On December 15, 2021, Australia and the United States signed an agreement that will make it more efficient for law enforcement agencies in both countries to obtain data about criminal suspects, but it leaves technology companies with concerning questions. The new agreement was forged under the Clarifying Lawful Overseas Use of Data (CLOUD) Act, a 2018 statute that enables law enforcement to more easily secure important electronic information about suspected crimes—including terrorism, violent crimes, sexual exploitation of children, and cybercrimes like ransomware or attacks on critical infrastructure—from global technology companies based in the United States. Although the agreement was designed to facilitate law enforcement investigations, it leaves unanswered the encryption privacy questions that have beset preceding agreements.
Federal banking regulators have recently moved the goal post for financial institutions that suffer a data breach with approval of a new rule mandating the disclosure of certain cyber incidents within 36 hours after banks determine that a triggering incident has occurred. The rule, which puts in place the fastest regulatory notification clock we have seen in the U.S., was issued by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Treasury Department’s Office of the Comptroller of the Currency, and largely conforms to the notice of proposed rulemaking that the agencies issued in January. The new rule goes into effect April 1, 2022, and covered banks must begin compliance by May 1, 2022—leading many banks to revamp systems designed to give notice in 30 days.
The new rule comes at a time in which cyberattacks are a larger problem than ever and show no sign of slowing. Financial institutions have always been major targets but have recently suffered an even greater barrage. While the Bank Secrecy Act and the Interagency Guidance on Response Programs for Unauthorized Access to Consumer Information and Customer Notice already require banks to provide the agencies with information regarding certain computer security incidents, the new rule encapsulates regulators’ desire for even more rapid alerts regarding a wider range of such events. According to the banking regulators, the new rule will promote early agency awareness of the most serious threats, helping banks and their supervisory agencies address these threats before they endanger the entire financial system.
2021 was a busy year for data protection law in China. On June 10, 2021, the Standing Committee of the National People’s Congress of the People’s Republic of China adopted the Data Security Law (DSL), which went into effect on September 1, 2021. On August 20, 2021, the Standing Committee of the National People’s Congress enacted the Personal Information Protection Law (PIPL), which went into effect just last month, in November 2021. The DSL applies broadly to processing of all data, not just personal information or electronic data and expands on the provisions from China’s Cybersecurity Law, which was enacted in 2016. In contrast, the PIPL applies only to the processing of personal information and has been compared to Europe’s General Data Protection Regulation (GDPR), although that comparison may obscure the contours of China’s law more than it enlightens.
Consistent with the course of Chinese administrative law, the laws’ key terms, analyses, and processes will continue to be fleshed out and perhaps materially enhanced or diminished in a series of regulations, measures, standards, and guidance documents. The latest draft measures on cross-border transfers, which are being closely watched by organizations contemplating cross border data transfers, were published at the end of October, and comments were accepted through November. We expect China to continue finalizing the laws’ terms and measures in 2022.
In the wake of major cybersecurity incidents, it is becoming increasingly common for shareholders to bring derivative lawsuits alleging that the officers or board members failed to exercise proper governance over cybersecurity. Some companies have paid settlements to resolve such matters, but few derivative actions have ended in judgment on the merits in favor of plaintiffs, largely because plaintiffs are rarely able to show that directors failed to execute their oversight responsibilities. A recent ruling by the Delaware Court of Chancery dismissing a derivative lawsuit against Marriott International, Firemen’s Ret. Sys. of St. Louis v. Sorenson, No. 2019-0965-LWW (Del. Ch. Oct. 5, 2021), reiterates that directors who monitor cybersecurity governance, work to mitigate cyber risks, and seek outside advice on data protection issues will usually not face liability.
It’s the most data-filled time of the year!
Join us on RopesDataPhiles.com for the Twelve Days of Data.
Over the next twelve business days, we will close out 2021 by recapping twelve of the hottest topics in data privacy and cybersecurity and looking forward to what’s to come in 2022. Topics covered will include privacy law updates in the United States and abroad, developments in ransomware and cybersecurity, and the latest enforcement trends.
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Recognizing the persistent and increasingly sophisticated nature of cyber incidents threatening the safety and security of the U.S., the Biden administration is launching a new bureau focused on cybersecurity and digital policy. On October 27, 2021, Secretary of State Antony Blinken formally announced a plan to establish a Bureau of Cyberspace and Digital Policy, which includes appointing a special envoy to address critical and emerging technologies. The new bureau and special envoy will address issues such as cyber threats, digital freedom, and surveillance risks, and will coordinate with the U.S.’s allies to establish international standards on emerging technologies.
Attorneys for Blackbaud and the putative class action plaintiffs allegedly impacted by the publicly-traded software company’s data breach last year were scheduled to meet last month to discuss a possible resolution of the remaining claims in the multi-district litigation. But the only filings in the case since then concern a contemplated amended complaint, suggesting the MDL is entering a new phase rather than nearing a conclusion.
The planned mediation and order regarding the expected new pleading came several days after Blackbaud announced, along with strong third-quarter financial results, that it has nearly exhausted its $50 million in relevant insurance coverage.
“Based on our review of expenses incurred to date, and upon consideration of the number of matters outstanding,” the company reported, referring to hundreds of customer requests for reimbursement in addition to the putative consumer class actions in the U.S. and Canada, “we believe that total costs related to the Security Incident will exceed the limits of our insurance coverage during the fourth quarter of 2021.” The company, whose fundraising and constituent-relationship software is widely used by nonprofits, noted that breach-related costs would “negatively impact our [Generally Accepted Accounting Principles] profitability and cash flow for the foreseeable future.”
Private employers in New York will now need to notify and obtain employee acknowledgement prior to engaging in any electronic monitoring under the provisions of S2628, signed by Governor Kathy Hochul on November 8, and effective May 7, 2022. With this law, New York joins Connecticut and Delaware in mandating that employers provide employee notice of monitoring, which, in practice, can be integrated into the sort of employee privacy notice required under the California Consumer Privacy Act.
Applicability and Obligations for Businesses
S2628 applies to any private employer with a place of business in New York that electronically monitors employees’ communications and internet activity. The law’s core provisions require that upon an employee’s hiring, the employer must provide prior written notice alerting the employee that their telephone conversations, e-mails, and internet access or usage may be monitored using any electronic device or system such as a computer, telephone, wire, radio, or electromagnetic, photoelectronic, or photo-optical systems. The notice must be in writing or electronic form and acknowledged by the employee in writing or electronically. Employers must also post the notice describing the electronic monitoring in a conspicuous place that is readily available for employees to view.
The Future of US Federal and State Regulation of Data Privacy
During the November 3rd session of Ropes & Gray’s conference, “The Future of Global Data Protection: Conflict or Coherence?” Ropes & Gray partner Chong Park moderated a discussion with Ropes & Gray’s data protection partner Fran Faircloth and Minh Ta, Vice President of Global Governmental Affairs at the Carlyle Group regarding the future of federal and state regulation of data privacy in the United States.
The group all agreed that there should be a comprehensive, US federal data privacy law, but expressed opposing views on the likelihood of such a federal law being implemented in the near future. Minh analogized it to the infrastructure bill debate in the United States, noting that there is bipartisan consensus to address the issue on some level, but the problem lies in the details—i.e., what specifically should be regulated is where people disagree. Fran, on the other hand, expressed a bit more optimism that a federal law on privacy would be passed in the future, but agreed the likelihood of imminent passage is unlikely. She noted that as more states pass their own versions of privacy laws, that eventually as a result a federal law would be passed.
Preeminent privacy scholar and George Washington University Law School professor, Daniel Solove joined Ropes & Gray’s virtual conference on “The Future of Global Data Protection,” for a wide-ranging discussion with Edward McNicholas, co-leader of the Ropes & Gray data, privacy & cybersecurity practice, in which the pair explored:
- The state of complexity and inconsistency in the international privacy law landscape
- The inherent flaws in the models on which privacy laws are currently based
- The risks of moving toward a regulatory model
- Theories of harm in data breach cases
- The role of the courts in adjudicating privacy laws
Please see below for an overview of some of these topics, or to access a recording of the session please visit our blog: RopesDataPhiles.