The growth in internet usage, connectivity, the Internet of Things and the uptake in emerging mobile technologies in today’s world bring risks. Businesses are collecting and holding vast and increasing amounts of personal information electronically, and they are sharing this information with more and more partners, suppliers and contractors, both in Australia and globally.
With this, the potential for data breaches is also growing. Data breaches take many forms – they range from internal errors (such as lost laptops or paper records, and unauthorised access and disclosure by staff) to cybersecurity threats such as malicious software in email attachments, hacking, theft and denial of service attacks.
Breaches of data security are increasing in frequency and scope. It has been estimated that nearly a quarter of businesses have suffered an IT security breach during an average month, and almost 4 million Australians were affected by cyberattacks in 2015 at a cost of $1.2 billion.
Recent high profile data breaches highlight the cost they present to businesses in the form of loss of confidence and damage to reputation. Against this backdrop, the regulatory landscape for cyber security in Australia is changing. Here are three things you need to know.
Mandatory data breach reporting is coming
Currently, under the Privacy Act 1988 (Cth) (Privacy Act) and Australian Privacy Principle 11 (APP 11), organisations must take reasonable steps to protect personal information from misuse, interference and loss, and from unauthorised access, use, modification and disclosure.
The Office of the Australian Information Commissioner (OAIC) has issued guidelines that strongly encourage organisations to notify the OAIC and affected individuals of serious data breaches, but to date they have not been legally obliged to do so.
This is about to change.
On 13 February 2017, legislation passed through the Australian Parliament which will establish a mandatory data breach notification scheme.
Mandatory data breach notification laws will significantly raise the profile of data security in organisations, from an ‘IT issue’ to an issue affecting brand and business, recognising that data is a valuable business asset.
Organisations should focus on their compliance with privacy obligations; this includes confirming that employees understand and apply internal and external-facing policies about information handling, and ensuring that data breaches can be identified and dealt with promptly. The reputational damage and commercial consequences that can follow a high profile data breach are powerful incentives in themselves to improve data security.
The OAIC has welcomed the mandatory data breach notification laws, and will work with agencies and businesses over the next year to prepare for the commencement of the new scheme.
Cybersecurity is a corporate governance issue
The Australian Securities and Investments Commission (ASIC) released a cyber resilience health check report in 2015 to increase awareness about cyber risks and to identify how companies can improve cyber resilience.
ASIC expects Australian companies to address cyber risks as part of their legal and compliance obligations under the Corporations Act 2001 (Cth) (Corporations Act). In a world where cyberattacks are increasing in both number and severity, ASIC seeks to ensure that companies are aware of their risks and develop risk-based and proportionate cyber resilience management practices.
Cybersecurity is a corporate governance issue for several reasons:
- Directors and the board should be actively engaged in managing cyber risks and promoting a strong culture of cyber resilience
- Directors may need to take cyber risks into account when undertaking their duties to act with reasonable care and diligence
- Boards of listed entities should, pursuant to the ASX Corporate Governance Council’s Corporate governance principles and recommendations (3rd edition, 2014) establish a risk management framework and periodically review the effectiveness of that framework, and establish (and engage with) committees (such as risk and audit committees) that oversee management of risks. Cybersecurity and security of data should be of key concern in this risk management strategy.
In practice, this means that boards should engage with management to analyse the value of information held by the business, where information sits and how it is protected. This will involve a review of processes and IT systems to identify and monitor the risks. It will also involve having plans to respond to a data breach before it happens, covering IT, business and legal functions.
Corporate disclosures may be required
ASIC has also identified that cyber risks may affect disclosure requirements to investors. Corporations and listed entities should consider whether information about cyber risks should be disclosed:
- in a prospectus, as information that investors and their professional advisers would reasonably require to make an informed assessment of any offer
- in the annual directors’ report, if it is a significant factor that may affect future financial or operational performance (or for listed companies, if it is a material business risk that could adversely affect the achievement of the financial performance or financial outcome described)
- to the market operator, as part of an ASX listed company’s continuous disclosure obligations, if it is market sensitive information (information that would reasonably be expected to have a material effect on the price or value of securities).
In addition, publicly disclosed information should reassure investors that the board is across cybersecurity issues.
In short, cybersecurity risks should be front of mind when preparing public reporting and communications.
Key takeaways
The tide of regulation is sweeping across cybersecurity, which is one of the biggest risk issues faced by businesses today.
Organisations have one year to get ready before mandatory data breach reporting comes into effect, so now is the time to ensure that processes and plans are in place to assess and manage the risks and to respond to a data breach in case (and before) it happens.
Meanwhile, organisations should prioritise cybersecurity as part of their legal and compliance obligations, and refer to ASIC guidance on managing cybersecurity risks.
By Marie Feltham, DibbsBarker