Earlier this month, the New York State Department of Financial Services (NYDFS) announced a settlement and consent order with National Securities Corporation (National Securities) for $3 million in connection with National Securities’ violations of NYDFS’s Cybersecurity Regulation, 23 NYCRR Part 500 (Part 500).
National Securities sells life insurance, accident and health insurance, and variable life/variable annuities insurance. As part of its day-to-day operations, National Securities collects personal data from its customers.
According to the consent decree, National Securities suffered data breaches on October 23, 2019 and May 12, 2020. In both incidents, unauthorized parties gained access to the email accounts of National Securities’ employees and contractors. The unauthorized access was likely gained through phishing schemes and exposed a significant amount of customer data. Following the incidents, National Securities failed to fully implement multi-factor authentication (MFA) for its internal networks, which is a security requirement under Part 500.12(b).
Furthermore, NYDFS found that in 2018, National Securities violated Part 500.17(b), which requires covered entities to annually certify their compliance with Part 500. Despite filing a certification of compliance for 2018, NYDFS concluded that National Securities falsely certified compliance with Part 500 due to the fact that a MFA was not fully implemented.
The consent decree also highlights National Securities’ failure to properly report two other cybersecurity events as required by Part 500.17(a). In the first incident, which occurred on April 3, 2018, National Securities determined that customer information had been potentially exposed through a phishing scheme. Although the event was reported to the Attorney General’s Offices for New York, New Jersey, Connecticut, Massachusetts, as well as the affected customers, it failed to report the incident to NYDFS, as required by Part 500.
The second unreported incident occurred on March 6, 2019 when an unauthorized actor gained access to National Securities’ document management system. The company notified potentially impacted customers, along with the IRS, SEC, FBI, and local County Sheriff’s Office, but did not report the breach to NYDFS.
This latest cybersecurity enforcement action by NYDFS highlights the importance of compliance with Part 500. In particular, companies should ensure that they have the proper authentications in place for employees, including MFA, which serves as an important tool against phishing emails. Likewise, covered entities must make sure that their cybersecurity policies satisfy Part 500 before filing a certificate of compliance with NYDFS. Lastly, companies should ensure that they notify NYDFS of cybersecurity incidents when they are required to do so under Part 500.