Canada: New Data Breach Requirements In Canada: How To Best Manage Your Risks

Last Updated: August 7 2015
Article by Nathalie David

Though recent amendments to Canada's Personal Information and Electronic Documents Act (PIPEDA) are now in force, the federal government has yet to release regulations addressing data breach notification. Still, given the growing number of well-publicized data breaches, it's critical for organizations to understand that their privacy policies and security safeguards are coming under greater scrutiny on all fronts. Below is a summary overview of some of the issues they need to keep in mind, as they prepare to face evolving cyber threats.

Stay tuned:  the new breach notification regime

The new PIPEDA provisions require organizations to keep a record of every breach of security safeguards involving personal information under its control. The amendments also require organizations to notify both affected individuals and the Privacy Commissioner of Canada if it is reasonable to believe that the breach risks significant harm to an individual.  "Significant harm" includes bodily harm, humiliation, damage to reputation or relationships, loss of employment, business or professional opportunities, financial loss, identity theft, negative effects on the credit record and damage to or loss of property.  Relevant factors in determining such a risk include the sensitivity of the personal information involved in the breach and the probability that it may be misused. Notification must be given "as soon as feasible" after the organization determines that the breach happened. The new provisions also give enhanced powers to the Privacy Commissioner of Canada. Failing to meet reporting requirement can carry a fine up to $100,000.

PIPEDA applies to organizations' commercial activities in all provinces, except within provinces that have their own privacy laws, which have been declared substantially similar (Québec, British Columbia, Alberta), and subject to certain exceptions.

Though the new federal breach requirements are not yet in force, companies facing a breach ought to consult legal counsel to advise them on the best notification and reporting practices.

In truth, larger organizations have been doing this for some time. SMEs, however, often have fewer resources. According to a 2015 Shred-It survey, 24% of SMEs offer their staff training on information security, compared to 73% within large organizations. The survey also shows that SMEs are less aware of security issues and have fewer protocols in place. This puts them at greater risk of becoming victims of a breach. What's more, they may be unprepared to respond in the event of a breach, even though many are involved in multiple-party contractual situations where they are expected to maintain high standards of security safeguards.

The Board must take the lead

Privacy statutes impose stringent obligations on organizations to protect personal information in their possession or under their control.  Although cyber risk is frequently seen as a budget item delegated to the IT department, it should definitely be handled at the board level. The board's role is to establish senior management accountability and a cyber-aware culture. This includes having proper security safeguards in tune with industry standards.

Manage the "Insider Threat"

IT experts often say that if they only had one dollar to spend on cyber risk, they would spend it on training IT users. Cyber risks can be managed and greatly reduced by properly training the organization's employees, along with the implementation of privacy safeguards. Also, systems should be internally monitored and gap identification should be tracked. As the saying goes, it is impossible to manage what is not measured.

Beware of B2B cyber liability

There are risks when contracting with third parties. When outsourcing work, for instance, organizations should have strong agreements in place that address cyber security policies and safeguards. Under privacy statutes, organizations that collect personal information remain accountable even when the information is transferred to a third party for processing. And often the organization that has the direct relationship with the customer will be expected to respond, even if the breach was caused by the service provider's negligence. In all cases organizations should have written contracts with their suppliers or vendors that address these issues and provide for a general undertaking to respect the organization's privacy policies.

The breach response or building trust with your customers

It is said that even the best systems are vulnerable to a breach: a small crack in a company's systems is more than enough for hackers to wreak havoc on a company's IT infrastructure.

Human error also remains a factor – everyone makes mistakes. That's why every organization needs a proven breach response plan involving the right people – board members, IT department, PR and HR professionals, external legal consultants, and their cyber insurers. Depending on the company's arrangements, part of its risk may be transferred to the insurer through a cyber policy, which will offer coverage for cyber-related risks and claims support by a specialist crisis management team  (including counsel and forensic experts).

Also, the world is moving from an environment of liability to one of accountability, and building trust with customers is essential to surviving a crisis. As scandals pile up about questionable handling of personal data, organizations must promptly set a course of action, which may include notifying individuals, privacy commissioners and other interveners (third party contractors, law enforcement authorities, etc).   

Know the law wherever your business takes you

Privacy laws vary from one jurisdiction to another, and global organizations have no choice but to comply with all privacy standards wherever they do business.  For instance, with respect to breach notification, organizations are subject to the rules where the individual victims reside.  There is no global standard that can be easily met. In the U.S. alone, states have legislated dozens of different standards. There are efforts under way there to unify the various data breach disclosure laws into a single, federal standard.  But until then, organizations must deal with a patchwork of notification requirements, some of which impose direct consumer notification; others will simply issue fines for the non-respect of privacy laws.

Keep an eye on rulings from local courts

Another challenge is the evolving role of local courts in enforcing privacy laws against global companies. We saw this recently when, in June 2015, the Court of Appeal of British Columbia upheld a worldwide injunction ordering the internet giant Google to block a website that violated the trade secrets of the plaintiffs.  The ruling is remarkable because Google is incorporated in Delaware and has no physical presence or staff in B.C. Nevertheless, the court found that Google was subject to its jurisdiction because its commercial activities target users, advertisers and businesses in the province. It isn't a major stretch to imagine lawmakers and courts all over the world taking a keen interest in the cross-border nature of data breaches.

Outside counsel: guiding your response efforts

When facing a data breach, an organization will have to manage what information it discloses to its consultants or privacy authorities. Having legal counsel involved in process helps protect the actions and communications of the organization during the breach response, through client or litigation privilege. Outside counsel will also bring some objectivity to the table in framing the organization's obligations, notably with respect to disclosure. By being in a position to communicate freely with their legal counsel, risk managers will be able to swiftly identify all legal requirements that flow from the breach findings, thereby ensuring a quicker corporate response.

Also, under the new PIPEDA rules (not yet in force), law enforcement or government agencies might prevent an organization from reporting or notifying a breach until they've completed their investigation. And yet an organization may be bound by other requirements, such as communicating a breach to its insurer. Legal counsel can help to sort through the competing requirements.

Cyber insurance

The process of buying cyber insurance should be part of a comprehensive cyber security plan. For one, it requires an assessment of the risks the business faces and implementing safeguards to mitigate those risks. Indeed, a common misconception is that only large organizations, financial institutions, retailers or companies that directly collect personal information have exposure to cyber risk. And yet any company that transacts with third parties handling large amounts of data is potentially exposed. Knowing what that exposure is a crucial step in limiting cyber liability for any organization, regardless of its size.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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