Recent headlines have been dominated by "mega" breaches involving tens of millions of customers. This article highlights some of the biggest recent US privacy breaches, and considers how a similar incident might affect UK companies.

A large-scale UK breach is inevitable. UK organisations must prepare in advance in order to protect their consumer data and technology systems.

Recent US Breaches

The recent hacking of Sony Pictures released sensitive internal documents and emails, and costs are publically estimated at $70-$100 million. In October 2014, hackers at JPMorgan Chase & Co. compromised contact information of 76 million individuals and 8 million small businesses, and there are concerns that the stolen information could be used in phishing attacks to obtain additional personal information sufficient to commit fraud. In September 2014, Home Depot announced that malware had infected its point-of-sale systems, potentially impacting 56 million payment cards; public reports estimate costs at $62 million. Hackers also attacked Target in 2013, stealing 40 million payment cards and contact information of 70 million customers, and damaging Target's reputation and stock prices, leading to the resignation of Target's CEO and chairman. Target estimates final breach-related costs of $148 million.

UK

The UK so far appears to have avoided a large-scale breach incident (although UK organisations generally are not required to report a breach to regulators, suggesting many incidents currently slip below the radar). Nonetheless, a 2014 survey by PWC found that 81% of large UK businesses and 60% of small businesses suffered a breach in the last year, with the average cost nearly doubling since 2013. It is clearly no longer a case of if but when a large-scale breach occurs in the UK, and UK companies should prepare for the following:

Investigative Costs

  • An experienced privacy lawyer is often engaged in the US as "breach coach", to coordinate the entire breach response, which can lead to lower costs overall and a more effective response.
  • Computer forensic specialists can help to mitigate costs: a US company which appeared from the outside to have suffered a large-scale breach was able to show through forensic analysis that its network was not compromised.
  • Privacy counsel can help a company comply with its various legal obligations: the ICO is already very active in this area, and the draft EU General Data Protection Regulation ("EU Regulation"), which will impose mandatory obligations on companies who suffer a breach, is expected to be finalised shortly. Furthermore, a large-scale breach is likely to affect foreign as well as UK citizens, which may require compliance with foreign data breach requirements.

Notifications and Credit Monitoring

  • The ICO currently recommends notifying affected individuals where it will help such individuals to manage their risk, and the EU Regulation will require mandatory notification "where adverse impact is determined".
  • Notification costs can include legal costs to draft letters, address-checking, and postage costs, plus a call centre to respond to enquiries from affected individuals.
  • Although not a legal requirement in the US, it is considered good practice to offer credit monitoring or some other type of identity theft protection service in the event of a breach impacting personally identifiable non-public information, which can help manage consumer expectations and ultimately avoid or mitigate costly consumer and/or regulatory actions.

Regulatory Actions

  • The costs of defending a regulatory action or investigation are spiralling in the US.
  • UK organisations are currently recommended to provide notification to the ICO in the event of a serious personal data breach (mandatory if they provide public electronic communication services); however, a 2013 ICO decision (Jala Transport Limited) indicated that companies which do not voluntarily notify breaches will face bigger fines.
  • The EU Regulation will impose a mandatory requirement to notify the data protection authority, and provide for fines of up to €100m or 5% of annual worldwide turnover, which is sure to lead to increased regulatory activity in the UK.

PCI DSS Costs

  • If payment cards are involved, the Payment Card Industry Data Security Standard ("PCI DSS") may require an investigation by a PCI Forensic Investigator, the cost of which the company will be liable for regardless if evidence of a compromise is established.
  • Non-compliance with PCI DSS can lead to fines for loss of data and liability for fraud losses and operational costs. Public reports suggest Target may incur $1.1 billion in PCI fines as a result of the high incidence of fraud on the stolen cards.

Legal Actions

  • A UK breach can lead to enforcement actions, and the forthcoming EU Regulation will also provide for an individual right of action.
  • Shareholder derivative suits are a growing issue: following the Target breach, multiple shareholders brought derivative actions, alleging that the board failed to take reasonable steps to maintain the security of customers' data, thereby causing substantial damages to Target for which they should be held liable.

Reputational Impact

  • A large-scale breach can cause an organisation to lose customers and impact on share price: Target's profits dropped 46% following the breach, and customer perception fell to an all time low.
  • Companies should consider hiring an experienced crisis management firm who can work closely with legal and IT/forensic experts to ensure the appropriate public relations response.

Insurance

  • Many US companies purchase insurance to cover the costs of a breach: in early 2014 Target announced that its insurers covered $44 million of its $61 million in breach related costs.
  • UK companies should consider a specialised cyber liability insurance policy, which may cover first party breach response costs, as well as third party claims such as lawsuits and regulatory actions.

Conclusion

A large-scale UK breach is inevitable. UK organisations must prepare in advance in order to protect their consumer data and technology systems, and mitigate the often devastating consequences of a breach.

First published by Reactions

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.