New York Attorney General Eric Schneiderman is proposing legislation to tighten data security laws and expand protections.

The Stop Hacks and Improve Electronic Data Security Act (SHIELD Act) would close major gaps in New York’s data security laws, without putting an undue burden on businesses.

“It’s clear that New York’s data security laws are weak and outdated. The SHIELD Act would help ensure these hacks never happen in the first place. It’s time for Albany to act, so that no more New Yorkers are needlessly victimized by weak data security measures and criminal hackers who are constantly on the prowl,” said Attorney General Schneiderman.

The SHIELD Act was introduced this week by Attorney General Schneiderman as a program bill and is sponsored by Senator David Carlucci and Assemblymember Brian Kavanagh.

Under Attorney General Schneiderman’s SHIELD Act, companies would have a legal responsibility to adopt “reasonable” administrative, technical, and physical safeguards for sensitive data; the standards would apply to any business that holds sensitive data of New Yorkers, whether they do business in New York or not. The standards are sensible, and commensurate with the sensitivity of the data retained and the size and complexity of the business.

The SHIELD Act also expands the types of data that trigger reporting requirements, to include username-and-password combinations, biometric data, and HIPAA-covered health data. The bill also provides companies with a strong incentive to go beyond the bare minimum, and obtain independent certification that their data security measures meet the highest standards; companies that do so would receive safe harbor from state enforcement action.

“Recent data breaches have put New Yorkers at risk. We are woefully unprepared to protect against cyber attacks, putting America's economy in peril. While the federal government drags their feet we must act to protect New Yorkers. The SHIELD Act will serve as a blueprint for NY and the rest of the nation to follow to keep Americans safe,” said Senator David Carlucci.

The SHIELD Act:

• Requires reasonable security for private information, using standards tailored to the size of the business, while avoiding duplicate regulations and providing incentive to businesses that certify security compliance.  Specifically, the bill:
  • Carves out “compliant regulated entities,” defined as those already regulated by, and compliant with, existing or future regulations of any federal or NYS government entity (including NYS DFS regulations; regulations under Gramm-Leach-Bliley; HIPAA regulations) by deeming them compliant with this law’s reasonable security requirement.  The bill provides that “certified compliant entities,” defined as those with independent certification of compliance with aforementioned government data security regulations, or with ISO/NIST standards, receive safe harbor from AG enforcement actions under this law. 
  • Provides a more flexible standard for small business (less than 50 employees and under $3 million in gross revenue; or less than $5 million in assets): requiring reasonable safeguards “appropriate to the [small business’s] size and complexity”
  • For all other businesses, requires “reasonable safeguards” and provides clear examples of safeguards (e.g., technical, administrative, and physical measures).
• Deems inadequate security a violation of GBL § 349 and permits the Attorney General to bring suit and seek civil penalties under GBL § 350(d).
• Broadens the requirements for reporting a breach to the Attorney General by adding as a trigger of required notice:
  • “Access to” (e.g., viewing of) private info (in addition to current trigger for “acquisition”)  
  • Notification for breaches of additional data types, including username-and-password combination, biometric data, and HIPAA-covered health data
• Applies the notice requirement to anyone holding private info of New Yorkers, changing the current requirement that they “conduct business” in New York State.