Capital Equities Management (“R.T. Jones” or “the company”), to settle charges that the company failed to adequately safeguard the personal information (“PI”) of approximately 100,000 individuals.  Consistent with this trend, the SEC has announced that its Office of Compliance Inspections and Examinations (“OCIE”) would be conducting a second round of investigations[1] into the cybersecurity practices of brokerage and advisory firms (the “Cybersecurity Examination Initiative”).  These moves signal the SEC’s increasing scrutiny of investment firms’ information security practices and indicate the regulator’s willingness to enforce the guidance that it has issued.

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New Guidance for Financial Institution Directors and Officers In Cybersecurity Preparedness

Financial Institutions

Earlier this summer, the Federal Financial Institutions Examination Council (FFIEC) released its highly anticipated Cybersecurity Assessment Tool (Assessment), which is designed to assist financial institutions in identifying and assessing risks and weaknesses in, and the overall maturity of, their cybersecurity preparedness programs.  Financial Institutions’ management, directors, in-house counsel, and regulatory/compliance personnel need to be aware of this development.  Now there is increased guidance on the type of cybersecurity systems and procedures that need to be implemented to satisfy post-hoc regulatory or judicial scrutiny.  This guidance may also impact how regulators, or in the event of a problem, courts hearing civil lawsuits, assess both the institution’s level of preparedness and how the company’s directors and officers discharged their responsibilities in creating and maintaining cybersecurity measures.

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