Category: cybersecurity

NIST Releases Updated Draft of Cybersecurity Framework

On December 5, 2017, the National Institute of Standards and Technology (“NIST”) announced the publication of a second draft of a proposed update to the Framework for Improving Critical Infrastructure Cybersecurity (“Cybersecurity Framework”), Version 1.1, Draft 2. NIST has also published an updated draft Roadmap to the Cybersecurity Framework, which “details public and private sector efforts related to and supportive of [the] Framework.”

Updates to the Cybersecurity Framework

The second draft of Version 1.1 is largely consistent with Version 1.0. Indeed, the second draft was explicitly designed to maintain compatibility with Version 1.0 so that current users of the Cybersecurity Framework are able to implement the Version 1.1 “with minimal or no disruption.” Nevertheless, there are notable changes between the second draft of Version 1.1 and Version 1.0, which include:

Increased emphasis that the Cybersecurity Framework is intended for broad application across all industry sectors and types of organizations. Although the Cybersecurity Framework was originally developed to improve cybersecurity risk management in critical infrastructure sectors, the revisions note that the Cybersecurity Framework “can be used by organizations in any sector or community” and is intended to be useful to companies, government agencies, and nonprofits, “regardless of their focus or size.” As with Version 1.0, users of the Cybersecurity Framework Version 1.1 are “encouraged to customize the Framework to maximize individual organizational value.” This update is consistent with previous updatesto NIST’s other publications, which indicate that NIST is attempting to broaden the focus and encourage use of its cybersecurity guidelines by state, local, and tribal governments, as well as private sector organizations.

An explicit acknowledgement of a broader range of cybersecurity threats. As with Version 1.0, NIST intended the Cybersecurity Framework to be technology-neutral. This revision explicitly notes that the Cybersecurity Framework can be used by all organizations, “whether their cybersecurity focus is primarily on information technology (“IT”), cyber-physical systems (“CPS”) or connected devices more generally, including the Internet of Things (“IoT”). This change is also consistent with previous updates to NIST’s other publications, which have recently been amended to recognize that cybersecurity risk impacts many different types of systems.

Augmented focus on cybersecurity management of the supply chain. The revised draft expanded section 3.3 to emphasize the importance of assessing the cybersecurity risks up and down supply chains. NIST explains that cyber supply chain risk management (“SCRM”) should address both “the cybersecurity effect an organization has on external parties and the cybersecurity effect external parties have on an organization.” The revised draft incorporates these activities into the Cybersecurity Framework Implementation Tiers, which generally categorize organizations based on the maturity of their cybersecurity programs and awareness. For example, organizations in Tier 1, with the least mature or “partial” awareness, are “generally unaware” of the cyber supply chain risks of products and services, while organizations in Tier 4 use “real-time or near real-time information to understand and consistently act upon” cyber supply chain risks and communicate proactively “to develop and maintain strong supply chain relationships.” The revised draft emphasizes that all organizations should consider cyber SCRM when managing cybersecurity risks.

Increased emphasis on cybersecurity measures and metrics. NIST added a new section 4.0 to the Cybersecurity Framework that highlights the benefits of self-assessing cybersecurity risk based on meaningful measurement criteria, and emphasizes “the correlation of business results to cybersecurity risk management.” According to the draft, “metrics” can “facilitate decision making and improve performance and accountability.” For example, an organization can have standards for system availability and this measurement can be used at a metric for developing appropriate safeguards to evaluate delivery of services under the Framework’s Protect Function. This revision is consistent with the recently-released NIST Special Publication 800-171A, discussed in a previous blog post, which explains the types of cybersecurity assessments that can be used to evaluate compliance with the security controls of NIST Special Publication 800-171.

Future Developments to the Cybersecurity Framework

NIST is soliciting public comments on the draft Cybersecurity Framework and Roadmap no later than Friday, January 19, 2018. Comments can be emailed to cyberframework@nist.gov.

NIST intends to publish a final Cybersecurity Framework Version 1.1 in early calendar year 2018.

 

© 2017 Covington & Burling LLP
This post was written by Susan B. Cassidy and Moriah Daugherty of Covington & Burling LLP.
 

Can They Really Do That?

Effective October 18, 2017, the U.S. Department of Homeland Security (DHS), U.S. Citizenship & Immigration Services (USCIS), Immigration & Customs Enforcement (ICE), Customs & Border Protection (CBP), Index, and National File Tracking System of Records, implemented new or modified uses of information maintained on individuals as they pass through the immigration process.

The new regulation updates the categories of individuals covered, to include: individuals acting as legal guardians or designated representatives in immigration proceedings involving an individual who is physically or developmentally disabled or severely mentally impaired (when authorized); Civil Surgeons who conduct and certify medical examinations for immigration benefits; law enforcement officers who certify a benefit requestor’s cooperation in the investigation or prosecution of a criminal activity; and interpreters.

It also expands the categories of records to include: country of nationality; country of residence; the USCIS Online Account Number; social media handles, aliases, associated identifiable information, and search results; and EOIR and BIA proceedings information.

The new regulation also includes updated record source categories to include: publicly available information obtained from the internet; public records; public institutions; interviewees; commercial data providers; and information With this latest expansion of data allowed to be collected, it begs the question: How does one protect sensitive data housed on electronic devices? In addition to inspecting all persons, baggage and merchandise at a port-of-entry, CBP does indeed have the authority to search electronic devices too. CBP’s stance is that consent is not required for such a search. This position is supported by the U.S. Supreme Court, which has determined that such border searches constitute reasonable searches; and therefore, do not run afoul of the Fourth Amendment.

Despite this broad license afforded CBP at the port-of-entry, CBP’s authority is checked somewhat in that such searches do not include information located solely in the cloud. Information subject to search must be physically stored on the device in order to be accessible at the port-of-entry. Additionally, examination of attorney-client privileged communications contained on electronic devices first requires CBP’s consultation with Associate/Assistant Chief Counsel of the U.S. Attorney’s Office.

So what may one do to prevent seizure of an electronic device or avoid disclosure of confidential data to CBP during a border search? The New York and Canadian Bar Associations have compiled the following recommendations:

  • Consider carrying a temporary or travel laptop cleansed of sensitive local documents and information. Access data through a VPN connection or cloud-based warehousing.
  • Consider carrying temporary mobile devices stripped of contacts and other confidential information. Have calls forwarded from your office number to the unpublished mobile number when traveling.

  • Back up data and shut down your electronic device well before reaching the inspection area to eliminate access to Random Access Memory.

  • Use an alternate account to hold sensitive information. Apply strong encryption and complex passwords.

  • Partition and encrypt the hard drive.

  • Protect the data port.
  • Clean your electronic device(s) following return.

  • Wipe smartphones remotely.

This post was written by Jennifer Cory of Womble Bond Dickinson (US) LLP All Rights Reserved.,Copyright © 2017
For more Immigration legal analysis, go to The National Law Review

The Law of Unintended Consequences: BIPA and the Effects of the Illinois Class Action Epidemic on Employers

Has your company recently beefed up its employee identification and access security and added biometric identifiers, such as fingerprints, facial recognition, or retina scans? Have you implemented new timekeeping technology utilizing biometric identifiers like fingerprints or palm prints in lieu of punch clocks? All of these developments provide an extra measure of security control beyond key cards which can be lost or stolen, and can help to control a time-keeping fraud practice known as “buddy punching.” If you have operations and employees in Illinois (or if you utilize biometrics such as voice scans to authenticate customers located in Illinois), your risk and liability could have increased with the adoption of such biometric technology, so read on ….

What’s the Issue in Illinois?

The collection of biometric identifiers is not generally regulated either by the federal government or the states. There are some exceptions, however. Back in 2008, Illinois passed the first biometric privacy law in the United States. The Biometric Information Privacy Act, known as “BIPA,” makes it unlawful for private entities to collect, store, or use biometric information, such as retina/iris scans, voice scans, face scans, or fingerprints, without first obtaining individual consent for such activities. BIPA also requires that covered entities take specific precautions to secure the information. BIPA also carries statutory penalties for every individual violation that can multiply quickly … and the lawsuits against employers have been coming by the dozens over the past few months.

The Requirements of BIPA

Among other requirements, under BIPA, any “private entity” — including employers — collecting, storing, or using the biometric information of any individual in Illinois – no matter how it is collected, stored or used, or for what reason – must:

  1. Provide each individual with written notice that his/her biometric information will be collected and stored, including an explanation of the purpose for collecting the information as well as the length of time it will be stored and/or used.
  2. Obtain the subject’s express written authorization to collect and store his/her biometric information, prior to that information being collected.
  3. Develop and make available to the public a written policy establishing a retention schedule and guidelines for destroying the biometric information, which shall include destruction of the information when the reason for collection has been satisfied or three years after the company’s last interaction with the individual, whichever occurs first.

Also, any such information collected may not be disclosed to or shared with third parties without the prior consent of the individual.The Money Issue

Under the law, plaintiffs may recover statutory damages of $1,000 for eachnegligent violation and $5,000 per intentional or reckless violation, plus attorneys’ fees and other relief deemed appropriate by the court. Moreover, if actual damages exceed liquidated damages, then a plaintiff is entitled under the Act to pursue actual damages in lieu of liquidated damages.

These damage calculations are made and awarded under BIPA on an individual basis. Do the math: If an employer has 100 employees in Illinois and has allegedly been negligent in obtaining required BIPA consent from employees, this can be a potential exposure of an employer to $500,000 in penalties, before you add in the ability to recover attorneys’ fees.

Who is Getting Sued?

The list of companies sued under BIPA spans industries. The initial groups of defendants included companies such as Facebook, Shutterfly, Google, Six Flags, and Snapchat. Also, a chain of tanning salons and a chain of fitness centers were each sued for using biometric technology to identify members. Between July and October, nearly 26 class-action lawsuits were filed in Illinois state court by current and former employees alleging their employers had violated the BIPA. Companies range from supermarket chains, a gas station and convenience store chain, a chain of senior living facilities, several restaurant groups, and a chain of daycare facilities.

Facts vary from case to case, but nearly all of the recent employee BIPA cases implicate fingerprint or palm-print time-keeping technologies that collect biometric data to to clock employees’ work hours. The plaintiffs allege their employers failed to inform employees about the companies’ policies for use, storage and ultimate destruction of the fingerprint data or obtain the employees’ written consent before collecting, using or storing the individual biometric information.

In at least one case, the employee has also alleged fingerprint data was improperly shared with the supplier of the time-tracking machines, and has named that supplier as a defendant as well (Howe v. Speedway LLC, No. 2017-CH-11992 (Ill. Cir. Ct. filed Sept. 1, 2017)).

What Do I Do Now?

In order to avoid becoming the next target, employers with operations and employees in Illinois should ask some basic questions and review processes and procedures:

  1. First question to ask: are we collecting, storing or using individual biometric data for any purpose?
  2. If the answer is yes, has your company issued the required notice and received signed releases/consents from all affected individuals? This release/consent should be obtained at the commencement of employment before any collection of individual biometric data begins. Do you have a publicaly available written policy to cover the collection, storage, use and destruction of the data? The employee handbook is the most logical place for this policy.
  3. Review your processes: (a) make sure that any collected data is not being sold or disclosed to third parties, outside of the limited exceptions permitted by the Act, and this includes vendors and third party suppliers of biometric technology who process and store the information in a cloud-based service, and (b) make sure that you evaluate your internal data privacy protocols and processes for protecting this new data set, and be prepared to prove that you have “reasonably sufficient” security measures in place for the individual biometric data.
  4. Review your vendor processes: If a vendor has access to the individual biometric data (such as a software-as-a-service provider), make sure the vendor has sufficient data privacy protocols and processes in place and that you have representations regarding this protection from the vendor.
  5. Review insurance coverage for this type of exposure with your broker.
  6. Remember the data breach issues: Make sure your data breach policies recognize that individual biometric data is considered personal information under Illinois laws addressing data breach notification requirements.

This post was authored by Cynthia J. Larose of © Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. For more Labor & Employment legal analysis, go to The National Law Review

So…Everyone’s Been Compromised? What To Do In The Wake of the Equifax Breach

By now, you’ve probably heard that over 143 million records containing highly sensitive personal information have been compromised in the Equifax data breach. With numbers exceeding 40% of the population of the United States at risk, chances are good that you or someone you know – or more precisely, many people you know – will be affected. But until you know for certain, you are probably wondering what to do until you find out.

To be sure, there has been a lot of confusion. Many feel there was an unreasonable delay in reporting the breach. And now that it has been reported, some have suggested that people who sign up with the Equifax website to determine if they were in the breach might be bound to an arbitration clause and thereby waive their right to file suit if necessary later (although Equifax has since said that is not the case). Others have reported that the “personal identification number” (PIN) provided by Equifax for those who do register with the site is nothing more than a date and time stamp, which could be subject to a brute-force attack, which is not necessarily reassuring when dealing with personal information. Still others have reported that the site itself is subject to vulnerabilities such as cross-site scripting (XSS), which could give hackers another mechanism to steal personal information. And some have even questioned the validity of the responses provided by Equifax when people query to see if they might have been impacted.

In all the chaos, it’s hard to know how to best proceed. Fortunately, you have options other than using Equifax’s website.

1. Place a Credit Freeze

Know that if you are a victim of the breach, you will be notified by Equifax eventually. In the meantime, consider placing a credit freeze on your accounts with the three major credit reporting bureaus. All three major credit reporting bureaus allow consumers to freeze their credit reports for a small fee, and you will need to place a freeze with each credit bureau. If you are the victim of identity fraud, or if your state’s law mandates, a credit freeze can be implemented without charge. In some states, you may incur a small fee. Lists of fees for residents of various states can be found at the TransUnion, Experian, and Equifax websites. Placing a freeze on your credit reports will restrict access to your information and make it more difficult for identity thieves to open accounts in your name. This will not affect your credit score but there may be a second fee associated with lifting a credit freeze, so it is important to research your options before proceeding. Also, know that you will likely face a delay period before a freeze can be lifted, so spur-of-the-moment credit opportunities might suffer.

Here is information for freezing your credit with each credit bureau:

Equifax Credit Freeze

  • You may do a credit freeze online or by certified mail (return receipt requested) to:

            Equifax Security Freeze

            P.O. Box 105788

            Atlanta, GA 30348

  • To unfreeze, you must do a temporary thaw by regular mail, online or by calling 1-800-685-1111 (for New York residents call 1-800-349-9960).

Experian Credit Freeze

  • You may do a credit freeze online, by calling 1-888-EXPERIAN (1-888-397-3742) or by certified mail (return receipt requested) to:

            Experian

            P.O. Box 9554

            Allen, TX 75013

  • To unfreeze, you must do a temporary thaw online or by calling 1-888-397-3742.

TransUnion Credit Freeze

  • You may do a credit freeze online, by phone (1-888-909-8872) or by certified mail (return receipt requested) to:

            TransUnion LLC

            P.O. Box 2000

            Chester, PA 19016

  • To unfreeze, you must do a temporary thaw online or by calling 1-888-909-8872.

After you complete a freeze, make sure you have a pen and paper handy because you will be given a PIN code to keep in a safe place.

2. Obtain a Free Copy of Your Credit Report

Consider setting up a schedule to obtain a copy of your free annual credit report from each of the reporting bureaus on a staggered basis. By obtaining and reviewing a report from one of the credit reporting bureaus every three or four months, you can better position yourself to respond to unusual or fraudulent activity more frequently. Admittedly, there is a chance that one of the reporting bureaus might miss an account that is reported by the other two but the benefit offsets the risk.

3. Notify Law Enforcement and Obtain a Police Report

If you find you are the victim of identity fraud (that is, actual fraudulent activity – not just being a member of the class of affected persons), notify your local law enforcement agency to file a police report. Having a police report will help you to challenge fraudulent activity, will provide you with verification of the fraud to provide to credit companies’ fraud investigators, and will be beneficial if future fraud occurs. To that end, be aware that additional fraud may arise closer to the federal tax filing deadline and having a police report already on file can help you resolve identity fraud problems with the Internal Revenue Service if false tax returns are filed under your identity.

4. Obtain an IRS IP PIN

Given the nature of the information involved in the breach, an additional option for individuals residing in Florida, Georgia, and Washington, D.C. is to obtain an IRS IP PIN, which is a 6-digit number assigned to eligible taxpayers to help prevent the misuse of Social Security numbers in federal tax filings. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return. When a taxpayer has an IP PIN, it prevents someone else from filing a tax return with the taxpayer’s SSN.

If a return is e-filed with a taxpayer’s SSN and an incorrect or missing IP PIN, the IRS’s system will reject it until the taxpayer submits it with the correct IP PIN or the taxpayer files on paper. If the same conditions occur on a paper filed return, the IRS will delay its processing and any refund the taxpayer may be due for the taxpayer’s protection while the IRS determines if it is truly the taxpayer’s.

Information regarding eligibility for an IRS IP PIN and instructions is available here and to access the IRS’s FAQs on the issue, please go here.

Conclusion

Clearly, the Equifax breach raises many issues about which many individuals need to be concerned – and the pathway forward is uncertain at the moment. But by being proactive, being cautious, and taking appropriate remedial measures available to everyone, you can better position yourself to avoid fraud, protect your rights, and mitigate future fraud that might arise.

 This post was written by Justin L. Root & Sara H. Jodka of Dickinson Wright PLLC © Copyright 2017
For more legal news go to The National Law Review

Equifax Breach Affects 143M: If GDPR Were in Effect, What Would Be the Impact?

The security breach announced by Equifax Inc. on September 7, 2017, grabbed headlines around the world as Equifax revealed that personal data of roughly 143 million consumers in the United States and certain UK and Canadian residents had been compromised. By exploiting a website application vulnerability, hackers gained access to certain information such as names, Social Security numbers, birth dates, addresses, and in some instances, driver’s license numbers and credit card numbers. While this latest breach will force consumers to remain vigilant about monitoring unauthorized use of personal information and cause companies to revisit security practices and protocols, had this event occurred under the Global Data Protection Regulation (GDPR) (set to take effect May 25, 2018), the implications would be significant. This security event should serve as a sobering wake up call to multinational organizations and any other organization collecting, processing, storing, or transmitting personal data of EU citizens of the protocols they must have in place to respond to security breaches under GDPR requirements.

Data Breach Notification Obligations

Notification obligations for security breaches that affect U.S. residents are governed by a patchwork set of state laws. The timing of the notification varies from state to state with some requiring that notification be made in the “most expeditious time possible,” while others set forth a specific timeframe such as within 30, 45, or 60 days. The United States does not currently have a federal law setting forth notification requirements, although one was proposed by the government in 2015 setting a 30-day deadline, but the law never received any support.

While the majority of the affected individuals appear to be U.S. residents, Equifax stated that some Canadian and UK residents were also affected. Given Equifax’s statement, the notification obligations under GDPR would apply, even post-Brexit, as evidenced by a recent statement of intent maintaining that the United Kingdom will adopt the GDPR once it leaves the EU. Under the GDPR, in the event of a personal data breach, data controllers must notify the supervisory authority “without undue delay and, where feasible, not later than 72 hours after having become aware of it.” If notification is not made within 72 hours, the controller must provide a “reasoned justification” for the delay. A notification to the authority must at least: 1) describe the nature of the personal data breach, including the number and categories of data subject and personal data records affected, 2) provide the data protection officer’s contact information, 3) describe the likely consequences of the personal data breach, and 4) describe how the controller proposes to address the breach, including any mitigation efforts. If it is not possible to provide the information at the same time, the information may be provided in phases “without undue further delay.”

According to Equifax’s notification to individuals, it learned of the event on July 29, 2017. If GDPR were in effect, notification would have been required much earlier than September 7, 2017. Non-compliance with the notification requirements could lead to an administrative fine of up to 10 million Euros or up to two percent of the total worldwide annual turnover.

Preparing for Breach Obligations Under GDPR

With a security breach of this magnitude, it is easy to imagine the difficulties organizations will face in mobilizing an incident response plan in time to meet the 72-hour notice under GDPR. However, there are still nearly eight months until GDPR goes into effect on May 25, 2018. Now is a good time for organizations to implement, test, retest, and validate the policies and procedures they have in place for incident response and ensure that employees are aware of their roles and responsibilities in the event of a breach. Organizations should consider all of the following in crafting a GDPR incident response readiness plan:

plan, GDPR, incident response

This post was written by Julia K. Kadish and Aaron K. Tantleff of Foley & Lardner LLP © 2017
For more legal analysis got to The National Law Review

SEC Observations from Recent Cybersecurity Examinations Identify Best Practices

The SEC continues to focus on cybersecurity as an area of concern within the investment management industry.

On August 7, the US Securities and Exchange Commission’s (SEC’s) Office of Compliance Inspections and Examinations (OCIE) released a Risk Alert summarizing its observations from a recent cybersecurity-related examination of 75 firms—including broker-dealers, investment advisers, and investment companies (“funds”) registered with the SEC.

The SEC staff has made it clear that cybersecurity remains a high priority and is likely to be an area of continued scrutiny with the potential for enforcement actions. During a recent interview,[1] the SEC’s co-directors of Enforcement, Stephanie Avakian and Steven Peikin, stated their belief that “[t]he greatest threat to our markets right now is the cyber threat.” This pronouncement follows on the heels of OCIE’s identification of cybersecurity as one of its examination priorities for 2017,[2] OCIE’s release of a Risk Alert on the “WannaCry” ransomware virus,[3] and several significant Regulation S-P enforcement actions involving firms that failed to adequately protect customer information.[4]

This LawFlash details OCIE’s observations from its recent cybersecurity-related examination that were discussed in its Risk Alert.

OCIE’s Examination Identifies Common Issues

OCIE staff observed common issues in a majority of the firms and funds subject to examination. These common issues include the following:

  • Failure to reasonably tailor policies and procedures. Specifically, the examination found issues with policies and procedures that

    • incorporated only general guidance;

    • identified limited examples of safeguards for employees to consider; and

    • did not articulate specific procedures to implement policies.

  • Failure to adhere to or enforce policies and procedures. In some cases, policies and procedures were confusing or did not reflect a firm’s actual practices, including in the following areas:

    • Annual customer protection reviews not actually conducted on an annual basis

    • Policies providing for ongoing reviews to determine whether supplemental security protocols were appropriate performed only annually, or not at all

    • Policies and procedures creating contradictory or confusing instructions for employees[5]

    • Firms not appearing to adequately ensure that cybersecurity awareness training was provided and/or failing to take action where employees did not complete required cybersecurity training

  • Regulation S-P issues among firms that did not appear to adequately conduct system maintenance. Because Regulation S-P was enacted to safeguard the privacy of customer information, OCIE observed that issues arose where firms failed to install software patches to address security vulnerabilities and other operational safeguards to protect customer records and information.

  • Failure to fully remediate some of the high-risk observations that firms discovered when they conducted penetration tests and vulnerability scans.

Cyber Best Practices and Other Observations

OCIE identified elements of what it viewed as “robust” cybersecurity policies and procedures from its examinations. Such elements should be considered as best practices and instructive for broker-dealers, investment advisers, and funds in implementing, assessing, and/or enhancing existing cybersecurity-related policies and procedures. Such elements are as follows:

  • Maintenance of data, information, and vendor inventory, including risk classifications

  • Detailed cybersecurity-related instructions, including instructions related to penetration tests, access rights, and reporting guidelines for lost, stolen, or unintentionally disclosed sensitive information

  • Maintenance of prescriptive schedules and processes for testing data integrity and vulnerabilities, including patch management policies

  • Access controls for data and systems

  • Mandatory employee training upon onboarding and periodically thereafter

  • Engaged senior management

OCIE staff noted an overall improvement in firms’ awareness of cyber-­related risks and the implementation of certain cybersecurity practices since its previous Cybersecurity 1 Initiative.[6] Most notably, all broker-dealers, all funds, and nearly all investment advisers in the more recent examinations maintain written policies and procedures related to cybersecurity that address the protection of customer/shareholder records and information. This finding is in contrast to the Cybersecurity 1 Initiative, where OCIE found that comparatively fewer broker-dealers and investment advisers had adopted this type of written policies and procedures.

OCIE staff also noted the following:

  • Nearly all broker-dealers and many investment advisers and funds conducted periodic risk assessments, penetration tests, and vulnerability scans.

  • All broker-dealers and nearly all investment advisers and funds had a process in place for ensuring regular system maintenance.

  • All firms utilized some form of system, utility, or tool to prevent, detect, and monitor data loss as it relates to personally identifiable information.

  • All broker-dealers and a majority of investment advisers and funds maintained cybersecurity organizational charts and/or identified and described cybersecurity roles and responsibilities for the firms’ workforces.

  • Almost all firms either conducted vendor risk assessments or required that vendors provide the firms with risk management and performance reports (i.e., internal and/or external audit reports) and security reviews or certification reports.

  • Information protection programs at the firms typically included relevant cyber-related policies and procedures as well as incident response plans.

Key Takeaways

SEC-registered broker-dealers, investment advisers, and funds should evaluate their policies and procedures to determine whether there are gaps or areas that could be improved based on OCIE’s articulation of best practices. Firms and funds should further evaluate their policies and procedures to ensure that they reflect actual practices and are reasonably tailored to the particular firm’s business. As OCIE notes, effective cybersecurity requires a tailored and risk-based approach to safeguard information and systems.[7]

This post was written by Mark L. Krotoski,  Merri Jo Gillette , Sarah V. Riddell Martin Hirschprung and  Jennifer L. Klass of Morgan, Lewis & Bockius LLP.

Read more legal analysis at The National Law Review.

[1] Sarah Lynch, Exclusive: New SEC Enforcement Chiefs See Cyber Crime as Biggest Market Threat, Reuters.com (Jun. 8, 2017).

[2] OCIE, Examination Priorities for 2017 (Jan. 12, 2017).

[3] National Exam Program Risk Alert, Cybersecurity: Ransomware Alert (May 17, 2017).

[4] In re Morgan Stanley Smith Barney LLC, Exchange Act Release No. 78021, Advisers Act Release No. 4415 (Jun. 8, 2016); In re R.T. Jones Capital Equities Management Inc., Advisers Act Release No. 4204 (Sept. 22, 2015); and In re Craig Scott Capital LLC, Exchange Act Release No. 77595 (Apr. 12, 2016).

[5] OCIE provides an example of confusing policies regarding remote customer access that appeared to be inconsistent with those for investor fund transfers, making it unclear to employees whether certain activity was permissible based on the policies.

[6] See, e.g., OCIE Cybersecurity Initiative (Apr. 15, 2014); see also National Exam Program Risk Alert, Cybersecurity Examination Sweep Summary (Feb. 3, 2015).

[7] For example, the National Institute of Standards and Technology Cybersecurity Framework 1.0 (Feb. 12, 2014) provides a useful flexible approach to assess and manage cybersecurity risk.

Third-Party Aspects of Cybersecurity Protections: Beyond your reach but within your control

Data privacy and cybersecurity issues are ongoing concerns for companies in today’s world.  It is nothing new to hear.  By now, every company is aware of the existence of cybersecurity threats and the need to try to protect itself.  There are almost daily reports of data breaches and/or ransomware attacks.  Companies spend substantial resources to try to ensure the security of their confidential information, as well as the personal and confidential information of their customers, employees and business partners.  As part of those efforts, companies are faced with managing and understanding their various legal and regulatory obligations governing the protection, disclosure and/or sharing of data – depending on their specific industry and the type of data they handle – as well as meeting the expectations of their customers to avoid reputational harm.

Despite the many steps involved in developing wide-ranging cybersecurity protocols – such as establishing a security incident response plan, designating someone to be responsible for cybersecurity and data privacy, training and retraining employees, and requiring passwords to be changed regularly – it is not enough merely to manage risks internal to the company.  Companies are subject to third-party factors not within their immediate control, in particular vendors and employee BYOD (Bring Your Own Device).  If those cybersecurity challenges are not afforded sufficient oversight, they will expose a company to significant risks that will undo all of the company’s hard work trying to secure and defend its data from unauthorized disclosures or cyberattacks.  Although companies may afford some consideration to vendor management and BYOD policies, absent rigorous follow up, a company may too easily leave a gaping hole in its cybersecurity protections.

VENDORS

To accomplish business functions and objectives and to improve services, companies regularly rely on third-party service providers and vendors.  To that end, vendors may get access to and get control over confidential or personal information to perform the contracted services.  That information may belong to the company, employees of the company, the clients of the company and/or business partners of the company.

When information is placed into the hands of a vendor and/or onto its computer systems, stored in its facilities, or handled by its employees or business partners, the information is subject to unknown risks based on what could happen to the information while with the third-party.  The possibility of a security breach or the unauthorized use or access to the information still exists but a company cannot be sure what the vendor will do to protect against or address those dangers if they arise.  A company cannot rely on its vendors to maintain necessary security protocols and instead must be vigilant by exercising reasonable due diligence over its vendors and instituting appropriate protections.  To achieve this task, a company needs to consider the type of information involved, the level of protection required, the risks at issue and how those risks can be managed and mitigated.

Due Diligence

A company must perform due diligence over the vendor and the services to be provided and should consider, among other things, supplying a questionnaire to the vendor to answer a host of cybersecurity related questions including:

> What services will the vendor provide?  Gain an understanding of the services being provided by the vendor, including whether the vendor only gains access to, or actually takes possession of, any information.  There is an important difference between a vendor (i) having access to a company’s network to implement a third-party solution or provide a thirdparty service and (ii) taking possession of and/or storing information on its network or even the network of its own third-party vendors.

> Who will have access to the information?  A company should know who at the vendor will have access to the information.  Which employees?  Will the vendor need assistance from other third-parties to provide the contracted-for services?  Does the vendor perform background checks of its employees?  Do protocols exist to prevent employees who are not authorized from having access to the information?

> What security controls does the vendor have in place?  A company should review the vendor’s controls and procedures to make sure they comply not only with applicable legal and regulatory requirements but also with the company’s own standards.  Does the vendor have the financial wherewithal to manage cybersecurity risks?  Does the vendor have cybersecurity insurance?  Does the vendor have a security incident response plan?  To what extent has the vendor trained with or used the plan?  Has the vendor suffered a cyberattack?  If so, it actually may be a good thing depending on how the vendor responded to the attack and what, if anything, it did to improve its security following the attack.  What training is in place for the vendor’s employees?  How is the vendor monitoring itself to ensure compliance with its own procedures?

The Contract

A company should seek to include strong contractual language to obligate the vendor to exercise its own cybersecurity management and to cooperate with the company to ensure protection of the company’s data.  There are multiple provisions to consider when engaging vendors and drafting or updating contracts to afford the company appropriate protections.  A one-size-fits-all approach for vendors will not work and clauses will need to be modified to take account of, among other things:

 > The sensitivity of the information at issue – Does the information include only strictly confidential information, such as trade secrets or news of a potential merger?  Does the information include personal information, such as names, signatures, addresses, email addresses, or telephone numbers?  Does the information include what is considered more highly sensitive personal information, such as SSNs, financial account information, credit card information, tax information, or medical data?

> The standard of care and obligations for the treatment of information – A company should want its vendors to meet the same standards the company demands of itself.  Vendors should be required to acknowledge that they will have access to or will take possession of information and that they will use reasonable care to perform their services, including the collection, access, use, storage, disposal, transmission and disclosure of information, as applicable.  This can, and often should, include: limiting access to only necessary employees; securing business facilities, data centers, paper files, servers and back-up systems; implementing database security protocols, including authentication and access controls; encrypting highly sensitive personal information; and providing privacy security training to employees.  Contracts also should provide that vendors are responsible for any unauthorized receipt, transmission, storage, disposal, use, or disclosure of information, including the actions and/or omissions of their employees and/or relevant third-parties who the vendors retain.

> Expectations in the event of a security breach at the company – A company should include a provision requiring a vendor’s reasonable cooperation if the company experiences a breach.  A company should have a contact at each of its vendors, who is available 24/7 to help resolve a security breach.  Compliance with a company’s own obligations to deal with a breach (including notification or remediation) could be delayed if a vendor refuses to timely provide necessary information or copies of relevant documents.  A company also can negotiate to include an indemnification provision requiring a vendor to reimburse the company for reasonable costs incurred in responding to and mitigating damages caused by any security breach related to the work performed by the vendor.

> Expectations in the event of a security breach at the vendor – A company should demand reasonable notification if the vendor experiences a security breach and require the vendor to take reasonable steps and use best efforts to remediate the breach and to try to prevent future breaches.  A company should negotiate for a provision permitting the company to audit the vendor’s security procedures and perhaps even to physically inspect the vendor’s servers and data storage facilities if the data at issue is particularly sensitive.

Monitoring

Due diligence and contractual provisions are necessary steps in managing the cybersecurity risks that a vendor presents, but absent consistent and proactive monitoring of the vendor relationship, including periodic audits and updates to vendor contracts, all prior efforts to protect the company in this respect will be undermined.  Determining who within the company is responsible for the relationship  – HR? Procurement? Legal? – is critical to help manage the vendor relationship.

> Schedule annual or semi-annual reviews of the vendor relationship –  A company not only should confirm that the vendor is following its cybersecurity protocols but also should inquire if any material changes to those protocols have been instituted that impact the manner in which the vendor handles the company’s data.  Depending on the level of sensitivity of the data being handled by the vendor, a company may consider retaining a third-party reviewer to evaluate the vendor.

> Update the vendor contract, as necessary – A company employee should be responsible to review vendor contracts annually to determine if any changes are necessary in view of cybersecurity concerns.

BYOD

Ransomware – where a hacker demands a ransom to unencrypt a company’s data caused by malicious software that the hacker deposited onto the company’s network to hold it hostage – certainly is a heightened concern for all companies.  It is the fastest growing malware targeting all industries, with more than 50% growth in recent years.  Every company is wary of ransomware and is trying to do as much as possible to protect itself from hackers.  The best practices against ransomware are to (i) periodically train and retrain your employees to be on the lookout for ransomware; (ii) constantly backup you data systems; and (iii) split up the locations where data is maintained to limit the damage in the event some servers fall victim to ransomware.  One thing that easily is overlooked, however, or is afforded more limited consideration, is a company’s BYOD policy and enforcement of that policy.

Permitting a company’s employees to use their own personal electronic devices to work remotely will lower overhead costs and improve efficiency but will bring a host of security and compliance concerns.  The cybersecurity and privacy protocols that the company established and vigorously pursues inside the company must also be followed by its employees when using their personal devices – home computers, tablets, smartphones – outside the company.  Employees likely are more interested, however, in the ease of access to work remotely than in ensuring that proper cybersecurity measures are followed with respect to their personal devices.  Are the employees using sophisticated passwords on their personal devices or any passwords at all?  Do the employees’ personal devices have automatic locks?  Are the employees using the most current software and installing security updates?

These concerns are real.  In May of 2017, the Wannacry ransomware attack infected more than 200,000 computers in over 100 countries, incapacitating companies and hospitals.  Hackers took advantage of the failure to install a patch to Microsoft Windows, which Microsoft had issued weeks earlier.  Even worse, it was discovered that some infected computers were using outdated versions of Microsoft Windows for which the patch would not have worked regardless.  Companies cannot risk pouring significant resources into establishing a comprehensive security program only to suffer a ransomware attack or otherwise to have its efforts undercut by an employee working remotely who failed to install appropriate security protocols on his/her personal devices.

The dangers to be wary of include, among others: > Personal devices may not automatically lock or have a timeout function. > Employees may not use sophisticated passwords to protect their personal devices. > Employees may use unsecured Wi-Fi hotspots to access the company’s systems, subjecting the company to heightened risk. > Employees may access the company’s systems using outdated software that is vulnerable to cyberattacks.

Combatting the Dangers

To address the added risks that accompany allowing BYOD, a company must develop, disseminate and institute a comprehensive BYOD policy.  That policy should identify the necessary security protocols that the employee must follow to use a personal device to work remotely, including, among other things:

 > Sophisticated passwords

> Automatic locks

> Encryption of data

> Installation of updated software and security apps

> Remote access from secure WiFi only

> Reporting procedures for lost/stolen devices

A company also should use mobile device management technology to permit the company to remotely access the personal devices of its employees to install any necessary software updates or to limit access to company systems.  Of course, the employee must be given notice that the company may use such technology and the capabilities of that technology.  Among other things, mobile device management technology can:

> Create a virtual partition separating work data and personal data

> Limit an employee’s access to work data

> Allow a company to push security updates onto an employee’s personal device

Enforcement

Similar to vendor management, the cybersecurity efforts undertaken by having a robust BYOD policy in place, or even using mobile management technology, are significantly weakened unless a company enforces the policy it has instituted.

> A BYOD policy should be a prominent part of any employee cybersecurity training.

> The company should inform the employee of the company’s right to access/monitor/delete information from an employee’s personal device in the event of, among other things, litigation and e-discovery requests, internal investigations, or the employee’s termination.

CONCLUSION

Implementing the above recommendations will not guarantee a company will not suffer a breach but will stem the threats created by third-party aspects of its cybersecurity program.  Even if a company ultimately suffers a breach, having had these protections in place to administer the risks associated with vendor management and BYOD certainly will help safeguard the company from the scrutiny of regulators or the criticism of their customers, which would be worse!

This post was written byJoseph B. Shumofsky of  Sills Cummis & Gross P.C.
More legal analysis at The National Law Review.

Weapons in the Cyber Defense Arsenal

In May 2017, the world experienced an unprecedented global cyberattack that targeted the public and private sectors, including an auto factory in France, dozens of hospitals and health care facilities in the United Kingdom, gas stations in China and banks in Russia. This is just the tip of the iceberg and more attacks are certain to follow. As this experience shows, companies of all sizes, across all industries, in every country are vulnerable to cyberattacks that can have devastating consequences for their businesses and operations.

The Malware Families

Exploiting vulnerabilities in Microsoft® software, hackers launched a widespread ransomware attack targeting hundreds of thousands of companies worldwide. The vector, “WannaCry” malware, encrypts electronic files and locks them until released by the hacker after a ransom is paid in untraceable Bitcoin. The malware also has the ability to spread to all other computer systems on a network. On the heels of WannaCry, a new attack called “Adylkuzz” is crippling computers by diverting their processing power.

The most prevalent types of ransomware found in 2016 were Cerber and Locky. Microsoft detected Cerber, used in spam campaigns, in more than 600,000 computers and observed that it was one of the most profitable of 2016. Spread via malicious spam emails that have an executable virus file, Cerber has gained increasing popularity due to its Ransomware-as-a-Service (RaaS) business model, which enables less sophisticated hackers to lease the malware.

data security privacy FCC cybersecurityCheck Point Software indicated that Locky was the second most prevalent piece of malware worldwide in November 2016.  Microsoft detected Locky in more than 500,000 computers in 2016. First discovered in February 2016, Locky is typically delivered via an email attachment (including Microsoft Office documents and compressed attachments) in phishing campaigns designed to entice unsuspecting individuals to click on the attachment. Of course, as the most recent global attacks demonstrate, hackers are devising and deploying new variants of ransomware with different capabilities all the time.

The Rise of Ransomware Attacks

The rise in ransomware attacks is directly related to the ease with which it is deployed and the quick return for the attackers. The U.S. Department of Justice has reported that there was an average of more than 4,000 ransomware attacks daily in 2016, a 300 percent increase over the prior year. Some experts believe that ransomware may be one of the most profitable cybercrime tactics in history, earning approximately $1 billion in 2016. Worse yet, even with the ransom paid, some data already may have been compromised or may never be recovered.

The risk is even greater if your ransom-encrypted data contains protected health information (PHI). In July 2016, the U.S. Department of Health and Human Services, Office of Civil Rights (HHS/OCR) advised that the encryption or permanent loss of PHI would trigger HIPAA’s Breach Notification Rule for the affected population, unless a low probability that the recovered PHI had been compromised could be demonstrated. This means a mandated investigation to confirm the likelihood that the PHI was not accessed or otherwise compromised.

Ransomware Statistics

According to security products and solutions provider Symantec Corporation, ransomware was the most dangerous cybercrime threat facing consumers and businesses in 2016:

  • The majority of 2016 ransomware infections happened in consumer computers, at 69 percent, with enterprises at 31 percent.

  • The average ransom demanded in 2016 rose to $1,077, up from $294 in 2015.

  • There was a 36 percent increase in ransomware infections from 340,665 in 2015 to 463,841 in 2016.

  • The number of ransomware “families” found totaled 101 in 2016, triple the 30 found in 2015.

  • The biggest event of 2016 was the beginning of RaaS, or the development of malware packages that can be sold to attackers in return for a percentage of the profits.

  • Since January 1, 2016, more than 4,000 ransomware attacks have occurred − a 300 percent increase over the 1,000 daily attacks seen in 2015.

  • In the second half of 2016, the percentage of recognized ransomware attacks from all malware attacks globally doubled from 5.5 percent to 10.5 percent.

The Best Defense Is a Good Offense

While no perfectly secure computer system exists, companies can take precautionary measures to increase their preparedness and reduce their exposure to potentially crippling cyberattacks. While Microsoft no longer supports Windows XP operating systems, which were hit the hardest by WannaCry, Microsoft has made an emergency patch available to protect against WannaCry. However, those still using Windows XP should upgrade all devices to a more current operating system that is still fully supported by Microsoft to ensure protection against emerging threats. Currently, that means upgrading to Windows 7, Windows 8 or Windows 10.

Even current, supported software needs to be updated when prompted by the computer. Those who delay installing updates may find themselves at risk. Microsoft issued a patch for supported operating systems in March 2017 to protect against the vulnerability that WannaCry exploited. Needless to say, many companies did not bother to patch their systems in a timely manner.

Ransomware creates even greater business disruption when a company does not have secure backups of files that are critical to key business functions and operations. It also is important for companies to back up files frequently, because a stale backup that is several months old or older may not be particularly useful. Companies also should make certain that their antivirus and anti-malware software is current to protect against emerging threats.

In addition, companies need to train their employees on detecting and mitigating potential cyber threats. Employees are frequently a company’s first line of defense against many forms of routine cyberattacks that originate from seemingly innocuous emails, attachments and links from unknown sources. Indeed, many cyberattacks can be avoided if employees are simply trained not to click on suspicious links or attachments that could surreptitiously install malware.

Last but not least, companies should consider purchasing cyber liability insurance coverage, which is readily available. While cyber policies are still evolving and there are no standardized policy forms, coverage can be purchased at varying price points with different levels of coverage. Some of the more comprehensive forms of coverage provide additional “bells and whistles” such as immediate access to preapproved professionals that can guide companies through the legal and technical web of cybersecurity events and incident response.

Other cyber policies afford bundled coverages that may include:

  • The costs of a forensics investigation to identify the source and scope of an incident

  • Notification to affected individuals

  • Remediation in the form of credit monitoring and identity theft restoration services

  • Costs to restore lost, stolen or corrupted data and computer equipment

  • Defense of third-party claims and regulatory investigations arising out of a cyberattack.

 

This post was written by Anjali C. Das, Kevin M. Scott and John Busch of Wilson Elser Moskowitz Edelman & Dicker LLP.data security privacy FCC cybersecurity

Health Care Task Force Pre-Releases Report on Cybersecurity Days Before Ransomware Attack

Last week, the Health Care Industry Cybersecurity (HCIC) Task Force (the “Task Force”) published a pre-release copy of its report on improving cybersecurity in the health care industry.  The Task Force was established by Congress under the Cybersecurity Act of 2015.  The Task Force is charged with addressing challenges in the health care industry “when securing and protecting itself against cybersecurity incidents, whether intentional or unintentional.”

The Task Force released its report mere days before the first worldwide ransomware attack, commonly referred to as “WannaCry,” which occurred on May 12.  The malware is thought to have infected more than 300,000 computers in 150 jurisdictions to date.  In the aftermath of the attack, the U.S. Department of Health and Human Services (HHS) sent a series of emails to the health care sector, including a statement that government officials had “received anecdotal notices of medical device ransomware infection.”  HHS warned that the health care sector should particularly focus on devices that connect to the Internet, run on Windows XP, or have not been recently patched.  As in-house counsels understand, the ransomware attack raises a host of legal issues.

Timely, the HCIC report calls cybersecurity a “key public health concern that needs immediate and aggressive attention.”  The Task Force identifies six high-level imperatives, and for each imperative, offers several recommendations.

The imperatives are as follows:

  1. Define and streamline leadership, governance, and expectations for health care industry cybersecurity.

  2. Increase the security and resilience of medical devices and health IT.

  3. Develop the health care workforce capacity necessary to prioritize and ensure cybersecurity awareness and technical capabilities.

  4. Increase health care industry readiness through improved cybersecurity awareness and education.

  5. Identify mechanisms to protect research and development efforts and intellectual property from attacks or exposure.

  6. Improve information sharing of industry threats, weaknesses, and mitigations.

With respect to medical devices (imperative #2), the Task Force specifically advocates for greater transparency regarding third party software components.  The report encourages manufacturers and developers to create a “bill of materials” that describes its components, as well as known risks to those components, to enable health care delivery organizations to move quickly to determine if their medical devices are vulnerable.  Furthermore, the Task Force writes that product vendors should be transparent about their ability to provide IT support during the lifecycle of a medical device product.  The Task Force also recommends that health care organizations ensure that their systems, policies, and processes account for the implementation of available updates and IT support for medical devices, such as providing patches for discovered vulnerabilities.  The report suggests that government and industry “develop incentive recommendations to phase-out legacy and insecure health care technologies.”

The Task Force also encourages medical device manufacturers to implement “security by design,” including by making greater security risk management a priority throughout the product lifecycle, such as through adding greater testing or certification. In addition, the report encourages both developers and users to take actions that improve security access to information stored on devices, such as through multi-factor authentication.  The Task Force recommends that government agencies, such as the U.S. Food and Drug Administration (FDA) and the Office of the National Coordinator for Health Information Technology (ONC) at HHS, consider using existing authorities to “catalyze and reinforce activities and action items” associated with this recommendation.  This includes leveraging existing government guidance and industry standards, like FDA’s premarket and postmarket cybersecurity guidance documents.  Published in 2014 and 2016, these documents recommend that “manufacturers should monitor, identify, and address cybersecurity vulnerabilities and exploits as part of the [secure development lifecycle].”  We have previously discussed these guidance documents here and here.

Finally, the Task Force recommends that the health care industry take a “long-range approach” to considering “viability, effectiveness, security, and maintainability of” medical devices. The Task Force states that each product should have a defined strategy and design that supports cybersecurity during each stage of the product’s lifecycle.  In particular, the Task Force encourages HHS to evaluate existing authorities to conduct cybersecurity surveillance of medical devices.

This post was written by Dena Feldman and Christopher Hanson of Covington & Burling LLP.

Yesterday, #WannaCry. Today, #DocuSignPhish

Another day, another data incident.  If you use DocuSign, you’ll want to pay attention.

The provider of e-signature technology has acknowledged a data breach incident in which an unauthorized third party gained access to the email addresses of DocuSign users.   Those email addresses have now been used to launch a massive spam campaign.   By using the stolen email address database and sending “official” looking emails, cyber criminals are hoping that recipients will be more likely to click on and open the malicious links and attachments.

DocuSign’s alert to users says in part:

[A]s part of our ongoing investigation, today we confirmed that a malicious third party had gained temporary access to a separate, non-core system that allows us to communicate service-related announcements to users via email. A complete forensic analysis has confirmed that only email addresses were accessed; no names, physical addresses, passwords, social security numbers, credit card data or other information was accessed. No content or any customer documents sent through DocuSign’s eSignature system was accessed; and DocuSign’s core eSignature service, envelopes and customer documents and data remain secure.

A portion of the phish in the malicious campaign looks like this:

Two phishing campaigns already detected and more likely

The DocuSign Trust Center has posted alerts notifying users of two large phishing campaigns launched on May 9 and again on May 15.

The company is now advising customers NOT TO OPEN emails with the following subject lines, used in the two spam campaigns.

  • Completed: [domain name]  – Wire transfer for recipient-name Document Ready for Signature

  • Completed [domain name/email address] – Accounting Invoice [Number] Document Ready for Signature

We recommend that you change your DocuSign password in light of this incident as an extra measure of caution.  Also, DocuSign (and other similar services) offer two-factor authentication, and we strongly recommend that you take advantage of this extra security measure.

As always, think before you click.