SEC’s Cybersecurity Disclosure Rules Are Here. Is Your Company Ready to Comply?
Companies are facing more attacks on their information systems. And, as their cyber risk skyrockets, the SEC has stepped in with new regulations, telling businesses what to disclose about these incidents — and requiring detailed disclosures on cyber risk management more broadly. With the deadline for compliance fast approaching, businesses are scrambling to mitigate their legal risk and comply with regulations that some say may be an overreach.
U.S. SEC Public Company Cybersecurity Disclosure Regulation Finalized With Swift Effective Date
On July 26, 2023, the U.S. Securities and Exchange Commission finalized its rule on Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure by Public Companies (the Final Rule), which will become effective 30 days following publication in the Federal Register. The Final Rule applies to all public companies subject to the reporting requirements of the Securities Exchange Act of 1934, including foreign private issuers, smaller reporting companies, and business development companies, and will require disclosure of material cybersecurity incidents on Form 8-K and Form 20-F and periodic disclosure of cybersecurity risk management, strategy, and governance in annual reports on Form 10-K and Form 20-F.
Hong Kong New PCPD Guidance on Handling Data Breaches
On June 30, 2023, Hong Kong’s data protection authority (the Office of the Privacy Commissioner for Personal Data, or PCPD) issued an updated version of its Guidance on Data Breach Handling and Data Breach Notifications (the Guidance, accessible here), which aims to guide companies on how they respond to data breaches. In particular, the Guidance contains a new recommendation for companies to adopt written data breach response plans.
SEC Delays Enactment of Cyber Rules Related to Investment Adviser and Public Companies to October 2023, Updates Timeline to April 2024 for Recently Proposed Cybersecurity Rules
On June 13, 2023, the Office of Management and Budget released its Spring 2023 Unified Agenda of Regulatory and Deregulatory Actions, which includes updates on Securities and Exchange Commission (“SEC”) proposed rules. The SEC pushed back its estimate for the final action date to October 2023 for its proposed cybersecurity rules related to public companies, as well as for its investment advisers and funds proposal. Notably, the SEC’s timelines are typically estimates for implementation, and the proposed rules could be introduced sooner or later than these dates. However, the updated timeline indicates that the SEC is prioritizing finalizing its cybersecurity rules related to public companies and investment advisers and funds.
FCC Proposes Updated Data Breach Reporting Requirements, Comment Period Ongoing
On January 6, 2023, the Federal Communications Commission (the Commission) released a unanimously adopted Notice of Proposed Rulemaking, “In the Matter of Data Breach Reporting Requirements” (Proposed Rule). The Commission sought comments through February 22, 2023 on the Proposed Rule which will update its current data breach reporting rule. Reply comments are due on or before March 24, 2023.
Drizly FTC Order Introduces Significant Minimization, Deletion and Retention Requirements
On October 24, 2022, the Federal Trade Commission (“FTC”) issued an order (the “Order”) against the online alcohol marketplace, Drizly, and its CEO, James Cory Rellas, alleging security failures that resulted in a data breach exposing the personal information of approximately 2.5 million consumers. In reaching this conclusion, the FTC alleges that Drizly failed to implement reasonable safeguards to protect the personal information it collected and stored, such as, two-factor authentication for GitHub, access controls for personal data, sufficient written security policies, and appropriate employee training regarding security.
