UK: Named And Shamed - Will Your Data Security Breach Make The Headlines?

Last Updated: 16 November 2006
Article by James Brunger

In February 2005 database giant ChoicePoint revealed that 145,000 consumers across the United States were placed at risk by a recent data theft at the company. The data thieves created accounts for nonexistent debt collectors, insurance agencies and other companies, which gave them access to personal information stored on the ChoicePoint databases.

ChoicePoint originally notified its security breach only to those affected individuals that resided in California. The California Security Breach Notification Act (S.B. 1386), implemented in July 2003, requires notice to be given to Californian consumers of any breach in the security of unencrypted computerised personal information. At the time, California was the only US state to have implemented such legislation.

However, following pressure from other US states, ChoicePoint eventually disclosed the breach to affected individuals nationwide. This disclosure has now been adopted as a "best practice" standard in the US and the Californian law has been adopted in some form across 31 states. (http://www.consumersunion.org/campaigns/breach_laws_May05.pdf, 27 June 2006)

A broad spectrum of US corporations, governmental departments and universities has since notified affected individuals of security breaches. From these disclosures it is estimated that a total of 97,148,596 records containing sensitive personal information have been involved in security breaches.

(Privacy Rights Clearinghouse, http://www.privacyrights.org/ar/ChronDataBreaches.htm, 3 November 2006)

Data security breaches are certainly not unique to the US. In June 2005, The Sun exposed a security breach at Indian call centre Infinity eSearch. An employee sold an undercover reporter a CD containing confidential details of 1,000 British bank accounts and boasted that he could sell up to 200,000 account details each month.

However, unlike in the US data security breaches in the European Union are dealt with behind closed doors. In February 2006, Ernst & Young lost a laptop containing personal data relating to the employees of several client companies. IT news website The Register claims that the breach was not publicly disclosed until it contacted Ernst & Young and forced a response (http://www.theregister.co.uk/2006/02/25/ernst_young_mcnealy/).Current EU law (E-Privacy Directive (2002/58/EC)) requires providers of a publicly available electronic communications service to inform subscribers if there is a particular risk of a breach of network security. However, there is no requirement to inform a regulator of such risks or indeed to notify anyone in the event of an actual security breach.

The European Commission is concerned by this situation. It recently declared in June 2006 that providers of electronic communications networks and services have "so far failed to address security problems to the satisfaction of users." In response, buried in a consultation document broadly concerned with changes to the regulation of the communications industry, the European Commission has proposed an increase in security. Section 7.2 of the Communication on the Review of the EU Regulatory Framework for electronic communications networks and services - Proposed Changes (SEC (2006(816)), 28 June 2006 proposes to require providers of electronic communications networks and services to:

  • notify the relevant national regulator of any breach of security which led to the loss of personal data and/or to interruptions in the continuity of service-supply. The regulator would then be able to inform the general public of the breach if it considered that it was in the public interest to do so; and
  • notify their customers of any breach of security leading to the loss, modification or destruction of, or unauthorised access to, customer personal data.

The proposals will bring EU security breach notification requirements more into line with those in the US. The Commission considers that the pressure to avoid being publicly named and shamed will provide further encouragement for providers of electronic communications networks and services to keep personal data secure.

However, the proposals are not as wide in scope as US breach requirements. The Californian law affects personal data held by any business, government agency or non-profit organisation regardless of geographic location whereas the Commission proposals will only affect network operators and ISPs. The European Commission states that it has identified these two groups "as carrying a special responsibility, as the gatekeepers for users’ access to the on-line world, for data security". But it is likely to have restricted the proposed security changes to keep them within the ambit of the review. At present there does not appear to be any suggestion that the Commission might in the future broaden the requirements to affect all organisations holding personal data.

In the US, there was some concern that the adoption by other states of laws similar to the Californian breach law would lead to an increase in the number of claims and potentially even class actions from those affected. It was felt that the additional awareness generated by a notification would point more victims of fraud and identity theft towards the organisation suffering from a security breach. However, it should be remembered that breach notification gives affected individuals an opportunity and duty to take all reasonable steps to avoid or minimise their loss. This may perhaps result in fewer and lower value claims.

From a data security point of view, it remains to be seen whether notifications are an effective method of reducing credit card fraud or identity theft. Large high profile security breaches in the US have continued since the nationwide adoption of disclosure as a ‘best practice’ standard. Bear in mind that under the US requirements the focus is on notifying affected individuals after things have gone wrong, rather than on requiring security measures to be implemented so as to prevent the security incident in the first place. And while it is true that consumers are best placed to deal with the personal consequences of a security breach (e.g. by obtaining identity theft insurance) and should be notified, it can be argued that a focus on notification rather prevention shifts much of the responsibility for an organisation’s security breach on to the individual. Unlike the US requirements, however, the EU proposal would be in addition to laws specifically requiring an organisation to implement "appropriate" security measures. This being so, a statutory breach notification requirement could well supplement the existing "preventative" obligations.

In addition, unless the European Commission sets clear thresholds for the severity of breaches that require notification, subscribers may be flooded with disclosures. This could lead to general apathy towards data security breaches amongst subscribers and increase the risk of credit card fraud and identity theft; clearly having the opposite effect to that which the Commission is trying to achieve.

The Commission’s public consultation has now closed and publication of the contributions received is expected in 4th Quarter 2006 (http://ec.europa.eu./information_society/policy/ecomm/tomorrow/roadmap/index_en.htm as at 8 November 2006). The Commission intends to propose legislative measures to Parliament and Council early in 2007 and expects any new legislative provisions to come into force around 2009/2010.

The Commission Staff Working Document which set out the proposed changes can be found on the European Union website, Europa: http://europa.eu.int/information_society/newsroom/cf/itemshortdetail.cfm?item_id=2823

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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