UK: Internet Security

Last Updated: 31 July 2001
Article by Jonathan P. Armstrong

The public’s lack of faith in the internet as a secure place for commerce has been one of the most limiting factors for e-commerce growth. Sites need to feel secure to end-users to allow them to trade on line. There are also however legal considerations, which should not be overlooked.

The first starting point should be the Data Protection Act 1998 which came into force in UK law on the 31st March 2000. Most people will be familiar with the Act and the 8 principles of good practice which form the cornerstones of a data protection policy. Of particular relevance is the 7th data protection principle which says:

"Appropriate technical and organisational measures shall be taken against unauthorised or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data."

Most readers will be aware that the definition of ‘processing’ is a wide one as defined by s.1 of the Act:

""processing", in relation to information or data, means obtaining, recording or holding the information or data or carrying out any operation or set of operations on the information or data, including-

(a) organisation, adaptation or alteration of the information or data,

(b) retrieval, consultation or use of the information or data,

(c) disclosure of the information or data by transmission, dissemination or otherwise making available, or

(d) alignment, combination, blocking, erasure or destruction of the information or data;"

s.4 of the Act makes it a duty of a data controller to comply with the data protection principles in relation to all personal data with respect to which he is the data controller.

As well as the Data Protection Act 1998 there may also be additional regulation for certain types of internet activity which will be relevant to a business’s e-commerce security policy. As an example in the UK it has been reported that the FSA have said that they intend to keep a close eye on the security practices of e-banking sites and they will call e-banks to account for any breaches.

All of this means that every organisation must have regard to the state of the art in technology and consider on a regular basis whether, given the nature of the data held, additional security measures should be brought into place. A data controller must also take reasonable steps to ensure the reliability and compliance of employees who have access to personal data and, as a result, an employee policy, properly policed, is likely to be mandatory. If data is processed on an organisation’s behalf by a third party, or transmitted outside the EEA then additional measures must also be put in place.

The UK Act is mirrored by legislation in other jurisdictions. One high profile case this Autumn concerned the Spanish version of Big Brother. In Spain, like in the UK thousands of applicants sent their details in to the TV company with the hope of taking part. Some of the personal details of around 1,700 applicants appeared on a fanclub website after an attack on the TV company's server. In Spain, as in the UK, an attack like this offends against data protection legislation. It was reported that as a result the programme makers might face a fine up to $4m for its breach, together with civil actions from the unlucky contestants whose details appeared on the fan club site.

As well as the potential criminal liability that a breach of the 1998 Act brings an insecure website could also lead to civil liability. We have already seen the press activity surrounding the recent problems experienced by financial institutions with their online security and it is easy to imagine an aggrieved customer bringing proceedings against a bank for breach of the duties they owe to their customers. Potentially substantial civil damages could result if the customer concerned can prove loss. Even the frantic alteration of online banking terms which many banks have been engaged in may not stand up to judicial scrutiny. In the one recent incident a company reportedly offered £50 per customer to compensate for its security problems – a potentially tidy sum given that one customer claimed he could access 5,000 client details.

Customers could also start proceedings if they are unable to access a site. By way of illustration we can look at the reports from Sweden in December 1999 when a Swedish bank updated its system to cope with the Y2k change. BBC News reported that 'millions of people' might have had trouble shopping online or checking their bank accounts because of the problem.

As well as the problems faced from outsiders getting in in the US two cases have shown us that data must be kept secure, even perhaps from the purchasers of a company’s assets. The most high profile case concerned the collapse of the online retailer

Toysmart had published a privacy policy on its site saying how it intended to deal with customer information. Its policy said that personal information voluntarily submitted by visitors to the site (such as name, address, billing information and shopping preferences) was never shared with third parties. In the UK a policy like this is effectively mandatory since the Data Protection Act 1998 came into force in March. Toysmart was sued by the US Federal Trade Commission (FTC) for attempting to sell customer information in breach of its privacy policy. This happened after Toysmart went down and attempted to sell its assets, including the personal data collected.

In the aftermath of the prosecution two US senators have called for legislation to deal with this specific type of complaint. Senators Patrick Leahy, (D-Vermont) and Robert Torricelli, (D-New Jersey) attached the proposal to a broader piece of legislation that seeks to reform bankruptcy laws. In a letter seeking support for their new Bill they said: "Customers have a right to expect a firm to adhere to its privacy policies, whether it is making a profit or has filed for bankruptcy. Our bill closes this loophole in the bankruptcy code and ensures that online and offline firms keep their promises to protect personal privacy."

The case has also caused embarrassment to the majority owner of Toysmart, Walt Disney Company. Reports in the US say that it offered to purchase the customer list to ensure that the data remains confidential. This led to the FTC agreeing to a sale, subject to stringent conditions which are likely to significantly affect the value of Toysmart’s assets.

The FTC’s concerns in the Toysmart case were echoed by the collapse of another US internet retailer, announced that it had entered into a settlement agreement with the Texas Attorney General regarding any future sales or transfers of's customer list. The settlement still requires the final approval of the court but under the terms of the proposed settlement the court-appointed bankruptcy trustee will oversee the destruction of customer personal financial data such as credit card and bank account details. While the bankruptcy trustee may then sell or transfer the customer list excluding those details she must first give notice to all of's customers and give them the chance to opt-out of the proposed sale. The settlement also requires the bankruptcy judge to approve the notice and opt-out form sent. Clearly as a result of the intervention the value realized by the sale of's assets is likely to be severely reduced.

All of these developments show us that security and personal privacy are likely to be key-stones of an organisations’ development on the internet. Every organisation needs to think carefully when it changes its site and to have a properly drafted access agreement to regulate its liability with its customers. E-commerce companies who disregard security or give it a low priority will find themselves in trouble, in prison or out of business.

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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