Federal Regulatory Agencies Issue Joint Guidance to Financial Institutions on Cyber Insurance
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The Federal Financial Institutions Examination Council (FFIEC) has issued a joint statement providing guidance for financial institutions about the role of cyber insurance in risk management of informational technology systems. The FFIEC comprises the principals of the following: The Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and State Liaison Committee.
On April 10, 2018, the FDIC, as a member of the FFIEC, issued statement FIL-16-2018, applicable to all FDIC-supervised institutions. Similarly, on April 11, 2018, the Office of the Comptroller of Currency (OCC) issued a similar bulletin (OCC Bulletin 2018-8) on the FFIEC’s joint statement, noting that the joint statement applies to all institutions supervised by the OCC. The joint statement and associated FDIC letter and OCC bulletin include the following highlights:
- FDIC-supervised institutions are not required to maintain cyber insurance. However, cyber insurance could offset financial losses from a variety of exposures—including data breaches resulting in the loss of confidential information—that may not be covered by more traditional insurance policies.
- Traditional general liability insurance policies may not provide effective coverage for all potential exposures caused by cyber events.
- Cyber insurance does not replace a sound and effective risk management program.
- Cyber attacks are increasing in volume and sophistication and that traditional general liability coverage insurance policies may not provide effective coverage for potential exposures caused by cyber events
- Cyber insurance may help reduce financial losses from a variety of exposures, such as data breaches resulting in the loss of sensitive customer information.
- Cyber insurance does not diminish the importance of a sound control environment; rather, cyber insurance may be a component of a broader risk management strategy.
- As institutions weigh the benefits and costs of cyber insurance, considerations may include: (a) involving multiple stakeholders in the cyber insurance decision; (b) performing proper due diligence to understand available cyber insurance coverage; and (c) evaluating cyber insurance in the annual insurance review and budgeting process.
The FFIEC’s statement is not intended to contain new regulatory expectations, but instead to provide awareness of the potential role of cyber insurance in financial institutions’ risk management programs. Financial institutions ultimately remain responsible for maintaining a control environment consistent with the guidance outlined in the FFIEC IT Examination Handbook.