Proskauer litigation associate Courtney Bowman and Jonathan Reardon, head of the Al Khobar, Saudi Arabia office of the Middle East-based firm Al Tamini & Co., recently co-authored an article published by Corporate Counsel about privacy laws in Saudi Arabia. The article provides valuable insight into the Kingdom’s privacy regime and focuses specifically on the central role Sharia plays in Saudi jurisprudence, including in the privacy realm. It also provides an overview of those laws that touch specifically on privacy matters, making it a must-read for those companies that are already present in that country or thinking about entering the market. Click here to read the full article.
On October 19, the Court of Justice of the European Union (CJEU) ruled that dynamic IP addresses may qualify as “personal data” under EU privacy law. As we covered here on the blog a few months ago, this decision is significant because it clarifies that companies that collect, store, process, and/or transfer dynamic IP addresses belonging to EU users may have to treat them in accordance with the stringent restrictions that EU law imposes on the handling of personal data. As a refresher, an IP (short for “Internet protocol”) address is a series of numbers allocated to a specific device that identifies a device and allows it to access an electronic communications network, such as the Internet. IP addresses can be either “dynamic” or “static”; dynamic IP addresses, which are more common, change every time the device connects to the Internet, while static IP addresses remain constant and do not change every time the device re-connects.
On September 13, 2016, California Governor Jerry Brown signed into law AB 2828, an amendment to the law that requires businesses to disclose data breaches to California residents whose personal information has been compromised.
Currently, the law requires notification of a breach when a California resident’s unencrypted personal information is compromised. However, effective January 1, 2017, the amended law requires notification of a security breach when (a) there is unauthorized acquisition of both encrypted personal information and the encryption key or security credential, and (b) the business has a reasonable belief that the encryption key or security credential could render such personal information readable or useable.
Encryption is the conversion of data into a form that is unreadable to an unauthorized person. The California law defines “encryption key” as the confidential key or process designed to render the data readable.
The law is applicable to all persons and businesses that own or license computerized data and conduct business in California, as well as state agencies that own or license computerized data.
California was the first state in the U.S. to require notification of security breaches (its law became effective in 2003). California last amended its data breach notification law in October 2015 to define “encrypted,” as well as expand the definition of “personal information” and update the requirements for a security breach notification letter.
On September 13, 2016, New York Governor Andrew Cuomo announced that the New York Department of Financial Services (the “DFS”) proposed a regulation that would require banks, insurance companies, and other financial services institutions regulated by the DFS to establish and maintain a cybersecurity program (the “Proposal”). If the Proposal is adopted, New York would be the first state to mandate such cybersecurity requirements by law.
The Proposal would require any individual, partnership, corporation, association or other entity operating under a license, registration, charter, certificate, permit, accreditation or similar authorization under New York banking, insurance or financial services laws (a “Covered Entity”) to:
- Establish a cybersecurity program designed to ensure the security of information systems and nonpublic information on such systems;
- Adopt a written cybersecurity policy;
- Designate a Chief Information Security Officer responsible for implementing, overseeing and enforcing the cybersecurity program and policy; and
- Comply with notice and reporting requirements.
If adopted, the Proposal will go into effect on January 1, 2017, and Covered Entities would have 180 days from the effective date to comply with the requirements.
Summary of the Proposal’s Requirements
Cybersecurity Program: A Covered Entity must establish and maintain a cybersecurity program that is designed to perform the following core functions:
- Identify internal and external cyber risks;
- Use defensive infrastructure to protect its information systems and nonpublic information stored on such systems;
- Detect, respond to and recover from unauthorized access (and attempts to gain unauthorized access) to its information systems; and
- Fulfill all regulatory reporting obligations.
The program must include:
- Annual penetration testing and quarterly vulnerability assessments;
- Audit trail systems;
- Limitations to access privileges;
- Written procedures regarding in-house developed applications;
- Annual risk assessment;
- Personnel training and monitoring;
- Multi-factor authentication;
- Limitations on data retention;
- Encryption of nonpublic information; and
- A written incident response plan.
Cybersecurity Policy: A Covered Entity must implement and maintain a written cybersecurity policy that describes procedures for protecting its information systems and nonpublic information stored on such systems, including: information and systems security, access controls, disaster recovery plans, customer data privacy, risk assessment, vendor and third-party service provider management and incident response. The policy must be reviewed at least annually by the Covered Entity’s board of directors and approved by a senior officer.
Chief Information Security Officer and Personnel: A Covered Entity must designate a Chief Information Security Officer (“CISO”) who is responsible for overseeing and implementing the cybersecurity program and enforcing the cybersecurity policy. The CISO must report to the board at least bi-annually. A Covered Entity must also employ cybersecurity personnel sufficient to manage its cybersecurity risks and to perform the core cybersecurity functions.
Reports and Notice to the DFS Superintendent: A Covered Entity must report to the DFS within 72 hours any attempt to gain unauthorized access to its information systems that affects nonpublic Information, or is reasonably likely to have a material effect on the Covered Entity’s normal operations. A Covered Entity must also submit annual reports to the DFS Superintendent certifying its compliance with the Proposal.
Private Funds and Their Managers Appear Not to Be Covered by the Proposal
We believe that private funds and their managers do not fall into the Proposal’s definition of “Covered Entities” and thus are not included in the Proposal’s scope. Additionally, we believe that private funds and their managers do not fall into any of the categories of institutions supervised by the DFS (as listed on the DFS’ website).
There is an argument that investment advisers that register or notice file with the State of New York pursuant to the New York Investment Advisory Act (NYIAA) (New York Code of Rules and Regulations, Title 13, Part 11) fall into the Proposal’s definition of “Covered Entity” and are thus covered by the Proposal. However, we believe that such investment advisers are not covered by the Proposal because (1) the DFS Superintendent does not supervise financial services regulated by other New York state public authorities, and investment advisers are regulated by the Investment Protection Bureau of the Department of Law pursuant to NYIAA; and (2) since the NYIAA is part of the New York Code of Rules and Regulations and not the statutory law, the NYIAA is likely not considered to be “similar authorization under New York banking, insurance or financial services laws.”
The Proposal is subject to a 45-day notice and public comment period following the September 28, 2016 publication in the New York State register before its final issuance. We will continue to monitor and report on developments concerning the Proposal.
 Covered Entities with (1) fewer than 1,000 customers in each of the last three calendar years, (2) less than $5 million in gross revenue in each of the last three fiscal years, and (3) less than $10 million in year-end assets are exempted from some, but not all, requirements of the Proposal.
 The Proposal defines “Covered Entity” as “any Person operating under or required to operate under a license, registration charter, certificate, permit, accreditation or similar authorization under the banking law, the insurance law or the financial services law.” Since some investment advisers register or notice file in New York pursuant to NYIAA, there is an argument such an investment adviser is operating under or required to operate under “similar authorization.”
 The Proposal was made by the DFS Superintendent pursuant to her authority granted by Sections 102, 201, 202, 301, 302 and 408 of the Financial Services Law. Section 201 states, “the superintendent shall supervise the business of, and the persons providing, financial products and services.” N.Y. Fin. Serv. § 201. The definition of “financial product or service” excludes a financial product or service “regulated for the purpose of consumer or investor protection by any other state agency, state department or state public authority.” N.Y. Fin. Serv. § 104. Since the Investment Protection Bureau of the Department of Law is responsible for the administration of the New York Investment Advisory Act and regulating investment advisers, the DFS Superintendent likely does not have the authority to promulgate a regulation of investment advisers.
TalkTalk, a major UK telecoms company, has been fined £400,000 for a data breach after they were hacked. This is a record fine given by the ICO (the UK’s data protection authority). Significantly the fine was imposed after a change of leadership this summer when Elizabeth Denham (previously the Information Commissioner in the Canadian province of British Columbia) replaced Christopher Graham as the Information Commissioner.
This record fine followed an in-depth investigation by the ICO into an attack by hackers on TalkTalk’s systems in October 2015. The hackers obtained the details of 156,959 customers, including their names, addresses, dates of birth, phone numbers and email addresses. In 15,656 cases, the hackers also gained access to bank account details and sort codes. The maximum fine the ICO can require companies to pay is £500,000.
The attack exploited vulnerabilities in webpages acquired by TalkTalk from Tiscali in 2009 to access a database. In handing out the fine, the ICO held that there had been elementary errors in TalkTalk’s efforts to safeguard personal data including:
- As part of the Tiscali acquisition, TalkTalk was unaware of webpages it had acquired;
- A bug in the database software, for which a fix was available, remained unfixed (allowing the hackers to bypass the database access restrictions);
- Two previous attacks to the same webpages in July and September 2015 should have alerted TalkTalk to the vulnerabilities in the webpages that were hacked;
- The database was outdated and could have been upgraded to a newer version unaffected by the bug in question; and
- TalkTalk failed to proactively monitor its own activities – had it done so it would have discovered the vulnerabilities.
The new Information Commissioner, stated “TalkTalk’s failure to implement the most basic cyber security measures allowed hackers to penetrate TalkTalk’s systems with ease,” and that “in spite of its expertise and resources, when it came to the basic principles of cyber-security, TalkTalk was found wanting”. The contravention was of a kind likely to cause substantial damage and substantial distress to its customers and TalkTalk should have identified the risks and taken appropriate action to prevent the data from being hacked.
The Information Commissioner further stated that “…cyber security is not an IT issue, it is a boardroom issue. Companies must be diligent and vigilant. They must do this because they have a duty under law, but they must also do this because they have a duty to their customers.” This is a stark statement of the position of the new Information Commissioner and demonstrates why now, more than ever, boards and top-level executives must proactively address and be seen to be addressing cyber-security issues.
A separate criminal investigation into this matter is ongoing. We will keep you posted of any development.
The dream of hack-proof communication just got a little closer to reality. On August 16, 2016, China launched the world’s first “quantum satellite,” a project the Chinese government hopes will enable it to build a communication system incapable of being hacked. Such a system, if perfected, would allow for encrypted communications between any two devices with absolute certainty that the encryption could not be broken, and with a built-in mechanism for alerting the sender/receiver if someone tried. Continue Reading
The Privacy Shield is now live, having gone into effect on August 1. Perhaps emboldened by the Article 29 Working Party’s late July announcement that European regulators will not challenge the program’s adequacy for at least a year (after the first annual review of the program in May 2017), companies have begun self-certifying in order to legalize their transfers of personal data from the EU to the US. However, as we reported previously, the Privacy Shield nevertheless faces a somewhat precarious future, as it is likely that it will face multiple legal challenges.