NYDFS 23 NYCRR 500 Compliance Advisory
Ensure your financial institution meets New York’s cybersecurity requirements with expert guidance and risk assessments from Drummond.
Strengthen Your Cybersecurity Compliance
New York’s Department of Financial Services (NYDFS) 23 NYCRR 500 regulation sets strict cybersecurity requirements for financial institutions operating in the state.
Covered entities must implement robust security controls, conduct risk assessments, and maintain compliance with evolving regulatory expectations.
Drummond provides expert advisory and risk assessment services to help your organization meet these requirements efficiently while reducing cybersecurity risks.
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Understanding the NYDFS 23 NYCRR 500 Requirements
Who Must Comply and What’s Required?
The NYDFS 23 NYCRR 500 regulation applies to financial institutions operating in New York, including banks, mortgage companies, insurers, credit unions, and other covered entities. The regulation establishes a cybersecurity framework that requires:
- Risk assessments to identify cybersecurity vulnerabilities
- Written policies and procedures aligned with regulatory requirements
- Multi-factor authentication and encryption for sensitive data
- Regular penetration testing and vulnerability assessments
- Cybersecurity event monitoring and reporting obligations
Failing to meet these standards can result in significant penalties and reputational harm. Drummond helps organizations navigate these requirements with expert-driven assessments and advisory services.
FAQs
What is NYDFS 23 NYCRR 500?
NYDFS 23 NYCRR 500 is a set of cybersecurity regulations established by the New York State Department of Financial Services (NYDFS). These regulations mandate that financial institutions and related entities implement robust cybersecurity programs to protect sensitive information and ensure the integrity of their information systems.
Source
Who must comply to NYDFS 23 NYCRR 500?
Organizations classified as financial institutions under New York State financial laws must comply. This includes:
- Banks, mortgage companies, and credit unions
- Insurance companies and agencies
- Investment firms and securities broker-dealers
- Licensed lenders, money transmitters, and cryptocurrency exchanges
- Any company operating under a license, registration, or charter issued by NYDFS
If your business handles, processes, or stores financial transactions or sensitive consumer financial data, it is likely subject to NYDFS 23 NYCRR 500 requirements.
What are the key compliance requirements?
Covered entities must:
- Establish a documented cybersecurity program.
- Conduct and maintain ongoing risk assessments.
- Implement multi-factor authentication and encryption.
- Maintain a third-party security policy.
- Develop an incident response plan.
What does a risk assessment include?
NYDFS requires organizations to:
- Identify and classify cybersecurity risks.
- Assess data security, integrity, and availability.
- Outline risk mitigation and acceptance strategies.
- Update assessments as systems and threats evolve.
How often do risk assessments need to be conducted?
NYDFS requires organizations to periodically update risk assessments but does not specify an exact timeline. Best practice recommends:
- Annual risk assessments to ensure ongoing compliance.
- More frequent assessments (quarterly or biannually) for high-risk environments, particularly those handling sensitive financial data or experiencing frequent system changes.
- After major operational or technological changes, such as system upgrades, mergers, or security incidents.
Do third-party vendors need to comply?
Yes. Any third-party service provider with access to nonpublic information (NPI) or financial systems must adhere to NYDFS cybersecurity requirements.
Best practices for third-party risk assessments include:
- Requiring independent cybersecurity assessments of vendors before engagement.
- Using an impartial third-party for periodic risk assessments to ensure unbiased evaluation.
- Contractually obligating vendors to maintain NYDFS-compliant security measures.
- Regularly reviewing vendor security postures, especially for cloud providers and managed service partners.
Does NYDFS require an independent third party for risk assessments?
NYDFS does not explicitly require risk assessments to be conducted by an independent third party, but best practice strongly recommends it to ensure objectivity, accuracy, and regulatory credibility.
Why Use an Independent Third Party?
Conducting risk assessments internally can introduce bias, overlooked risks, or gaps in compliance interpretation. A third-party risk assessment offers:
- Unbiased Evaluation – External assessors provide an impartial view of cybersecurity risks without internal conflicts.
- Regulatory Credibility – Third-party validation demonstrates due diligence to regulators, reducing the risk of non-compliance findings.
- Deeper Security Insights – Independent experts leverage industry benchmarks, emerging threat data, and cross-sector insights to identify hidden risks.
- Actionable Recommendations – External reports often provide more practical, prioritized remediation strategies than internally generated assessments.
- Audit Readiness – A third-party assessment ensures organizations are well-prepared for NYDFS regulatory audits and inspections.
Best Practices for Third-Party Risk Assessments
- Engage an NYDFS-knowledgeable assessor like Drummond – Choose a provider with experience in financial sector regulations and cybersecurity frameworks.
- Conduct assessments at least annually – Frequent reviews help organizations adapt to evolving threats, regulatory updates, and operational changes.
- Align with NIST, ISO 27001, or CIS standards – Following well-established security frameworks enhances compliance and security maturity.
- Leverage penetration testing and security audits – Combining risk assessments with real-world attack simulations strengthens defenses against cyber threats.
- Use third-party insights to refine internal policies – External findings should inform cybersecurity program updates, vendor security expectations, and board-level reporting.
What happens if my organization doesn’t comply?
Non-compliance can lead to fines, regulatory penalties, and reputational damage. NYDFS has the authority to enforce corrective actions and issue monetary penalties for violations.
Are any organizations exempt from NYDFS 23 NYCRR 500?
Some small businesses may qualify for limited exemptions if they meet one or more of the following criteria:
- Fewer than 10 employees, including independent contractors.
- Less than $5 million in gross annual revenue from New York-based operations over the last three years.
- Less than $10 million in year-end total assets (including affiliates).
Even if a business qualifies for an exemption, it is not fully exempt from all requirements. Exempted entities must still:
- Conduct risk assessments.
- Maintain third-party security policies.
- Implement incident response and breach notification procedures.
How does Drummond help with compliance?
Drummond provides a comprehensive suite of compliance readiness support including risk assessments, compliance audits, policy reviews, penetration testing, and advisory services, to help financial institutions meet NYDFS 23 NYCRR 500 requirements efficiently.
Why Drummond
Experienced Compliance Experts for Financial Cybersecurity
For over 25 years, Drummond has been a trusted advisor on standards and compliance requirements. Our deep regulatory and cybersecurity expertise helps highly regulated industries, including financial institutions and fintech providers, achieve and maintain compliance.
- Regulatory Expertise: Our team understands the complexities of financial cybersecurity regulations.
- Tailored Assessments: We provide actionable insights based on your organization’s risk profile.
- Efficient Process: Our structured approach reduces compliance burden while ensuring readiness for audits.
- Comprehensive Support: From risk assessments to compliance audits we offer a full suite of regulatory and cybersecurity services.
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