United States: Are You And Your Clients Data Security Compliant?

Published in TerraLex Connections (May 24, 2017)

Cyber attacks and costly accidental losses of sensitive personal and financial information are no longer confined to retailers like Target or Sony or banks and investment houses like JP Morgan. Law firms and similar professional service providers – like accountants and financial advisors – are prime targets for hackers and are experiencing disproportionately damaging breaches from employee mistakes.

Clients entrust their lawyers and professional service providers with the most sensitive information about themselves and their family members, including financial data, tax returns, personal and business income, corporate and legal strategies, estate planning and family law materials, social security numbers, and driver's license and other governmental identification numbers. While housing these highly valuable repositories of sensitive information, law firms commonly have fewer resources than large commercial companies, and have devoted far less attention to their cyber vulnerabilities. Consequently, hackers recognize law firms and similar professional service companies as easy targets that generate significant yields of this prized information, and accidental losses of such information by employees can have disastrous effects.

Breaches of law firms can result in grave damage because the lost data is so immediately and directly useful for financial and identity theft, and their clients are commonly wealthy individuals and profitable businesses with well-funded accounts and valuable identities and credit. Though hurtful to the clients, such breaches can be catastrophic – even a killer – for a law firm or professional service company, which relies heavily on its reputation in the community and the trust of its clients for its welfare and future business.

In light of the risks of cyber security and the news coverage of significant breaches, most firms and professional service companies know (or should know by now) that they must comply with state and federal data security laws and regulations. Indeed, many clients are not requiring their law firms and professional service providers to sign data security agreements or, as known under HIPAA, business associate agreements. But firm leaders often are unaware about what it really takes to do so, or just fearful of what the process might reveal. That is entirely understandable. Data security seems complex, and consultants and IT vendors rarely try to demystify it for their customers, or try to sell firms expensive and unnecessary technologies. Moreover, there are precious few capable attorneys who have the real experience and technology expertise to perform data security risk assessments and who can capably manage a breach notification.

Despite the seemingly complex nature of the data security process, it is just like any other legal/business risk management issue. It is accomplished through a process of collaboration between firm business and practice group leaders, information technology professionals, and qualified legal counsel. The process involves the following steps:

  1. Perform a comprehensive risk assessment of the firm's physical, technological and administrative systems using the requirements and standards of applicable laws.
  2. Generate a report that identifies areas of non-compliance and risk, including a prioritization and chronological plan for remediation.
  3. Remediate vulnerabilities that can feasibly and financially be fixed within a reasonable amount of time.
  4. Create a written data security plan tailored to the procedures of the business, and implement data security agreements with vendors and other third parties.
  5. Train employees about data security compliance generally and the business' procedures under the written data security plan.
  6. Perform periodic reassessments, including sub-assessments if new or different physical, technological or administrative systems are adopted.

Step one – the risk assessment – involves identifying the information the firm creates, receives and handles that is legally protected, for example, under state data security laws or under federal laws and regulations such as HIPAA, the Gramm-Leach-Bliley Act, or SEC and FTC regulations. The information is then mapped in both electronic and hard copy format through its entire lifecycle (e.g., from receipt and creation, through access and use, including transportation and transmission, to disposal and destruction), and areas of non-compliance or unacceptable risk are identified, using the legal requirements and standards of applicable laws and regulations as well as best practices with respect to security. This is a highly collaborative process between the business leaders of the firm, competent IT professionals (inside or outside the company, or both), and legal counsel experienced with this area of the law and qualified to understand technological and physical security matters. There is no universal form or boilerplate for this process, and it often involves following wherever the roads lead until all pertinent information is known.

Step two – the report – flows naturally from the areas of non-compliance and risk identified in the assessment. Priority is assigned to items that are relatively easy to remedy, do not comply with applicable law or entail significant risk, and a timeline is created for addressing the issues. This step is critical not only for proceeding in the next step of the security process, but also for vendors performing data security due diligence and regulators that perform audits.

Step three – the remediation – is the process of identifying and implementing solutions to the vulnerabilities identified during the assessment and in the report. Remediating vulnerabilities often depends on the availability of technological or physical systems, and budgetary constraints of the business. This is commonly the most stressful and difficult to complete step for the support functions with the firm, particularly IT, operations, and facilities managers. As a result, it is common for a firm to need twelve to eighteen months to properly address all of the vulnerabilities identified in an initial data security risk assessment.

Step four – the written plan – is a policy created from the information gathered during the risk assessment and the remedies implemented or anticipated for the vulnerabilities. A plan created in the absence of a comprehensive risk assessment is a pure shot in the dark, and does not comply with state or federal law or accepted practice. No two data security plans are the same because no two firms are the same, and there is no boilerplate form. The written plan should be a point of pride for the company: a public facing document that is given to vendors, insurers, and other third parties to attest to and detail the policies and procedures that the firm has implemented to become and remain data security compliant. Step four – data security agreements – also involves conducting appropriate due diligence with respect to vendors that house, handle or have access to the firm's protected or sensitive information, and then entering into appropriate agreements with them. Such due diligence not only satisfies legal and regulatory requirements, but also reduces potential liability by identifying and eliminating risks posed by insecure vendors and by securing indemnity and other contractual protections.

Step five – the training – is an integral component of data security compliance. Employees are on the front lines of the business handling protected data on a daily basis, and thus need to be taught about data security generally as well as the business' specific procedures as set out in the written plan. Certain security risks – like phishing and social engineering scams – and certain safeguards – like encryption and proper transmission and transportation methodologies – are accomplished only through proper employee training and execution. Likewise, appropriately trained employees know better how to avoid breaches, how to recognize an actual or potential breach, and how to properly respond in such circumstances.

Step six – the reassessment – is required and natural for any business committed to data security. Reassessments are used to address vulnerabilities from new or different technology, physical or administrative systems or external threats. Also, as a business that becomes data security aware, it frequently identifies previously unknown vulnerabilities and adopts remedies that enhance security beyond the measures implemented after the initial risk assessment and report.

Law firms and professional services companies are prime targets for cyber attacks as well as disproportionately vulnerable to damage from data loss due to employee mistakes, because of the repositories of valuable sensitive personal and financial information entrusted to them. Data security is not something that can or should be overlooked simply because a firm does not understand how to become compliant. Just like any other risk management issue, security is accomplished through an established process of business leaders, IT professionals, and qualified counsel working collaboratively to implement an established process under applicable law. Following the steps outlined above will enable the firm to reduce its vulnerability to a cyber breach and mitigate the damage that results if such a breach occurs.

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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