On March 5, 2019, the Federal Trade Commission (the "FTC" or the "Commission") proposed a number of revisions to its Gramm- Leach-Bliley Act1 ("GLBA") regulations. Most significantly, the Commission departs from its current non-prescriptive approach to data security by proposing to revise the Safeguards Rule2 to require financial institutions to implement specific information security controls, including with respect to data encryption, multi-factor authentication, incident response planning, board reporting and program accountability. The proposal draws heavily in this regard from the cybersecurity regulations issued by the New York Department of Financial Services ("NYDFS Cyber Regulation") in March 20173 and the insurance data security model law issued by the National Association of Insurance Commissioners ("NAIC Model Law") in October 2017.4 Finance companies and other non-bank lenders who are licensed in New York will need to comply with both the NYDFS Cyber Regulation and the FTC's Safeguards Rule. Because the NYDFS Cyber Regulation imposes additional requirements and has provisions similar to those of the FTC proposal but broader in scope, financial institutions complying with the NYDFS Cyber Regulation should be well-prepared if the proposed changes are adopted by the Commission.5

Two commissioners issued a dissenting statement on the Safeguards Rule proposal.6

The FTC also proposes several amendments to its GLBA Privacy Rule,7 which requires financial institutions to inform consumers about their privacy practices and to give consumers an opportunity to opt out of the sharing of personal information with certain nonaffiliated third parties. In particular, the proposal would update the Privacy Rule to reflect a statutory exemption to the annual privacy notice requirement that was enacted by Congress in 2015. It also would streamline the Privacy Rule to focus on motor vehicle dealers (the only type of financial institution over which the Commission continues to have Privacy Rule rulemaking authority). Finally, in order to harmonize the FTC regulations with those promulgated by the Bureau of Consumer Financial Protection (the "CFPB"), the Securities and Exchange Commission (the "SEC") and the federal banking agencies, the Commission also proposes to expand the definition of "financial institution," both in the Safeguards Rule and the Privacy Rule, to include so-called "finders" (i.e., those who charge a fee to connect lenders with loan applicants) and other entities engaged in activities that are incidental to financial activities.

Interested parties must submit written comments to the Commission within 60 days after the proposals' publication in the Federal Register.

Safeguards Rule

The proposal would make four main modifications to the existing Safeguards Rule. First, it would provide covered financial institutions with more guidance on how to develop and implement specific aspects of an overall information security program, including with respect to access controls, authentication, encryption, incident response, and accountability. Second, it would exempt small businesses from certain requirements. Third, it would expand the definition of "financial institution" to include finders. Finally, it would incorporate the definition of "financial institution" and related examples into the Safeguards Rule itself, instead of by cross-reference to the Privacy Rule.

INFORMATION SECURITY CONTROLS AND PROGRAM ACCOUNTABILITY

The existing Safeguards Rule largely is nonprescriptive, in that it allows financial institutions to tailor their information programs to the size and scope of their operations and to the sensitivity and amount of customer information they collect. In its proposal, the FTC indicates that, while it generally intends to preserve this flexibility, it believes that mandating more specific requirements with respect to certain controls will benefit financial institutions by providing them with more guidance and certainty.

Chief Information Security Officer

Under the proposed rule, a financial institution would be required to designate a qualified individual responsible for overseeing, implementing and enforcing its information security program (a "Chief Information Security Officer" or "CISO"). The CISO may be employed by the financial institution, an affiliate, or a service provider. To the extent, however, that the CISO is employed by a service provider or an affiliate the financial institution would be required to: (i) retain responsibility for compliance with the Safeguards Rule; (ii) designate a senior member of its personnel responsible for direction and oversight of the CISO; and (iii) require the service provider or affiliate to maintain an information security program that protects the financial institution in accordance with the requirements of the Safeguards Rule.

Footnotes

1 15 U.S.C. §§6801 et seq.

2 16 C.F.R. Part 314.

3 23 NYCRR 500. The NYDFS Cyber Final Regulation applies to any person operating under or required to operate under a license, registration, charter, certificate, permit ,accreditation or similar authorization under the New York Banking, Insurance or Financial Services Laws. For an overview of the NYDFS Cyber Regulation, see https://www.mayerbrown.com/en/perspectivesevents/publications/2017/03/cybersecurity-ny-adoptsfinal-regulations-for-bank.

4 See NAIC, Insurance Data Security Model Law, available at https://www.naic.org/store/free/MDL-668.pdf (last accessed Mar. 12, 2019). The NAIC Model Law requires every insurance licensee in a state (unless they qualify for an exemption) to maintain a written cybersecurity policy and implement a risk-based cybersecurity program. To date, the NAIC Model Law has been adopted in Michigan, Ohio and South Carolina. For an overview of the NAIC Model Law, see https://www.mayerbrown.com/en/news/2017/11/dissecting-naics-insurance-data-security-model-law.

5 One of the key differences between the NYDFS Cyber Regulation and the proposed changes to the Safeguards Rule is the information covered. The NYDFS Cyber Regulation covers nonpublic information, which includes confidential information of the covered entity and not just customer information. Because GLBA and its implementing regulations only covers nonpublic personally identifiable information, the scope of the Safeguards Rule is narrower.

6 Dissenting Statement of Commissioner Noah Joshua Phillips and Commissioner Christine S. Wilson, Regulatory Review of Safeguards Rule, Matter No. P145407 (March 5, 2019), available at https://www.ftc.gov/system/files/documents/public_statements/1466705/reg_review_of_safeguards_rule_cmr_phillips_wilson_dissent.pdf.

7 16 C.F.R. Part 313.

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