blog / Jan 02, 2018

Liability in an Assume Breach World

by Ray Pompon, Sara Boddy

Anything we put online must swim in a sea of enemies. The F5 Labs report, Lessons Learned from a Decade of Data Breaches, revealed that an average breach leaked 35 million records. Nearly 90% of the US population’s social security numbers have been breached to cyber criminals. When confronted by staggering statistics like these, it is prudent to assume it’s a matter of “if, not when” your systems will be hacked. The safest stance is to operate in an “assume breach” mode. This means anticipating that most of the systems and devices we use on a day-to-day basis, from IoT devices in our homes to web servers supporting our applications, are susceptible to attack.

At the heart of this, CISOs are so worried about the impacts of a breach that 81% of them either won’t report a breach, or would only report a material breach which, depending on the size of the company and its materiality threshold, could mean that very significant breaches go unreported. The recent F5 and Ponemon report, The Evolving Role of CISOs and their Importance to the Business, found that:

  • 19% of CISOs report all breaches to the CEO/Board
  • 46% of CISOs report only material breaches
  • 35% do not report breaches at all

So, why are CISOs reluctant to report? Are they worried about losing their jobs? It seems that every high-profile breach is followed by the cleaning out of the C-suite. From Equifax1 to Uber,2 a breach means those in charge of cyber security are sent off in search of new employment.

This raises worrying questions regarding liability for corporate leadership. But, is the C-suite aware this problem of non-reporting exists? According to Harvard Business Review,3 “Just 38% of directors reported having a high level of concern about cybersecurity risks, and an even smaller proportion said they were prepared for these risks.” That’s no surprise. Organizations run on IT, and most of our IT systems are being engineered beyond our ability to operate or monitor them. Compounding this problem is the fact that cybersecurity is a complicated field with many facets and sub-disciplines. Consider these eight areas identified by the International Information System Security Certification Consortium, or (ISC)2, as essential knowledge for cyber security:4

  • Security and Risk Management
  • Asset Security
  • Security Engineering
  • Communications and Network Security
  • Identity and Access Management
  • Security Assessment and Testing
  • Security Operations
  • Software Development Security

Most executives have a working knowledge of sales, contract law, and accounting, but once you dive into the deep water of IT security, comprehension gets far more difficult. It doesn’t help that many IT professionals speak in terms of technology, not business. From this, we can conclude:

  1. Breaches should be expected
  2. CISOs are not fully reporting breaches
  3. Executives are deficient in their awareness and ability of understanding the risk

This leaves an inevitable conclusion: breaches are happening that organizational leadership is uninformed about. This raises serious questions about liability for the organization, the CISO, and the leadership itself.

In general, businesses often work to limit their liability whenever and wherever they can, yet they seem to be exposing themselves unnecessarily to cyber risk. But what is the liability regarding cyber security? The problem stems from a duty and obligation to protect other people’s information. Organizations must use “commercially reasonable” methods to secure access to the data they collect and process about their employees, customers and, in the case of hosting/outsourcing organizations, their customer’s customers. There are plenty of standards to measure what is commercially reasonable, such as those published by the National Institute of Standards.5 There are also commercial standards, such as the Payment Card Data Security Standard (PCI-DSS), which also introduces contractual liability if their standards are not met.

When it comes to contractual liability there are many things that could go badly for an organization and ways in which they can be penalized: breach of contract (if contract requires cyber security), general negligence (especially if internal processes are not being followed), breach of warranty (if contract guarantees a certain level of security quality). On top of that, there are possible class-action customer and shareholder lawsuits for negligence. This is not counting all the regulatory liability that stem from FTC lawsuits for false advertising regarding security,6 state attorneys general suing for improper notification,7 and the forthcoming GDPR regulatory requirements.

With such painful liability threats looming, organizations should look at their information security plan as a liability defense plan. Cyber security is part of the business, which means that it’s not just an IT issue, but also a quality issue (liability regarding product quality), a customer service issue (liability regarding customer data), and an operational issue (liability regarding service delivery). Leadership should be aware of their cyber security liability and make use of trusted advisors, both within and outside the organization, to help them manage their risk. Lastly, executives, once aware of their risks and liabilities, need to follow up and monitor to ensure liability is kept to a minimum.


MODIFIED: Feb 09, 2018

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