NYDFS: Tighter Cybersecurity Needed for Banks’ Vendors

The New York State Department of Financial Services (NYDFS) issued a report on April 9 that found significant potential cybersecurity vulnerabilities with banks’ third-party vendors.

New York regulators noted that banks rely on third-party vendors for a broad range of services – such as law firms that provide them with legal advice or even companies contracted to run their HVAC systems. Those third-party firms often have access to a financial institution’s information technology systems, providing a potential point of entry for hackers.

The NYDFS expects to move forward in the coming weeks on regulations strengthening cybersecurity standards for banks’ third-party vendors – including potential measures related to the representations and warranties banks receive about cybersecurity in place at those firms.

The NYDFS said it is in the process of conducting a similar survey regarding the cybersecurity of third-party vendors at the insurance companies it regulates. The department said it also expects to put in place higher cybersecurity standards for vendors providing services to insurers.

“A bank’s cybersecurity is often only as good as the cybersecurity of its vendors. Unfortunately, those third-party firms can provide a backdoor entrance to hackers who are seeking to steal sensitive bank customer data,” said New York Financial Services Superintendent Benjamin Lawsky.

The NYDFS said it conducted a survey of 40 banking organizations – including many of the largest institutions it regulates – about the cybersecurity standards those firms have in place for their third-party vendors. Key findings outlined in the report include:

• Nearly one in three (approximately 30 percent) of the banks surveyed do not require their third-party vendors to notify them in the event of an information security breach or other cybersecurity breach.
• Fewer than half of the banks surveyed conduct any on-site assessments of their third-party vendors.
• Approximately one in five banks surveyed do not require third-party vendors to represent that they have established minimum information security requirements. Additionally, only one-third of the banks require those information security requirements to be extended to subcontractors of the third-party vendors.
• Nearly half of the banks do not require a warranty of the integrity of the third-party vendor’s data or products (e.g., that the data and products are free of viruses).