UK: Cyber Cross-Jurisdictional Risks And The Impact Of GDPR: Europe

Last Updated: 15 March 2018
Article by Henning Schaloske, Kathrin Feldmann and Amrei Zürn

Companies that become a target of a cyber-attack may face global impacts. Cyber-attacks often cause cross-border and thus cross-jurisdictional data breaches as, for example, data is often stolen or illegally published from a company's subsidiary in a different country.

An issue in such events is that each jurisdiction has different requirements regarding the notification of authorities and the subjects of the data breach. Companies have to establish in how many countries a data breach occurred and if there are special notification requirements with respect to the data subject and the national authorities. Further, targets of cyber-attacks may face difficulties estimating the amount of fines and penalties and third party claims since the relevant provisions vary from one country to another. In addition, each jurisdiction imposes different requirements on risk management.

Within the European Union, these different approaches will be harmonised on 25 May 2018 when the General Data Protection Regulation ("GDPR") comes into effect. As a regulation, the GDPR directly applies in each member state and does not need to be transposed into national law. The GDPR contains provisions regarding data breach notifications, data protection management systems, fines and penalties as well as third party claims. Even though these provisions are partially stricter than national regulations, the GDPR's advantage is that companies, in general, only have to consider this data protection regulation instead of, potentially, 28 individual domestic data protection laws in all member states. However, with respect to non-EU member states, companies will still face various data protection provisions.

Cyber cross-jurisdictional risks not only occur in connection with data breaches. Internationally operating companies also face different regulations when it comes to general IT risk management and the prevention of cyber-attacks. In Germany, for example, pursuant to section 8a of the Act on the Federal Office for Information Security ("BSIG"), so called operators of critical infrastructure, such as energy, transportation or telecommunication companies as well as insurers, have to take organisational and technical measures to avoid errors of the availability, integrity, authenticity and confidentiality of their information technology systems, components and processes which are essential for the functionality of the operated critical infrastructures. Operators of such infrastructure have to prove that they are meeting these requirements to the German Federal Office for Information Security ("BSI") every two years.

Since 3 November 2017, financial institutions have been obliged to meet special IT risk management requirements. The German Federal Financial Supervisory Authority ("BaFin") published the Supervisory Requirements for IT in Financial Institutions (Bankaufsichtliche Anforderungen an die IT, "BAIT"). The intention behind BAIT is to provide clarity for executive boards of banking institutions regarding the banking supervisors' expectations with respect to a secure design of IT systems and the associated processes. These requirements form a core component of IT supervision in the banking sector in Germany. The financial institutions have to define a sustainable IT strategy outlining the institution's objectives and measures to achieve these objectives. BAIT furthermore requires companies to put in place an information risk and information security management as well as a user access management. Similar regulatory requirements for insurance companies shall be published at the end of 2018.

Another significant cross-jurisdictional issue is the assessment of global litigation risks. It may be easier for a company to estimate its potential liability in a country like the United States where cyber cases have already been subject of legal proceedings than in other countries such as Germany where there is hardly any case law on cyber liability. What is more, companies cannot be certain whether or not cyber claims will be covered by a cyber policy. Since 2017, the German cyber market has grown significantly. However, German courts have not yet had to deal with cyber policies and it is difficult to predict how a German court would decide in a cyber coverage dispute. Thus, for insurers and their insureds alike, it is important to continuously improve legal certainty of the policy wordings as well as to understand, manage and allocate cyber risks appropriately between different types of cover, including, e.g., crime and general liability next to the cyber policies. Last but not least, in the international cyber breach scenario, the interplay of local and master policies brings along additional challenges, in particular in relation to non-admitted countries and the setup of well-functioning international insurance programmes.

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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