[Federal Register: February 1, 2001 (Volume 66, Number 22)]
[Rules and Regulations]
[Page 8615-8641]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01fe01-9]
[[Page 8615]]
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Part II
Department of the Treasury
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Office of the Comptroller of the Currency
Office of Thrift Supervision
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Federal Reserve System
Federal Deposit Insurance Corporation
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12 CFR Part 30, et al.
Interagency Guidelines Establishing Standards for Safeguarding Customer
Information and Rescission of Year 2000 Standards for Safety and
Soundness; Final Rule
[[Page 8616]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 30
[Docket No. 00-35]
RIN 1557-AB84
FEDERAL RESERVE SYSTEM
12 CFR Parts 208, 211, 225, and 263
[Docket No. R-1073]
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 308 and 364
RIN 3064-AC39
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Parts 568 and 570
[Docket No. 2000-112]
RIN 1550-AB36
Interagency Guidelines Establishing Standards for Safeguarding
Customer Information and Rescission of Year 2000 Standards for Safety
and Soundness
AGENCIES: The Office of the Comptroller of the Currency (OCC),
Treasury; Board of Governors of the Federal Reserve System (Board);
Federal Deposit Insurance Corporation (FDIC); and Office of Thrift
Supervision (OTS), Treasury.
ACTION: Joint final rule.
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SUMMARY: The Office of the Comptroller of the Currency, Board of
Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, and Office of Thrift Supervision (collectively, the
Agencies) are publishing final Guidelines establishing standards for
safeguarding customer information that implement sections 501 and
505(b) of the Gramm-Leach-Bliley Act (the G-L-B Act or Act).
Section 501 of the G-L-B Act requires the Agencies to establish
appropriate standards for the financial institutions subject to their
respective jurisdictions relating to administrative, technical, and
physical safeguards for customer records and information. As described
in the Act, these safeguards are to: insure the security and
confidentiality of customer records and information; protect against
any anticipated threats or hazards to the security or integrity of such
records; and protect against unauthorized access to or use of such
records or information that could result in substantial harm or
inconvenience to any customer. The Agencies are to implement these
standards in the same manner, to the extent practicable, as standards
prescribed pursuant to section 39(a) of the Federal Deposit Insurance
Act (FDI Act). These final Guidelines implement the requirements
described above.
The Agencies previously issued guidelines establishing Year 2000
safety and soundness standards for insured depository institutions
pursuant to section 39 of the FDI Act. Since the events for which these
guidelines were issued have passed, the Agencies have concluded that
the guidelines are no longer necessary and are rescinding these
guidelines.
Effective Date: The joint final rule is effective July 1, 2001.
Applicability date: The Year 2000 Standards for Safety and
Soundness are no longer applicable as of March 5, 2001.
FOR FURTHER INFORMATION CONTACT:
OCC
John Carlson, Deputy Director for Bank Technology, (202) 874-5013;
or Deborah Katz, Senior Attorney, Legislative and Regulatory Activities
Division, (202) 874-5090.
Board
Heidi Richards, Assistant Director, Division of Banking Supervision
and Regulation, (202) 452-2598; Stephanie Martin, Managing Senior
Counsel, Legal Division, (202) 452-3198; or Thomas E. Scanlon, Senior
Attorney, Legal Division, (202) 452-3594. For the hearing impaired
only, contact Janice Simms, Telecommunication Device for the Deaf (TDD)
(202) 452-3544, Board of Governors of the Federal Reserve System, 20th
and C Streets, NW, Washington, DC 20551.
FDIC
Thomas J. Tuzinski, Review Examiner, Division of Supervision, (202)
898-6748; Jeffrey M. Kopchik, Senior Policy Analyst, Division of
Supervision, (202) 898-3872; or Robert A. Patrick, Counsel, Legal
Division, (202) 898-3757.
OTS
Jennifer Dickerson, Manager, Information Technology, Examination
Policy, (202) 906-5631; or Christine Harrington, Counsel, Banking and
Finance, Regulations and Legislation Division, (202) 906-7957.
SUPPLEMENTARY INFORMATION: The contents of this preamble are listed in
the following outline:
I. Background
II. Overview of Comments Received
III. Section-by-Section Analysis
IV. Regulatory Analysis
A. Paperwork Reduction Act
B. Regulatory Flexibility Act
C. Executive Order 12866
D. Unfunded Mandates Act of 1995
I. Background
On November 12, 1999, President Clinton signed the G-L-B Act (Pub.
L. 106-102) into law. Section 501, titled ``Protection of Nonpublic
Personal Information'', requires the Agencies, the National Credit
Union Administration, the Securities and Exchange Commission, and the
Federal Trade Commission to establish appropriate standards for the
financial institutions subject to their respective jurisdictions
relating to the administrative, technical, and physical safeguards for
customer records and information. As stated in section 501, these
safeguards are to: (1) Insure the security and confidentiality of
customer records and information; (2) protect against any anticipated
threats or hazards to the security or integrity of such records; and
(3) protect against unauthorized access to or use of such records or
information that would result in substantial harm or inconvenience to
any customer.
Section 505(b) of the G-L-B Act provides that these standards are
to be implemented by the Agencies in the same manner, to the extent
practicable, as standards prescribed pursuant to section 39(a) of the
FDI Act.\1\ Section 39(a) of the FDI Act authorizes the Agencies to
establish operational and managerial standards for insured depository
institutions relative to, among other things, internal controls,
information systems, and internal audit systems, as well as such other
operational and managerial standards as the Agencies determine to be
appropriate.\2\
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\1\ Section 39 applies only to insure depository institutions,
including insured branches of foreign banks. The Guidelines,
however, will also apply to certain uninsured institutions, such as
bank holding companies, certain nonbank subsidiaries of bank holding
companies and insured depository institutions, and uninsured
branches and agencies of foreign banks. See sections 501 and 505(b)
of the G-L-B Act.
\2\ OTS has placed its information security guidelines in
appendix B to 12 CFR part 570, with the provisions implementing
section 39 of the FDI Act. At the same time, OTS has adopted a
regulatory requirement that the institutions OTS regulates comply
with the proposed Guidelines. Because information security
guidelines are similar to physical security procedures, OTS has
included a provision in 12 CFR part 568, which covers primarily
physical security procedures, requiring compliance with the
Guidelines in appendix B to part 570.
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[[Page 8617]]
II. Overview of Comments Received
On June 26, 2000, the Agencies published for comment the proposed
Interagency Guidelines Establishing Standards for Safeguarding Customer
Information and Rescission of Year 2000 Standards for Safety and
Soundness in the Federal Register (65 FR 39472). The public comment
period closed August 25, 2000. The Agencies collectively received a
total of 206 comments in response to the proposal, although many
commenters sent copies of the same letter to each of the Agencies.
Those combined comments included 49 from banks, 7 from savings
associations, 60 from financial institution holding companies; 50 from
financial institution trade associations; 33 from other business
entities; and four from state regulators. The Federal Reserve also
received comments from three Federal Reserve Banks.
The Agencies invited comment on all aspects of the proposed
Guidelines, including whether the rules should be issued as guidelines
or as regulations. Commenters overwhelmingly supported the adoption of
guidelines, with many commenters offering suggestions for ways to
improve the proposed Guidelines as discussed below. Many commenters
cited the benefits of flexibility and the drawbacks of prescriptive
requirements that could become rapidly outdated as a result of changes
in technology.
The Agencies also requested comments on the impact of the proposal
on community banks, recognizing that community banks operate with more
limited resources than larger institutions and may present a different
risk profile. In general, community banks urged the Agencies to issue
guidelines that are not prescriptive, that do not require detailed
policies or reporting by banks that share little or no information
outside the bank, and that provide flexibility in the design of an
information security program. Some community banks indicated that the
Guidelines are unnecessary because they already have information
security programs in place. Others requested clarification of the
impact of the Guidelines on banks that do not share any information in
the absence of a customer's consent.
In light of the comments received, the Agencies have decided to
adopt the Guidelines, with several changes as discussed below to
respond to the commenters' suggestions. The respective texts of the
Agencies' Guidelines are substantively identical. In directing the
Agencies to issue standards for the protection of customer records and
information, Congress provided that the standards apply to all
financial institutions, regardless of the extent to which they may
disclose information to affiliated or nonaffiliated third parties,
electronically transfer data with customers or third parties, or record
data electronically. Because the requirements of the Act apply to a
broad range of financial institutions, the Agencies believe that the
Guidelines must establish appropriate standards that allow each
institution the discretion to design an information security program
that suits its particular size and complexity and the nature and scope
of its activities. In many instances, financial institutions already
will have information security programs that are consistent with these
Guidelines, because key components of the Guidelines were derived from
security-related supervisory guidance previously issued by the Agencies
and the Federal Financial Institutions Examination Council (FFIEC). In
such situations, little or no modification to an institution's program
will be required.
Below is a section-by-section analysis of the final Guidelines.
III. Section-by-Section Analysis
The discussion that follows applies to each Agency's Guidelines.
I. Introduction
Paragraph I. of the proposal set forth the general purpose of the
Guidelines, which is to provide guidance to each financial institution
in establishing and implementing administrative, technical, and
physical safeguards to protect the security, confidentiality, and
integrity of customer information. This paragraph also set forth the
statutory authority for the Guidelines, including section 39(a) of the
FDI Act (12 U.S.C. 1831p-1) and sections 501 and 505(b) of the G-L-B
Act (15 U.S.C. 6801 and 6805(b) ). The Agencies received no comments on
this paragraph, and have adopted it as proposed.
I.A. Scope
Paragraph I.A. of the proposal described the scope of the
Guidelines. Each Agency defined specifically those entities within its
particular scope of coverage in this paragraph of the Guidelines.
The Agencies received no comments on the issue of which entities
are covered by the Guidelines, and have adopted paragraph I.A. as
proposed.
I.B. Preservation of Existing Authority
Paragraph I.B. of the proposal made clear that in issuing these
Guidelines none of the Agencies is, in any way, limiting its authority
to address any unsafe or unsound practice, violation of law, unsafe or
unsound condition, or other practice, including any condition or
practice related to safeguarding customer information. As noted in the
preamble to the proposal, any action taken by any Agency under section
39(a) of the FDI Act and these Guidelines may be taken independently
of, in conjunction with, or in addition to any other enforcement action
available to the Agency. The Agencies received no comments on this
paragraph, and have adopted paragraph I.B. as proposed.
I.C.1. Definitions
Paragraph I.C. set forth the definitions of various terms for
purposes of the Guidelines.\3\ It also stated that terms used in the
Guidelines have the same meanings as set forth in sections 3 and 39 of
the FDI Act (12 U.S.C. 1813 and 1831p-1).
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\3\ In addition to the definitions discussed below, the Board's
Guidelines in 12 CFR parts 208 and 225 contain a definition of
``subsidiary'', which described the state member bank and bank
holding company subsidiaries that are subject to the Guidelines.
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The Agencies received several comments on the proposed definitions,
and have made certain changes as discussed below. The Agencies also
have reordered proposed paragraph I.C. so that the statement concerning
the reliance on sections 3 and 39(a) of the FDI Act is now in paragraph
I.C.1., with the definitions appearing in paragraphs I.C.2.a.-e. The
defined terms have been placed in alphabetical order in the final
Guidelines.
I.C.2.a. Board of Directors
The proposal defined ``board of directors'' to mean, in the case of
a branch or agency of a foreign bank, the managing official in charge
of the branch or agency.\4\ The Agencies received no comments on this
proposed definition, and have adopted it without change.
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\4\ The OTS version of the Guidelines does not include this
definition because OTS does not regulate foreign institutions.
Paragraph I of the OTS Guidelines has been renumbered accordingly.
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I.C.2.b. Customer
The proposal defined ``customer'' in the same way as that term is
defined in section __.3(h) of the Agencies' rule captioned ``Privacy of
Consumer Financial Information'' (Privacy Rule).\5\
[[Page 8618]]
The Agencies proposed to use this definition in the Guidelines because
section 501(b) refers to safeguarding the security and confidentiality
of ``customer'' information. Given that Congress used the same term for
both the 501(b) standards and for the sections concerning financial
privacy, the Agencies have concluded that it is appropriate to use the
same definition in the Guidelines that was adopted in the Privacy Rule.
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\6\ See 65 FR 35162 (June 1, 2000). Citations to the interagency
Privacy Rule in this preamble are to sections only, leaving blank
the citations to the part numbers used by each agency.
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Under the Privacy Rule, a customer is a consumer who has
established a continuing relationship with an institution under which
the institution provides one or more financial products or services to
the consumer to be used primarily for personal, family or household
purposes. ``Customer'' does not include a business, nor does it include
a consumer who has not established an ongoing relationship with a
financial institution (e.g., an individual who merely uses an
institution's ATM or applies for a loan). See sections__.3(h) and (i)
of the Privacy Rule. The Agencies solicited comment on whether the
definition of ``customer'' should be broadened to provide a common
information security program for all types of records under the control
of a financial institution.
The Agencies received many comments on this definition, almost all
of which agreed with the proposed definition. Although a few commenters
indicated they would apply the same security program to both business
and consumer records, the vast majority of commenters supported the use
of the same definition of ``customer'' in the Guidelines as is used in
the Privacy Rule. They observed that the use of the term ``customer''
in section 501 of the G-L-B Act, when read in the context of the
definitions of ``consumer'' and ``customer relationship'' in section
509, reflects the Congressional intent to distinguish between certain
kinds of consumers for the information security standards and the other
privacy provisions established under subtitle A of Title V.
The Agencies have concluded that the definition of ``customer''
used in the Guidelines should be consistent with the definition
established in section__.3(h) of the Privacy Rule. The Agencies
believe, therefore, that the most reasonable interpretation of the
applicable provisions of subtitle A of Title V of the Act is that a
financial institution is obligated to protect the security and
confidentiality of the nonpublic personal information of its consumers
with whom it has a customer relationship. As a practical manner, a
financial institution may also design or implement its information
security program in a manner that encompasses the records and
information of its other consumers and its business clients.\6\
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\6\ The Agencies recognize that ``customer'' is defined more
broadly under Subtitle B of Title V of the Act, which, in general,
makes it unlawful for any person to obtain or attempt to obtain
customer information of a financial institution by making false,
fictitious, or fraudulent statements. For the purpose of that
subtitle, the term ``customer'' means ``any person (or authorized
representative of a person) to whom the financial institution
provides a product or service, including that of acting as a
fiduciary.'' (See section 527(1) of the Act.) In light of the
statutory mandate to ``prescribe such revisions to such regulations
and guidelines as may be necessary to ensure that such financial
institutions have policies, procedures, and controls in place to
prevent the unauthorized disclosure of customer financial
information'' (section 525), the Agencies considered modifying these
Guidelines to cover other customers, namely, business entities and
individuals who obtain financial products and services for purposes
other than personal, family, or household purposes. The Agencies
have concluded, however, that defining ``customer'' to accommodate
the range of objectives set forth in Title V of the Act is
unnecessary. Instead, the Agencies have included a new paragraph
III.C.1.a, described below, and plan to issue guidance and other
revisions to the applicable regulations, as may be necessary, to
satisfy the requirements of section 525 of the Act.
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I.C.2.c. Customer Information
The proposal defined ``customer information'' as any records
containing nonpublic personal information, as defined in section__.3(n)
of the Privacy Rule, about a customer. This included records, data,
files, or other information in paper, electronic, or other form that
are maintained by any service provider on behalf of an institution.
Although section 501(b) of the G-L-B Act refers to the protection of
both customer ``records'' and ``information'', for the sake of
simplicity, the proposed Guidelines used the term ``customer
information'' to encompass both information and records.
The Agencies received several comments on this definition. The
commenters suggested that the proposed definition was too broad because
it included files ``containing'' nonpublic personal information. The
Agencies believe, however, that a financial institution's security
program must apply to files that contain nonpublic personal information
in order to adequately protect the customer's information. In deciding
what level of protection is appropriate, a financial institution may
consider the fact that a given file contains very little nonpublic
personal information, but that fact would not render the file entirely
beyond the scope of the Guidelines. Accordingly, the Agencies have
adopted a definition of ``customer record'' that is substantively the
same as the proposed definition. The Agencies have, however, deleted
the reference to ``data, files, or other information'' from the final
Guidelines, since each is included in the term ``records'' and also is
covered by the reference to ``paper, electronic, or other form''.
I.C.2.d. Customer Information System
The proposal defined ``customer information system'' to be
electronic or physical methods used to access, collect, store, use,
transmit, or protect customer information. The Agencies received a few
comments on this definition, mostly from commenters who stated that it
is too broad. The Agencies believe that the definition needs to be
sufficiently broad to protect all customer information, wherever the
information is located within a financial institution and however it is
used. Nevertheless, the broad scope of the definition of ``customer
information system'' should not result in an undue burden because, in
other important respects, the Guidelines allow a high degree of
flexibility for each institution to design a security program that
suits its circumstances.
For these reasons, the Agencies have adopted the definition of
``customer information system'' largely as proposed. However, the
phrase ``electronic or physical'' in the proposal has been deleted
because each is included in the term ``any methods''. The Agencies also
have added a specific reference to records disposal in the definition
of ``customer information system.'' This is consistent with the
proposal's inclusion of access controls in the list of items a
financial institution is to consider when establishing security
policies and procedures (see discussion of paragraph III.C.1.a.,
below), given that inadequate disposal of records may result in
identity theft or other misuse of customer information. Under the final
Guidelines, a financial institution's responsibility to safeguard
customer information continues through the disposal process.
I.C.2.e. Service Provider
The proposal defined a ``service provider'' as any person or entity
that maintains or processes customer information for a financial
institution, or is otherwise granted access to customer information
through its provision of services to an institution. One commenter
urged the Agencies to modify this definition so that it would not
include a financial institution's attorneys, accountants, and
appraisers. Others suggested deleting the phrase ``or
[[Page 8619]]
is otherwise granted access to customer information through its
provision of services to an institution''.
The Agencies believe that the Act requires each financial
institution to adopt a comprehensive information security program that
is designed to protect against unauthorized access to or use of
customers' nonpublic personal information. Disclosing information to a
person or entity that provides services to a financial institution
creates additional risks to the security and confidentiality of the
information disclosed. In order to protect against these risks, a
financial institution must take appropriate steps to protect
information that it provides to a service provider, regardless of who
the service provider is or how the service provider obtains access. The
fact that an entity obtains access to customer information through, for
instance, providing professional services does not obviate the need for
the financial institution to take appropriate steps to protect the
information. Accordingly, the Agencies have determined that, in
general, the term ``service provider'' should be broadly defined to
encompass a variety of individuals or companies that provide services
to the institution.
This does not mean, however, that a financial institution's methods
for overseeing its service provider arrangements will be the same for
every provider. As explained in the discussion of paragraph III.D., a
financial institution's oversight responsibilities will be shaped by
the institution's analysis of the risks posed by a given service
provider. If a service provider is subject to a code of conduct that
imposes a duty to protect customer information consistent with the
objectives of these Guidelines, a financial institution may take that
duty into account when deciding what level of oversight it should
provide.
Moreover, a financial institution will be responsible under the
final Guidelines for overseeing its service provider arrangements only
when the service is provided directly to the financial institution. The
Agencies clarified this point by amending the definition of ``service
provider'' in the final Guidelines to state that it applies only to a
person or entity that maintains, processes, or otherwise is permitted
access to customer information through its provision of services
directly to the financial institution. Thus, for instance, a payment
intermediary involved in the collection of a check but that has no
correspondent relationship with a financial institution would not be
considered a service provider of that financial institution under this
rule. By contrast, a financial institution's correspondent bank would
be considered its service provider. Nevertheless, the financial
institution may take into account the fact that the correspondent bank
is itself a financial institution that is subject to security standards
under section 501(b) when it determines the appropriate level of
oversight for that service provider.\7\
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\7\ Similarly, in the case of a service provider that is not
subject to these Guidelines but is subject to standards adopted by
its primary regulator under section 501(b) of the G-L-B Act, a
financial institution may take that fact into consideration when
deciding what level of oversight is appropriate for that service
provider.
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In situations where a service provider hires a subservicer,\8\ the
subservicer would not be a ``service provider'' under the final
Guidelines. The Agencies recognize that it would be inappropriate to
impose obligations on a financial institution to select and monitor
subservicers in situations where the financial institution has no
contractual relationship with that person or entity. When conducting
due diligence in selecting its service providers (see discussion of
paragraph III.D., below), however, a financial institution must
determine that the service provider has adequate controls to ensure
that the subservicer will protect the customer information in a way
that meets the objectives of these Guidelines.
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\8\ The term ``subservicer'' means any person who has access to
an institution's customer information through its provision of
services to the service provider and is not limited to mortgage
subservicers.
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II. Standards for Safeguarding Customer Information
II.A. Information Security Program
The proposed Guidelines described the Agencies' expectations for
the creation, implementation, and maintenance of a comprehensive
information security program. As noted in the proposal, this program
must include administrative, technical, and physical safeguards
appropriate to the size and complexity of the institution and the
nature and scope of its activities.
Several commenters representing large and complex organizations
were concerned that the term ``comprehensive information security
program'' required a single and uniform document that must apply to all
component parts of the organization. In response, the Agencies note
that a program that includes administrative, technical, and physical
safeguards will, in many instances, be composed of more than one
document. Moreover, use of this term does not require that all parts of
an organization implement a uniform program. However, the Agencies will
expect an institution to coordinate all the elements of its information
security program. Where the elements of the program are dispersed
throughout the institution, management should be aware of these
elements and their locations. If they are not maintained on a
consolidated basis, management should have an ability to retrieve the
current documents from those responsible for the overall coordination
and ongoing evaluation of the program.
The Board received comment on its proposal to revise the appendix
to Regulation Y regarding the provision that would require a bank
holding company to ensure that each of its subsidiaries is subject to a
comprehensive information security program.\9\ This comment urged the
Board to eliminate that provision and argued, in part, that the
requirement assumes that a bank holding company has the power to impose
such controls upon its subsidiary companies. These commenters
recommended, instead, that the standards should be limited to customer
information in the possession or control of the bank holding company.
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\9\ The appendix provided that the proposed Guidelines would be
applicable to customer information maintained by or on behalf of
bank holding companies and their nonbank subsidiaries or affiliates
(except brokers, dealers, persons providing insurance, investment
companies, and investment advisors) for which the Board has
supervisory authority. See 65 FR 39484 (June 26, 2000).
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Under the Bank Holding Company Act of 1956 and the Board's
Regulation Y, a subsidiary is presumed to be controlled directly or
indirectly by the holding company. 12 U.S.C. 1841(d); 12 CFR 225.2(o).
Moreover, the Board believes that a bank holding company is ultimately
responsible for ensuring that its subsidiaries comply with the
standards set forth under these Guidelines. The Board recognizes,
however, that a bank holding company may satisfy its obligations under
section 501 of the GLB Act through a variety of measures, such as by
including a subsidiary within the scope of its information security
program or by causing the subsidiary to implement a separate
information security program in accordance with these Guidelines.
II.B. Objectives
Paragraph II.B. of the proposed Guidelines described the objectives
that each financial institution's information security program should
be designed to achieve. These objectives tracked the objectives as
stated in section 501(b)(1)-(3), adding only that the security
[[Page 8620]]
program is to protect against unauthorized access that could risk the
safety and soundness of the institution. The Agencies requested comment
on whether there are additional or alternative objectives that should
be included in the Guidelines.
The Agencies received several comments on this proposed paragraph,
most of which objected to language that, in the commenters' view,
required compliance with objectives that were impossible to meet. Many
commenters stated, for instance, that no information security program
can ensure that there will be no problems with the security or
confidentiality of customer information. Others criticized the
objective that required protection against any anticipated threat or
hazard. A few commenters questioned the objective of protecting against
unauthorized access that could result in inconvenience to a customer,
while others objected to the addition of the safety and soundness
standard noted above.
The Agencies do not believe the statute mandates a standard of
absolute liability for a financial institution that experiences a
security breach. Thus, the Agencies have clarified these objectives by
stating that each security program is to be designed to accomplish the
objectives stated. With the one exception discussed below, the Agencies
have otherwise left unchanged the statement of the objectives, given
that these objectives are identical to those set out in the statute.
In response to comments that objected to the addition of the safety
and soundness standard, the Agencies have deleted that reference in
order to make the statement of objectives identical to the objectives
identified in the statute. The Agencies believe that risks to the
safety and soundness of a financial institution may be addressed
through other supervisory or regulatory means, making it unnecessary to
expand the statement of objectives in this rulemaking.
Some commenters asked for clarification of a financial
institution's responsibilities when a customer authorizes a third party
to access that customer's information. For purposes of the Guidelines,
access to or use of customer information is not ``unauthorized'' access
if it is done with the customer's consent. When a customer gives
consent to a third party to access or use that customer's information,
such as by providing the third party with an account number, PIN, or
password, the Guidelines do not require the financial institution to
prevent such access or monitor the use or redisclosure of the
customer's information by the third party. Finally, unauthorized access
does not mean disclosure pursuant to one of the exceptions in the
Privacy Rule.
III. Develop and Implement Information Security Program
III.A. Involve the Board of Directors
Paragraph III.A. of the proposal described the involvement of the
board and management in the development and implementation of an
information security program. As explained in the proposal, the board's
responsibilities are to: (1) Approve the institution's written
information security policy and program; and (2) oversee efforts to
develop, implement, and maintain an effective information security
program, including reviewing reports from management. The proposal also
laid out management's responsibilities for developing, implementing,
and maintaining the security program.
The Agencies received a number of comments regarding the
requirement of board approval of the information security program. Some
commenters stated that each financial institution should be allowed to
decide for itself whether to obtain board approval of its program.
Others suggested that approval by either a board committee or at the
holding company level might be appropriate. Still others suggested
modifying the Guidelines to require only that the board approve the
initial information security program and delegate subsequent review and
approval of the program to either a committee or an individual.
The Agencies believe that a financial institution's overall
information security program is critical to the safety and soundness of
the institution. Therefore, the final Guidelines continue to place
responsibility on an institution's board to approve and exercise
general oversight over the program. However, the Guidelines allow the
entire board of a financial institution, or an appropriate committee of
the board to approve the institution's written security program. In
addition, the Guidelines permit the board to assign specific
implementation responsibilities to a committee or an individual.
One commenter suggested that the Guidelines be revised to provide
that if a holding company develops, approves, and oversees the
information security program that applies to its bank and nonbank
subsidiaries, there should be no separate requirement for each
subsidiary to do the same thing, as long as those subsidiaries agree to
abide by the holding company's security program. The Agencies agree
that subsidiaries within a holding company can use the security program
developed at the holding company level. However, if subsidiary
institutions choose to use a security program developed at the holding
company level, the board of directors or an appropriate committee at
each subsidiary institution must conduct an independent review to
ensure that the program is suitable and complies with the requirements
prescribed by the subsidiary's primary regulator. See 12 U.S.C. 505.
Once the subsidiary institution's board, or a committee thereof, has
approved the security program, it must oversee the institution's
efforts to implement and maintain an effective program.
The Agencies also received comments suggesting that use of the term
``oversee'' conveyed the notion that a board is expected to be involved
in day-to-day monitoring of the development, implementation, and
maintenance of an information security program. The Agencies' use of
the term ``oversee'' is meant to convey a board's conventional
supervisory responsibilities. Day-to-day monitoring of any aspect of an
information security program is a management responsibility. The final
Guidelines reflect this by providing that the board must oversee the
institution's information security program but may assign specific
responsibility for its implementation.
The Agencies invited comment on whether the Guidelines should
require that the board designate a Corporate Information Security
Officer or other responsible individual who would have the authority,
subject to the board's approval, to develop and administer the
institution's information security program. The Agencies received a
number of comments suggesting that the Agencies should not require the
creation of a new position for this purpose. Some financial
institutions also stated that hiring one or more additional staff for
this purpose would impose a significant burden. The Agencies believe
that a financial institution will not need to create a new position
with a specific title for this purpose, as long as the institution has
adequate staff in light of the risks to its customer information.
Regardless of whether new staff are added, the lines of authority and
responsibility for development, implementation, and administration of a
financial institution's information security program need to be well
defined and clearly articulated.\10\
---------------------------------------------------------------------------
\10\ The Agencies note that other regulations already require a
financial institution to designate a security officer for different
purposes. See 12 CFR 21.2; 12 CFR 208.61(b).
---------------------------------------------------------------------------
[[Page 8621]]
The proposal identified three responsibilities of management in the
development of an information security program. They were to: (1)
Evaluate the impact on a financial institution's security program of
changing business arrangements and changes to customer information
systems; (2) document compliance with these Guidelines; and (3) keep
the board informed of the overall status of the institution's
information security program. A few commenters objected to the Agencies
assigning specific tasks to management. These commenters did not object
to the tasks per se, but suggested that the Agencies allow an
institution's board and management to decide who within the institution
is to carry out the tasks.
The Agencies agree that a financial institution is in the best
position to determine who should be assigned specific roles in
implementing the institution's security program. Accordingly, the
Agencies have deleted the separate provision assigning specific roles
to management. The responsibilities that were contained in this
provision are now included in other paragraphs of the Guidelines.
III.B. Assess Risk
Paragraph III.B. of the proposal described the risk assessment
process to be used in the development of the information security
program. Under the proposal, a financial institution was to identify
and assess the risks to customer information. As part of that
assessment, the institution was to determine the sensitivity of the
information and the threats to the institution's systems. The
institution also was to assess the sufficiency of its policies,
procedures, systems, and other arrangements in place to control risk.
Finally, the institution was to monitor, evaluate, and adjust its risk
assessment in light of changes in areas identified in the proposal.
The Agencies received several comments on these provisions, most of
which focused on the requirement that financial institutions do a
sensitivity analysis. One commenter noted that ``customer information''
is defined to mean ``nonpublic personal information'' as defined in the
G-L-B Act, and that the G-L-B Act provides the same level of coverage
for all nonpublic personal information. The commenter stated that it is
therefore unclear how the level of sensitivity would affect an
institution's obligations with respect to the security of this
information.
While the Agencies agree that all customer information requires
protection, the Agencies believe that requiring all institutions to
afford the same degree of protection to all customer information may be
unnecessarily burdensome in many cases. Accordingly, the final
Guidelines continue to state that institutions should take into
consideration the sensitivity of customer information. Disclosure of
certain information (such as account numbers or access codes) might be
particularly harmful to customers if the disclosure is not authorized.
Individuals who try to breach the institution's security systems may be
likely to target this type of information. When such information is
housed on systems that are accessible through public telecommunications
networks, it may require more and different protections, such as
encryption, than if it were located in a locked file drawer. To provide
flexibility to respond to these different security needs in the way
most appropriate, the Guidelines confer upon institutions the
discretion to determine the levels of protection necessary for
different categories of information. Institutions may treat all
customer information the same, provided that the level of protection is
adequate for all the information.
Other commenters suggested that the risk assessment requirement be
tied to reasonably foreseeable risks. The Agencies agree that the
security program should be focused on reasonably foreseeable risks and
have amended the final Guidelines accordingly.
The final Guidelines make several other changes to this paragraph
to improve the order of the Guidelines and to eliminate provisions that
were redundant in light of responsibilities outlined elsewhere. For
instance, while the proposal stated that the risk assessment function
included the need to monitor for relevant changes to technology,
sensitivity of customer information, and threats to information
security and make adjustments as needed, that function has been
incorporated into the discussion of managing and controlling risk in
paragraphs III.C.3. and III.E.
Thus, under the Guidelines as adopted, a financial institution
should identify the reasonably foreseeable internal and external
threats that could result in unauthorized disclosure, misuse,
alteration, or destruction of customer information or customer
information systems. Next, the risk assessment should consider the
potential damage that a compromise of customer information from an
identified threat would have on the customer information, taking into
consideration the sensitivity of the information to be protected in
assessing the potential damage. Finally, a financial institution should
conduct an assessment of the sufficiency of existing policies,
procedures, customer information systems, and other arrangements
intended to control the risks it has identified.
III.C. Manage and Control Risk
Paragraph III.C. describes the steps an institution should take to
manage and the control risks identified in paragraph III.B.
Establish policies and procedures (III.C.1.). Paragraph III.C.1 of
the proposal described the elements of a comprehensive risk management
plan designed to control identified risks and to achieve the overall
objective of ensuring the security and confidentiality of customer
information. It identified eleven factors an institution should
consider in evaluating the adequacy of its policies and procedures to
effectively manage these risks.
The Agencies received a large number of comments on this paragraph.
Most of the comments were based on a perception that every institution
would have to adopt every security measure listed in proposed
III.C.1.a.-k. as part of the institution's policies and procedures. In
particular, a number of commenters were concerned that the proposed
Guidelines would require the encryption of all customer data.
The Agencies did not intend for the security measures listed in
paragraph III.C.1. to be seen as mandatory for all financial
institutions and for all data. Rather, the Agencies intended only that
an institution would consider whether the protections listed were
appropriate for the institution's particular circumstances, and, if so,
adopt those identified as appropriate. The Agencies continue to believe
that these elements may be adapted by institutions of varying sizes,
scope of operations, and risk management structures. Consistent with
that approach, the manner of implementing a particular element may vary
from institution to institution. For example, while a financial
institution that offers Internet-based transaction accounts may
conclude that encryption is appropriate, a different institution that
processes all data internally and does not have a transactional web
site may consider other kinds of access restrictions that are adequate
to maintain the confidentiality of customer information. To underscore
this point, the final Guidelines have been amended to state that each
financial institution must consider whether the security elements
discussed in paragraphs III.C.1.a.-h. are appropriate for the
institution and, if so, adopt those
[[Page 8622]]
elements an institution concludes are appropriate.
The Agencies invited comment on the degree of detail that should be
included in the Guidelines regarding the risk management program,
including which elements should be specified in the Guidelines, and any
other components of a risk management program that should be listed.
With the exception of those commenters who thought some or all of the
elements of the risk management program were intended to be mandatory
for all financial institutions, the comments supported the level of
detail conveyed in the proposed Guidelines. The Agencies have adopted
the provision regarding management and control of risks with the
changes discussed below. Comments addressing proposed security measures
that have been adopted without change also are discussed below.
Access rights. The Agencies received a number of comments
suggesting that the reference to ``access rights to customer
information'' in paragraph III.C.1.a. of the proposal could be
interpreted to mean providing customers with a right of access to
financial information. The reference was intended to refer to
limitations on employee access to customer financial information, not
to customer access to financial information. However, this element has
been deleted since limitations on employee access are covered
adequately in other parts of paragraph III.C.1. (See discussion of
``access controls'' in paragraph III.C.1.a. of the final Guidelines,
below.)
Access controls. Paragraph III.C.1.b. of the proposed Guidelines
required a financial institution to consider appropriate access
controls when establishing its information security policies and
procedures. These controls were intended to address unauthorized access
to an institution's customer information by anyone, whether or not
employed by the institution.
The Agencies believe that this element sufficiently addresses the
concept of unauthorized access, regardless of who is attempting to
obtain access. This would cover, for instance, attempts through pretext
calling to gather information about a financial institution's
customers.\11\ The Agencies have amended the final Guidelines to refer
specifically to pretext calling in new III.C.1.a. The Agencies do not
intend for the final Guidelines to require a financial institution to
provide its customers with access to information the institution has
gathered. Instead, the provision in the final Guidelines addressing
access is limited solely to the issue of preventing unauthorized access
to customer information.
---------------------------------------------------------------------------
\11\ Pretext calling is a fraudulent means of obtaining an
individual's personal information by persons posing as bank
customers.
---------------------------------------------------------------------------
The Agencies have deleted the reference in the proposed paragraph
III.C.1.b. to providing access to authorized companies. This change was
made partly in response to commenters who objected to what they
perceived to be an inappropriate expansion of the scope of the
Guidelines to include company records and partly in recognition of the
fact that access to records would be obtained, in any case, only
through requests by individuals. The final Guidelines require an
institution to consider the need for access controls in light of the
institution's various customer information systems and adopt such
controls as appropriate.
Dual control procedures. Paragraph III.C.1.f. of the proposed
Guidelines stated that financial institutions should consider dual
control procedures, segregation of duties, and employee background
checks for employees with responsibility for, or access to, customer
information. Most of the comments on this paragraph focused on dual
control procedures, which refers to a security technique that uses two
or more separate persons, operating together to protect sensitive
information. Both persons are equally responsible for protecting the
information and neither can access the information alone.
According to one commenter, dual controls are part of normal audit
procedures and did not need to be restated. Other commenters suggested
that dual control procedures are not always necessary, implying that
these procedures are not the norm. The Agencies recognize that dual-
control procedures are not necessary for all activities, but might be
appropriate for higher-risk activities. Given that the Guidelines state
only that dual control procedures should be considered by a financial
institution and adopted only if appropriate for the institution, the
Agencies have retained a reference to dual control procedures in the
items to be considered (paragraph III.C.1.e).
Oversight of servicers. Paragraph III.C.1.g. of the proposal was
deleted. Instead, the final Guidelines consolidate the provisions
related to service providers in paragraph III.D.
Physical hazards and technical failures. The paragraphs of the
proposed Guidelines addressing protection against destruction due to
physical hazards and technological failures (paragraphs III.C.1.j. and
k., respectively, of the proposal) have been consolidated in paragraph
III.C.1.h. of the final Guidelines. The Agencies believe that this
change improves clarity and recognizes that disaster recovery from
environmental and technological failures often involve the same
considerations.
Training (III.C.2.). Paragraph III.C.2. of the proposed Guidelines
provided that an institution's information security program should
include a training component designed to train employees to recognize,
respond to, and report unauthorized attempts to obtain customer
information. The Agencies received several comments suggesting that
this provision directed staff of financial institutions to report
suspected attempts to obtain customer information to law enforcement
agencies rather than to the management of the financial institution.
The Agencies did not intend that result, and note that nothing in the
Guidelines alters other applicable requirements and procedures for
reporting suspicious activities. For purposes of these Guidelines, the
Agencies believe that, as part of a training program, staff should be
made aware both of federal reporting requirements and an institution's
procedures for reporting suspicious activities, including attempts to
obtain access to customer information without proper authority.
The final Guidelines amend the provision governing training to
state that a financial institution's information security program
should include a training component designed to implement the
institution's information security policies and procedures. The
Agencies believe that the appropriate focus for the training should be
on compliance with the institution's security program generally and not
just on the limited aspects identified in proposed III.C.2. The
provisions governing reporting have been moved to paragraph III.C.1.g.,
which addresses response programs in general.
Testing (III.C.3.). Paragraph III.C.3. of the proposed Guidelines
provided that an information security program should include regular
testing of key controls, systems, and procedures. The proposal provided
that the frequency and nature of the testing should be determined by
the risk assessment and adjusted as necessary to reflect changes in
both internal and external conditions. The proposal also provided that
the tests are to be conducted, where appropriate, by independent third
parties or staff independent of those that develop or maintain the
security program. Finally, the proposal stated that test results are to
be reviewed by independent third parties or staff independent of those
that
[[Page 8623]]
conducted the test. The Agencies requested comment on whether specific
types of security tests, such as penetration tests or intrusion
detection tests, should be required.
The most frequent comment regarding testing of key controls was
that the Agencies should not require specific tests. Commenters noted
that because technology changes rapidly, the tests specified in the
Guidelines will become obsolete and other tests will become the
standard. Consequently, according to these commenters, the Guidelines
should identify areas where testing may be appropriate without
requiring a financial institution to implement a specific test or
testing procedure. Several commenters noted that periodic testing of
information security controls is a sound idea and is an appropriate
standard for inclusion in these Guidelines.
The Agencies believe that a variety of tests may be used to ensure
the controls, systems, and procedures of the information security
program work properly and also recognize that such tests will
progressively change over time. The Agencies believe that the
particular tests that may be applied should be left to the discretion
of management rather than specified in advance in these Guidelines.
Accordingly, the final Guidelines do not require a financial
institution to apply specific tests to evaluate the key control systems
of its information security program.
The Agencies also invited comment regarding the appropriate degree
of independence that should be specified in the Guidelines in
connection with the testing of information security systems and the
review of test results. The proposal asked whether the tests or reviews
of tests be conducted by persons who are not employees of the financial
institution. The proposal also asked whether employees may conduct the
testing or may review test results, and what measures, if any, are
appropriate to assure their independence.
Some commenters interpreted the proposal as requiring three
separate teams of people to provide sufficient independence to control
testing: one team to operate the system; a second team to test the
system; and a third team to review test results. This approach, they
argued, would be too burdensome and expensive to implement. The
Agencies believe that the critical need for independence is between
those who operate the systems and those who either test them or review
the test results. Therefore, the final Guidelines now require that
tests should be conducted or reviewed by persons who are independent of
those who operate the systems, including the management of those
systems.
Whether a financial institution should use third parties to either
conduct tests or review their results depends upon a number of factors.
Some financial institutions may have the capability to thoroughly test
certain systems in-house and review the test results but will need the
assistance of third party testers to assess other systems. For example,
an institution's internal audit department may be sufficiently trained
and independent for the purposes of testing certain key controls and
providing test results to decision makers independent of system
managers. Some testing may be conducted by third parties in connection
with the actual installation or modification of a particular program.
In each instance, management needs to weigh the benefits of testing and
test review by third parties against its own resources in this area,
both in terms of expense and reliability.
Ongoing adjustment of program. Paragraph III.C.4. of the proposal
required an institution to monitor, evaluate and adjust, as
appropriate, the information security program in light of any relevant
changes in technology, the sensitivity of its customer information, and
internal or external threats to information security. This provision
was previously located in the paragraph titled ``Manage and Control
Risk''. While there were no comments on this provision, the Agencies
wanted to highlight this concept and clarify that this provision is
applicable to an institutions' entire information security program.
Therefore, this provision is now separately identified as new paragraph
III.E. of the final Guidelines, discussed below.
III.D. Oversee Service Provider Arrangements
The Agencies' proposal addressed service providers in two
provisions. The Agencies provided that an institution should consider
contract provisions and oversight mechanisms to protect the security of
customer information maintained or processed by service providers as
one of the proposed elements to be considered in establishing risk
management policies and procedures (proposed paragraph III.C.1.g.).
Additionally, proposed paragraph III.D. provided that, when an
institution uses an outsourcing arrangement, the institution would
continue to be responsible for safeguarding customer information that
it gives to the service provider. That proposed paragraph also provided
that the institution must use due diligence in managing and monitoring
the outsourcing arrangement to confirm that its service providers would
protect customer information consistent with the Guidelines.
The Agencies requested comment on the appropriate treatment of
outsourcing arrangements, such as whether industry best practices are
available regarding effective monitoring of service provider security
precautions, whether service providers accommodate requests for
specific contract provisions regarding information security, and, to
the extent that service providers do not accommodate these requests,
whether financial institutions implement effective information security
programs. The Agencies also requested comment on whether institutions
would find it helpful if the Guidelines contained specific contract
provisions requiring service provider performance standards in
connection with the security of customer information.
The Agencies received one example of best practices, but the
commenter did not recommend that they be included in the Guidelines.
While some commenters suggested that the Guidelines include best
practices, other commenters stated that, given the various types of
financial institutions, there could be a variety of best industry
practices. Another commenter stated that best practices could become
minimum requirements that result in inappropriate burdens. The Agencies
recognize that information security practices are likely to evolve
rapidly, and thus believe that it is inappropriate to include best
practices in the final Guidelines.
Commenters were mixed as to whether service providers are receptive
to contract modifications to protect customer information. Commenters
were uniform, however, in stating that an institution's obligation to
monitor service providers should not include on-site audits by the
institution or its agent. The commenters stated that, in addition to
the expense for financial institutions, the procedure would place an
inordinate burden on many service providers that process customer
information for multiple institutions. Several commenters noted that
the service providers often contract for audits of their systems and
that institutions should be able to rely upon those testing procedures.
Some commenters recommended that an institution's responsibility for
information given to service providers require only that the
institution enter into appropriate contractual arrangements. However,
commenters also indicated that requiring specific
[[Page 8624]]
contract provisions would not be consistent with the development of
flexible Guidelines and recommended against the inclusion of specific
provisions.
The Agencies believe that financial institutions should enter into
appropriate contracts, but also believe that these contracts, alone,
are not sufficient. Therefore, the final Guidelines, in paragraph
III.D., include provisions relating to selecting, contracting with, and
monitoring service providers.
The final Guidelines require that an institution exercise
appropriate due diligence in the selection of service providers. Due
diligence should include a review of the measures taken by a service
provider to protect customer information. As previously noted in the
discussion of ``service provider'', it also should include a review of
the controls the service provider has in place to ensure that any
subservicer used by the service provider will be able to meet the
objectives of these Guidelines.
The final Guidelines also require that a financial institution have
a contract with each of its service providers that requires each
provider to implement appropriate measures designed to meet the
objectives of these Guidelines (as stated in paragraph II.B.). This
provision does not require a service provider to have a security
program in place that complies with each paragraph of these Guidelines.
Instead, by stating that a service provider's security measures need
only achieve the objectives of these Guidelines, the Guidelines provide
flexibility for a service provider's information security measures to
differ from the program that a financial institution implements. The
Agencies have provided a two-year transition period during which
institutions may bring their outsourcing contracts into compliance.
(See discussion of paragraph III.F.) The Agencies have not included
model contract language, given our belief that the precise terms of
service contracts are best left to the parties involved.
Each financial institution must also exercise an appropriate level
of oversight over each of its service providers to confirm that the
service provider is implementing the provider's security measures. The
Agencies have amended the Guidelines as proposed to include greater
flexibility with regard to the monitoring of service providers. A
financial institution need only monitor its outsourcing arrangements if
such oversight is indicated by an institution's own risk assessment.
The Agencies recognize that not all outsourcing arrangements will need
to be monitored or monitored in the same fashion. Some service
providers will be financial institutions that are directly subject to
these Guidelines or other standards promulgated by their primary
regulator under section 501(b). Other service providers may already be
subject to legal and professional standards that require them to
safeguard the institution's customer information. Therefore, the final
Guidelines permit an institution to do a risk assessment taking these
factors into account and determine for themselves which service
providers will need to be monitored.
Even where monitoring is warranted, the Guidelines do not require
on-site inspections. Instead, the Guidelines state that this monitoring
can be accomplished, for example, through the periodic review of the
service provider's associated audits, summaries of test results, or
equivalent measures of the service provider. The Agencies expect that
institutions will arrange, when appropriate, through contracts or
otherwise, to receive copies of audits and test result information
sufficient to assure the institution that the service provider
implements information security measures that are consistent with its
contract provisions regarding the security of customer information. The
American Institute of Certified Public Accountants Statement of
Auditing Standards No. 70, captioned ``Reports on the Processing of
Transactions by Service Organizations'' (SAS 70 report), is one
commonly used external audit tool for service providers. Information
contained in an SAS 70 report may enable an institution to assess
whether its service provider has information security measures that are
consistent with representations made to the institution during the
service provider selection process.
III.E. Adjust the Program
Paragraphs III.B.3 and III.C.4. of the proposed Guidelines both
addressed a financial institution's obligations when circumstances
change. Both paragraph III.B.3. (which set forth management's
responsibilities with respect to its risk assessment) and paragraph
III.C.4. (which focused on the adequacy of an institution's information
security program) identified the possible need for changes to an
institution's program in light of relevant changes to technology, the
sensitivity of customer information, and internal or external threats
to the information security.
The Agencies received no comments objecting to the statements in
these paragraphs of the need to adjust a financial institution's
program as circumstances change. While the Agencies have not changed
the substance of these provisions in the final Guidelines, we have,
however, made a stylistic change to simplify the Guidelines. The final
Guidelines combine, in paragraph III.E., the provisions previously
stated separately. Consistent with the proposal, this paragraph
provides that each financial institution must monitor, evaluate, and
adjust its information security program in light of relevant changes in
technology, the sensitivity of its customer information, internal or
external threats to information, and the institution's own changing
business arrangements. This would include an analysis of risks to
customer information posed by new technology (and any needed program
adjustments) before a financial institution adopts the technology in
order to determine whether a security program remains adequate in light
of the new risks presented.\12\
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\12\ For additional information concerning how a financial
institution should identify, measure, monitor, and control risks
associated with the use of technology, see OCC Bulletin 98-3
concerning technology risk management, which may be obtained on the
Internet at http://www.occ.gov/ftp/bulletin/98-3.txt.; Federal
Reserve SR Letter 98-9 on Assessment of Information Technology in
the Risk-Focused Frameworks for the Supervision of Community Banks
and Large Complex Banking Organizations, April 20, 1998, http://
www.federalreserve.gov/boarddocs/SRLETTERS/1998/SR9809.HTM; FDIC FIL
99-68 concerning risk assessment tools and practices for information
security systems at http://www.fdic.gov/news/financial-institution-letters/1999/
fil9968.html.; OTS's CEO Letter 70, Statement on Retail On-Line
Personal Computer Banking, (June 23, 1997), available at http://
www.ots.treas.gov/docs/25070.pdf.
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III.F. Report to the Board
Paragraph III.A.2.c. of the proposal set out management's
responsibilities for reporting to its board of directors. As previously
discussed, the final Guidelines have removed specific requirements for
management, but instead allow a financial institution to determine who
within the organization should carry out a given responsibility. The
board reporting requirement thus has been amended to require that a
financial institution report to its board, and that this report be at
least annual. Paragraph III.F. of the final Guidelines sets out this
requirement.
The Agencies invited comment regarding the appropriate frequency of
reports to the board, including whether reports should be monthly,
quarterly, or annually. The Agencies received a number of comments
recommending that no specific frequency be mandated by the Guidelines
and that each financial institution be permitted to establish its own
reporting period.
[[Page 8625]]
Several commenters stated that if a reporting period is required, then
it should be not less than annually unless some material event triggers
the need for an interim report.
The Agencies expect that in all cases, management will provide its
board (or the appropriate board committee) a written report on the
information security program consistent with the Guidelines at least
annually. Management of financial institutions with more complex
information systems may find it necessary to provide information to the
board (or a committee) on a more frequent basis. Similarly, more
frequent reporting will be appropriate whenever a material event
affecting the system occurs or a material modification is made to the
system. The Agencies expect that the content of these reports will vary
for each financial institution, depending upon the nature and scope of
its activities as well as the different circumstances that it will
confront as it implements and maintains its program.
III.G. Implement the Standards
Paragraph III.E. of the proposal described the timing requirements
for the implementation of these standards. It provided that each
financial institution is to take appropriate steps to fully implement
an information security program pursuant to these Guidelines by July 1,
2001.
The Agencies received several comments suggesting that the proposed
effective date be extended for a period of 12 to 18 months because
financial institutions are currently involved in efforts to meet the
requirements of the final Privacy Rule by the compliance deadline, July
1, 2001. The Agencies believe that the dates for full compliance with
these Guidelines and the Privacy Rule should coincide. Financial
institutions are required, as part of their initial privacy notices, to
disclose their policies and practices with respect to protecting the
confidentiality and security of nonpublic personal information. See
Sec. __.6(a)(8). Each Agency has provided in the appendix to its
Privacy Rule that a financial institution may satisfy this disclosure
requirement by advising its customers that the institution maintains
physical, electronic, and procedural safeguards that comply with
federal standards to guard customers' nonpublic personal information.
See appendix A-7. The Agencies believe that this disclosure will be
meaningful only if the final Guidelines are effective when the
disclosure is made. If the effective date of these Guidelines is
extended beyond July 1, 2001, then a financial institution may be
placed in the position of providing an initial notice regarding
confidentiality and security and thereafter amending the privacy policy
to accurately refer to the federal standards once they became
effective. For these reasons, the Agencies have retained July 1, 2001,
as the effective date for these Guidelines.
However, the Agencies have included a transition rule for contracts
with service providers. The transition rule, which parallels a similar
provision in the Privacy Rule, provides a two-year period for
grandfathering existing contracts. Thus a contract entered into on or
before the date that is 30 days after publication of the final
Guidelines in the Federal Register satisfies the provisions of this
part until July 1, 2003, even if the contract does not include
provisions delineating the servicer's duties and responsibilities to
protect customer information described in paragraph III.D.
Location of Guidelines: These guidelines have been published as an
appendix to each Agency's Standards for Safety and Soundness. For the
OCC, those regulations appear at 12 CFR part 30; for the Board, at 12
CFR part 208; for the FDIC, at 12 CFR part 364; and for the OTS, at 12
CFR part 570. The Board also is amending 12 CFR parts 211 and 225 to
apply the Guidelines to other institutions that it supervises.
The Agencies will apply the rules already in place to require the
submission of a compliance plan in appropriate circumstances. For the
OCC, those regulations appear at 12 CFR part 30; for the Board at 12
CFR part 263; for the FDIC at 12 CFR part 308, subpart R; and for the
OTS at 12 CFR part 570. The final rules make conforming changes to the
regulatory text of these parts.
Rescission of Year 2000 Standards for Safety and Soundness: The
Agencies previously issued guidelines establishing Year 2000 safety and
soundness standards for insured depository institutions pursuant to
section 39 of the FDI Act. Because the events for which these standards
were issued have passed, the Agencies have concluded that the
guidelines are no longer necessary and proposed to rescind the
standards as part of this rulemaking. The Agencies requested comment on
whether rescission of these standards is appropriate. Those commenters
responding to this request were unanimous in recommending the
rescission of the Year 2000 Standards, and the Agencies have rescinded
these standards. These standards appeared for the OCC at 12 CFR part
30, appendix B and C; for the Board at 12 CFR part 208, appendix D-2;
for the FDIC at 12 CFR part 364, appendix B; and for the OTS at 12 CFR
part 570, appendix B. Accordingly, the Agencies hereby rescind the Year
2000 Standards for Safety and Soundness, effective thirty (30) days
after the publication date of this notice of the joint final rule.
IV. Regulatory Analysis
A. Paperwork Reduction Act
The Agencies have determined that this rule does not involve a
collection of information pursuant to the provisions of the Paperwork
Reduction Act (44 U.S.C. 3501 et seq.).
B. Regulatory Flexibility Act
OCC: Under the Regulatory Flexibility Act (RFA), the OCC must
either provide a Final Regulatory Flexibility Analysis (FRFA) with
these final Guidelines or certify that the final Guidelines ``will not,
if promulgated'', have a significant economic impact on a substantial
number of small entities.\13\ The OCC has evaluated the effects of
these Guidelines on small entities and is providing the following FRFA.
---------------------------------------------------------------------------
\13\ The RFA defines the term ``small entity'' in 5 U.S.C. 601
by reference to a definition published by the Small Business
Administration (SBA). The SBA has defined a ``small entity'' for
banking purposes as a national or commercial bank, or savings
institution with less than $100 million in assets. See 13 CFR
121.201.
---------------------------------------------------------------------------
Although the OCC specifically sought comment on the costs to small
entities of establishing and operating information security programs,
no commenters provided specific cost information. Instead, commenters
confirmed the OCC's conclusion that most if not all institutions
already have information security programs in place, because the
standards reflect good business practices and existing OCC and FFIEC
guidance. Some comments indicated, however, that institutions will have
to formalize or enhance their information security programs.
Accordingly, the OCC considered certifying, under section 605(b) of the
RFA, that these Guidelines will not have a significant economic impact
on a substantial number of small entities. However, given that the
guidance previously issued by the OCC and the FFIEC is not completely
identical to the Guidelines being adopted in this rulemaking, the
Guidelines are likely to have some impact on all affected institutions.
While the OCC believes that this impact will not be substantial in the
case of most small entities, we nevertheless have prepared the
following FRFA.
[[Page 8626]]
1. Reasons for Final Action
The OCC is issuing these Guidelines under section 501(b) of the G-
L-B Act. Section 501(b) requires the OCC to publish standards for
financial institutions subject to its jurisdiction relating to
administrative, technical and physical standards to: (1) insure the
security and confidentiality of customer records and information; (2)
protect against any anticipated threats or hazards to the security or
integrity of such records; and (3) protect against unauthorized access
to or use of such records or information which could result in
substantial harm or inconvenience to any customer.
2. Objectives of and Legal Basis for Final Action
The objectives of the Guidelines are described in the Supplementary
Information section above. The legal bases for the Guidelines are: 12
U.S.C. 93a, 1818, 1831p-1, and 3102(b) and 15 USC 6801 and 6805(b)(1).
3. Small Entities to Which the Rule Will Apply
The OCC's final Guidelines will apply to approximately 2300
institutions, including national banks, federal branches and federal
agencies of foreign banks, and certain subsidiaries of such entities.
The OCC estimates that approximately 1125 of these institutions are
small institutions with assets less than $100 million.
4. Projected Reporting, Recordkeeping, and Other Compliance
Requirements; Skills Required
The Guidelines do not require any reports to the OCC, however, they
require all covered institutions to develop and implement a written
information security program comprised of several elements.
Institutions must assess the risks to their customer information and
adopt appropriate measures to control those risks. Institutions must
then test these security measures and adjust their information security
programs in light of any relevant changes. In addition, institutions
must use appropriate due diligence in selecting service providers, and
require service providers, by contract, to implement appropriate
security measures. The Guidelines also require institutions to monitor
their service providers, where appropriate, to confirm they have met
their contractual obligations. Finally, the Guidelines require the
board of directors or an appropriate committee of the board of each
institution to approve the institution's information security program
and to oversee its implementation. To facilitate board oversight, the
institution must provide to the board or to the board committee a
report, at least annually, describing the overall status of the
institution's information security program and the institution's
compliance with the Guidelines.
Because the information security program described above reflects
existing supervisory guidance, the OCC believes that most institutions
already have the expertise to develop, implement, and maintain the
program. However, if they have not already done so, institutions will
have to retain the services of someone capable of assessing threats to
the institution's customer information. Institutions that lack an
adequate information security program also will have to have personnel
capable of developing, implementing and testing security measures to
address these threats. Institutions that use service providers may
require legal skills to draft appropriate language for contracts with
service providers.
5. Public Comment and Significant Alternatives
The OCC did not receive any public comment on its initial
regulatory flexibility analysis, although it did receive comments on
the proposed Guidelines, and on the impact of the Guidelines on small
entities in particular. The comments received by the OCC and the other
Agencies are discussed at length in the supplementary information
above. While some commenters suggested that the OCC exempt small
institutions altogether, the OCC has no authority under the statute to
do so. The discussion below reviews the changes adopted in the final
Guidelines that will minimize the economic impact of the Guidelines on
all businesses.
The OCC carefully considered comments from small entities that
encouraged the Agencies to issue guidelines that are not overly
prescriptive, that provide flexibility in the design of an information
security program, but that still provide small entities with some
guidance. After considering these comments, the OCC determined that it
is appropriate to issue the standards as Guidelines that allow each
institution the discretion to design an information security program
that suits its particular size and complexity and the nature and scope
of its activities. The OCC considered issuing broader Guidelines that
would only identify objectives to be achieved while leaving it up to
each institution to decide what steps it should take to ensure that it
meets these objectives. However, the OCC concluded that such broad
guidance ultimately would be less helpful than would be guidelines that
combine the flexibility sought by commenters with meaningful guidance
on factors that an institution should consider and steps that the
institution should take. The OCC also considered the utility of more
prescriptive guidelines, but rejected that approach out of concern that
it likely would be more burdensome, could interfere with innovation,
and could impose requirements that would be inappropriate in a given
situation. While the Guidelines are not overly detailed, they provide
guidance by establishing the process an institution will need to follow
in order to protect its customer information and by identifying
security measures that are likely to have the greatest applicability to
national banks in general.
Most commenters supported the use of the more narrow definition of
``customer'' in the Guidelines as is used in the Privacy Rule rather
than a broad definition that would apply to all records under the
control of a financial institution. Commenters maintained that two
different definitions would be confusing and also inconsistent with the
use of the term ``customer'' in section 501 of the G-L-B Act. The OCC
considered using the broader definition, but determined that
information security could be addressed more broadly through other
vehicles. For the sake of consistency, the final Guidelines adopt the
narrower definition and apply only to records of consumers who have
established a continuing relationship with an institution under which
the institution provides one or more financial products or services to
the consumer to be used primarily for personal, family or household
purposes, the definition used in the Privacy Rule.
Many commenters criticized the list of proposed objectives for each
financial institution's information security program which generally
reflected the statutory objectives in section 501(b). According to
these comments, the objectives were stated in a manner that made them
absolute, unachievable, and therefore burdensome. The final Guidelines
have been drafted to clarify these objectives by stating that each
security program is to be ``designed'' to accomplish the objectives
stated.
Commenters wanted board involvement in the development and
implementation of an information security program left to the
discretion of the financial institution. Commenters also asked the OCC
to clarify that the board may delegate to a committee responsibility
for involvement in the
[[Page 8627]]
institution's security program. While the final Guidelines as drafted
continue to place responsibility on an institution's board to approve
and exercise general oversight over the program, they now clarify that
a committee of the board may approve the institution's written security
program. In addition, the Guidelines permit the board to assign
specific implementation responsibilities to a committee or an
individual.
The OCC considered requiring an institution to designate a
Corporate Security Officer. However, the agency agreed with commenters
that a financial institution is in the best position to determine who
should be assigned specific roles in implementing the institution's
security program. Therefore, the Guidelines do not include this
requirement.
The proposal identifying various security measures that an
institution should consider in evaluating the adequacy of its policies
and procedures was criticized by many commenters. These commenters
misinterpreted the list of measures and believed each measure to be
mandatory. Small entities commented that these measures were overly
comprehensive and burdensome. As discussed previously in the preamble,
the OCC did not intend to suggest that every institution must adopt
every one of the measures. To highlight the OCC's intention that an
institution must determine for itself which measures will be
appropriate for its own risk profile, the final Guidelines now clearly
state that each financial institution must consider whether the
security elements listed are appropriate for the institution and, if
so, adopt those elements an institution concludes are appropriate.
Commenters noted that testing could be burdensome and costly,
especially for small entities. The OCC considered mandating specific
tests, but determined that with changes in technology, such tests could
become obsolete. Therefore, the final Guidelines permit management to
exercise its discretion to determine the frequency and types of tests
that need to be conducted. The OCC considered required testing or the
review of tests to be conducted by outside auditors. The OCC determined
that these duties could be performed effectively by an institution's
own staff, if staff selected is sufficiently independent. Therefore,
the Guidelines permit financial institutions to determine for
themselves whether to use third parties to either conduct tests or
review their results or to use staff independent of those that develop
or maintain the institution's security program.
Many commenters objected to provisions in the proposal requiring
institutions to monitor their service providers. Commenters asserted
that it would be burdensome to require them to monitor the activities
of their service providers and that information security of service
providers should be handled through contractual arrangements. The final
Guidelines include greater flexibility with regard to the monitoring of
service providers than was provided in the proposal. The final
Guidelines recognize that some service providers will be financial
institutions that are directly subject to these Guidelines or other
standards promulgated under section 501(b) and that other service
providers may already be subject to legal and professional standards
that require them to safeguard the institution's customer information.
Therefore, the final Guidelines permit an institution to do a risk
assessment taking these factors into account and to determine for
themselves which service providers will need to be monitored. Where
monitoring is warranted, the Guidelines now specify that monitoring can
be accomplished, for example, through the periodic review of the
service provider's associated audits, summaries of test results, or
equivalent measures of the service provider.
In addition, after considering the comments about contracts with
service providers and the effective date of the Guidelines, the OCC
also adopted a transition rule, similar to a provision in the Privacy
Rule, that grandfathers existing contracts for a two-year period.
One commenter requested that smaller community banks be given
additional time to comply with the Guidelines because having to comply
with the new Privacy Rule and these Guidelines will put a strain on the
resources of smaller banks. The OCC considered this request but did not
change the effective date of the Guidelines given the importance of
safeguarding customer information. In addition, most institutions
already have information security programs in place, and the OCC has
addressed this concern by adding flexibility to the final Guidelines in
a variety of other areas as described above.
Board: The Regulatory Flexibility Act (5 U.S.C. 604) requires an
agency to publish a final regulatory flexibility analysis when
promulgating a final rule that was subject to notice and comment.
Need for and objectives of Guidelines: As discussed above, these
Guidelines implement section 501 of the GLB Act. The objective of the
Guidelines is to establish standards for financial institutions that
are subject to the Board's jurisdiction to protect the security and
confidentiality of their customers' information. In particular, the
Guidelines require those financial institutions to implement a
comprehensive written information security program that includes:
(1) Assessing the reasonably foreseeable internal and external
threats that could result in unauthorized disclosure, misuse,
alteration, or destruction of customer information;
(2) Adopting security measures that the financial institution
concludes are appropriate for it; and
(3) Overseeing its arrangements with its service provider(s).
Comments on the initial regulatory flexibility analysis: Although
few commenters addressed the initial regulatory flexibility analysis
specifically, many commenters addressed the regulatory burdens that
were discussed in that analysis. Several commenters noted that certain
aspects of the proposal may tax the comparatively limited resources of
small institutions, yet few commenters quantified the potential costs
of compliance. The comments received by the Board and the other
Agencies were discussed in the supplementary information above. Those
comments that are closely related to regulatory burden are highlighted
below:
The Board requested comment on the scope of the term ``customer''
for purposes of the Guidelines. Many commenters opposed expanding the
proposed scope of the Guidelines to apply to information about business
customers and consumers who have not established continuing
relationships with the financial institution. The commenters stated
that an expanded scope would impose higher costs of developing an
information security program and would be inconsistent with the use of
the term ``customer'' in section 501 of the GLB Act and the Agencies'
Privacy Rule. As explained in the supplementary information above, the
Board has defined ``customer'' in the final Guidelines in the same way
as that term is defined in section __.3(h) of the Agencies' Privacy
Rule.
Many commenters urged the Board to reduce the level of detail about
the kinds of measures that would be required to implement an
information security program under the proposed Guidelines. Commenters
argued, for instance, that requiring particular testing procedures of
security systems would make the standards too onerous for those
institutions for which other kinds of tests and audits would be more
suitable. In a similar vein, some commenters proposed that the Board
[[Page 8628]]
should issue examples that would illustrate the kinds of security
measures that, if adopted, would constitute compliance with the
Guidelines.
The Board believes that many commenters may have misinterpreted the
intent of the original proposal regarding the particular safeguards
that would be expected. The provision that requires each financial
institution to consider a variety of security measures has been
redrafted in an effort to clarify that the institution must determine
for itself which measures will be appropriate to its own risk profile.
Although an institution is required to consider each of the security
measures listed in paragraph III.C.1., it is not obligated to
incorporate any particular security measures or particular testing
procedures into its information security program. Rather, the
institution may adopt those measures and use those tests that it
concludes are appropriate. The Board is mindful that institutions'
operations will vary in their complexity and scope of activities and
present different risk profiles to their customer information.
Accordingly, the Board has not established definitive security measures
that, if adopted, would constitute compliance with the Guidelines.
The Board asked for comments on several issues related to the
appropriate security standards pertaining to an institution's
arrangements with its service providers. As discussed above, many
comments addressed these issues and, notably, objected to a provision
that would require an institution to monitor its service providers
through on-site audits. Several commenters noted that the service
providers often contract for audits of their systems and argued that an
institution should be able to rely upon those testing procedures.
Commenters also recommended that an institution's responsibility for
information given to service providers require only that the
institution enter into appropriate contractual arrangements. The Board
has modified the Guidelines to clarify an institution's
responsibilities with respect to service providers. The Board has not
designed a standard that would require a financial institution to
conduct an on-site audit of its service provider's security program.
Instead, the Board adopted a standard that requires an institution to
monitor its service provider to confirm that it has satisfied its
contractual obligations, depending upon the institution's risk
assessment. In the course of conducting its risk assessment and
determining which service providers will need to be monitored, an
institution may take into account the fact that some of its service
providers may be financial institutions that are directly subject to
these Guidelines or other standards promulgated by their primary
regulator under section 501(b). Furthermore, after considering the
comments about contracts with service providers and the effective date
of the Guidelines, the Board also adopted a transition rule, which
parallels a similar provision in the Privacy Rule, that provides a two-
year period for grandfathering existing contracts.
Many commenters addressed the burdens that would be imposed by the
proposal due to the effective date and urged the Board to extend the
proposed July 1, 2001, effective date for period ranging from one to
two years. Most of these commenters argued that complying with the
proposed Guidelines by July 1, 2001, would place a considerable burden
on their businesses, particularly because the Guidelines would mandate
changes to computer software, employee training, and compliance
systems. As discussed above, the Board believes that the dates for full
compliance with these Guidelines and the Privacy Rule should coincide.
Financial institutions are required, as part of their initial privacy
notices, to describe their policies and practices with respect to
protecting the confidentiality and security of nonpublic personal
information (12 CFR 216.6). The Board believes that if the effective
date of these Guidelines is extended beyond July 1, 2001, then a
financial institution may be placed in the position of providing an
initial notice regarding confidentiality and security and thereafter
amending the privacy policy to accurately refer to the federal
standards once they became effective. Accordingly, the Board has
adopted the proposed effective date of July 1, 2001.
Institutions covered. The Board's final Guidelines will apply to
approximately 9,500 institutions, including state member banks, bank
holding companies and certain of their nonbank subsidiaries or
affiliates, state uninsured branches and agencies of foreign banks,
commercial lending companies owned or controlled by foreign banks, and
Edge and Agreement corporations. The Board estimates that over 4,500 of
the institutions are small institutions with assets less than $100
million.
New compliance requirements. The final Guidelines contain new
compliance requirements for all covered institutions, many of which are
contained in existing supervisory guidance and examination procedures.
Nonetheless, each must develop and implement a written information
security program. As part of that program, institutions will be
required to assess the reasonably foreseeable risks, taking into
account the sensitivity of customer information, and assess the
sufficiency of policies and procedures in place to control those risks.
Institutions that use third party service providers to process customer
information must exercise appropriate due diligence in selecting them,
require them by contract to implement appropriate measures designed to
meet the objectives of these Guidelines, and depending upon the
institution's risk assessment, monitor them to confirm that they have
satisfied their contractual obligations. As part of its compliance
measures, an institution may need to train its employees or hire
individuals with professional skills suitable to implementing the
policies and procedures of its information security program, such as
those skills necessary to test or review tests of its security
measures. Some institutions may already have programs that meet these
requirements, but others may not.
Minimizing impact on small institutions. The Board believes the
requirements of the Act and these Guidelines may create additional
burden for some small institutions. The Guidelines apply to all covered
institutions, regardless of size. The Act does not provide the Board
with the authority to exempt a small institution from the requirement
of implementing administrative, technical, and physical safeguards to
protect the security and confidentiality of customer information.
Although the Board could develop different guidelines depending on the
size and complexity of a financial institution, the Board believes that
differing treatment would not be appropriate, given that one of the
stated purposes of the Act is to protect the confidentiality and
security of customers' nonpublic personal information.
The Board believes that the compliance burden is minimized for
small institutions because the Guidelines expressly allow institutions
to develop security measures that are ``appropriate to the size and
complexity of the [institution]''. The Guidelines do not mandate any
particular policies, procedures, or security measures for any
institution other than general requirements, such as to ``train staff''
or ``monitor its service providers to confirm that they have satisfied
their [contractual] obligations''. The Board believes that the final
Guidelines vest a small institution with a broad degree of discretion
to design and implement an
[[Page 8629]]
information security program that suits its own organizational
structure and risk profile.
FDIC: The Regulatory Flexibility Act (5 U.S.C. 601-612) (RFA)
requires, subject to certain exceptions, that federal agencies prepare
an initial regulatory flexibility analysis (IRFA) with a proposed rule
and a final regulatory flexibility analysis (FRFA) with a final rule,
unless the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities.\14\ At the
time of issuance of the proposed Guidelines, the FDIC could not make
such a determination for certification. Therefore, the FDIC issued an
IRFA pursuant to section 603 of the RFA. After reviewing the comments
submitted in response to the proposed Guidelines, the FDIC believes
that it does not have sufficient information to determine whether the
final Guidelines would have a significant economic impact on a
substantial number of small entities. Hence, pursuant to section 604 of
the RFA, the FDIC provides the following FRFA.
---------------------------------------------------------------------------
\14\ The RFA defines the term ``small entity'' in 5 U.S.C. 601
by reference to definitions published by the Small Business
Administration (SBA). The SBA has defined a ``small entity'' for
banking purposes as a national or commercial bank, or savings
institution with less than $100 million in assets. See 13 CFR
121.201.
---------------------------------------------------------------------------
This FRFA incorporates the FDIC's initial findings, as set forth in
the IRFA; addresses the comments submitted in response to the IRFA; and
describes the steps the FDIC has taken in the final rule to minimize
the impact on small entities, consistent with the objectives of the
Gramm-Leach-Bliley Act (G-L-B Act). Also, in accordance with section
212 of the Small Business Regulatory Enforcement Fairness Act of 1996
(Public Law 104-121), in the near future the FDIC will issue a
compliance guide to assist small entities in complying with these
Guidelines.
Small Entities to Which the Guidelines Will Apply
The final Guidelines will apply to all FDIC-insured state-nonmember
banks, regardless of size, including those with assets of under $100
million. As of September 2000, there were 3,331 small banks out of a
total of 5,130 FDIC-insured state-nonmember banks with assets of under
$100 million. Title V, Subtitle A, of the GLBA does not provide either
an exception for small banks or statutory authority upon which the FDIC
could provide such an exception in the Guidelines.
Statement of the Need and Objectives of the Rule
The final Guidelines implement the provisions of Title V, Subtitle
A, Section 501 of the GLBA addressing standards for safeguarding
customer information. Section 501 requires the Agencies to publish
standards for financial institutions relating to administrative,
technical, and physical standards to:
Insure the security and confidentiality of customer records and
information.
Protect against any anticipated threats or hazards to the
security or integrity of such records.
Protect against unauthorized access to or use of such records or
information, which could result in substantial harm or inconvenience
to any customer.
The final Guidelines do not represent any change in the policies of
the FDIC; rather they implement the G-L-B Act requirement to provide
appropriate standards relating to the security and confidentiality of
customer records.
Summary of Significant Issues Raised by the Public Comments;
Description of Steps the Agency Has Taken in Response to the Comments
to Minimize the Significant Economic Impact on Small Entities.
In the IRFA, the FDIC specifically requested information on whether
small entities would be required to amend their operations in order to
comply with the final Guidelines and the costs for such compliance. The
FDIC also requested comment or information on the costs of establishing
information security programs. The FDIC also sought comment on any
significant alternatives, consistent with the G-L-B Act that would
minimize the impact on small entities. The FDIC received a total of 63
comment letters. However, none of the comment letters specifically
addressed the initial regulatory flexibility act section of the
proposed Guidelines. Instead, many commenters, representing banks of
various sizes, addressed the regulatory burdens in connection with
their discussion of specific Guideline provisions.
The FDIC has sought to minimize the burden on all businesses,
including small entities, in promulgating this final Guidelines. The
statute does not authorize the FDIC to create exemptions from the G-L-B
Act based on an institution's asset size. However, the FDIC carefully
considered comments regarding alternatives designed to minimize the
economic and overall burden of complying with the final Guidelines. The
discussion below reviews some of the significant changes adopted in the
final Guidelines to accomplish this purpose.
1. Issue the Rule as Guidelines or Regulations. The FDIC sought
comment on whether to issue the rule as Guidelines or as regulations.
All the comment letters stated that the rule should be issued in the
form of Guidelines. Some community banks stated that the Guidelines
were unnecessary because they already have information security
programs in place but would prefer Guidelines to regulations. The
commentary supported the use of Guidelines because guidelines typically
provide more flexibility than regulations. Since technology changes
rapidly, Guidelines would allow institutions to adapt to a changing
environment more quickly than regulations, which may become outdated.
The FDIC has issued these standards as Guidelines. The final Guidelines
establish standards that will allow each institution the flexibility to
design an information security program to accommodate its particular
level of complexity and scope of activities.
2. Definition of Customer. In the proposed Guidelines, the FDIC
defined ``customer'' in the same manner as in the Privacy Rule. A
``customer'' is defined as a consumer who has established a continuing
relationship with an institution under which the institution provides
one or more financial products or services to the consumer to be used
primarily for personal, family, or household purposes. This definition
does not include a business or a consumer who does not have an ongoing
relationship with a financial institution. Almost all of the comments
received by the FDIC agreed with the proposed definition and agreed
that the definition should not be expanded to provide a common
information security program for all types of records under the control
of a financial institution. The Guidelines will apply only to consumer
records as defined by the Privacy Rule, not business records. This will
allow for a consistent interpretation of the term ``customer'' between
the Guidelines and the Privacy Rule.
3. Involvement of the Bank's Board of Directors. The FDIC sought
comment on how frequently management should report to the board of
directors concerning the bank's information security program. Most of
the comment letters stated that the final Guidelines should not dictate
how frequently the bank reports to the board of directors and that the
bank should have discretion in this regard. The comment letters clearly
conveyed a preference to not have a reporting requirement. However, if
there was to be one, commenters suggested that it be annual.
[[Page 8630]]
The Agencies have amended the Guidelines to require that a bank report
at least annually to its board of directors. However, more frequent
reporting will be necessary if a material event affecting the
information security system occurs or if material modifications are
made to the system.
4. Designation of Corporate Information Security Officer. The
Agencies considered whether the Guidelines should require that the
bank's board of directors designate a ``Corporate Information Security
Officer'' with the responsibility to develop and administer the bank's
information security program. Most of the comment letters requested
that this requirement not be adopted because adding a new personnel
position would be financially burdensome. The FDIC agrees that a new
position with a specific title is not necessary. The final Guidelines
do, however, require that the authority for the development,
implementation, and administration of the bank's information security
program be clearly expressed although not assigned to a particular
individual.
5. Managing and Controlling Risk. Many comments focused on the
eleven factors in the proposed Guidelines that banks should consider
when evaluating the adequacy of their information security programs.
The Agencies did not intend to mandate the security measures listed in
section III.C. of the proposed Guidelines for all banks and all data.
Instead the Agencies believe the security measures should be followed
as appropriate for each bank's particular circumstances. Some concern
was expressed that the proposed Guidelines required encryption of all
customer information. The FDIC believes that a bank that has Internet-
based transaction accounts or a transactional Web site may decide that
encryption is appropriate, but a bank that processes all data
internally may need different access restrictions. While a bank is to
consider each element in section III.C. in the design of its
information security program, this is less burdensome than a
requirement to include each element listed that section.
The proposed Guidelines provided that institutions train employees
to recognize, respond to, and report suspicious attempts to obtain
customer information directly to law enforcement agencies and
regulatory agencies. Some comment letters stated that suspicious
activity should be reported to management, not directly to law
enforcement agencies and regulatory agencies. The FDIC believes
employees should be made aware of federal reporting requirements and an
institution's procedures for reporting suspicious activity. However,
the Guidelines have been amended to allow financial institutions to
decide who is to file a report to law enforcement agencies, consistent
with other applicable regulations.
A significant number of comments stated that the FDIC should not
require specific tests to ensure the security and confidentiality of
customer information. Some comments stated that periodic testing is
appropriate. The final Guidelines do not specify particular tests but
provide that management should decide on the appropriate testing. Also,
the final Guidelines require tests to be conducted or reviewed by
people independent of those who operate the systems. Further, banks
must review their service provider's security program to determine that
it is consistent with the Guidelines. However, the final Guidelines do
not require on-site inspections.
6. Effective Date. The effective date for the final Guidelines is
July 1, 2001. As discussed in the section-by-section analysis, many of
the comment letters urged the FDIC to extend the effective date of the
Guidelines, particularly since this is the effective date for complying
with the Privacy Rule. Several of the comments suggested the proposed
effective date be extended for 12 to 18 months. However, the FDIC
believes that the effective date for the Guidelines and the Privacy
Rule should coincide. The Privacy Rule requires a financial institution
to disclose to its customers that the bank maintains physical,
electronic, and procedural safeguards to protect customers' nonpublic
personal information. Appendix A of the Privacy Rule provides that this
disclosure may refer to these federal guidelines. This is only
meaningful if the final Guidelines for safeguarding customer
information are effective when the disclosure is made. The Guidelines
do provide a transition rule for contracts with service providers--
essentially allowing a two-year compliance period for service provider
contracts. A contract entered into on or before March 5, 2001,
satisfies the provisions of this part until July 1, 2003, even if the
contract does not include provisions delineating the servicer's duties
and responsibilities to protect customer information described in
section III.D. This additional time will allow financial institutions
to make all necessary changes to service provider contracts and to
comply with this segment of the Guidelines.
Summary of the Agency Assessment of Issues Raised in Public
Comments
Most of the comment letters did not discuss actual compliance costs
for implementing the provisions of the Guidelines. Some commenters
stated that their bank has an established information security program
and that information security is a customary business practice. The new
compliance and reporting requirements will create additional costs for
some institutions. These costs include: (1) Training staff; (2)
monitoring outsourcing agreements; (3) performing due diligence before
contracting with a service provider; (4) testing security systems; and
(5) adjusting security programs due to technology changes. The comments
did not provide data from which the FDIC could quantify the cost of
implementing the requirements of the GLBA. The compliance costs will
vary among institutions.
Description/Estimate of Small Entities To Which the Guidelines Will
Apply
The Guidelines will apply to approximately 3,300 FDIC insured State
nonmember banks that are small entities (assets less than $100 million)
as defined in the RFA.
Description of Projected Reporting, Record-Keeping, and Other
Compliance Requirements
The final Guidelines contain standards for the protection of
customer records and information that apply to all FDIC-insured state-
nonmember banks. Institutions will be required to report annually to
the bank's board of directors concerning the bank's information
security program. Institutions will need to develop a training program
that is designed to implement the institution's information security
policies and procedures. An institution's information security system
will be tested to ensure the controls and procedures of the program
work properly. However, the final Guidelines do not specify what
particular tests the bank should undertake. The final Guidelines state
that the tests are to be conducted or reviewed by persons who are
independent of those who operate the systems. Institutions will have to
exercise due diligence in the selection of service providers to ensure
that the bank's customer information will be protected consistent with
these Guidelines. And institutions will have to monitor these service
provider arrangements to confirm that the institution's customer
information is protected, which may be accomplished by reviewing
service provider audits
[[Page 8631]]
and summaries of test results. Also, institutions will need to adjust
their security program as technology changes.
The types of professional skills within the institution necessary
to prepare the report to the board would include an understanding of
the institution's information security program, a level of technical
knowledge of the hardware and software systems to evaluate test results
recommending substantial modifications; and the ability to evaluate and
report on the institution's steps to oversee service provider
arrangements.
OTS: The Regulatory Flexibility Act (RFA),\15\ requires OTS to
prepare a final regulatory flexibility analysis with these final
Guidelines unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
OTS has evaluated the effects these Guidelines will have on small
entities. In issuing proposed Guidelines, OTS specifically sought
comment on the costs of establishing and operating information security
programs, but no commenters provided specific cost information.
Institutions cannot yet know how they will implement their information
security programs and therefore have difficulty quantifying the
associated costs. The Director of OTS considered certifying, under
section 605(b) of the RFA, that these guidelines will not have a
significant economic impact on a substantial number of small entities.
However, because OTS cannot quantify the impact the Guidelines will
have on small entities, and in the interests of thoroughness, OTS does
not certify that the Guidelines will not have a significant economic
impact on a substantial number of small entities. Instead, OTS has
prepared the following final regulatory flexibility analysis.
---------------------------------------------------------------------------
\15\ U.S.C. 604(a).
---------------------------------------------------------------------------
A. Reasons for Final Action
OTS issues these Guidelines pursuant to section 501 of the G-L-B
Act. As described in this preamble and in the notice of proposed
action, section 501 requires OTS to publish standards for the thrift
industry relating to administrative, technical, and physical safeguards
to: (1) Insure the security and confidentiality of customer records and
information; (2) protect against any anticipated threats or hazards to
the security or integrity of such records, and (3) protect against
unauthorized access to or use of such records or information which
could result in the substantial harm or inconvenience to any customer.
B. Objectives of and Legal Basis for Final Action
The objectives of the Guidelines are described in the Supplementary
Information section above. The legal bases for the final action are:
section 501 of the G-L-B Act; section 39 of the FDI Act; and sections
2, 4, and 5 of the Home Owners' Loan Act (12 U.S.C. 1462, 1463, and
1464).
C. Description of Entities To Which Final Action Will Apply
These Guidelines will apply to all savings associations whose
deposits are FDIC insured, and subsidiaries of such savings
associations, except subsidiaries that are brokers, dealers, persons
providing insurance, investment companies, and investment advisers.\16\
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements; Skills Required
The Guidelines do not require any reports to OTS. As discussed more
fully above, they do require institutions to have a written information
security program, and to make an appropriate report to the board of
directors, or a board committee, at least annually. The Guidelines
require institutions to establish an information security program, if
they do not already have one. The Guidelines require institutions to
assess the risks to their customer security and to adopt appropriate
measures to control those risks. Institutions must also test the key
controls, commensurate with the risks. Institutions must use
appropriate due diligence in selecting outside service providers, and
require service providers, by contract, to implement appropriate
security measures. Finally, where appropriate, the Guidelines require
institutions to monitor their service providers.
---------------------------------------------------------------------------
\16\ For purposes of the Regulatory Flexibility Act, a small
savings association is one with less than $100 million in assets. 13
CFR 121.201 (Division H). There are approximately 487 such small
savings associations, approximately 97 of which have subsidiaries.
---------------------------------------------------------------------------
Professional skills, such as skills of computer hardware and
software, will be necessary to assess information security needs, and
to design and implement an information security program. The particular
skills needed will be commensurate with the nature of each
institution's system, i.e. more skills will be needed in institutions
with sophisticated and extensive computerization. As a result, small
entities with less extensive computerization are likely to have less
burdensome compliance needs than large entities. Institutions that use
outside service providers may require legal skills to draft appropriate
language for contracts with service providers.
E. Public Comment and Significant Alternatives
OTS did not receive any public comment on its initial regulatory
flexibility analysis, although it did receive comments on the proposal
in general, and on the Guidelines' impact on small entities in
particular. OTS addresses these below.
OTS has considered publishing standards using only the broad
language in section 501(b) of the G-L-B Act, as supported by one
commenter. The Agencies rejected this alternative in favor of more
comprehensive Guidelines. Using only the general statutory language
would permit institutions maximum flexibility in implementing
information security protections and would not put institutions at a
competitive disadvantage with respect to institutions not subject to
the same security standards. However, using the statutory language
alone would not provide enough guidance to institutions about what
risks need to be addressed or what types of protections are
appropriate. Small institutions in particular may need guidance in this
area. One trade association that represents community banks commented
that institutions need guidance to determine what level of information
security the Agencies will look for, and that community banks in
particular need guidance in this area. OTS believes that the
alternative it chose, more comprehensive standards, provides helpful
guidance without sacrificing flexibility.
OTS has also considered the alternative of defining ``service
provider'' more narrowly than in the proposed Guidelines to reduce
regulatory burden. The Guidelines require a financial institution to
take appropriate steps to protect customer information provided to a
service provider. Due to limited resources, small institutions may need
to outsource a disproportionately larger number of functions than large
institutions outsource, and accordingly have a greater need for service
providers. Thus, the burdens associated with service providers may fall
more heavily on small institutions than on large institutions. But the
risks to information security do not necessarily vary depending on a
service provider's identity. Rather, they vary depending on the type
and volume of information to which a service provider has access, the
safeguards it has in place, and what the service provider does with the
[[Page 8632]]
information. Basing the requirements as to service providers on a
service provider's identity would not necessarily focus protections on
areas of risk. For this reason, the final Guidelines focus the
protections regarding service providers on the risks involved rather
than on the service provider's identity. This approach should provide
the necessary protections without unnecessary burden on small
institutions.
OTS reviewed the alternative of requiring an institution's board of
directors to designate a Corporate Information Security Officer who
would have authority, with approval by the board, to develop and
administer the institution's information security program. However,
ultimately, the agencies rejected the idea of having financial
institutions create a new position to fulfill this purpose. Instead,
the Guidelines allow financial institutions the flexibility to
determine who should be assigned specific roles in implementing the
institution's security program. As a result, small institutions will be
relieved of a potential burden.
The final Guidelines incorporate new provisions not in the proposed
Guidelines designed to add flexibility to assist all institutions,
large and small. For example, the final Guidelines, unlike the
proposal, do not specify particular tasks for management. Instead, the
final Guidelines allow each institution the flexibility to decide for
itself the most efficient allocation of its personnel. Similarly, the
final Guidelines allow institutions to delegate board duties to board
committees. Additionally, in the final guidelines the Agencies removed
the requirement that information security programs ``shall * * *
ensure'' the security and confidentiality of customer information.
Instead, the guidelines say the program ``shall be designed to * * *
ensure'' the security and confidentiality of customer information. The
final Guidelines further incorporate more flexibility than the proposal
concerning testing systems. The proposal required third parties of
staff independent of those who maintain the program to test it, and
required third parties or staff independent of the testers to review
test results. To add flexibility, the final Guidelines more simply
require staff or third parties independent of those who develop or
maintain the programs to conduct or review the tests. These changes
should serve to reduce the burden of the Guidelines.
C. Executive Order 12866
The Comptroller of the Currency and the Office of Thrift
Supervision have determined that this rule does not constitute a
``significant regulatory action'' for the purposes of Executive Order
12866. The OCC and OTS are issuing the Guidelines in accordance with
the requirements of Sections 501 and 505(b) of the G-L-B Act and not
under their own authority. Even absent the requirements of the G-L-B
Act, if the OCC and OTS had issued the rule under their own authority,
the rule would not constitute a ``significant regulatory action'' for
purposes of Executive Order 12866.
The standards established by the Guidelines are very flexible and
allow each institution the discretion to have an information security
program that suits its particular size , complexity and the nature and
scope of its activities. Further, the standards reflect good business
practices and guidance previously issued by the OCC, OTS, and the
FFIEC. Accordingly, most if not all institutions already have
information security programs in place that are consistent with the
Guidelines. In such cases, little or no modification to an
institution's program will be required.
D. Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532 (Unfunded Mandates Act), requires that an agency prepare a
budgetary impact statement before promulgating any rule likely to
result in a federal mandate that may result in the expenditure by
state, local, and tribal governments, in the aggregate, or by the
private sector, of $100 million or more in any one year. If a budgetary
impact statement is required, section 205 of the Unfunded Mandates Act
also requires the agency to identify and consider a reasonable number
of regulatory alternatives before promulgating the rule. However, an
agency is not required to assess the effects of its regulatory actions
on the private sector to the extent that such regulations incorporate
requirements specifically set forth in law. 2 U.S.C. 1531.
The OCC and OTS believe that most institutions already have
established an information security program because it is a sound
business practice that also has been addressed in existing supervisory
guidance. Therefore, the OCC and OTS have determined that the
Guidelines will not result in expenditures by state, local, and tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year. Accordingly, the OCC and OTS have not
prepared a budgetary impact statement or specifically addressed the
regulatory alternatives considered.
List of Subjects
12 CFR Part 30
Banks, banking, Consumer protection, National banks, Privacy,
Reporting and recordkeeping requirements.
12 CFR Part 208
Banks, banking, Consumer protection, Federal Reserve System,
Foreign banking, Holding companies, Information, Privacy, Reporting and
recordkeeping requirements.
12 CFR Part 211
Exports, Federal Reserve System, Foreign banking, Holding
companies, Investments, Privacy, Reporting and recordkeeping
requirements.
12 CFR Part 225
Administrative practice and procedure, Banks, banking, Federal
Reserve System, Holding companies, Privacy, Reporting and recordkeeping
requirements, Securities.
12 CFR Part 263
Administrative practice and procedure, Claims, Crime, Equal access
in justice, Federal Reserve System, Lawyers, Penalties.
12 CFR Part 308
Administrative practice and procedure, Banks, banking, Claims,
Crime, Equal access of justice, Lawyers, Penalties, State nonmember
banks.
12 CFR Part 364
Administrative practice and procedure, Bank deposit insurance,
Banks, banking, Reporting and recordkeeping requirements, Safety and
soundness.
12 CFR Part 568
Reporting and recordkeeping requirements, Savings associations,
Security measures. Consumer protection, Privacy, Savings associations.
12 CFR Part 570
Consumer protection, Privacy, Savings associations.
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the joint preamble, part 30 of the
chapter I of title 12 of the Code of Federal Regulations is amended as
follows:
[[Page 8633]]
PART 30--SAFETY AND SOUNDNESS STANDARDS
1. The authority citation for part 30 is revised to read as
follows:
Authority: 12 U.S.C. 93a, 1818, 1831-p, 3102(b); 15 U.S.C. 6801,
6805(b)(1).
2. Revise Sec. 30.1 to read as follows:
Sec. 30.1 Scope.
(a) The rules set forth in this part and the standards set forth in
appendices A and B to this part apply to national banks and federal
branches of foreign banks, that are subject to the provisions of
section 39 of the Federal Deposit Insurance Act (section 39)(12 U.S.C.
1831p-1).
(b) The standards set forth in appendix B to this part also apply
to uninsured national banks, federal branches and federal agencies of
foreign banks, and the subsidiaries of any national bank, federal
branch or federal agency of a foreign bank (except brokers, dealers,
persons providing insurance, investment companies and investment
advisers). Violation of these standards may be an unsafe and unsound
practice within the meaning of 12 U.S.C. 1818.
3. In Sec. 30.2, revise the last sentence to read as follows:
Sec. 30.2 Purpose.
* * * The Interagency Guidelines Establishing Standards for Safety
and Soundness are set forth in appendix A to this part, and the
Interagency Guidelines Establishing Standards for Safeguarding Customer
Information are set forth in appendix B to this part.
4. In Sec. 30.3, revise paragraph (a) to read as follows:
Sec. 30.3 Determination and notification of failure to meet safety and
soundness standard and request for compliance plan.
(a) Determination. The OCC may, based upon an examination,
inspection, or any other information that becomes available to the OCC,
determine that a bank has failed to satisfy the safety and soundness
standards contained in the Interagency Guidelines Establishing
Standards for Safety and Soundness set forth in appendix A to this
part, and the Interagency Guidelines Establishing Standards for
Safeguarding Customer Information set forth in appendix B to this part.
* * * * *
5. Revise appendix B to part 30 to read as follows:
Appendix B to Part 30--Interagency Guidelines Establishing
Standards For Safeguarding Customer Information
Table of Contents
I. Introduction
A. Scope
B. Preservation of Existing Authority
C. Definitions
II. Standards for Safeguarding Customer Information
A. Information Security Program
B. Objectives
III. Development and Implementation of Customer Information Security
Program
A. Involve the Board of Directors
B. Assess Risk
C. Manage and Control Risk
D. Oversee Service Provider Arrangements
E. Adjust the Program
F. Report to the Board
G. Implement the Standards
I. Introduction
The Interagency Guidelines Establishing Standards for
Safeguarding Customer Information (Guidelines) set forth standards
pursuant to section 39 of the Federal Deposit Insurance Act (section
39, codified at 12 U.S.C. 1831p-1), and sections 501 and 505(b),
codified at 15 U.S.C. 6801 and 6805(b), of the Gramm-Leach-Bliley
Act. These Guidelines address standards for developing and
implementing administrative, technical, and physical safeguards to
protect the security, confidentiality, and integrity of customer
information.
A. Scope. The Guidelines apply to customer information
maintained by or on behalf of entities over which the OCC has
authority. Such entities, referred to as ``the bank,'' are national
banks, federal branches and federal agencies of foreign banks, and
any subsidiaries of such entities (except brokers, dealers, persons
providing insurance, investment companies, and investment advisers).
B. Preservation of Existing Authority. Neither section 39 nor
these Guidelines in any way limit the authority of the OCC to
address unsafe or unsound practices, violations of law, unsafe or
unsound conditions, or other practices. The OCC may take action
under section 39 and these Guidelines independently of, in
conjunction with, or in addition to, any other enforcement action
available to the OCC.
C. Definitions. 1. Except as modified in the Guidelines, or
unless the context otherwise requires, the terms used in these
Guidelines have the same meanings as set forth in sections 3 and 39
of the Federal Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1).
2. For purposes of the Guidelines, the following definitions
apply:
a. Board of directors, in the case of a branch or agency of a
foreign bank, means the managing official in charge of the branch or
agency.
b. Customer means any customer of the bank as defined in
Sec. 40.3(h) of this chapter.
c. Customer information means any record containing nonpublic
personal information, as defined in Sec. 40.3(n) of this chapter,
about a customer, whether in paper, electronic, or other form, that
is maintained by or on behalf of the bank.
d. Customer information systems means any methods used to
access, collect, store, use, transmit, protect, or dispose of
customer information.
e. Service provider means any person or entity that maintains,
processes, or otherwise is permitted access to customer information
through its provision of services directly to the bank.
II. Standards for Safeguarding Customer Information
A. Information Security Program. Each bank shall implement a
comprehensive written information security program that includes
administrative, technical, and physical safeguards appropriate to
the size and complexity of the bank and the nature and scope of its
activities. While all parts of the bank are not required to
implement a uniform set of policies, all elements of the information
security program must be coordinated.
B. Objectives. A bank's information security program shall be
designed to:
1. Ensure the security and confidentiality of customer
information;
2. Protect against any anticipated threats or hazards to the
security or integrity of such information; and
3. Protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience
to any customer.
III. Development and Implementation of Information Security Program
A. Involve the Board of Directors. The board of directors or an
appropriate committee of the board of each bank shall:
1. Approve the bank's written information security program; and
2. Oversee the development, implementation, and maintenance of
the bank's information security program, including assigning
specific responsibility for its implementation and reviewing reports
from management.
B. Assess Risk. Each bank shall:
1. Identify reasonably foreseeable internal and external threats
that could result in unauthorized disclosure, misuse, alteration, or
destruction of customer information or customer information systems.
2. Assess the likelihood and potential damage of these threats,
taking into consideration the sensitivity of customer information.
3. Assess the sufficiency of policies, procedures, customer
information systems, and other arrangements in place to control
risks.
C. Manage and Control Risk. Each bank shall:
1. Design its information security program to control the
identified risks, commensurate with the sensitivity of the
information as well as the complexity and scope of the bank's
activities. Each bank must consider whether the following security
measures are appropriate for the bank and, if so, adopt those
measures the bank concludes are appropriate:
a. Access controls on customer information systems, including
controls to authenticate and permit access only to authorized
individuals and controls to prevent employees from providing
customer information to unauthorized individuals who may seek to
obtain this information through fraudulent means.
[[Page 8634]]
b. Access restrictions at physical locations containing customer
information, such as buildings, computer facilities, and records
storage facilities to permit access only to authorized individuals;
c. Encryption of electronic customer information, including
while in transit or in storage on networks or systems to which
unauthorized individuals may have access;
d. Procedures designed to ensure that customer information
system modifications are consistent with the bank's information
security program;
e. Dual control procedures, segregation of duties, and employee
background checks for employees with responsibilities for or access
to customer information;
f. Monitoring systems and procedures to detect actual and
attempted attacks on or intrusions into customer information
systems;
g. Response programs that specify actions to be taken when the
bank suspects or detects that unauthorized individuals have gained
access to customer information systems, including appropriate
reports to regulatory and law enforcement agencies; and
h. Measures to protect against destruction, loss, or damage of
customer information due to potential environmental hazards, such as
fire and water damage or technological failures.
2. Train staff to implement the bank's information security
program.
3. Regularly test the key controls, systems and procedures of
the information security program. The frequency and nature of such
tests should be determined by the bank's risk assessment. Tests
should be conducted or reviewed by independent third parties or
staff independent of those that develop or maintain the security
programs.
D. Oversee Service Provider Arrangements. Each bank shall:
1. Exercise appropriate due diligence in selecting its service
providers;
2. Require its service providers by contract to implement
appropriate measures designed to meet the objectives of these
Guidelines; and
3. Where indicated by the bank's risk assessment, monitor its
service providers to confirm that they have satisfied their
obligations as required by section D.2. As part of this monitoring,
a bank should review audits, summaries of test results, or other
equivalent evaluations of its service providers.
E. Adjust the Program. Each bank shall monitor, evaluate, and
adjust, as appropriate, the information security program in light of
any relevant changes in technology, the sensitivity of its customer
information, internal or external threats to information, and the
bank's own changing business arrangements, such as mergers and
acquisitions, alliances and joint ventures, outsourcing
arrangements, and changes to customer information systems.
F. Report to the Board. Each bank shall report to its board or
an appropriate committee of the board at least annually. This report
should describe the overall status of the information security
program and the bank's compliance with these Guidelines. The reports
should discuss material matters related to its program, addressing
issues such as: risk assessment; risk management and control
decisions; service provider arrangements; results of testing;
security breaches or violations and management's responses; and
recommendations for changes in the information security program.
G. Implement the Standards. 1. Effective date. Each bank must
implement an information security program pursuant to these
Guidelines by July 1, 2001.
2. Two-year grandfathering of agreements with service providers.
Until July 1, 2003, a contract that a bank has entered into with a
service provider to perform services for it or functions on its
behalf satisfies the provisions of section III.D., even if the
contract does not include a requirement that the servicer maintain
the security and confidentiality of customer information, as long as
the bank entered into the contract on or before March 5, 2001.
6. Appendix C to part 30 is removed.
Dated: December 21, 2000.
John D. Hawke, Jr.,
Comptroller of the Currency.
Federal Reserve System
12 CFR Chapter II
Authority and Issuance
For the reasons set forth in the joint preamble, parts 208, 211,
225, and 263 of chapter II of title 12 of the Code of Federal
Regulations are amended as follows:
PART 208--MEMBERSHIP OF STATE BANKING INSTITUTIONS IN THE FEDERAL
RESERVE SYSTEM (REGULATION H)
1. The authority citation for 12 CFR part 208 is revised to read as
follows:
Authority: 12 U.S.C. 24, 36, 92a, 93a, 248(a), 248(c), 321-338a,
371d, 461, 481-486, 601, 611, 1814, 1816, 1818, 1820(d)(9), 1823(j),
1828(o), 1831, 1831o, 1831p-1, 1831r-1, 1835a, 1882, 2901-2907,
3105, 3310, 3331-3351, and 3906-3909; 15 U.S.C. 78b, 78l(b), 78l(g),
78l(i), 78o-4(c)(5), 78q, 78q-1, 78w, 6801, and 6805; 31 U.S.C.
5318; 42 U.S.C. 4012a, 4104a, 4104b, 4106, and 4128.
2. Amend Sec. 208.3 to revise paragraph (d)(1) to read as follows:
Sec. 208.3 Application and conditions for membership in the Federal
Reserve System.
* * * * *
(d) Conditions of membership. (1) Safety and soundness. Each member
bank shall at all times conduct its business and exercise its powers
with due regard to safety and soundness. Each member bank shall comply
with the Interagency Guidelines Establishing Standards for Safety and
Soundness prescribed pursuant to section 39 of the FDI Act (12 U.S.C.
1831p-1), set forth in appendix D-1 to this part, and the Interagency
Guidelines Establishing Standards for Safeguarding Customer Information
prescribed pursuant to sections 501 and 505 of the Gramm-Leach-Bliley
Act (15 U.S.C. 6801 and 6805), set forth in appendix D-2 to this part.
* * * * *
3. Revise appendix D-2 to read as follows:
Appendix D-2 To Part 208--Interagency Guidelines Establishing
Standards For Safeguarding Customer Information
Table of Contents
I. Introduction
A. Scope
B. Preservation of Existing Authority
C. Definitions
II. Standards for Safeguarding Customer Information
A. Information Security Program
B. Objectives
III. Development and Implementation of Customer Information Security
Program
A. Involve the Board of Directors
B. Assess Risk
C. Manage and Control Risk
D. Oversee Service Provider Arrangements
E. Adjust the Program
F. Report to the Board
G. Implement the Standards
I. Introduction
These Interagency Guidelines Establishing Standards for
Safeguarding Customer Information (Guidelines) set forth standards
pursuant to sections 501 and 505 of the Gramm-Leach-Bliley Act (15
U.S.C. 6801 and 6805), in the same manner, to the extent practicable,
as standards prescribed pursuant to section 39 of the Federal Deposit
Insurance Act (12 U.S.C. 1831p-1). These Guidelines address standards
for developing and implementing administrative, technical, and physical
safeguards to protect the security, confidentiality, and integrity of
customer information.
A. Scope. The Guidelines apply to customer information maintained
by or on behalf of state member banks (banks) and their nonbank
subsidiaries, except for brokers, dealers, persons providing insurance,
investment companies, and investment advisors. Pursuant to Secs. 211.9
and 211.24 of this chapter, these guidelines also apply to customer
information maintained by or on behalf of Edge corporations, agreement
corporations, and uninsured state-licensed branches or agencies of a
foreign bank.
B. Preservation of Existing Authority. Neither section 39 nor these
Guidelines in any way limit the authority of the Board to address
unsafe or unsound practices, violations of law, unsafe or unsound
conditions, or other practices. The Board may take action under
[[Page 8635]]
section 39 and these Guidelines independently of, in conjunction with,
or in addition to, any other enforcement action available to the Board.
C. Definitions.
1. Except as modified in the Guidelines, or unless the context
otherwise requires, the terms used in these Guidelines have the same
meanings as set forth in sections 3 and 39 of the Federal Deposit
Insurance Act (12 U.S.C. 1813 and 1831p-1).
2. For purposes of the Guidelines, the following definitions apply:
a. Board of directors, in the case of a branch or agency of a
foreign bank, means the managing official in charge of the branch or
agency.
b. Customer means any customer of the bank as defined in
Sec. 216.3(h) of this chapter.
c. Customer information means any record containing nonpublic
personal information, as defined in Sec. 216.3(n) of this chapter,
about a customer, whether in paper, electronic, or other form, that is
maintained by or on behalf of the bank.
d. Customer information systems means any methods used to access,
collect, store, use, transmit, protect, or dispose of customer
information.
e. Service provider means any person or entity that maintains,
processes, or otherwise is permitted access to customer information
through its provision of services directly to the bank.
f. Subsidiary means any company controlled by a bank, except a
broker, dealer, person providing insurance, investment company,
investment advisor, insured depository institution, or subsidiary of an
insured depository institution.
II. Standards for Safeguarding Customer Information
A. Information Security Program. Each bank shall implement a
comprehensive written information security program that includes
administrative, technical, and physical safeguards appropriate to the
size and complexity of the bank and the nature and scope of its
activities. While all parts of the bank are not required to implement a
uniform set of policies, all elements of the information security
program must be coordinated. A bank also shall ensure that each of its
subsidiaries is subject to a comprehensive information security
program. The bank may fulfill this requirement either by including a
subsidiary within the scope of the bank's comprehensive information
security program or by causing the subsidiary to implement a separate
comprehensive information security program in accordance with the
standards and procedures in sections II and III of this appendix that
apply to banks.
B. Objectives. A bank's information security program shall be
designed to:
1. Ensure the security and confidentiality of customer information;
2. Protect against any anticipated threats or hazards to the
security or integrity of such information; and
3. Protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience to
any customer.
III. Development and Implementation of Information Security Program
A. Involve the Board of Directors. The board of directors or an
appropriate committee of the board of each bank shall:
1. Approve the bank's written information security program; and
2. Oversee the development, implementation, and maintenance of the
bank's information security program, including assigning specific
responsibility for its implementation and reviewing reports from
management.
B. Assess Risk. Each bank shall:
1. Identify reasonably foreseeable internal and external threats
that could result in unauthorized disclosure, misuse, alteration, or
destruction of customer information or customer information systems.
2. Assess the likelihood and potential damage of these threats,
taking into consideration the sensitivity of customer information.
3. Assess the sufficiency of policies, procedures, customer
information systems, and other arrangements in place to control risks.
C. Manage and Control Risk. Each bank shall:
1. Design its information security program to control the
identified risks, commensurate with the sensitivity of the information
as well as the complexity and scope of the bank's activities. Each bank
must consider whether the following security measures are appropriate
for the bank and, if so, adopt those measures the bank concludes are
appropriate:
a. Access controls on customer information systems, including
controls to authenticate and permit access only to authorized
individuals and controls to prevent employees from providing customer
information to unauthorized individuals who may seek to obtain this
information through fraudulent means.
b. Access restrictions at physical locations containing customer
information, such as buildings, computer facilities, and records
storage facilities to permit access only to authorized individuals;
c. Encryption of electronic customer information, including while
in transit or in storage on networks or systems to which unauthorized
individuals may have access;
d. Procedures designed to ensure that customer information system
modifications are consistent with the bank's information security
program;
e. Dual control procedures, segregation of duties, and employee
background checks for employees with responsibilities for or access to
customer information;
f. Monitoring systems and procedures to detect actual and attempted
attacks on or intrusions into customer information systems;
g. Response programs that specify actions to be taken when the bank
suspects or detects that unauthorized individuals have gained access to
customer information systems, including appropriate reports to
regulatory and law enforcement agencies; and
h. Measures to protect against destruction, loss, or damage of
customer information due to potential environmental hazards, such as
fire and water damage or technological failures.
2. Train staff to implement the bank's information security
program.
3. Regularly test the key controls, systems and procedures of the
information security program. The frequency and nature of such tests
should be determined by the bank's risk assessment. Tests should be
conducted or reviewed by independent third parties or staff independent
of those that develop or maintain the security programs.
D. Oversee Service Provider Arrangements. Each bank shall:
1. Exercise appropriate due diligence in selecting its service
providers;
2. Require its service providers by contract to implement
appropriate measures designed to meet the objectives of these
Guidelines; and
3. Where indicated by the bank's risk assessment, monitor its
service providers to confirm that they have satisfied their obligations
as required by paragraph D.2. As part of this monitoring, a bank should
review audits, summaries of test results, or other equivalent
evaluations of its service providers.
E. Adjust the Program. Each bank shall monitor, evaluate, and
adjust, as appropriate, the information security program in light of
any relevant changes in technology, the sensitivity of its
[[Page 8636]]
customer information, internal or external threats to information, and
the bank's own changing business arrangements, such as mergers and
acquisitions, alliances and joint ventures, outsourcing arrangements,
and changes to customer information systems.
F. Report to the Board. Each bank shall report to its board or an
appropriate committee of the board at least annually. This report
should describe the overall status of the information security program
and the bank's compliance with these Guidelines. The reports should
discuss material matters related to its program, addressing issues such
as: risk assessment; risk management and control decisions; service
provider arrangements; results of testing; security breaches or
violations and management's responses; and recommendations for changes
in the information security program.
G. Implement the Standards.
1. Effective date. Each bank must implement an information security
program pursuant to these Guidelines by July 1, 2001.
2. Two-year grandfathering of agreements with service providers.
Until July 1, 2003, a contract that a bank has entered into with a
service provider to perform services for it or functions on its behalf
satisfies the provisions of section III.D., even if the contract does
not include a requirement that the servicer maintain the security and
confidentiality of customer information, as long as the bank entered
into the contract on or before March 5, 2001.
PART 211--INTERNATIONAL BANKING OPERATIONS (REGULATION K)
4. The authority citation for part 211 is revised to read as
follows:
Authority: 12 U.S.C. 221 et seq., 1818, 1835a, 1841 et seq.,
3101 et seq., and 3901 et seq.; 15 U.S.C. 6801 and 6805.
5. Add new Sec. 211.9 to read as follows:
Sec. 211.9 Protection of customer information.
An Edge or agreement corporation shall comply with the Interagency
Guidelines Establishing Standards for Safeguarding Customer Information
prescribed pursuant to sections 501 and 505 of the Gramm-Leach-Bliley
Act (15 U.S.C. 6801 and 6805), set forth in appendix D-2 to part 208 of
this chapter.
6. In Sec. 211.24, add new paragraph (i) to read as follows:
Sec. 211.24 Approval of offices of foreign banks; procedures for
applications; standards for approval; representative-office activities
and standards for approval; preservation of existing authority; reports
of crimes and suspected crimes; government securities sales practices.
* * * * *
(i) Protection of customer information. An uninsured state-licensed
branch or agency of a foreign bank shall comply with the Interagency
Guidelines Establishing Standards for Safeguarding Customer Information
prescribed pursuant to sections 501 and 505 of the Gramm-Leach-Bliley
Act (15 U.S.C. 6801 and 6805), set forth in appendix D-2 to part 208 of
this chapter.
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL
(REGULATION Y)
7. The authority citation for part 225 is revised to read as
follows:
Authority: 12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1,
1843(c)(8), 1844(b), 1972(1), 3106, 3108, 3310, 3331-3351, 3907, and
3909; 15 U.S.C. 6801 and 6805.
8. In Sec. 225.1, add new paragraph (c)(16) to read as follows:
Sec. 225.1 Authority, purpose, and scope.
* * * * *
(c) * * *
(16) Appendix F contains the Interagency Guidelines Establishing
Standards for Safeguarding Customer Information.
9. In Sec. 225.4, add new paragraph (h) to read as follows:
Sec. 225.4 Corporate practices.
* * * * *
(h) Protection of nonpublic personal information. A bank holding
company, including a bank holding company that is a financial holding
company, shall comply with the Interagency Guidelines Establishing
Standards for Safeguarding Customer Information, as set forth in
appendix F of this part, prescribed pursuant to sections 501 and 505 of
the Gramm-Leach-Bliley Act (15 U.S.C. 6801 and 6805).
10. Add new appendix F to read as follows:
Appendix F To Part 225--Interagency Guidelines Establishing
Standards For Safeguarding Customer Information
Table of Contents
I. Introduction
A. Scope
B. Preservation of Existing Authority
C. Definitions
II. Standards for Safeguarding Customer Information
A. Information Security Program
B. Objectives
III. Development and Implementation of Customer Information Security
Program
A. Involve the Board of Directors
B. Assess Risk
C. Manage and Control Risk
D. Oversee Service Provider Arrangements
E. Adjust the Program
F. Report to the Board
G. Implement the Standards
I. Introduction
These Interagency Guidelines Establishing Standards for
Safeguarding Customer Information (Guidelines) set forth standards
pursuant to sections 501 and 505 of the Gramm-Leach-Bliley Act (15
U.S.C. 6801 and 6805) . These Guidelines address standards for
developing and implementing administrative, technical, and physical
safeguards to protect the security, confidentiality, and integrity
of customer information.
A. Scope. The Guidelines apply to customer information
maintained by or on behalf of bank holding companies and their
nonbank subsidiaries or affiliates (except brokers, dealers, persons
providing insurance, investment companies, and investment advisors),
for which the Board has supervisory authority.
B. Preservation of Existing Authority. These Guidelines do not
in any way limit the authority of the Board to address unsafe or
unsound practices, violations of law, unsafe or unsound conditions,
or other practices. The Board may take action under these Guidelines
independently of, in conjunction with, or in addition to, any other
enforcement action available to the Board.
C. Definitions. 1. Except as modified in the Guidelines, or
unless the context otherwise requires, the terms used in these
Guidelines have the same meanings as set forth in sections 3 and 39
of the Federal Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1).
2. For purposes of the Guidelines, the following definitions
apply:
a. Board of directors, in the case of a branch or agency of a
foreign bank, means the managing official in charge of the branch or
agency.
b. Customer means any customer of the bank holding company as
defined in Sec. 216.3(h) of this chapter.
c. Customer information means any record containing nonpublic
personal information, as defined in Sec. 216.3(n) of this chapter,
about a customer, whether in paper, electronic, or other form, that
is maintained by or on behalf of the bank holding company.
d. Customer information systems means any methods used to
access, collect, store, use, transmit, protect, or dispose of
customer information.
e. Service provider means any person or entity that maintains,
processes, or otherwise is permitted access to customer information
through its provision of services directly to the bank holding
company.
f. Subsidiary means any company controlled by a bank holding
company, except a broker, dealer, person providing insurance,
investment company, investment advisor, insured depository
institution, or subsidiary of an insured depository institution.
[[Page 8637]]
II. Standards for Safeguarding Customer Information
A. Information Security Program. Each bank holding company shall
implement a comprehensive written information security program that
includes administrative, technical, and physical safeguards
appropriate to the size and complexity of the bank holding company
and the nature and scope of its activities. While all parts of the
bank holding company are not required to implement a uniform set of
policies, all elements of the information security program must be
coordinated. A bank holding company also shall ensure that each of
its subsidiaries is subject to a comprehensive information security
program. The bank holding company may fulfill this requirement
either by including a subsidiary within the scope of the bank
holding company's comprehensive information security program or by
causing the subsidiary to implement a separate comprehensive
information security program in accordance with the standards and
procedures in sections II and III of this appendix that apply to
bank holding companies.
B. Objectives. A bank holding company's information security
program shall be designed to:
1. Ensure the security and confidentiality of customer
information;
2. Protect against any anticipated threats or hazards to the
security or integrity of such information; and
3. Protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience
to any customer.
III. Development and Implementation of Information Security Program
A. Involve the Board of Directors. The board of directors or an
appropriate committee of the board of each bank holding company
shall:
1. Approve the bank holding company's written information
security program; and
2. Oversee the development, implementation, and maintenance of
the bank holding company's information security program, including
assigning specific responsibility for its implementation and
reviewing reports from management.
B. Assess Risk. Each bank holding company shall:
1. Identify reasonably foreseeable internal and external threats
that could result in unauthorized disclosure, misuse, alteration, or
destruction of customer information or customer information systems.
2. Assess the likelihood and potential damage of these threats,
taking into consideration the sensitivity of customer information.
3. Assess the sufficiency of policies, procedures, customer
information systems, and other arrangements in place to control
risks.
C. Manage and Control Risk. Each bank holding company shall:
1. Design its information security program to control the
identified risks, commensurate with the sensitivity of the
information as well as the complexity and scope of the bank holding
company's activities. Each bank holding company must consider
whether the following security measures are appropriate for the bank
holding company and, if so, adopt those measures the bank holding
company concludes are appropriate:
a. Access controls on customer information systems, including
controls to authenticate and permit access only to authorized
individuals and controls to prevent employees from providing
customer information to unauthorized individuals who may seek to
obtain this information through fraudulent means.
b. Access restrictions at physical locations containing customer
information, such as buildings, computer facilities, and records
storage facilities to permit access only to authorized individuals;
c. Encryption of electronic customer information, including
while in transit or in storage on networks or systems to which
unauthorized individuals may have access;
d. Procedures designed to ensure that customer information
system modifications are consistent with the bank holding company's
information security program;
e. Dual control procedures, segregation of duties, and employee
background checks for employees with responsibilities for or access
to customer information;
f. Monitoring systems and procedures to detect actual and
attempted attacks on or intrusions into customer information
systems;
g. Response programs that specify actions to be taken when the
bank holding company suspects or detects that unauthorized
individuals have gained access to customer information systems,
including appropriate reports to regulatory and law enforcement
agencies; and
h. Measures to protect against destruction, loss, or damage of
customer information due to potential environmental hazards, such as
fire and water damage or technological failures.
2. Train staff to implement the bank holding company's
information security program.
3. Regularly test the key controls, systems and procedures of
the information security program. The frequency and nature of such
tests should be determined by the bank holding company's risk
assessment. Tests should be conducted or reviewed by independent
third parties or staff independent of those that develop or maintain
the security programs.
D. Oversee Service Provider Arrangements. Each bank holding
company shall:
1. Exercise appropriate due diligence in selecting its service
providers;
2. Require its service providers by contract to implement
appropriate measures designed to meet the objectives of these
Guidelines; and
3. Where indicated by the bank holding company's risk
assessment, monitor its service providers to confirm that they have
satisfied their obligations as required by paragraph D.2. As part of
this monitoring, a bank holding company should review audits,
summaries of test results, or other equivalent evaluations of its
service providers.
E. Adjust the Program. Each bank holding company shall monitor,
evaluate, and adjust, as appropriate, the information security
program in light of any relevant changes in technology, the
sensitivity of its customer information, internal or external
threats to information, and the bank holding company's own changing
business arrangements, such as mergers and acquisitions, alliances
and joint ventures, outsourcing arrangements, and changes to
customer information systems.
F. Report to the Board. Each bank holding company shall report
to its board or an appropriate committee of the board at least
annually. This report should describe the overall status of the
information security program and the bank holding company's
compliance with these Guidelines. The reports should discuss
material matters related to its program, addressing issues such as:
risk assessment; risk management and control decisions; service
provider arrangements; results of testing; security breaches or
violations and management's responses; and recommendations for
changes in the information security program.
G. Implement the Standards.
1. Effective date. Each bank holding company must implement an
information security program pursuant to these Guidelines by July 1,
2001.
2. Two-year grandfathering of agreements with service providers.
Until July 1, 2003, a contract that a bank holding company has
entered into with a service provider to perform services for it or
functions on its behalf satisfies the provisions of section III.D.,
even if the contract does not include a requirement that the
servicer maintain the security and confidentiality of customer
information, as long as the bank holding company entered into the
contract on or before March 5, 2001.
PART 263--RULES OF PRACTICE FOR HEARINGS
11. The authority citation for part 263 is revised to read as
follows:
Authority: 5 U.S.C. 504; 12 U.S.C. 248, 324, 504, 505, 1817(j),
1818, 1828(c), 1831o, 1831p-1, 1847(b), 1847(d), 1884(b),
1972(2)(F), 3105, 3107, 3108, 3907, 3909; 15 U.S.C. 21, 78o-4, 78o-
5, 78u-2, 6801, 6805; and 28 U.S.C. 2461 note.
12. Amend Sec. 263.302 to revise paragraph (a) to read as follows:
Sec. 263.302 Determination and notification of failure to meet safety
and soundness standard and request for compliance plan.
(a) Determination. The Board may, based upon an examination,
inspection, or any other information that becomes available to the
Board, determine that a bank has failed to satisfy the safety and
soundness standards contained in the Interagency Guidelines
Establishing Standards for Safety and Soundness or the Interagency
Guidelines Establishing Standards for Safeguarding Customer
Information, set forth in appendices D-1 and D-2 to part 208 of this
chapter, respectively.
* * * * *
[[Page 8638]]
By order of the Board of Governors of the Federal Reserve
System, January 4, 2001.
Jennifer J. Johnson,
Secretary of the Board.
Federal Deposit Insurance Corporation
12 CFR Chapter III
Authority and Issuance
For the reasons set forth in the joint preamble, parts 308 and 364
of chapter III of title 12 of the Code of Federal Regulations are
amended as follows:
PART 308--RULES OF PRACTICE AND PROCEDURE
1. The authority citation for part 308 is revised to read as
follows:
Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505,
1815(e), 1817, 1818, 1820, 1828, 1829, 1829b, 1831i, 1831o, 1831p-1,
1832(c), 1884(b), 1972, 3102, 3108(a), 3349, 3909, 4717; 15 U.S.C.
78(h) and (i), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 78u-2, 78u-3 and
78w; 6801(b), 6805(b)(1), 28 U.S.C. 2461 note; 31 U.S.C. 330, 5321;
42 U.S.C. 4012a; Sec. 3100(s), Pub. L. 104-134, 110 Stat. 1321-358.
1. Amend Sec. 308.302 to revise paragraph (a) to read as follows:
Sec. 308.302 Determination and notification of failure to meet a
safety and soundness standard and request for compliance plan.
(a) Determination. The FDIC may, based upon an examination,
inspection or any other information that becomes available to the FDIC,
determine that a bank has failed to satisfy the safety and soundness
standards set out in part 364 of this chapter and in the Interagency
Guidelines Establishing Standards for Safety and Soundness in appendix
A and the Interagency Guidelines Establishing Standards for
Safeguarding Customer Information in appendix B to part 364 of this
chapter.
* * * * *
PART 364--STANDARDS FOR SAFETY AND SOUNDNESS
2. The authority citation for part 364 is revised to read as
follows:
Authority: 12 U.S.C. 1819(Tenth), 1831p-1; 15 U.S.C. 6801(b),
6805(b)(1).
3. Amend Sec. 364.101 to revise paragraph (b) to read as follows:
Sec. 364.101 Standards for safety and soundness.
* * * * *
(b) Interagency Guidelines Establishing Standards for Safeguarding
Customer Information. The Interagency Guidelines Establishing Standards
for Safeguarding Customer Information prescribed pursuant to section 39
of the Federal Deposit Insurance Act (12 U.S.C. 1831p-1) and sections
501 and 505(b) of the Gramm-Leach-Bliley Act (15 U.S.C. 6801, 6805(b)),
as set forth in appendix B to this part, apply to all insured state
nonmember banks, insured state licensed branches of foreign banks, and
any subsidiaries of such entities (except brokers, dealers, persons
providing insurance, investment companies, and investment advisers).
4. Revise appendix B to part 364 to read as follows:
Appendix B to Part 364--Interagency Guidelines Establishing
Standards for Safeguarding Customer Information
Table of Contents
I. Introduction
A. Scope
B. Preservation of Existing Authority
C. Definitions
II. Standards for Safeguarding Customer Information
A. Information Security Program
B. Objectives
III. Development and Implementation of Customer Information Security
Program
A. Involve the Board of Directors
B. Assess Risk
C. Manage and Control Risk
D. Oversee Service Provider Arrangements
E. Adjust the Program
F. Report to the Board
G. Implement the Standards
I. Introduction
The Interagency Guidelines Establishing Standards for
Safeguarding Customer Information (Guidelines) set forth standards
pursuant to section 39 of the Federal Deposit Insurance Act (section
39, codified at 12 U.S.C. 1831p-1), and sections 501 and 505(b),
codified at 15 U.S.C. 6801 and 6805(b), of the Gramm-Leach-Bliley
Act. These Guidelines address standards for developing and
implementing administrative, technical, and physical safeguards to
protect the security, confidentiality, and integrity of customer
information.
A. Scope. The Guidelines apply to customer information
maintained by or on behalf of entities over which the Federal
Deposit Insurance Corporation (FDIC) has authority. Such entities,
referred to as ``the bank'' are banks insured by the FDIC (other
than members of the Federal Reserve System), insured state branches
of foreign banks, and any subsidiaries of such entities (except
brokers, dealers, persons providing insurance, investment companies,
and investment advisers).
B. Preservation of Existing Authority. Neither section 39 nor
these Guidelines in any way limit the authority of the FDIC to
address unsafe or unsound practices, violations of law, unsafe or
unsound conditions, or other practices. The FDIC may take action
under section 39 and these Guidelines independently of, in
conjunction with, or in addition to, any other enforcement action
available to the FDIC.
C. Definitions. 1. Except as modified in the Guidelines, or
unless the context otherwise requires, the terms used in these
Guidelines have the same meanings as set forth in sections 3 and 39
of the Federal Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1).
2. For purposes of the Guidelines, the following definitions
apply:
a. Board of directors, in the case of a branch or agency of a
foreign bank, means the managing official in charge of the branch or
agency.
b. Customer means any customer of the bank as defined in
Sec. 332.3(h) of this chapter.
c. Customer information means any record containing nonpublic
personal information, as defined in Sec. 332.3(n) of this chapter,
about a customer, whether in paper, electronic, or other form, that
is maintained by or on behalf of the bank.
d. Customer information systems means any methods used to
access, collect, store, use, transmit, protect, or dispose of
customer information.
e. Service provider means any person or entity that maintains,
processes, or otherwise is permitted access to customer information
through its provision of services directly to the bank.
II. Standards for Safeguarding Customer Information
A. Information Security Program. Each bank shall implement a
comprehensive written information security program that includes
administrative, technical, and physical safeguards appropriate to
the size and complexity of the bank and the nature and scope of its
activities. While all parts of the bank are not required to
implement a uniform set of policies, all elements of the information
security program must be coordinated.
B. Objectives. A bank's information security program shall be
designed to:
1. Ensure the security and confidentiality of customer
information;
2. Protect against any anticipated threats or hazards to the
security or integrity of such information; and
3. Protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience
to any customer.
III. Development and Implementation of Information Security Program
A. Involve the Board of Directors. The board of directors or an
appropriate committee of the board of each bank shall:
1. Approve the bank's written information security program; and
2. Oversee the development, implementation, and maintenance of
the bank's information security program, including assigning
specific responsibility for its implementation and reviewing reports
from management.
B. Assess Risk.
Each bank shall:
1. Identify reasonably foreseeable internal and external threats
that could result in unauthorized disclosure, misuse, alteration, or
destruction of customer information or customer information systems.
2. Assess the likelihood and potential damage of these threats,
taking into consideration the sensitivity of customer information.
[[Page 8639]]
3. Assess the sufficiency of policies, procedures, customer
information systems, and other arrangements in place to control
risks.
C. Manage and Control Risk. Each bank shall:
1. Design its information security program to control the
identified risks, commensurate with the sensitivity of the
information as well as the complexity and scope of the bank's
activities. Each bank must consider whether the following security
measures are appropriate for the bank and, if so, adopt those
measures the bank concludes are appropriate:
a. Access controls on customer information systems, including
controls to authenticate and permit access only to authorized
individuals and controls to prevent employees from providing
customer information to unauthorized individuals who may seek to
obtain this information through fraudulent means.
b. Access restrictions at physical locations containing customer
information, such as buildings, computer facilities, and records
storage facilities to permit access only to authorized individuals;
c. Encryption of electronic customer information, including
while in transit or in storage on networks or systems to which
unauthorized individuals may have access;
d. Procedures designed to ensure that customer information
system modifications are consistent with the bank's information
security program;
e. Dual control procedures, segregation of duties, and employee
background checks for employees with responsibilities for or access
to customer information;
f. Monitoring systems and procedures to detect actual and
attempted attacks on or intrusions into customer information
systems;
g. Response programs that specify actions to be taken when the
bank suspects or detects that unauthorized individuals have gained
access to customer information systems, including appropriate
reports to regulatory and law enforcement agencies; and
h. Measures to protect against destruction, loss, or damage of
customer information due to potential environmental hazards, such as
fire and water damage or technological failures.
2. Train staff to implement the bank's information security
program.
3. Regularly test the key controls, systems and procedures of
the information security program. The frequency and nature of such
tests should be determined by the bank's risk assessment. Tests
should be conducted or reviewed by independent third parties or
staff independent of those that develop or maintain the security
programs.
D. Oversee Service Provider Arrangements. Each bank shall:
1. Exercise appropriate due diligence in selecting its service
providers;
2. Require its service providers by contract to implement
appropriate measures designed to meet the objectives of these
Guidelines; and
3. Where indicated by the bank's risk assessment, monitor its
service providers to confirm that they have satisfied their
obligations as required by paragraph D.2. As part of this
monitoring, a bank should review audits, summaries of test results,
or other equivalent evaluations of its service providers.
E. Adjust the Program. Each bank shall monitor, evaluate, and
adjust, as appropriate, the information security program in light of
any relevant changes in technology, the sensitivity of its customer
information, internal or external threats to information, and the
bank's own changing business arrangements, such as mergers and
acquisitions, alliances and joint ventures, outsourcing
arrangements, and changes to customer information systems.
F. Report to the Board. Each bank shall report to its board or
an appropriate committee of the board at least annually. This report
should describe the overall status of the information security
program and the bank's compliance with these Guidelines. The report,
which will vary depending upon the complexity of each bank's program
should discuss material matters related to its program, addressing
issues such as: risk assessment; risk management and control
decisions; service provider arrangements; results of testing;
security breaches or violations, and management's responses; and
recommendations for changes in the information security program.
G. Implement the Standards. 1. Effective date. Each bank must
implement an information security program pursuant to these
Guidelines by July 1, 2001.
2. Two-year grandfathering of agreements with service providers.
Until July 1, 2003, a contract that a bank has entered into with a
service provider to perform services for it or functions on its
behalf, satisfies the provisions of paragraph III.D., even if the
contract does not include a requirement that the servicer maintain
the security and confidentiality of customer information as long as
the bank entered into the contract on or before March 5, 2001.
By order of the Board of Directors.
Dated at Washington, D.C., this 21st day of December, 2000.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Office of Thrift Supervision
12 CFR Chapter V
Authority and Issuance
For the reasons set forth in the joint preamble, parts 568 and 570
of chapter V of title 12 of the Code of Federal regulations are amended
as follows:
PART 568--SECURITY PROCEDURES
1. The authority citation of part 568 is revised to read as
follows:
Authority: Secs. 2-5, 82 Stat. 294-295 (12 U.S.C. 1881-1984); 12
U.S.C. 1831p-1; 15 U.S.C. 6801, 6805(b)(1).
2. Amend Sec. 568.1 by revising paragraph (a) to read as follows:
Sec. 568.1 Authority, purpose, and scope.
(a) This part is issued by the Office of Thrift Supervision (OTS)
pursuant to section 3 of the Bank Protection Act of 1968 (12 U.S.C.
1882), and sections 501 and 505(b)(1) of the Gramm-Leach-Bliley Act (12
U.S.C. 6801, 6805(b)(1)). This part is applicable to savings
associations. It requires each savings association to adopt appropriate
security procedures to discourage robberies, burglaries, and larcenies
and to assist in the identification and prosecution of persons who
commit such acts. Section 568.5 of this part is applicable to savings
associations and their subsidiaries (except brokers, dealers, persons
providing insurance, investment companies, and investment advisers).
Section 568.5 of this part requires covered institutions to establish
and implement appropriate administrative, technical, and physical
safeguards to protect the security, confidentiality, and integrity of
customer information.
* * * * *
3. Add new Sec. 568.5 to read as follows:
Sec. 568.5 Protection of customer information.
Savings associations and their subsidiaries (except brokers,
dealers, persons providing insurance, investment companies, and
investment advisers) must comply with the Interagency Guidelines
Establishing Standards for Safeguarding Customer Information prescribed
pursuant to sections 501 and 505 of the Gramm-Leach-Bliley Act (15
U.S.C. 6801 and 6805), set forth in appendix B to part 570 of this
chapter.
PART 570--SUBMISSION AND REVIEW OF SAFETY AND SOUNDNESS COMPLIANCE
PLANS AND ISSUANCE OF ORDERS TO CORRECT SAFETY AND SOUNDNESS
DEFICIENCIES
4. Amend Sec. 570.1 by adding a sentence at the end of paragraph
(a) and revising the last sentence of paragraph (b) to read as follows:
Sec. 570.1 Authority, purpose, scope and preservation of existing
authority.
(a) * * *Appendix B to this part is further issued under sections
501(b) and 505 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113
Stat. 1338 (1999)).
(b)* * *Interagency Guidelines Establishing Standards for
Safeguarding Customer Information are set forth in appendix B to this
part.
* * * * *
5. Amend Sec. 570.2 by revising paragraph (a) to read as follows:
[[Page 8640]]
Sec. 570.2 Determination and notification of failure to meet safety
and soundness standards and request for compliance plan.
(a) Determination. OTS may, based upon an examination, inspection,
or any other information that becomes available to OTS, determine that
a savings association has failed to satisfy the safety and soundness
standards contained in the Interagency Guidelines Establishing
Standards for Safety and Soundness as set forth in appendix A to this
part or the Interagency Guidelines Establishing Standards for
Safeguarding Customer Information as set forth in appendix B to this
part.
* * * * *
6. Revise appendix B to part 570 to read as follows:
Appendix B to Part 570--Interagency Guidelines Establishing
Standards for Safeguarding Customer Information
Table of Contents
I. Introduction
A. Scope
B. Preservation of Existing Authority
C. Definitions
II. Standards for Safeguarding Customer Information
A. Information Security Program
B. Objectives
III. Development and Implementation of Customer Information Security
Program
A. Involve the Board of Directors
B. Assess Risk
C. Manage and Control Risk
D. Oversee Service Provider Arrangements
E. Adjust the Program
F. Report to the Board
G. Implement the Standards
I. Introduction
The Interagency Guidelines Establishing Standards for
Safeguarding Customer Information (Guidelines) set forth standards
pursuant to section 39 of the Federal Deposit Insurance Act (section
39, codified at 12 U.S.C. 1831p-1), and sections 501 and 505(b),
codified at 15 U.S.C. 6801 and 6805(b), of the Gramm-Leach-Bliley
Act. These Guidelines address standards for developing and
implementing administrative, technical, and physical safeguards to
protect the security, confidentiality, and integrity of customer
information.
A. Scope. The Guidelines apply to customer information
maintained by or on behalf of entities over which OTS has authority.
For purposes of this appendix, these entities are savings
associations whose deposits are FDIC-insured and any subsidiaries of
such savings associations, except brokers, dealers, persons
providing insurance, investment companies, and investment advisers.
This appendix refers to such entities as ``you'.
B. Preservation of Existing Authority. Neither section 39 nor
these Guidelines in any way limit OTS's authority to address unsafe
or unsound practices, violations of law, unsafe or unsound
conditions, or other practices. OTS may take action under section 39
and these Guidelines independently of, in conjunction with, or in
addition to, any other enforcement action available to OTS.
C. Definitions. 1. Except as modified in the Guidelines, or
unless the context otherwise requires, the terms used in these
Guidelines have the same meanings as set forth in sections 3 and 39
of the Federal Deposit Insurance Act (12 U.S.C. 1813 and 1831p-1).
2. For purposes of the Guidelines, the following definitions
apply:
a. Customer means any of your customers as defined in
Sec. 573.3(h) of this chapter.
b. Customer information means any record containing nonpublic
personal information, as defined in Sec. 573.3(n) of this chapter,
about a customer, whether in paper, electronic, or other form, that
you maintain or that is maintained on your behalf.
c. Customer information systems means any methods used to
access, collect, store, use, transmit, protect, or dispose of
customer information.
d. Service provider means any person or entity that maintains,
processes, or otherwise is permitted access to customer information
through its provision of services directly to you.
II. Standards for Safeguarding Customer Information
A. Information Security Program. You shall implement a
comprehensive written information security program that includes
administrative, technical, and physical safeguards appropriate to
your size and complexity and the nature and scope of your
activities. While all parts of your organization are not required to
implement a uniform set of policies, all elements of your
information security program must be coordinated.
B. Objectives. Your information security program shall be
designed to:
1. Ensure the security and confidentiality of customer
information;
2. Protect against any anticipated threats or hazards to the
security or integrity of such information; and
3. Protect against unauthorized access to or use of such
information that could result in substantial harm or inconvenience
to any customer.
III. Development and Implementation of Information Security Program
A. Involve the Board of Directors. Your board of directors or an
appropriate committee of the board shall:
1. Approve your written information security program; and
2. Oversee the development, implementation, and maintenance of
your information security program, including assigning specific
responsibility for its implementation and reviewing reports from
management.
B. Assess Risk. You shall:
1. Identify reasonably foreseeable internal and external threats
that could result in unauthorized disclosure, misuse, alteration, or
destruction of customer information or customer information systems.
2. Assess the likelihood and potential damage of these threats,
taking into consideration the sensitivity of customer information.
3. Assess the sufficiency of policies, procedures, customer
information systems, and other arrangements in place to control
risks.
C. Manage and Control Risk. You shall:
1. Design your information security program to control the
identified risks, commensurate with the sensitivity of the
information as well as the complexity and scope of your activities.
You must consider whether the following security measures are
appropriate for you and, if so, adopt those measures you conclude
are appropriate:
a. Access controls on customer information systems, including
controls to authenticate and permit access only to authorized
individuals and controls to prevent employees from providing
customer information to unauthorized individuals who may seek to
obtain this information through fraudulent means.
b. Access restrictions at physical locations containing customer
information, such as buildings, computer facilities, and records
storage facilities to permit access only to authorized individuals;
c. Encryption of electronic customer information, including
while in transit or in storage on networks or systems to which
unauthorized individuals may have access;
d. Procedures designed to ensure that customer information
system modifications are consistent with your information security
program;
e. Dual control procedures, segregation of duties, and employee
background checks for employees with responsibilities for or access
to customer information;
f. Monitoring systems and procedures to detect actual and
attempted attacks on or intrusions into customer information
systems;
g. Response programs that specify actions for you to take when
you suspect or detect that unauthorized individuals have gained
access to customer information systems, including appropriate
reports to regulatory and law enforcement agencies; and
h. Measures to protect against destruction, loss, or damage of
customer information due to potential environmental hazards, such as
fire and water damage or technological failures.
2. Train staff to implement your information security program.
3. Regularly test the key controls, systems and procedures of
the information security program. The frequency and nature of such
tests should be determined by your risk assessment. Tests should be
conducted or reviewed by independent third parties or staff
independent of those that develop or maintain the security programs.
D. Oversee Service Provider Arrangements. You shall:
1. Exercise appropriate due diligence in selecting your service
providers;
2. Require your service providers by contract to implement
appropriate measures designed to meet the objectives of these
Guidelines; and
3. Where indicated by your risk assessment, monitor your service
providers to confirm that they have satisfied their
[[Page 8641]]
obligations as required by paragraph D.2. As part of this
monitoring, you should review audits, summaries of test results, or
other equivalent evaluations of your service providers.
E. Adjust the Program. You shall monitor, evaluate, and adjust,
as appropriate, the information security program in light of any
relevant changes in technology, the sensitivity of your customer
information, internal or external threats to information, and your
own changing business arrangements, such as mergers and
acquisitions, alliances and joint ventures, outsourcing
arrangements, and changes to customer information systems.
F. Report to the Board. You shall report to your board or an
appropriate committee of the board at least annually. This report
should describe the overall status of the information security
program and your compliance with these Guidelines. The reports
should discuss material matters related to your program, addressing
issues such as: risk assessment; risk management and control
decisions; service provider arrangements; results of testing;
security breaches or violations and management's responses; and
recommendations for changes in the information security program.
G. Implement the Standards. 1. Effective date. You must
implement an information security program pursuant to these
Guidelines by July 1, 2001.
2. Two-year grandfathering of agreements with service providers.
Until July 1, 2003, a contract that you have entered into with a
service provider to perform services for you or functions on your
behalf satisfies the provisions of paragraph III.D., even if the
contract does not include a requirement that the servicer maintain
the security and confidentiality of customer information, as long as
you entered into the contract on or before March 5, 2001.
Dated: December 19, 2000.
By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 01-1114 Filed 1-31-01; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P