Introduction
The European Consumer Commissioner has recently described personal data as "the new oil of the internet and the new currency of the digital world". However, if data is handled incorrectly, lost or misused it can quickly become a toxic liability for companies and bring them to the attention of the regulators with adverse financial and reputational consequences. In this article, we consider what lessons can be learned from previous reported breaches, what practical tips organisations can follow to help prevent data losses, what the regulators' approach is to the issue of lost data and what to do if a breach occurs.
Data losses and/or unauthorised access to data can be the result of a number of factors including technical security failures, stolen equipment, hacking, an employee losing a laptop or papers, or rogue employees actively misusing data (eg the recent incident where a T-Mobile employee sold customer data to rival companies.)
T-Mobile are not alone however. One needs only to glance at recent newspaper headlines...
"HSBC fined £3m by the FSA over data security", "FSA fines Nationwide £980k for information security lapses", "ICO raps insurance firms for data breaches"...
These show that the problem of data losses (and its consequences) are very real in the financial sector.
Regulatory Bodies – FSA/ICO
The main regulatory bodies to be aware of are the Financial Services Authority (FSA) and the Information Commissioners Office (ICO) who enforce and monitor compliance with the Data Protection Act 1998 (DPA).
The DPA includes a set of "good information handling" principles which apply to the use and holding of personal data (ie data that can be used to identify a living individual). The seventh of these principles requires data controllers to take "appropriate technical and organisational measures to protect personal information against unlawful or unauthorised use or disclosure and accidental loss, destruction or damage".
With respect to data breaches, the FSA's remit can be seen to go wider than the ICO's. This is because the FSA has a statutory objective to reduce financial crime. The FSA will therefore be interested not only in any loss of personal data but any loss of data which could be used to access account details (ie credit card details) and any data which could be used for impersonation or to create a false identity (names, dates of birth, NI number). This would extend to data about companies which is not "personal data" for the purpose of the DPA. The FSA is also concerned about precautions to ensure the security of price sensitive inside information.
FSA Principle 3 states that a firm "must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems". It was for breach of this general principle that Nationwide Building Society was fined £980k and, more recently, three companies in the HSBC group fined more than £3m.
How to avoid problems – practical tips
Data losses and their consequences are a hot topic at the moment with increasing publicity and regulatory activity in these areas. It is therefore critical that companies look at their data use and risk profile and implement systems to avoid problems with unauthorised access to and/or loss of data.
The ICO states that there is no single magic bullet for this problem but that there will always be three main elements:
- Clear thinking and paperwork (namely putting in place policies, procedures, systems, controls and actively monitoring compliance with these)
- Getting the technology right (including system architecture)
- Focusing on people and behaviour
In order to assist companies in complying with their obligations with respect to personal data, the ICO has published a number of useful guidance notes which can be found in the "Tools and Resources" section on its website www.ico.gov.uk
In addition, in April 2008, the FSA issued detailed guidance on data security entitled "Data Security in Financial Services" which can be found at www.fsa.gov.uk/pubs/other/data_security.pdf .
The guidance contains a number of examples of both good and bad practice.
As you would expect the guidance issued by both regulators covers broadly common ground and they make similar recommendations. From the guidance one can extract certain key principles/approaches:
- The first step is to look at the data you hold. How valuable/sensitive is the data? What damage could be caused if it were lost? What are your security policies? What are your disaster recovery/continuity policies?
- Secondly, audit your physical security. What access controls are in place (passes, locks, alarms etc)? Do you operate (and enforce) a clean desk policy? Are paper documents locked away at the end of each day? How is paper waste disposed of?
- What technical security measures are taken? Are there requirements for strong passwords? Firewalls? Anti-spyware? Do you block spam? What are your back up procedures? How do you dispose of equipment?
- Removable devices (memory sticks etc) should be treated with extreme caution. You should consider banning use of these or at the least controlling access. Above all the regulators are abundantly clear that you must always encrypt any removable devices before they are taken off site. Encryption solutions must meet certain minimum standards and be kept up to date. Be aware that the ICO has expressly stated "in the future, if laptops are stolen from vehicles/public places and encryption software has not been used then enforcement action will be taken."
- Also look to the employees (including any temporary or agency personnel). How reliable are they? What checks are carried out at the recruitment stage? What access do they have to data? Could this access be restricted? Does the staff handbook cover use and disclosure of data? Is it up to date? How are staff made aware of policies (and updates)? Are staff properly trained on an ongoing basis? What access do they have to the internet and personal email? Consider if access should be blocked if they also have access to customer data.
- Consider your contractual arrangements (including any outsourcing). What due diligence do you conduct on third party suppliers (consider not just server hosts but couriers, cleaning agencies, waste disposal etc)? Do you have written agreements in place? Do these deal adequately with use of data, disclosure, security measures? How do you supervise third parties? Do you have audit rights to check that contractual safeguards are being complied with? Do you exercise these?
- Finally, put in place clear policies and procedures (and document these) which reflect the realities of data use (and the risks of data loss) in your organisation. Where you conduct any regulated activities this must also deal with financial crime risks as well as DPA compliance. This should be a living structure and you should conduct regular internal verification/compliance tests to ensure this structure and any associated documentation is kept up to date/remains appropriate.
What to do if a breach occurs
Of course, as can be seen from the recent T-Mobile incident, it is not always possible to prevent data breaches. So what should you do if a breach occurs?
The immediate priority is to act expeditiously to manage risk and to take all necessary steps to reduce risk or damage to individuals and the integrity of your organisation. The FSA and the ICO do not look favourably on any delay in dealing with data breaches.
You should ensure your organisation has a nominated team (and lead individual) to deal with and manage any data breaches and to look to see how the breach can be contained and data recovered and to assess the ongoing risk.
You should consider how the breach occurred, how many people are affected, how sensitive the data is, what protections were in place (eg encryption) and whether you need to notify.
Notification to Individuals
There is no legal obligation to notify breaches to affected individuals from an ICO perspective. But you should think about whether notification would help the individual (for example, would it allow them to change passwords, cancel credit cards etc). If you are going to notify individuals then you need to consider how to communicate the message and at this point your marketing department/PR agency should be involved.
Notification to the ICO
There is no legal obligation to report breaches to the ICO. However, the ICO considers that serious breaches should be brought to its attention. "Serious Breach" is not defined but you will need to make an assessment based on potential harm to individuals, volume of data lost or accessed and sensitivity of that data. If the loss is likely to cause significant harm there is a presumption that you should report.
Notification should contain all relevant information including:
- Type of information/number of records
- Circumstances of loss/release
- Action taken to minimise effect
- How you investigated the breach
- Whether you have informed any other regulators (ie the FSA) and if so what their response was
- Remedial action taken to prevent future occurrences
Notification to the FSA
FSA rules require the notification of any significant failure in firm's systems and controls. This is likely to include any serious information security lapse, certainly where there is a possibility of improper access to information which could be used for identity theft or other fraud or which is price sensitive – or simply where the lapse indicates a breakdown of proper systems and controls.
Watch this space
The Criminal Justice and Immigration Act 2008 has introduced new sections 55A and 55B to the DPA which will allow the ICO to issue a civil monetary penalty for serious contraventions of the DPA likely to cause substantial damage or distress where either (i) the contravention was deliberate; or (ii) the controller knew or ought to have known that there was a risk breach would occur and that it would cause substantial damage/distress and they failed to take reasonable steps to prevent it.
The ICO's power to issue such penalties is expected to come into force on 6 April 2010. The maximum penalty figure has recently been set at £500k, which will give the ICO flexibility to deal effectively with a wide range of companies with varying financial resources.
Firms that are FSA regulated when the new powers come into force, could be potentially exposed to fines from both the FSA and the ICO, and there is no indication that either regulator will give credit for a fine imposed by the other. You have been warned ...
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.
