The Investment Industry Regulatory Organization of Canada ("IIROC”), the national self-regulatory organization that oversees investment dealers and their trading activity in Canadian markets, published on April 5, 2018 a notice of proposed amendments to IIROC rules to require IIROC dealer members to report cybersecurity incidents. The reporting obligations apply in a wider range of circumstances than similar reporting obligations under Canadian personal information protection laws. IIROC dealer members should assess their readiness to comply with the reporting obligations, and make appropriate changes to their systems, policies and procedures.
Proposed Amendments to IIROC Rules
The proposed amendments to IIROC rules broadly define “cybersecurity incident”, and require IIROC dealer members to deliver promptly both an initial report and a subsequent detailed investigation report for each cybersecurity incident.
- Cybersecurity Incident: The proposed amendments define “cybersecurity incident” as including any act to gain unauthorized access to, disrupt or misuse a dealer’s information system, or information stored on an information system, that has resulted in, or has a reasonable likelihood of resulting in: (1) substantial harm or inconvenience to any person (which includes a natural person or legal entity), (2) a material impact on any part of the dealer’s normal operations, (3) invoking the dealer’s business continuity plan or disaster recovery plan, or (4) the dealer being required by any applicable law to provide notice to any government body, securities regulatory authority or other self-regulatory organization.
- Initial Report: The proposed amendments require a dealer to provide a written incident report to IIROC within three calendar days after the dealer discovers a cybersecurity incident. The report must include: (1) a description of the cybersecurity incident, (2) the date or period during which the cybersecurity incident occurred and the date it was discovered by the dealer, (3) a preliminary assessment of the cybersecurity incident, including the risk of harm or inconvenience to any person and impact on the operations of the dealer, (4) a description of immediate incident response steps the dealer has taken to mitigate the risk of harm or inconvenience to persons and the impact on the dealer’s operations, and (5) the name of and contact information for an individual who can answer IIROC’s follow-up questions.
- Comprehensive Investigation Report: The proposed amendments require a dealer to provide a comprehensive, written incident investigation report to IIROC within 30 days, or a longer period agreed to by IIROC, after the dealer discovers a cybersecurity incident. The report must include: (1) a description of the cause of the cybersecurity incident, (2) an assessment of the scope of the cybersecurity incident, including the number of persons harmed or inconvenienced and the impact on the dealer’s operations, (3) details of the steps the dealer took to mitigate the risk of harm or inconvenience to persons and impact on the dealer’s operations, (4) details of the steps the dealer took to remediate any harm or inconvenience to any persons, and (5) actions the dealer has or will take to improve its cybersecurity incident preparedness.
A dealer’s failure to comply with the proposed cybersecurity incident reporting obligations could result in IIROC imposing potentially significant financial penalties or other sanctions on the dealer.
The proposed amendments are open for public comment until May 22, 2018.
Preparing for Compliance
IIROC’s proposed amendments are generally consistent with breach reporting obligations under Canadian personal information protection laws, but would apply in a wider range of circumstances due to the proposed definition of “cybersecurity incident”, which is much broader than the kinds of incidents that require reporting under personal information protection laws. For example, IIROC’s proposed amendments would appear to require a dealer to report a cybersecurity incident that was effectively mitigated by the dealer’s business continuity plan and did not present any risk of harm to the dealer or any other person.
IIROC’s proposed amendments do not indicate when they will come into force, and there is no indication that there will be any delay period to allow dealers to prepare for compliance. Accordingly, dealers should now begin assessing and improving their systems, policies and procedures, and designating and training required personnel (both internal employees and external advisors), so that dealers are able to timely submit initial incident reports and comprehensive investigation reports. Following are some suggestions:
- Policies/Procedures — Assessment and Response: A dealer should have written policies and procedures so that each potential cybersecurity incident is immediately escalated to designated and properly trained personnel for investigation, assessment and response in accordance with a written incident response plan that is consistent with applicable legal requirements, regulatory guidance and relevant best practices. For more information, see BLG bulletins Cyber Incident Response Plans — Test, Train and Exercise and Data Security Incident Response Plans — Some Practical Suggestions.
- Policies/Procedures — Reporting to IIROC: A dealer should have written policies and procedures so that designated and trained personnel make and document informed decisions about reporting cybersecurity incidents to IIROC.
- Legal Privilege: A dealer should have an appropriate legal privilege strategy to help avoid inadvertent and unnecessary disclosure of privileged legal advice regarding cybersecurity incidents or inadvertent waiver of legal privilege. For more information, see BLG bulletins Cyber Risk Management — Legal Privilege Strategy (Part 1), Cyber Risk Management — Legal Privilege Strategy (Part 2) and Legal Privilege for Data Security Incident Investigation Reports.
- Contracts with Service Providers: A dealer should ensure that its contracts with information technology and data processing service providers (including cloud service providers) contain appropriate provisions so that the dealer is able to comply with its cybersecurity incident reporting obligations.
- Other Breach Reporting Obligations: A dealer should be mindful of its other legal obligations to report, notify and disclose cybersecurity incidents and data security incidents imposed by statute (including personal information protection laws), contract and common law and civil law. For more information, see BLG bulletins Cyber-Risk Management — Data Incident Notification Obligations, Cyber Risk Management — Regulatory Guidance for Reporting Issuers’ Continuous Disclosure of Cybersecurity Risks and Incidents, and Preparing for Compliance with Canadian Personal Information Security Breach Obligations.
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