A New York Times article earlier this week reported that top officials at the Treasury Department have identified a key area for strengthening data security – third-party service providers. Reuters reported that on Tuesday of this week New York State Department of Financial Services superintendent, Benjamin Lawsky, sent a letter to a number of banks inquiring about the

level of insight financial institutions have into the sufficiency of cybersecurity controls of their third-party service providers

In his letter, according to the Reuters report, Mr. Lawsky asked banks to provide “any policies and procedures governing relationships with third-party service providers.”

These actions follow the run of recent large-scale data breaches that have plagued many large U.S. companies, including those in the financial services sector. The exposure that vendors create is nothing new. For example, we discussed it in the context of the Massachusetts data security regulations and have seen similar concerns raised and instances of vendor breaches in other sectors such as education and healthcare. But the renewed attention now being paid to this exposure in the financial services sector may result in the need for more effort in this area for all businesses.

Of course, there are a number of laws and best practices that address vendor security. For example, HIPAA covered entities are already familiar with the “business associate agreements” they must have in place with many of their third-party service providers. A number of states, such as California, Massachusetts, Maryland and others, also require businesses that share residents’ personal information with third-party service providers to have a written agreement in place with each of those providers to safeguard that information.

What more could be coming?

That remains to be seen, but there are a number of steps businesses can take to enhance vendor privacy and security in addition to negotiating an agreement concerning data security. Some high-level examples include:

  • Including the vendor in your risk assessment process, and understanding what its risk assessment process involves.
  • Meet with your vendor’s IT lead, but also others in the vendor’s organization – legal, accounting, HR, sales, etc. This will give you a better sense of the culture of privacy and security at the vendor.
  • Review the vendor’s policies and procedures, including how often its employees are trained.
  • Require the vendor to submit to an independent data security audit/review.
  • Ask the vendor about its data breach response plan, and how often it is practiced. Include the vendor when you practice your own response plan.
  • Regularly reevaluate your vendor in this area, particularly when there are changes in technology, in your business, in the vendor’s business, and in the services received from the vendor.

This is not an exhaustive list, and each step could be fleshed out more or less depending on the risk the vendor presents. The point is that because of the critical role vendors play, and the information they have access to (which may include not just personal information but also company proprietary data), the measures taken to protect that data should be comparable.

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Photo of Joseph J. Lazzarotti Joseph J. Lazzarotti

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP)…

Joseph J. Lazzarotti is a principal in the Berkeley Heights, New Jersey, office of Jackson Lewis P.C. He founded and currently co-leads the firm’s Privacy, Data and Cybersecurity practice group, edits the firm’s Privacy Blog, and is a Certified Information Privacy Professional (CIPP) with the International Association of Privacy Professionals. Trained as an employee benefits lawyer, focused on compliance, Joe also is a member of the firm’s Employee Benefits practice group.

In short, his practice focuses on the matrix of laws governing the privacy, security, and management of data, as well as the impact and regulation of social media. He also counsels companies on compliance, fiduciary, taxation, and administrative matters with respect to employee benefit plans.

Privacy and cybersecurity experience – Joe counsels multinational, national and regional companies in all industries on the broad array of laws, regulations, best practices, and preventive safeguards. The following are examples of areas of focus in his practice:

  • Advising health care providers, business associates, and group health plan sponsors concerning HIPAA/HITECH compliance, including risk assessments, policies and procedures, incident response plan development, vendor assessment and management programs, and training.
  • Coached hundreds of companies through the investigation, remediation, notification, and overall response to data breaches of all kinds – PHI, PII, payment card, etc.
  • Helping organizations address questions about the application, implementation, and overall compliance with European Union’s General Data Protection Regulation (GDPR) and, in particular, its implications in the U.S., together with preparing for the California Consumer Privacy Act.
  • Working with organizations to develop and implement video, audio, and data-driven monitoring and surveillance programs. For instance, in the transportation and related industries, Joe has worked with numerous clients on fleet management programs involving the use of telematics, dash-cams, event data recorders (EDR), and related technologies. He also has advised many clients in the use of biometrics including with regard to consent, data security, and retention issues under BIPA and other laws.
  • Assisting clients with growing state data security mandates to safeguard personal information, including steering clients through detailed risk assessments and converting those assessments into practical “best practice” risk management solutions, including written information security programs (WISPs). Related work includes compliance advice concerning FTC Act, Regulation S-P, GLBA, and New York Reg. 500.
  • Advising clients about best practices for electronic communications, including in social media, as well as when communicating under a “bring your own device” (BYOD) or “company owned personally enabled device” (COPE) environment.
  • Conducting various levels of privacy and data security training for executives and employees
  • Supports organizations through mergers, acquisitions, and reorganizations with regard to the handling of employee and customer data, and the safeguarding of that data during the transaction.
  • Representing organizations in matters involving inquiries into privacy and data security compliance before federal and state agencies including the HHS Office of Civil Rights, Federal Trade Commission, and various state Attorneys General.

Benefits counseling experience – Joe’s work in the benefits counseling area covers many areas of employee benefits law. Below are some examples of that work:

  • As part of the Firm’s Health Care Reform Team, he advises employers and plan sponsors regarding the establishment, administration and operation of fully insured and self-funded health and welfare plans to comply with ERISA, IRC, ACA/PPACA, HIPAA, COBRA, ADA, GINA, and other related laws.
  • Guiding clients through the selection of plan service providers, along with negotiating service agreements with vendors to address plan compliance and operations, while leveraging data security experience to ensure plan data is safeguarded.
  • Counsels plan sponsors on day-to-day compliance and administrative issues affecting plans.
  • Assists in the design and drafting of benefit plan documents, including severance and fringe benefit plans.
  • Advises plan sponsors concerning employee benefit plan operation, administration and correcting errors in operation.

Joe speaks and writes regularly on current employee benefits and data privacy and cybersecurity topics and his work has been published in leading business and legal journals and media outlets, such as The Washington Post, Inside Counsel, Bloomberg, The National Law Journal, Financial Times, Business Insurance, HR Magazine and NPR, as well as the ABA Journal, The American Lawyer, Law360, Bender’s Labor and Employment Bulletin, the Australian Privacy Law Bulletin and the Privacy, and Data Security Law Journal.

Joe served as a judicial law clerk for the Honorable Laura Denvir Stith on the Missouri Court of Appeals.