What Is the NYDFS Cybersecurity Regulation?

Achieving NYDFS Cybersecurity Compliance

Greater New York has the widest continuous city fabric by land area, and the NYDFS Cybersecurity Regulation, officially 23 NYCRR Part 500, is New York State’s no-nonsense playbook for cyber resilience in the financial arena. It’s as big as the town that calls it home. Only one in a plethora of international cybersecurity standards, it was born on March 1, 2017. Its mission is to shield customer data, safeguard financial systems, and make every licensed institution (from state‑chartered banks to insurers) answerable for their ongoing cybersecurity posture.  

Who Must Comply and Who Can Get Away With It?

NYDFS Cybersecurity Regulation applies to any Gothamite company operating under (or required to operate under) any license, charter, or other NYDFS authority across the Banking Law, Insurance Law, or Financial Services Law. That includes state banks, foreign bank branches, mortgage companies, trust companies, insurance firms, lenders, investment and holding companies, money transmitters, trust companies, and more. Basically, if you need a license or permission from NYDFS to run your business legally in New York, you’re required to consider NYDFS standards and compliance.

“This city is headed for a disaster of biblical proportions.”
- Dr. Raymond Stantz (Dan Aykroyd), Ghostbusters [1984].

There are exemptions, such as the smaller players, clarified as firms with fewer than 20 employees, under $7.5M in annual NY revenue, or less than $15M in year‑end assets, who can file for partial exemption via the Department of Financial Services (DFS) portal.  

On November 1, 2023, NYDFS doubled down, carving out Class A entities (I.e, those with ≥ $20M in annual revenue and either ≥2,000 employees or >$1 billion in global revenue) with extra scrutiny and security demands. The Class A designation is NYDFS’s way of saying, “You’re big enough to be dangerous, so you need to do more,” which is fair enough, such as having an external, independent audit of their cybersecurity program at least once every three years, operating tighter password policies, and requiring stricter controls around privileged accounts. Also, they must have systems in place that continuously monitor network activity for signs of intrusion or compromise. 

Under NYDFS 23 NYCRR Part 500, individual CISOs aren’t personally responsible for cybersecurity liability in the criminal sense. However, they are accountable for implementing and maintaining the cybersecurity program, reporting annually to the board, and providing the annual compliance certification. They may face professional consequences, including regulatory scrutiny or job loss, if they fail to act on known risks, ignore required controls, or misrepresent the organization’s security posture.

What Are the Core NYTDFS Obligations?

Here’s the gist of any Part 500 to-do list:

Documented Cybersecurity Program:  

Organizations must have a documented, risk‑based program addressing:

• Risk identification, detection, response, recovery, and reporting
• Defensive infrastructure, policies, and procedures

Documented Cybersecurity Policy: 

This means written, board‑approved policies covering information security, data governance, asset inventory, identity management, vendor oversight, business continuity, network/application security, and incident response.  

CISO Designation: 

Organizations need someone (internal, affiliate, or third‑party) officially responsible for implementing and reporting on the cybersecurity program. This individual must report annually to the board (or equivalent).   

Testing & Monitoring:

Either continuous monitoring, or:

• Annual penetration testing
• Bi‑annual (twice a year) vulnerability scans

Audit Trails: 

Organizations must track and reconstruct material financial transactions and cybersecurity events, retaining logs for three to five years.  

Access Management:

Least-privilege access to nonpublic information, reviewed periodically. This means every user, human, or machine should only get the minimum access they need, with accurate provisioning, for exactly as long as they need it, with visibility, approval, and (ideally) automatic revocation baked in.

Application Security:

A secure development lifecycle of DevSecOps best practices for in-house and third‑party apps, with periodic reviews.  

Risk Assessment:

Documented, periodically updated assessments that influence the program’s design and controls.  

Cybersecurity Staffing & Training:

Qualified staff, updates, training, and “staying informed on current threats.” 

If you need some help with the latter, can we humbly suggest our Access Approved newsletter and our X and LinkedIn for the latest cloud security news and gossip?   

Third‑Party Risk Management:

Vet, contract, and monitor vendors handling your nonpublic info.  

Covered financial institutions must ensure their third-party vendors (IT providers, cloud services, managed security firms, payment processors, etc.) meet appropriate cybersecurity standards. So, if you’re a small or mid-size vendor in that supply chain, you may not be directly regulated by NYDFS, but your bank/insurer client will almost certainly pass down requirements in contracts (audits, reporting, MFA, incident notifications, etc.).

Multi‑Factor Authentication (MFA):

Use MFA for external network access and high‑risk systems; Class A firms will face additional restrictions, and the “CISO says it’s fine” loophole closes in November 2025. They must implement MFA everywhere it’s required, without relying on CISO-approved exceptions or any workarounds.  

Data Encryption or Compensating Controls:

Encrypt data at rest and in transit, or use CISO-approved alternatives if encryption isn’t feasible in certain scenarios, such as tokenization, segmentation and network isolation, or data masking.

Data Disposal:

Securely dispose of nonpublic data not needed for business or legal reasons, such as use of data wiping software that complies with DoD 5220.22-M or NIST 800-88 standards. Also: log the disposal, follow your policy, and make sure third-party vendors handling disposal are contractually obligated to comply with secure destruction standards. 

Incident Response Plan:

Written plan, roles, responsibilities, goals, and processes; report major events to NYDFS within 72 hours.  

Annual Certification:

Organizations must file either an attestation of material compliance or an acknowledgment of non‑compliance.  

What Happens if Organizations Don’t Comply?

Basically, it won’t be pretty. NYDFS wields enforcement tools, including consent orders, hefty fines ranging from $2,500 to $75,000 per day (ouch!), depending on intent or recklessness, plus license revocations.  

One cautionary tale: OneMain Financial Group was fined $4.25M in 2023 for improper password storage and third‑party risk failures.  

The NYDFS found that the organization:

• Failed to limit user access rights properly
• Stored passwords in plain text (yes, in ‘23, so one might say they had one coming!)
• Didn’t effectively monitor or manage third-party service providers
• Lacked sufficient documentation and controls around entitlement reviews

In short, they broke some of the core tenets of the NYDFS Cybersecurity Regulation, particularly around access management and vendor oversight. The fine was part of a broader consent order issued by NYDFS to enforce compliance and signal that even large, well-known firms aren’t above reproach when they mishandle fundamental cybersecurity hygiene.

How to Turn Compliance Into a Strategic Edge

Let’s be honest, compliance can feel like a check‑the‑box bore. But when done right, it’s more than an audit ticket; it’s a force multiplier for business confidence, operational resilience, and customer trust.

A Step‑by‑Step Game Plan:

1. Threat‑and‑Risk Kick‑off: Start by mapping your cyber threat universe and running a documented risk assessment. Not optional, foundational.
2. Gap‑ology: Compare your existing practices to the 14 pillars listed above. Identify missing policies, weak testing, tool shortfalls, training gaps, vendor oversight, audit‑trail weaknesses, etc.
3. Governance Overhaul: Get buy‑in from the board or senior leaders. Formalize the CISO role, embed reporting cadence, and walk the talk of cybersecurity culture.
4. Control Stack Build‑out: Harden systems with MFA, encryption, logging, testing, access enforcement, identity lifecycle management, and vendor controls. Bake these into your IR, DR, and BCP playbooks.
5. Operationalize: Staff, train, and simulate. Run tabletop mock incidents, empower your team with the right tools, and stress-test your monitoring.
6. Third‑Party Iron Grip: Scrub vendor contracts, define SLAs, require notification rights, and assess security posture (not just cost).
7. Certification Discipline: Build annual certification into your calendar without last-minute scrambling. Track compliance metrics and exceptions proactively.
8. Lean into AI Guidance: DFS guidance issued on October 16, 2024, reminds us to include AI risk in assessments, train staff on deepfake/social‑engineering threats, and fortify third‑party and access policies accordingly.   

How a Trust‑Based Security Platform Helps

Now imagine a platform that you might have heard of, that helps you orchestrate risk assessments, vendor questionnaires, policy workflows, and compliance evidence gathering, all in one central, compliance‑first dashboard.

• Trustle auto‑maps risk assessment outcomes to required controls, keeping documentation audit‑ready.
• It shows exactly who’s compliant and who needs follow‑up.
• Trustle stitches together just-in-time access, entitlement cleanup, lifecycle and privilege controls, and risk visibility, and anchors them with forensic clarity and automation.
• Offers on straightforward UI across multiple cloud environments.

That orchestration adds up: what feels like regulatory drudgery becomes a well‑oiled machine and a boardroom narrative of “we don’t just check boxes, we manage cyber risk strategically.” Exactly the story that shareholders and investors want to hear (and see proof of).

If you want a no-obligation chat about achieving the NYDFS cybersecurity regulation standards, please reach out. We’re always here to help.