Cybersecurity: Having a Privacy Policy is Not Enough

by Winthrop & Weinstine, P.A.

With the rash of significant data security incidents that occurred in 2013 and have continued to this day, it is increasingly important for companies to have an updated cybersecurity preparedness plan. The World Economic Forum ranked cyber-attacks as one of the top five most likely risks companies face in 2014.  

In reaction to the heightened risks and recent incidents, regulatory agencies have increased scrutiny in relation to cybersecurity. Congress and state legislatures are looking into new cybersecurity legislation; the Securities and Exchange Commission is targeting companies that rely on boilerplate disclosure language and do not disclose enough detail about cybersecurity risks or attacks; and state attorneys general are inquiring into companies' employee training practices with respect to data collection and data security practices. In addition, The National Association of Corporate Directors and other highly reputed organizations are advising companies that verifying their cybersecurity should be a top priority.  More and more companies are realizing the necessity of enacting procedures and protocols to protect against cybersecurity threats; as reported by The Wall Street Journal,* the issue has moved from the IT department to the boardroom.    

With our global economy, it is important for companies to be in compliance with all international data privacy and security laws, not just those in the United States. More and more countries are adopting these laws; one anticipated law is the European Union (EU) General Data Protection Regulation (GDPR), which will replace the EU Data Protection Directive currently governing the collection and transmission of personal information involving EU citizens. The EU GDPR is expected take effect in 2017, and in its current form, includes a heavy fine for noncompliance equal to 5% of global turnover (sales) or €100,000,000.  

Though the National Institute of Standards and Technology (NIST) framework, issued on February 12, 2014, provides a structure that organizations can use to create cybersecurity programs, simply following the framework will not insulate a company from liability for a cybersecurity incident.  

To minimize the potential liability that results from a cybersecurity incident, it is recommended that the company have a compliance program in place. The compliance program consists of three to four elements:

  • Designing the governance structure. This includes defining the actions involved in collecting and securing consumer data, who will have power over the collection and security processes, and how the company will verify performance.
  • Appointing a Data Protection Officer (DPO) (for public authorities and companies with a certain amount of customer data held). Under the current version of the EU GDPR, this mandatory position reports directly to the board of directors, and is responsible for ensuring compliance within organizations. (This requirement is being debated, and may be removed from the final EU GDPR).
  • Drafting. Companies must draft policies and procedures concerning the company's specific data collection and security processes and controls.
  • Training. Companies need to implement a program to train their employees on how to prevent data security incidents from occurring.

It is of critical importance that companies review and confirm compliance of their policies, procedures, and controls, as liability from potential attacks increases.    

 *Yadron, Danny. "Corporate Boards Race to Shore Up Cybersecurity."  The Wall Street Journal. 29 June 2014. (subscription required)


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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