The New York Department of Financial Services (NYDFS) surprised the financial services industry by fast tracking new cybersecurity regulations in September of 2016. Due to go into effect in January of 2017 with a one-year transition period, it takes a very prescriptive approach to cybersecurity which includes a mandate to encrypt data at rest. The financial sector is broadly defined as banks, insurance companies, consumer lenders, money transmitters, and others. The law is formally known as 23 NYCRR 500 and you can get it here.

There isn’t much wiggle room on the requirement for encrypting sensitive data. You can use compensating controls if you can show that encryption is “infeasible”. But I am not sure how you would show that. All modern database systems used by financial applications support encryption. It would be hard to imagine a financial database where encryption would not be feasible. Don’t plan on that being an excuse to delay encrypting data at rest!

The time frame is short for implementing the encryption mandate. One year seems like a long time, but it is extremely aggressive given the development backlog I see in most banks.

Here are some things you should start doing right now:

1) Inventory All of Your Financial Systems

This seems like a no-brainer, but you might be surprised how many organizations have no formal inventory of their IT systems that contain financial data. This is a top-of-the list item on any cybersecurity list of recommendations, so making or updating this list will have a lot of benefits.

2) Document Storage of All Sensitive Information (Non-Public Information, or NPI)

For each system in your inventory (see above) document every database and storage mechanism that stores NPI. For database systems identify all tables and columns that contain NPI. You will need this documentation to meet the NYDFS requirements, and it is a roadmap to meeting the encryption requirements.

3) Prioritize Your Encryption Projects

You won’t be able to do everything at once. Following all modern cybersecurity recommendations, prioritize the systems and applications that should be addressed using a risk model. Here are a few factors that can help you prioritize:

• Sensitivity of data
• Amount of data at risk
• Exposure risk of the systems and data
• Compliance risk
• Operational impact of loss

It is OK to be practical about how you prioritize the systems, but avoid assigning a high priority to a system because it might be easiest. It is better to tackle the biggest risks first.

4) Establish Encryption Standards

Be careful which encryption algorithms you use to protect sensitive data. In the event of a loss you won’t want to be using home-grown or non-standard encryption. Protect data at rest with NIST compliant, 256-bit AES encryption. This will give you the most defensible encryption strategy and is readily available in all major operating systems such as Windows, Linux, and IBM enterprise systems.

5) Establish Key Management Standards

Protecting encryption keys is the most important part of your encryption strategy and the one area where many organizations fail. Encryption keys should be stored away from the encrypted financial data in a security device specifically designed for this task. There are a number of commercial key management systems to choose from. Be sure your system is FIPS 140-2 compliant and implements the industry standard Key Management Interoperability Protocol (KMIP).

Hint: Don’t fall into the project-killing trap of trying to find a key management system that can meet every key management need you have in the organization. The industry just isn’t there yet. Pick a small number of key management vendors with best-of-breed solutions.

With encryption standards well defined and an encryption key management strategy in hand you are ready to get started with your encryption projects.

6) Analyze Performance and Operational Impacts

Encryption will naturally involve some performance and operational impacts. Encryption is a CPU intensive task, so plan on doing some performance analysis of your application in real-world scenarios. If you don’t have test environments that support this analysis, get started now to create them. They will be invaluable as you move forward. Modern encryption is highly optimized, and you can implement encryption without degrading the user experience. Just be prepared to do this analysis before you go live.

There are also operational impacts when you start encrypting data. Your backups may take a bit more storage and take longer to execute. So be sure to analyze this as a part of your proof-of-concept. Encrypted data does not compress as well as unencrypted data and this is the main cause of operational slow-downs. For most organizations this will not be a major impact, but be sure to test this before you deploy encryption.

8) Get Started

Oddly (to me at least) many organizations just fail to start their encryption projects even when they have done the initial planning. A lack of commitment by senior management, lack of IT resources, competing business objectives, and other barriers can delay a project. Don’t let your organization fall into this trap. Do your first project, get it into production, and analyze the project to determine how to do it better as you move forward.

Fortunately we have a lot of resources available to us today that were not available 10 years ago. Good encryption solutions are available and affordable for traditional on-premise environments, for VMware infrastructure, and for cloud applications.

You can meet the NYDFS requirements and timelines if you start now. But don’t put this one off.

Patrick

Resources:

New York Department of Financial Services:

https://www.dfs.ny.gov/legal/regulations/proposed/propdfs.htm

Harvard Law School analysis of NYDFS:

https://corpgov.law.harvard.edu/2016/09/24/nydfs-proposed-cybersecurity-regulation-for-financial-services-companies/