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FTC Updates Safeguards Rule for Non-Banking Financial Institutions

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The Federal Trade Commission recently announced a newly updated rule concerning the data security safeguards required for financial institutions to protect their customers’ financial information. The FTC’s updated Safeguards Rule, which originally was mandated by Congress under the 1999 Gramm-Leach-Bliley Act, requires non-banking financial institutions, such as mortgage brokers, motor vehicle dealers, and payday lenders, to develop, implement, and maintain a comprehensive security system to keep their customers’ information safe. The new rule more closely aligns with the NY Department of Financial Services Cybersecurity Regulation.

The changes adopted by the Commission to the Safeguards Rule include more specific criteria for what safeguards financial institutions must implement as part of their information security program such as limiting who can access consumer data and using encryption to secure the data. Under the updated Safeguards Rule, institutions must also explain their information sharing practices, specifically the administrative, technical, and physical safeguards the financial institutions use to access, collect, distribute, process, protect, store, use, transmit, dispose of, or otherwise handle customers’ secure information. In addition, financial institutions will be required to designate a single qualified individual to oversee their information security program and report periodically to an organization’s board of directors, or a senior officer in charge of information security.

In addition to the updates, the FTC is seeking comment on whether to make an additional change to the Safeguards Rule to require financial institutions to report certain data breaches and other security events to the Commission. The FTC is issuing a supplemental notice of proposed rulemaking. The public will have 60 days after the notice is published in the Federal Register to submit a comment.

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