UK: Looking Ahead: The Future Of Data Breach In The UK

"The data breach landscape is going to change a great deal, and very quickly over the next year. I'd expect to see notification as a mandatory requirement for everyone by 2016, so cyber security, data compliance and breach readiness will have to become absolutely routine business practice. Right now, there is still a lot to learn."

Margaret Tofalides, Partner and Head of UK & EU Data and Cyber Security Practice, Clyde and Co LLP

As hackers and cyber criminals become more sophisticated and internet connectivity becomes ever more ubiquitous, so the risk of data breach will inevitably rise – and rise quickly. This is the harsh reality facing UK organisations that are already behind the curve when it comes to understanding data breach risks and planning effective breach responses.

Tougher regulation, whether driven by the EU or the UK seems inevitable given public demand - 83% of consumers think companies should be subject to increased data breach regulation. Meanwhile, compulsory notification would have the added effect of raising public awareness of breaches in general – and expanding the halo effect far beyond just those affected by a breach.

Indeed, the EU Data Protection Regulation, which looks set to be introduced across all the EU member states from 2016, promises to be a game changer. It sets out a series of provisions that will fundamentally change the data breach landscape – raising both the financial and reputational stakes significantly.

Key provisions include:

  • Universal mandatory notification: All Data Controllers must notify ALL breaches of personal data to the Data Protection Authority within 72 hours;

  • Massively increased sanctions: Fines in the UK will rise from the current maximum of £500,000 to £100 million or up to 5% of annual worldwide turnover in case of an enterprise, whichever is greater.

These changes will raise the media and public profile of data breaches. In so doing, they will precipitate greater reputational damage and increase the impact of data breaches on consumer trust and loyalty in the future – changes that, notwithstanding its significant structural differences from the UK, have already been witnessed in the US.

As Paul Bantick, UK TMB Focus Group Leader & Underwriter, Beazley plc pointed out: "Here in the UK, certain things that have taken place in the US have not yet happened. The key thing is regulation. What that regulation does is make breaches far more complex to manage, a bigger crisis and much more expensive."

The US: A Precursor for the UK?

"The last five years' roadmap in the US is a really good precursor for the UK, and how the UK data breach landscape will develop, how changes in regulation and consumer attitudes will drive a greater focus on the response. Looking at the US can give you a good idea of how things are going to develop. Then it's about how you take advantage of that foresight."

Michael Bruemmer VP, Consumer Protection at Experian Consumer Services US

Looking at the US today, we can see that :

  • The risk of data breach is higher: 46% of US firms have suffered a data breach in the last two years, compared with 17% in the UK;
  • Costs are higher: The average US data breach costs £132 per record compared with £104 in the UK;
  • Lost business costs are higher in the US, reaching £2.2 million on average, compared with less than £1 million in the UK.

In short, if the UK should follow a similar upward pattern to that which has been observed in the US over the last five years, we can expect to see the incidence of breach rise, and the consequences become substantially more severe.

Businesses erring on the side of caution will be concerned about the compulsory notification, more significant fines and greater public awareness that will be a consequence of the EU Data Protection Regulation – all of which widen the net for the potential for more significant reputational impact and an expanded halo effect of financial damage.

"I do think the UK is taking breach, particularly from a privacy standpoint, very seriously, and I do expect that, when the EU passes its new legislation, it will be like the US when legislation became more stringent - you'll see big changes in the reaction of businesses."

Michael Bruemmer, VP, Consumer Protection at Experian Consumer Services, US

Best practice 2015: The Customer First Data Breach Response

It is clear that UK organisations still have a lot to learn about planning and delivering an effective data breach response. Moreover, learning those lessons will be vital to minimising the damage caused by data breaches - by limiting the amplifying effect of negative customer perceptions on the overall financial halo effect.

The organisations most equipped to withstand the impacts of data breaches in an ever more demanding environment will take a proactive, integrated approach. They will develop detailed response plans that:

  • Focus first and foremost on managing the impact on those affected – recognising that this is where all other impacts ultimately flow from – and let this focus guide communication with the wider public, the media and regulators;
  • Identify response teams, roles, responsibilities and lines of communication and draw support and direct involvement at the highest level of the business;
  • Identify and put in place master agreements with specialist suppliers – outside legal counsel, insurance, digital forensics, customer support, credit monitoring, and crisis communications;
  • Incorporate specific plans for each discipline with the response ecosystem – a digital forensics response plan, a crisis communications plan, a consumer outreach plan, and so on;
  • Mandate regular testing and scenario planning to ensure plans are relevant and cover all possible outcomes.

Where we're heading: The expert view - key considerations across the data breach response ecosystem

Customer Support: Protect Customer Relationships

Jim Steven, Head of Data Breach Services, Experian

The research behind this paper tells an interesting story about UK businesses' priorities following a data breach. They are clearly concerned about regulatory action, financial consequences and the impact on reputation and customer loyalty - but do not yet understand that managing the impact on affected customers is the key to mitigating all these issues.

Prepare: In a live breach scenario, there are no second chances and a fumbled customer support programme can have disastrous consequences. A clear plan designed to reflect the full range of breach scenarios, and regularly tested, is an absolute must.

  • Respond: Moving to contact and reassure customers as quickly as possible is vital to containing negative perceptions – demonstrating a clear focus on supporting those affected plays an important role in mitigating wider reputational damage and shaping the regulatory consequences of a breach.
  • Reassure: The first contact with affected customers sets the tone. It must be clear and concise, reassuring them that the business is taking active steps to address the situation, detailing the support available and giving clear guidance on any immediate action customers should take.
  • Recover: Giving customers a sense of control following a breach is vital, and that means providing them with simple, easy-to-use tools and support they can use to defend against mis-use of their personal data – from credit monitoring and identity theft protection services to dedicated support helplines.

Insurance: Look Beyond Liability

Paul Bantick, UK TMB Focus Group Leader & Underwriter, Beazley plc

There are two elements to cyber and breach insurance. There is the response and the liability, and the response element is going to get much more important. It is much more about the proactive – a solution that draws together all the expertise required to minimise the impacts of a breach.

  • Understand what a 'good breach' looks like: The characteristics of a good breach are that, at the end of the day, the regulator and the press are saying "Yes, you had a breach, but the response was excellent and has really focused on protecting those affected."
  • Demand for insurance will grow quickly: In the U.S., the market for breach insurance is already pretty mature. We are at the stage (in the U.S.) where SMEs are buying cover. In the UK it is still early days and, in the main, only the very biggest firms are insuring.
  • Readymade response: Businesses that do insure want an insurance solution that takes the lead in terms of co-ordinating implementation of a data breach response plan, drawing on a readymade suite of expert vendors to manage the entire process and minimise the damage.
  • Risk management: The other emerging area of demand over the last 18 months has been pre-breach risk management. We increasingly get involved in helping businesses to develop and test incident response plans.

Legal Counsel: Navigate the Complexity

Margaret Tofalides, Partner and Head of UK and EU Data and Cyber Security Practice, Clyde & Co LLP

Having access to specialist legal counsel is important now and will be vital in future. The speed and quality of the response is going to be ever more important to damage limitation, in terms of the regulators and in terms of public perception - and the ability to draw on specialist legal expertise will be central to that.

  • Build relationships: It is advisable to have a relationship with the ICO prior to any breach; to know who the right people are to be in contact with, what information you will need to provide and what will be expected of you in the event of an incident.
  • Escalate the issue: I think it is inevitable that business will have to make cyber security, data compliance and breach response planning board level issues. These are issues that will become as routine for boards of directors as the annual audit, particularly as regulation gets tougher.
  • Notification will be compulsory: Compulsory notification for everyone will be a game changer. It will significantly increase the potential for reputational damage and the financial impacts that flow from it.

Digital Forensics: Secure the Evidence

Nick Prescott, Information Security Manager, Blackthorn Technologies

In essence, digital forensics' role in the process is in gathering and interpreting the evidence that could be presented in court, or to a regulator. It provides the definitive account of what happened, how and why – and what needs to be done to prevent a repeat.

Act quickly: There has to be a focus on preserving evidence. Things are improving, but all too often we will get called in when it is almost too late - when preserving the evidence has come in second place amidst the pressure of trying to deal with the live event.

  • Highest standard of proof: The aim should always be to enable a forensic investigation that delivers the highest standard of evidence – evidence that would stand up in a court of law should that be required.
  • Law enforcement: There is always the potential that a data breach is the result of criminal activity. One of the first questions we will ask once we get involved is whether the client has informed law enforcement.

Deal with the issues: Forensics plays a vital role in helping organisations to lower risk, by giving them the insight and guidance they need to deal with the vulnerabilities that were at the root cause of a breach.

Crisis Communications: Care, Concern, Commitment

Claire Snowdon, Director, Regester Larkin

The big challenge for communications is to be at the table when the senior leadership team is looking at data breach risks and working out what the right response should be. There is still more to do in terms of understanding how well planned communications can help to manage reputational risks.

  • Be prepared for anything: One of the key things is to scenario plan for every eventuality. In the age of social media and 24 hour rolling news, there is a very good chance that the public and the media will know about a data breach before the business does.
  • Manage the reaction: In the minutes and hours immediately after the news breaks, it is possible you won't have all the facts. You won't know exactly what has happened, to whom, how or why. The key here is to express care and concern for customers first and foremost, and to communicate control over the situation.
  • Move quickly: The organisation will sometimes be dealing with criminal activity, so there may be restrictions in terms of what can be said and when, but it is clearly not helpful to wait 24, 48 hours before saying anything. That creates an information vacuum that will be filled by commentators who are unlikely to say things helpful to your cause.

Conclusion

There is no escaping the fact that the UK data breach landscape is going to change rapidly over the next two years. The frequency of breach incidents will continue to rise and tougher regulation, driven by the EU Data Protection Regulation, will raise the stakes significantly.

Fines of up to 5% of global revenues will focus minds in boardrooms across the UK on prevention, but compulsory notification of all breaches will be just as important. Increased media attention, negative reporting and detrimental social media trending around breaches will change public perceptions and behaviour – amplifying and extending reputational damage beyond those affected and driving potentially severe and long-lasting financial impacts from increased customer churn and negative brand associations.

All this will set data breach response planning into sharp focus – and it is clear from our research that all too many UK businesses are simply not doing enough to prepare for the worst. Quite simply, an 'it'll never happen to us' mentality prevails and this is reflected in businesses' confused views about preparedness: On the one hand they are confident of their readiness, on the other there is a real lack of legitimate planning and preparation and a woeful lack of focus on managing the impact on customers.

The truth is that UK businesses are a long way from ready to deal with the current data breach landscape, let alone the high octane environment we are likely to see emerge over the next two years. The time to prepare is now and that must start with a realisation that the customer is the starting point.

The customer must be the number one priority in breach response planning, because the financial and reputational consequences of a data breach flow from its impact on customers, and from the business' effectiveness in managing those impacts.

As a result, the customer response must be embedded through the overall response, not an afterthought. A focus on customer response, reassurance and recovery must drive every aspect of the overall breach response – it must sit at the heart of a comprehensive response plan and act as a vital guiding principle for legal, forensic and crisis communications activity.

In short, the next two years will see the emergence of the 'Customer First Data Breach Response'.

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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