FR 2020-28498

The document from the Federal Register outlines a proposed rule that involves stricter reporting requirements for banking organizations and their service providers in the event of significant cybersecurity incidents. These regulations aim to address the increasing threats posed by cyberattacks that can severely disrupt banking operations and potentially threaten the stability of the financial system.

General Summary

The proposed rule requires that banking organizations notify their primary federal regulators within 36 hours after determining, in good faith, that a significant cybersecurity incident has occurred. An incident considered a "notification incident" is one that could materially disrupt banking services or affect financial stability. Furthermore, bank service providers must inform at least two individuals at their customer banking organizations immediately if an incident leads to service disruption for four or more hours. This rule is intended to allow for timely and coordinated responses to potential cybersecurity threats that might impact the banking sector.

Significant Issues and Concerns

One of the primary concerns about the proposed rule is the complexity of its language, which includes numerous legal and regulatory references that may be difficult for the general public to understand. The requirement to notify regulators within 36 hours could be particularly challenging for smaller organizations with fewer resources or less sophisticated systems. The use of ambiguous language, such as "believes in good faith," may lead to inconsistent interpretations between different banking organizations as they determine when they must report an incident.

Moreover, the document lacks clear definitions for what qualifies as "significant harm" or "material disruption," which could result in varied compliance levels among organizations. Additionally, there is concern that the estimated number of notification incidents—150 annually—might be inaccurately low or high due to insufficient supporting data. The proposal also raises potential concerns about the economic impact on smaller institutions and does not supply particular guidance on how these entities can comply efficiently without incurring substantial costs.

Impact on the Public

Broadly, the document aims to enhance the security of the financial system by ensuring that incidents of significant disruption are promptly reported and managed. While this objective is crucial for maintaining public confidence in banking services, the complexity of the rules and potential high compliance costs may lead to challenges in implementation across the sector.

Impact on Specific Stakeholders

For larger banking organizations, the proposed rule may formalize processes they already have in place for handling cybersecurity incidents, potentially leading to a more coordinated response across the sector. However, smaller entities may face difficulties due to limited resources and might struggle to meet the stringent notification requirements, resulting in increased operational burdens.

The provision demanding that bank service providers notify banking organizations promptly could ensure that banks are better informed and can take swift actions to mitigate repercussions from cybersecurity incidents. However, this added requirement might result in increased administrative responsibilities for service providers.

Lastly, the proposal's emphasis on public disclosure of comments, including personal information, may discourage some stakeholders from contributing valuable feedback. This lack of input could hinder a comprehensive evaluation of the proposed rule by regulators, potentially overlooking critical insights from impacted parties.

The document under review discusses a proposed rulemaking concerning computer-security incident notification requirements for banking organizations and their service providers. Financial implications are crucial to understanding the scope and potential impact of the rule.

Financial References in the Proposed Rule

The document contains multiple references to financial thresholds and costs, which are important for evaluating the economic impact of the proposed rule on different entities.

1. Small Entities Definition: The Small Business Administration (SBA) has defined small entities as banking organizations with total assets of $600 million or less. This threshold is critical in determining which entities the rule will impact, particularly concerning the regulatory flexibility needed for smaller organizations. The rule's potential economic burden on such entities needs careful assessment to ensure compliance without significant financial strain.

2. Compliance Costs: The document estimates the additional compliance costs per notification incident. The regulatory burden is considered de minimis, with costs projected at $600 per notification, based on an elevated labor rate of $200 per hour for three hours of staff time. This cost estimation is intended to be minimal but could still be burdensome for smaller institutions, especially if incidents are frequent or require repeated notifications.

3. Aggregate Expenditure Threshold: The rule considers whether it would result in expenditures by state, local, and tribal governments, or by the private sector, of $157 million or more in any year. This threshold is important for determining if the rule imposes an unfunded mandate according to federal standards. The determination that expected costs are de minimis suggests the rule is designed to avoid significant financial impact on these entities.

Relations to Identified Issues

The financial considerations in the document highlight several issues related to its implementation:

• Complexity and Rigid Timeframes: The proposed rule's rigid notification timeframe of 36 hours might challenge smaller entities due to their more limited resources. The estimated $600 per notification cost could accumulate quickly, increasing financial pressure on these organizations.

• Ambiguity and Compliance Variability: There is ambiguity in what constitutes a "notification incident," which may lead to inconsistency across organizations. The financial threshold for small entities further complicates whether these entities can uniformly meet compliance expectations without incurring significant costs.

• Economic Impact on Smaller Institutions: The potential economic impact on smaller entities, defined by the $600 million assets threshold, raises concerns. While the rule's costs are considered minimal, smaller institutions might still find the financial and administrative burdens significant, exacerbated by frequent or severe security incidents.

• Privacy Concerns: The open access to public comments and the associated exposure of personal information could deter stakeholders, including small institutions, from providing input on the financial ramifications. This could skew the dialogue on how these financial references impact different sized entities.

In conclusion, the financial references in the rule play a key role in measuring the proposed rule's appropriateness for entities of varying sizes, emphasizing the need for clarity and flexibility to minimize undue economic burdens, especially on smaller banking organizations.