Bold Cyber Security Regulations for the Financial Services Industry – Will we see them in Australia?

bi cyber security
8 December 2016

Proposed regulations in New York will mandate banks and other financial services companies have a dedicated cyber security program in place by July 2017.

Cybersecurity Requirements for Financial Services Companies clarify expectations of data management by the industry and may pave the way for more prescriptive regulation in Australia.


The proposed cyber security regulations set out a prescriptive list of compliance requirements for financial services organisations. Among a number of other requirements, the Regulations require organisations to have:

  1. a detailed cyber security program including a cyber security policy that is reviewed by the Board and reviewed annually;

  2. a dedicated Chief Information Security Officer;

  3. (at least) annual penetration testing of information systems and quarterly vulnerability assessments;

  4. multi-factor authentication[1] for persons accessing the organisation’s internal systems externally, or access to servers or applications that hold or display a person’s personal information; and

  5. incident response plans for cyber security breaches, including notification to the government if there is a cyber security breach that may materially affect the normal operation of the organisation.

It is proposed that the Regulations will take effect on 1 January 2017, with a 180 day transition period.  Annually from January 2018, the Board or a senior officer of the organisation will be required to submit a Certificate of Compliance to verify that the organisation has complied with the Regulations.

Financial services organisations with fewer than 1,000 customers, or less than US$5 million in gross annual revenue, are relieved of some of the obligations by the Regulations.


The proposed New York Regulations challenge the traditional model of cyber security regulation, which to date has generally been based on principles and risk.  That model specifies required outcomes, allowing organisations to determine the cyber security strategies to achieve them.

In Australia, regulators have generally adopted this model to date, in standards and guidance.  These include:

  1. APRA Prudential Standards - CPS 220 (Risk Management) and CPS 231 (Outsourcing). These require APRA regulated entities to have proper risk management strategies, including IT systems, and to ensure that they properly manage outsourcing risk in relation to material business activities, respectively.

  2. APRA Prudential Practice Guides - CPG 234 (Management of Security Risk in Information and IT) and CPG 235 (Managing Data Risk) provide guidance to senior management, risk management and technical specialists (both management and operational) about data and security risks. The guides specifically target areas where APRA continues to identify weaknesses as part of its ongoing and supervisory activities.

  3. ASIC’s Cyber Resilience Health Check 2015 set out ASIC’s expectation that Boards participate in cyber security issues, recommending that companies:

    1. adopt the National Institute of Standards and Technology (NIST) Cyber Security Framework;

    2. engage with cyber security bodies; and

    3. involve directors and the Board in managing cyber security to foster a strong culture of cyber resilience.

Further, APRA’s recently-released Information Paper on its 2015/16 Cyber Security Survey Results indicates APRA will take steps to ensure that regulated financial services organisations do more to meet APRA’s expectations regarding cyber security.

APRA surveyed 37 regulated entities and 4 significant service providers between October 2015 and March 2016, publishing the results in September 2016. Over half of the respondents had suffered a cyber security event in the past year that warranted reporting to executive management.

The survey results indicate that there is room for improvement:

  • 15%-20% of respondents were not providing periodic cyber security updates to the Board or executive;

  • 44% of respondents had not tested their ability to respond to and recover from cyber security incidents; and

  • APRA considered that incident response plans were limited or generic, when they should provide a comprehensive roadmap to a range of specific cyber security incidents.

APRA concludes that it “intends to lift the supervisory and regulatory expectations for regulatory entities to not only secure themselves against cyber attacks, but to implement improved mechanisms to quickly identify and remediate successful attacks when they occur.”  Regulated organisations should prepare to step up their game.

The ASX and ASIC recently announced that they are conducting an ASX 100 Cyber Health Check, surveying the 100 largest ASX-listed companies on issues in relation to cyber security. The questions focus on Board participation, the assessment, importance and management of cyber risks, and cyber incidents. The final report is expected in March 2017.


In light of these comments, the clear themes in the New York Regulations provide guidance to Australian financial services organisations:

  • Board and executive awareness and involvement: if they aren’t already, the Board and executive should be regularly updated on cyber security risks and what the organisation is doing to manage them. Consider: would they be ready to vouch for the organisation’s cyber security activities if they were required to?

  • Cyber preparedness: regular systems testing is becoming more crucial, and comprehensive incident response plans are expected to be implemented and tested. This will be particularly necessary for privacy compliance when mandatory data breach notification legislation is enacted.[2]

  • Stay up to date: cyber intelligence is key to cyber security. Ensure that you have the right personnel and expert advice to continually improve systems, and to stay informed of the latest cyber threats and security advancements.


Public consultation on the proposed Regulations recently closed and the New York Department of Financial Services will now consider whether to proceed with the Regulations, and whether to make any amendments.

In Australia, APRA, ASIC and the ASX have all already flagged that they intend to raise the bar in cyber security management by financial services and other companies.  Perhaps New York-style regulations are on the horizon for Australia. Focusing on executive awareness, cyber preparedness and the latest developments will be crucial for banks and other financial services institutions in the coming months.

[1] Multi Factor Authorisation requires two of the three categories of authentication factors: knowledge factors (eg passwords), possession factors (eg token or text to a mobile phone), and inherence factors (eg biometric information).

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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