Tag: Cybersecurity

HIPAA Gets a Potential Counterpart in HISAA

Americans hear about cybersecurity incidents on a frequent basis. As the adage goes, it is not a matter of “if” a breach or security hack occurs; it is a matter of “when.” At no time was that more evident earlier this year when the healthcare industry was hit with the widespread ransomware attack on Change Healthcare, a subsidiary of the United Health Group. Because of the nature of the Change Healthcare shutdown and its impact across the industry, the U.S. Department of Health & Human Services (HHS) and its HIPAA enforcement arm, the Office for Civil Rights (OCR), conducted investigations and issued FAQ responses for those impacted by the cybersecurity event.

In further response, Senators Ron Wyden (D-OR) and Mark Warner (R-VA) introduced the Health Infrastructure Security and Accountability Act (HISAA) on September 26, 2024. Like HIPAA and HITECH before it, which established minimum levels of protection for healthcare information, HISAA looks to reshape how healthcare organizations address cybersecurity by enacting mandatory minimum security standards to protect healthcare information and by providing initial financial support to facilitate compliance. A copy of the legislative text can be found here, and a one-page summary of the bill can be found here.

To date, HIPAA and HITECH require covered entities and business associates to develop, implement, and maintain reasonable and appropriate “administrative, technical, physical” safeguards to protect electronic Protected Health Information or e-PHI. However, the safeguards do not specify minimum requirements; instead, they prescribe standards intended to be scalable, depending on the specific needs, resources, and capabilities of the respective organization. What this means is that e-PHI stored or exchanged among interconnected networks are subject to systems with often different levels of sophistication or protection.

Given the considerable time, effort, and resources dedicated to HIPAA/HITECH compliance, many consider the current state of voluntary safeguards as inadequate. This is especially the case since regulations under the HIPAA Security Rule have not been updated since 2013. As a result, Senators Wyden and Warner introduced HISAA in an effort to bring the patchwork of healthcare data security standards under one minimum umbrella and to require healthcare organizations to remain on top of software systems and cybersecurity standards.

Key pieces of HISAA, as proposed, include:

  1. Mandatory Cybersecurity Standards—If enacted, the Secretary of HHS, together with the Director of the Cybersecurity and Infrastructure Security Agency (CISA) and the Director of National Intelligence (DNI), will oversee the development and implementation of required standards and the standards will be subject to review and update every two years to counter evolving threats.
  2. Annual Audits and Stress Tests—Like current Security Risk Assessment (SRA) requirements, HISAA will require healthcare organizations to conduct annual cybersecurity audits and document the results. Unlike current requirements, these audits will need to be conducted by independent organizations to assess compliance, evaluate restoration abilities, and conduct stress tests in real-world simulations. While smaller organizations may be eligible for waivers from certain requirements because of undue burden, all healthcare organizations will have to publicly disclose compliance status as determined by these audits.
  3. Increased Accountability and Penalties—HISAA would implement significant penalties for non-compliance and would require healthcare executives to certify compliance on an annual basis. False information in such certifications could result in criminal charges, including fines of up to $1 million and prison time for up to 10 years. HISAA would also eliminate fine caps to allow HHS to impose penalties commiserate with the level needed to deter lax behaviors, especially among larger healthcare organizations.
  4. Financial Support for Enhancements—Because the costs for new standards could be substantial, especially for smaller organizations, HISAA would allocate $1.3 billion to support hospitals for infrastructure enhancements. Of this $1.3 billion, $800 million would be for rural and safety net hospitals over the first two years, and an additional $500 million would be available for all hospitals in succeeding years.
  5. Medicare Payment Adjustments—Finally, HISAA enables the Secretary of HHS to provide accelerated Medicare payments to organizations impacted by cybersecurity events. HHS offered similar accelerated payments during the Change Healthcare event, and HISAA would codify similar authority to HHS for recovery periods related to future cyberattacks.

While HISAA will establish a baseline of cybersecurity requirements, compliance with those requirements will require a significant investment of time and resources in devices and operating systems/software, training, and personnel. Even with the proposed funding, this could result in substantial challenges for smaller and rural facilities to comply. Moreover, healthcare providers will need to prioritize items such as encryption, multi-factor authentication, real-time monitoring, comprehensive response and remediation plans, and robust training and exercises to support compliance efforts.

Finally, at this juncture, the more important issue is for healthcare organizations to recognize their responsibilities in maintaining effective cybersecurity practices and to stay updated on any potential changes to these requirements. Since HISAA was introduced in the latter days of a hectic (and historic) election season, we will monitor its progress as the current Congress winds down in 2024 and the new Congress readies for action with a new administration in 2025.

© 2024 Winstead PC.
For more on HIPAA, visit the NLR Health Law Managed Care section

How to Develop an Effective Cybersecurity Incident Response Plan for Businesses

Data breaches have become more frequent and costly than ever. In 2021, the average data breach cost companies more than $4 million. Threat actors are increasingly likely to be sophisticated. The emergence of ransomware-as-a-service (RaaS) has allowed even unsophisticated, inexperienced parties to execute harmful, disruptive, costly attacks. In this atmosphere, what can businesses do to best prepare for a cybersecurity incident?

One fundamental aspect of preparation is to develop a cyber incident response plan (IRP). The National Institute of Standards and Technology (NIST) identified five basic cybersecurity functions to manage cybersecurity risk:

  • Identify
  • Protect
  • Detect
  • Respond
  • Recover

In the NIST framework, anticipatory response planning is considered part of the “respond” function, indicating how integral proper planning is to an effective response. Indeed, NIST notes that “investments in planning and exercises support timely response and recovery actions, resulting in reduced impact to the delivery of services.”

But what makes an effective IRP? And what else goes into quality response planning?

A proper IRP requires several considerations. The primary elements include:

  • Assigning accountability: identify an incident response team
  • Securing assistance: identify key external vendors including forensic, legal and insurance
  • Introducing predictability: standardize crucial response, remediation and recovery steps
  • Creating readiness: identify legal obligations and information to facilitate the company’s fulfillment of those obligations
  • Mandating experience: develop periodic training, testing and review requirements

After developing an IRP, a business must ensure it remains current and effective through regular reviews at least annually or anytime the business undergoes a material change that could alter either the IRP’s operation or the cohesion of the incident response team leading those operations.

An effective IRP is one of several integrated tools that can strengthen your business’s data security prior to an attack, facilitate an effective response to any attack, speed your company’s recovery from an attack and help shield it from legal exposure in the event of follow-on litigation.

© 2024 Varnum LLP
For more on Cybersecurity, visit the NLR Communications Media Internet section.

Department of Defense Issues Final CMMC Rule

On October 11, 2024, the Department of Defense (“DoD”) issued the first part of its final rule establishing the Cybersecurity Maturity Model Certification (“CMMC”) program. As expected, the final rule requires companies entrusted with national security information to implement cybersecurity standards at progressively advanced levels, (CMMC level 1, CMMC level 2, and CMMC level 3) depending on the type and sensitivity of the information. While the final rule largely tracks the proposed rule issued in December 2023, we outline below several notable updates DoD included in the final rule and their potential impacts on DoD contractors.

Updated Implementation Timeline

DoD extended the timeline for CMMC implementation. DoD will now roll out the CMMC program in a four-phased approach:

  • Phase 1 will begin in early to mid-2025 when DoD finalizes the second part of its CMMC rule under 48 C.F.R. Part 204. Once that rule is finalized, DoD will begin including CMMC level 1 and CMMC level 2 self-assessment requirements in new solicitations. That is, while DoD contractors will not need to obtain a CMMC certification by Phase 1, they will need to self-assess and affirm compliance with CMMC level 1 and/or level 2 security requirements when competing for new DoD contracts.
  • Phase 2 will begin one year after the start of Phase 1 (~early to mid-2026). During Phase 2, DoD will begin including CMMC level 2 certification requirements in applicable solicitations. Contractors who expect to bid on solicitations requiring a CMMC level 2 certification should plan to obtain that certification by early 2026 to avoid losing out on DoD opportunities.
  • Phase 3 will begin one year after the start of Phase 2 (~early to mid-2027). During Phase 3, DoD will begin requiring contractors to meet the CMMC level 2 certification requirements as a condition to exercise option periods on applicable contracts awarded after the effective date of the CMMC rule. DoD will also begin including CMMC Level 3 requirement in applicable solicitations.
  • Phase 4 will begin one year after the start of Phase 3 (~early to mid-2028). During Phase 4, DoD will include CMMC program requirements in all applicable CMMC solicitations and as a condition to exercise option periods on applicable contracts regardless of when they were awarded.

Narrower Assessment Scope for Security Protection Assets

The final rule narrows the assessment scope for contractors’ Security Protection Assets (“SPA”). Under the proposed rule, certain contractor assets that provide security functions or capabilities (i.e., SPAs) for the protection of controlled unclassified information (“CUI”) had to meet all security requirements of CMMC level 2. The final rule reduces that assessment scope so now SPAs only need to be assessed against “relevant” security requirements. This change should reduce the regulatory burden on contractors because they will no longer need to show how SPAs meet CMMC security requirements that are not applicable to the SPAs being assessed.

External Service and Cloud Service Providers

The final rule provides greater clarity as to when External Service Providers (“ESPs”) are within the scope of a contractor’s CMMC assessment. Under the final rule, if an ESP deals with CUI, then it must be assessed against all CMMC level 2 security requirements and must obtain a CMMC level 2 assessment or certification. By contrast, ESPs that only deal with security protection data (“SPD”)—data used to protect a contractor’s assessed environment—are subject to a more limited assessment and do not require a full CMMC level 2 assessment or certification. A service provider that does not deal with CUI or SPD does not meet the CMMC definition of ESP and presumably is outside the scope of any CMMC assessment.

For Cloud Service Providers (“CSPs”) dealing with CUI, the final rule tracks current DoD security requirements, which require CSPs to meet security requirements equivalent to the FedRAMP moderate baseline. Like with ESPs, CSPs that only deal with SPD are subject to a more limited assessment and CSPs that do not deal with CUI or SPD are outside of the CMMC scope.

© 2024 Blank Rome LLP

Struck by CrowdStrike Outage? Your Business Loss Could Be Covered

Over the last week, organizations around the globe have struggled to bring operations back online following a botched software update from cybersecurity company CrowdStrike. As the dust settles, affected organizations should consider whether they are insured against losses or claims arising from the outage. The Wall Street Journal has already reported that insurers are bracing for claims arising from the outage and that according to one cyber insurance broker “[t]he insurance world was expecting to cover situations like this.” A cyber analytics firm has estimated that insured losses following the outage could reach $1.5 billion.

Your cyber insurance policy may cover losses resulting from the CrowdStrike outage. These policies often include “business interruption” or “contingent business interruption” insurance that protects against disruptions from a covered loss. Business interruption insurance covers losses from disruptions to your own operations. This insurance may cover losses if the outage affected your own computer systems. Contingent business interruption insurance, on the other hand, covers your losses when another entity’s operations are disrupted. This coverage could apply if the outage affected a supplier or cloud service provider that your organization relies on.

Cyber policies often vary in the precise risks they cover. Evaluating potential coverage requires comparing your losses to the policy’s coverage. Cyber policies also include limitations and exclusions on coverage. For example, many cyber policies contain a “waiting period” that requires affected systems to be disrupted for a certain period before the policy provides coverage. These waiting periods can be as short as one hour or as long as several days.

Other commercial insurance policies could also provide coverage depending on the loss or claim and the policy endorsements and exclusions. For example, your organization may have procured liability insurance that protects against third-party claims or litigation. This insurance could protect you from claims made by customers or other businesses related to the outage.

If your operations have been impacted by the CrowdStrike outage, there are a few steps you can take now to maximize your potential insurance recovery.

First, read your policies to determine the available coverage. As you review your policies, pay careful attention to policy limits, endorsements, and exclusions. A policy endorsement may significantly expand policy coverage, even though it is located long after the relevant policy section. Keep in mind that courts generally interpret coverage provisions in a policy generously in favor of an insured and interpret exclusions or limitations narrowly against an insurance company.

Second, track your losses. The outage likely cost your organization lost profits or extra expenses. Common business interruption losses may also include overtime expenses to remedy the outage, expenses to hire third-party consultants or technicians, and penalties arising from the outage’s disruption to your operations. Whatever the nature of your loss, tracking and documenting your loss now will help you secure a full insurance recovery later.

Third, carefully review and comply with your policy’s notice requirements. If you have experienced a loss or a claim, you should immediately notify your insurer. Even if you are only aware of a potential claim, your policy may require you to provide notice to your insurer of the events that could ultimately lead to a claim or loss. Some notice requirements in cyber policies can be quite short. After providing notice, you may receive a coverage response or “reservation of rights” from your insurer. Be cautious in taking any unfavorable response at face value. Particularly in cases of widespread loss, an insurer’s initial coverage evaluation may not accurately reflect the available coverage.

If you are unsure of your policy’s notice obligations or available coverage, or if you suspect your insurer is not affording your organization the coverage that you purchased, coverage counsel can assist your organization in securing coverage. Above all, don’t hesitate to secure the coverage to which you are entitled.

Listen to this post

© 2024 Bradley Arant Boult Cummings LLP
For more on Business Coverage, visit the NLR Insurance Reinsurance Surety section

House Committee Postpones Markup Amid New Privacy Bill Updates

On June 27, 2024, the U.S. House of Representatives cancelled the House Energy and Commerce Committee markup of the American Privacy Rights Act (“APRA” or “Bill”) scheduled for that day, reportedly with little notice. There has been no indication of when the markup will be rescheduled; however, House Energy and Commerce Committee Chairwoman Cathy McMorris Rodgers issued a statement reiterating her support for the legislation.

On June 20, 2024, the House posted a third version of the discussion draft of the APRA. On June 25, 2024, two days before the scheduled markup session, Committee members introduced the APRA as a bill, H.R. 8818. Each version featured several key changes from earlier drafts, which are outlined collectively, below.

Notable changes in H.R. 8818 include the removal of two key sections:

  • “Civil Rights and Algorithms,” which required entities to conduct covered algorithm impact assessments when algorithms posed a consequential risk of harm to individuals or groups; and
  • “Consequential Decision Opt-Out,” which allowed individuals to opt out of being subjected to covered algorithms.

Additional changes include the following:

  • The Bill introduces new definitions, such as “coarse geolocation information” and “online activity profile,” the latter of which refines a category of sensitive data. “Neural data” and “information that reveals the status of an individual as a member of the Armed Forces” are added as new categories of sensitive data. The Bill also modifies the definitions of “contextual advertising” and “first-party advertising.”
  • The data minimization section includes a number of changes, such as the addition of “conduct[ing] medical research” in compliance with applicable federal law as a new permitted purpose. The Bill also limits the ability to rely on permitted purposes in processing sensitive covered data, biometric and genetic information.
  • The Bill now allows not only covered entities (excluding data brokers or large data holders), but also service providers (that are not large data holders) to apply for the Federal Trade Commission-approved compliance guideline mechanism.
  • Protections for covered minors now include a prohibition on first-party advertising (in addition to targeted advertising) if the covered entity knows the individual is a minor, with limited exceptions acknowledged by the Bill. It also restricts the transfer of a minor’s covered data to third parties.
  • The Bill adds another preemption clause, clarifying that APRA would preempt any state law providing protections for children or teens to the extent such laws conflict with the Bill, but does not prohibit states from enacting laws, rules or regulations that offer greater protection to children or teens than the APRA.

For additional information about the changes, please refer to the unofficial redline comparison of all APRA versions published by the IAPP.

Copyright © 2024, Hunton Andrews Kurth LLP. All Rights Reserved.
For more news on the status of the American Privacy Rights Act, please visit the NLR Communications Media Internet section.

The SEC Continues Its War On Crime Victims

More than a decade ago, I expressed concern when the Securities and Exchange Commission charged Koss Corporation and one its CEO, Mr. Koss, with filing materially false financial statements after the corporation had discovered that it had been the victim of employee embezzlement. In the post, I decried the SEC’s decision to punish the victims of crime:

The SEC’s decision to prosecute this case is troubling. Surely, neither Koss Corporation nor Mr. Koss intended or wanted to be the victim of a criminal embezzlement. It is also hard to see how the shareholders’ benefited from the company incurring the legal costs associated with defending and settling the SEC investigation. While the SEC did force the return of bonus compensation, the injunctive relief ordering the company and Mr. Koss not to do this again strikes me as silly. Does it really make sense for the court to order a company not to be the victim of a theft?

I was therefore heartened by the recent statement by Commissioners Hester Peirce and Mark Uyeda on the SEC’s recent settlement of administrative proceeding against R.R. Donnelly & Sons, Co.:

Also concerning is the Commission’s decision to stretch the law to punish a company that was the victim of a cyberattack. While an enforcement action may be warranted in some circumstances, distorting a statutory provision to form the basis for such an action inappropriately amplifies a company’s harm from a cyberattack.

According to the SEC’s press release, R.R. Donnelly & Sons, Co. “cooperated throughout the investigation, including by reporting the cybersecurity incident to staff prior to filing a disclosure of the incident, by providing meaningful cooperation that helped expedite the staff’s investigation, and by voluntarily adopting new cybersecurity technology and controls”. Nonetheless, the SEC thought a just resolution required payment of a $2.125 million civil penalty for transfer to the U.S. Treasury. I remain unconvinced that the expropriation of millions of dollars from a crime victim to the U.S. Treasury protects, much less helps, the shareholders of R.R. Donnelly & Sons, Co.

© 2010-2024 Allen Matkins Leck Gamble Mallory & Natsis LLP
For more news on SEC Punishing Crime Victims, visit the NLR Securities SEC section.

Cybersecurity Crunch: Building Strong Data Security Programs with Limited Resources – Insights from Tech and Financial Services Sectors

In today’s digital age, cybersecurity has become a paramount concern for executives navigating the complexities of their corporate ecosystems. With resources often limited and the ever-present threat of cyberattacks, establishing clear priorities is essential to safeguarding company assets.

Building the right team of security experts is a critical step in this process, ensuring that the organization is well-equipped to fend off potential threats. Equally important is securing buy-in from all stakeholders, as a unified approach to cybersecurity fosters a robust defense mechanism across all levels of the company.Digit

This insider’s look at cybersecurity will delve into the strategic imperatives for companies aiming to protect their digital frontiers effectively.

Where Do You Start on Cybersecurity?
Resources are limited, and pressures on corporate security teams are growing, both from internal stakeholders and outside threats. But resources to do the job aren’t. So how can companies protect themselves in real world environment, where finances, employee time, and other resources are finite?

“You really have to understand what your company is in the business of doing,” Wilson said. “Every business will have different needs. Their risk tolerances will be different.”

“You really have to understand what your company is in the business of doing. Every business will have different needs. Their risk tolerances will be different.”

BRIAN WILSON, CHIEF INFORMATION SECURITY OFFICER, SAS
For example, Tuttle said in the manufacturing sector, digital assets and data have become increasingly important in recent years. The physical product no longer is the end-all, be-all of the company’s success.

For cybersecurity professionals, this new reality leads to challenges and tough choices. Having a perfect cybersecurity system isn’t possible—not for a company doing business in a modern, digital world. Tuttle said, “If we’re going to enable this business to grow, we’re going to have to be forward-thinking.”

That means setting priorities for cybersecurity. Inskeep, who previously worked in cybersecurity for one of the world’s largest financial services institutions, said multi-factor authentication and controlling access is a good starting point, particularly against phishing and ransomware attacks. Also, he said companies need good back-up systems that enable them to recover lost data as well as robust incident response plans.

“Bad things are going to happen,” Wilson said. “You need to have logs and SIEMs to tell a story.”

Tuttle said one challenge in implementing an incident response plan is engaging team members who aren’t on the front lines of cybersecurity. “They need to know how to escalate quickly, because they are likely to be the first ones to see something that isn’t right,” she said. “They need to be thinking, ‘What should I be looking for and what’s my response?’”

“They need to know how to escalate quickly, because they are likely to be the first ones to see something that isn’t right. They need to be thinking, ‘What should I be looking for and what’s my response?’”

LISA TUTTLE, CHIEF INFORMATION SECURITY OFFICER, SPX TECHNOLOGIES
Wilson said tabletop exercises and security awareness training “are a good feedback loop to have to make sure you’re including the right people. They have to know what to do when something bad happens.”

Building a Security Team
Hiring and maintaining good people in a harrowing field can be a challenge. Companies should leverage their external and internal networks to find data privacy and cybersecurity team members.

Wilson said SAS uses an intern program to help ensure they have trained professionals already in-house. He also said a company’s Help Desk can be a good source of talent.

Remote work also allows companies to cast a wider net for hiring employees. The challenge becomes keeping remote workers engaged, and companies should consider how they can make these far-flung team members feel part of the team.

Inskeep said burnout is a problem in the cybersecurity field. “It’s a job that can feel overwhelming sometimes,” he said. “Interacting with people and protecting them from that burnout has become more critical than ever.”

“It’s a job that can feel overwhelming sometimes. Interacting with people and protecting them from that burnout has become more critical than ever.”

TODD INSKEEP, FOUNDER AND CYBERSECURITY ADVISOR, INCOVATE SOLUTIONS
Weighing Levels of Compliance
The first step, Claypoole said, is understanding the compliance obligations the company faces. These obligations include both regulatory requirements (which are tightening) as well as contract terms from customers.

“For a business, that can be scary, because your business may be agreeing to contract terms with customers and they aren’t asking you about the security requirements in those contracts,” Wilson said.

The panel also noted that “compliance” and “security” aren’t the same thing. Compliance is a minimum set of standards that must be met, while security is a more wide-reaching goal.

But company leaders must realize they can’t have a perfect cybersecurity system, even if they could afford it. It’s important to identify priorities—including which operations are the most important to the company and which would be most disruptive if they went offline.

Wilson noted that global privacy regulations are increasing and becoming stricter every year. In addition, federal officials have taken criminal action against CSOs in recent years.

“Everybody’s radar is kind of up,” Tuttle said. The increasingly compliance pressure also means it’s important for cybersecurity teams to work collaboratively with other departments, rather than making key decisions in a vacuum. Inskeep said such decisions need to be carefully documented as well.

“If you get to a place where you are being investigated, you need your own lawyer,” Claypoole said.

“If you get to a place where you are being investigated, you need your own lawyer.”

TED CLAYPOOLE, PARTNER, WOMBLE BOND DICKINSON
Cyberinsurance is another consideration for data privacy teams, but it can help Chief Security Officers make the case for more resources (both financial and work hours). Inskeep said cyberinsurance questions also can help companies identify areas of risks and where they need to prioritize their efforts. Such priorities can change, and he said companies need to have a committee or some other mechanism to regularly review and update cybersecurity priorities.

Wilson said one positive change he’s seen is that top executives now understand the importance of cybersecurity and are more willing to include cybersecurity team members in the up-front decision-making process.

Bringing in Outside Expertise
Consultants and vendors can be helpful to a cybersecurity team, particularly for smaller teams. Companies can move certain functions to third-party consultants, allowing their own teams to focus on core priorities.

“If we don’t have that internal expertise, that’s a situation where we’d call in third-party resources,” Wilson said.

Bringing in outside professionals also can help a company keep up with new trends and new technologies.

Ultimately, a proactive and well-coordinated cybersecurity strategy is indispensable for safeguarding the digital landscape of modern enterprises. With an ever-evolving threat landscape, companies must be agile in their approach and continuously review and update their security measures. At the core of any effective cybersecurity plan is a comprehensive risk management framework that identifies potential vulnerabilities and outlines steps to mitigate their impact. This framework should also include incident response protocols to minimize the damage in case of a cyberattack.

In addition to technology and processes, the human element is crucial in cybersecurity. Employees must be educated on how to spot potential threats, such as phishing emails or suspicious links, and know what steps to take if they encounter them.

Key Takeaways:
What are the biggest risk areas and how do you minimize those risks?
Know your external cyber footprint. This is what attackers see and will target.
Align with your team, your peers, and your executive staff.
Prioritize implementing multi-factor authentication and controlling access to protect against common threats like phishing and ransomware.
Develop reliable backup systems and robust incident response plans to recover lost data and respond quickly to cyber incidents.
Engage team members who are not on the front lines of cybersecurity to ensure quick identification and escalation of potential threats.
Conduct tabletop exercises and security awareness training regularly.
Leverage intern programs and help desk personnel to build a strong cybersecurity team internally.
Explore remote work options to widen the talent pool for hiring cybersecurity professionals, while keeping remote workers engaged and integrated.
Balance regulatory compliance with overall security goals, understanding that compliance is just a minimum standard.

Copyright © 2024 Womble Bond Dickinson (US) LLP All Rights Reserved.

by: Theodore F. Claypoole of Womble Bond Dickinson (US) LLP

For more on Cybersecurity, visit the Communications Media Internet section.

Mandatory Cybersecurity Incident Reporting: The Dawn of a New Era for Businesses

A significant shift in cybersecurity compliance is on the horizon, and businesses need to prepare. Starting in 2024, organizations will face new requirements to report cybersecurity incidents and ransomware payments to the federal government. This change stems from the U.S. Department of Homeland Security’s (DHS) Cybersecurity Infrastructure and Security Agency (CISA) issuing a Notice of Proposed Rulemaking (NPRM) on April 4, 2024. This notice aims to enforce the Cyber Incident Reporting for Critical Infrastructure Act of 2022 (CIRCIA). Essentially, this means that “covered entities” must report specific cyber incidents and ransom payments to CISA within defined timeframes.

Background

Back in March 2022, President Joe Biden signed CIRCIA into law. This was a big step towards improving America’s cybersecurity. The law requires CISA to create and enforce regulations mandating that covered entities report cyber incidents and ransom payments. The goal is to help CISA quickly assist victims, analyze trends across different sectors, and share crucial information with network defenders to prevent other potential attacks.

The proposed rule is open for public comments until July 3, 2024. After this period, CISA has 18 months to finalize the rule, with an expected implementation date around October 4, 2025. The rule should be effective in early 2026. This document provides an overview of the NPRM, highlighting its key points from the detailed Federal Register notice.

Cyber Incident Reporting Initiatives

CIRCIA includes several key requirements for mandatory cyber incident reporting:

  • Cyber Incident Reporting Requirements – CIRCIA mandates that CISA develop regulations requiring covered entities to report any covered cyber incidents within 72 hours from the time the entity reasonably believes the incident occurred.
  • Federal Incident Report Sharing – Any federal entity receiving a report on a cyber incident after the final rule’s effective date must share that report with CISA within 24 hours. CISA will also need to make information received under CIRCIA available to certain federal agencies within the same timeframe.
  • Cyber Incident Reporting Council – The Department of Homeland Security (DHS) must establish and chair an intergovernmental Cyber Incident Reporting Council to coordinate, deconflict, and harmonize federal incident reporting requirements.

Ransomware Initiatives

CIRCIA also authorizes or mandates several initiatives to combat ransomware:

  • Ransom Payment Reporting Requirements – CISA must develop regulations requiring covered entities to report to CISA within 24 hours of making any ransom payments due to a ransomware attack. These reports must be shared with federal agencies similarly to cyber incident reports.
  • Ransomware Vulnerability Warning Pilot Program – CISA must establish a pilot program to identify systems vulnerable to ransomware attacks and may notify the owners of these systems.
  • Joint Ransomware Task Force – CISA has announced the launch of the Joint Ransomware Task Force to build on existing efforts to coordinate a nationwide campaign against ransomware attacks. This task force will work closely with the Federal Bureau of Investigation and the Office of the National Cyber Director.

Scope of Applicability

The regulation targets many “covered entities” within critical infrastructure sectors. CISA clarifies that “covered entities” encompass more than just owners and operators of critical infrastructure systems and assets. Entities actively participating in these sectors might be considered “in the sector,” even if they are not critical infrastructure themselves. Entities uncertain about their status are encouraged to contact CISA.

Critical Infrastructure Sectors

CISA’s interpretation includes entities within one of the 16 sectors defined by Presidential Policy Directive 21 (PPD 21). These sectors include Chemical, Commercial Facilities, Communications, Critical Manufacturing, Dams, Defense Industrial Base, Emergency Services, Energy, Financial Services, Food and Agriculture, Government Facilities, Healthcare and Public Health, Information Technology, Nuclear Reactors, Materials, and Waste, Transportation Systems, Water and Wastewater Systems.

Covered Entities

CISA aims to include small businesses that own and operate critical infrastructure by setting additional sector-based criteria. The proposed rule applies to organizations falling into one of two categories:

  1. Entities operating within critical infrastructure sectors, except small businesses
  2. Entities in critical infrastructure sectors that meet sector-based criteria, even if they are small businesses

Size-Based Criteria

The size-based criteria use Small Business Administration (SBA) standards, which vary by industry and are based on annual revenue and number of employees. Entities in critical infrastructure sectors exceeding these thresholds are “covered entities.” The SBA standards are updated periodically, so organizations must stay informed about the current thresholds applicable to their industry.

Sector-Based Criteria

The sector-based criteria target essential entities within a sector, regardless of size, based on the potential consequences of disruption. The proposed rule outlines specific criteria for nearly all 16 critical infrastructure sectors. For instance, in the information technology sector, the criteria include:

  • Entities providing IT services for the federal government
  • Entities developing, licensing, or maintaining critical software
  • Manufacturers, vendors, or integrators of operational technology hardware or software
  • Entities involved in election-related information and communications technology

In the healthcare and public health sector, the criteria include:

  • Hospitals with 100 or more beds
  • Critical access hospitals
  • Manufacturers of certain drugs or medical devices

Covered Cyber Incidents

Covered entities must report “covered cyber incidents,” which include significant loss of confidentiality, integrity, or availability of an information system, serious impacts on operational system safety and resiliency, disruption of business or industrial operations, and unauthorized access due to third-party service provider compromises or supply chain breaches.

Significant Incidents

This definition covers substantial cyber incidents regardless of their cause, such as third-party compromises, denial-of-service attacks, and vulnerabilities in open-source code. However, threats or activities responding to owner/operator requests are not included. Substantial incidents include encryption of core systems, exploitation causing extended downtime, and ransomware attacks on industrial control systems.

Reporting Requirements

Covered entities must report cyber incidents to CISA within 72 hours of reasonably believing an incident has occurred. Reports must be submitted via a web-based “CIRCIA Incident Reporting Form” on CISA’s website and include extensive details about the incident and ransom payments.

Report Types and Timelines

  • Covered Cyber Incident Reports within 72 hours of identifying an incident
  • Ransom Payment Reports due to a ransomware attack within 24 hours of payment
  • Joint Covered Cyber Incident and Ransom Payment Reports within 72 hours for ransom payment incidents
  • Supplemental Reports within 24 hours if new information or additional payments arise

Entities must retain data used for reports for at least two years. They can authorize a third party to submit reports on their behalf but remain responsible for compliance.

Exemptions for Similar Reporting

Covered entities may be exempt from CIRCIA reporting if they have already reported to another federal agency, provided an agreement exists between CISA and that agency. This agreement must ensure the reporting requirements are substantially similar, and the agency must share information with CISA. Federal agencies that report to CISA under the Federal Information Security Modernization Act (FISMA) are exempt from CIRCIA reporting.

These agreements are still being developed. Entities reporting to other federal agencies should stay informed about their progress to understand how they will impact their reporting obligations under CIRCIA.

Enforcement and Penalties

The CISA director can make a request for information (RFI) if an entity fails to submit a required report. Non-compliance can lead to civil action or court orders, including penalties such as disbarment and restrictions on future government contracts. False statements in reports may result in criminal penalties.

Information Protection

CIRCIA protects reports and RFI responses, including immunity from enforcement actions based solely on report submissions and protections against legal discovery and use in proceedings. Reports are exempt from Freedom of Information Act (FOIA) disclosures, and entities can designate reports as “commercial, financial, and proprietary information.” Information can be shared with federal agencies for cybersecurity purposes or specific threats.

Business Takeaways

Although the rule will not be effective until late 2025, companies should begin preparing now. Entities should review the proposed rule to determine if they qualify as covered entities and understand the reporting requirements, then adjust their security programs and incident response plans accordingly. Creating a regulatory notification chart can help track various incident reporting obligations. Proactive measures and potential formal comments on the proposed rule can aid in compliance once the rules are finalized.

These steps are designed to guide companies in preparing for CIRCIA, though each company must assess its own needs and procedures within its specific operational, business, and regulatory context.

Listen to this post

© 2024 Bradley Arant Boult Cummings LLP
For more on Cybersecurity, visit the NLR Communications, Media & Internet section.

Mid-Year Recap: Think Beyond US State Laws!

Much of the focus on US privacy has been US state laws, and the potential of a federal privacy law. This focus can lead one to forget, however, that US privacy and data security law follows a patchwork approach both at a state level and a federal level. “Comprehensive” privacy laws are thus only one piece of the puzzle. There are federal and state privacy and security laws that apply based on a company’s (1) industry (financial services, health care, telecommunications, gaming, etc.), (2) activity (making calls, sending emails, collecting information at point of purchase, etc.), and (3) the type of individual from whom information is being collected (children, students, employees, etc.). There have been developments this year in each of these areas.

On the industry law, there has been activity focused on data brokers, those in the health space, and for those that sell motor vehicles. The FTC has focused on the activities of data brokers this year, beginning the year with a settlement with lead-generation company Response Tree. It also settled with X-Mode Social over the company’s collection and use of sensitive information. There have also been ongoing regulation and scrutiny of companies in the health space, including HHS’s new AI transparency rule. Finally, in this area is a new law in Utah, with a Motor Vehicle Data Protection Act applicable to data systems used by car dealers to house consumer information.

On the activity side, there has been less news, although in this area the “activity” of protecting information (or failing to do so) has continued to receive regulatory focus. This includes the SEC’s new cybersecurity reporting obligations for public companies, as well as minor modifications to Utah’s data breach notification law.

Finally, there have been new laws directed to particular individuals. In particular, laws intended to protect children. These include social media laws in Florida and Utah, effective January 1, 2025 and October 1, 2024 respectively. These are similar to attempts to regulate social media’s collection of information from children in Arkansas, California, Ohio and Texas, but the drafters hope sufficiently different to survive challenges currently being faced by those laws. The FTC is also exploring updates to its decades’ old Children’s Online Privacy Protection Act.

Putting It Into Practice: As we approach the mid-point of the year, now is a good time to look back at privacy developments over the past six months. There have been many developments in the privacy patchwork, and companies may want to take the time now to ensure that their privacy programs have incorporated and addressed those laws’ obligations.

Listen to this post

Copyright © 2024, Sheppard Mullin Richter & Hampton LLP.
For more on Privacy, visit the NLR Consumer Protection section.

NIST Releases Risk ‘Profile’ for Generative AI

A year ago, we highlighted the National Institute of Standards and Technology’s (“NIST”) release of a framework designed to address AI risks (the “AI RMF”). We noted how it is abstract, like its central subject, and is expected to evolve and change substantially over time, and how NIST frameworks have a relatively short but significant history that shapes industry standards.

As support for the AI RMF, last month NIST released in draft form the Generative Artificial Intelligence Profile (the “Profile”).The Profile identifies twelve risks posed by Generative AI (“GAI”) including several that are novel or expected to be exacerbated by GAI. Some of the risks are exotic and new, such as confabulation, toxicity, and homogenization.

The Profile also identifies risks that are familiar, such as those for data privacy and cybersecurity. For the latter, the Profile details two types of cybersecurity risks: (1) those with the potential to discover or enable the lowering of barriers for offensive capabilities, and (2) those that can expand the overall attack surface by exploiting vulnerabilities as novel attacks.

For offensive capabilities and novel attack risks, the Profile includes these examples:

  • Large language models (a subset of GAI) that discover vulnerabilities in data and write code to exploit them.
  • GAI-powered co-pilots that proactively inform threat actors on how to evade detection.
  • Prompt-injections that steal data and run code remotely on a machine.
  • Compromised datasets that have been ‘poisoned’ to undermine the integrity of outputs.

In the past, the Federal Trade Commission (“FTC”) has referred to NIST when investigating companies’ data breaches. In settlement agreements, the FTC has required organizations to implement security measures through the NIST Cybersecurity Framework. It is reasonable to assume then, that NIST guidance on GAI will also be recommended or eventually required.

But it’s not all bad news – despite the risks when in the wrong hands, GAI will also improve cybersecurity defenses. As recently noted by Microsoft’s recent report on the GDPR & GAI, GAI can already: (1) support cybersecurity teams and protect organizations from threats, (2) train models to review applications and code for weaknesses, and (3) review and deploy new code more quickly by automating vulnerability detection.

Before ‘using AI to fight AI’ becomes legally required, just as multi-factor authentication, encryption, and training have become legally required for cybersecurity, the Profile should be considered to mitigate GAI risks. From pages 11-52, the Profile examines four hundred ways to use the Profile for GAI risks. Grouping them together, some of the recommendations include:

  • Refine existing incident response plans and risk assessments if acquiring, embedding, incorporating, or using open-source or proprietary GAI systems.
  • Implement regular adversary testing of the GAI, along with regular tabletop exercises with stakeholders and the incident response team to better inform improvements.
  • Carefully review and revise contracts and service level agreements to identify who is liable for a breach and responsible for handling an incident in case one is identified.
  • Document everything throughout the GAI lifecycle, including changes to any third parties’ GAI systems, and where audited data is stored.

“Cybersecurity is the mother of all problems. If you don’t solve it, all the other technology stuff just doesn’t happen” said Charlie Bell, Microsoft’s Chief of Security, in 2022. To that end, the AM RMF and now the Profile provide useful and early guidance on how to manage GAI Risks. The Profile is open for public comment until June 2, 2024.

© Polsinelli PC, Polsinelli LLP in California
For more on Generative AI, visit the NLR Communications, Media & Internet section.