Cybersecurity: What Should a Board of Directors focus on?

In this, the second in our series of posts on the duties of Canadian directors and officers, Vanessa Coiteux and Tania Djerrahian discuss some of the key issues that directors need to focus on in the rapidly developing area of cybersecurity. The article considers some of the cybersecurity concerns expressed by securities regulators and proxy firms as well as some of the considerations that should go into an effective cybersecurity strategy.

Most companies today depend on networks, computers and the Internet to help manage their business. While digital technology has many benefits, it also has the disadvantage of exposing companies to cybersecurity breaches. Historically, many viewed the risks associated with cybersecurity as risks to be entirely managed by a company’s information technology (IT) department. However, given the number of companies in various industries that have experienced cyber-attacks in recent years, and the serious consequences of many of those attacks, boards of directors may, depending on the facts and circumstances surrounding their company,  consider elevating such risks to enterprise-wide risks (as was the case for financial risks following the Enron scandal). As will be discussed below, there are a number of reasons why boards of directors of public companies may want to oversee the management of cyber risks and a number of practical ways of doing so.

Some Reasons Why Boards May Want to Oversee the Management of Cybersecurity

Impact on the Company’s Bottom Line

The incidents involving Target, Sony, and JP Morgan are good examples of how a cybersecurity breach can significantly impact a company’s bottom line. Investigation and remediation costs related to a cybersecurity breach (even an unsuccessful one) can be extensive, not to mention costs related to lawsuits from customers, suppliers and shareholders and costs related to the disruption to the day-to-day business. However, those costs are not the ones that keep a board of directors or the management of public companies up at night: the most serious threat to the bottom line is reputational damage and the loss of customer loyalty. It can take months, if not years, to recover from such a loss of confidence.

Securities Regulators Encourage Companies to Consider Disclosure of Cybersecurity Risks

Securities regulators in both Canada and the U.S. are concerned with cybersecurity and encourage companies to (i) assess cybersecurity risks and put controls in place to deal with those risks; and (ii) consider whether they need to disclose those risks and controls as well as any material cyber-attacks as part of their public disclosure. In Canada, the Canadian Securities Administrators’ (CSA) Staff Notice 11-326, adopted in 2013, provides the CSA’s views and suggested actions regarding cybersecurity. In the United States, CF Disclosure Guidance: Topic No. 2 issued by the Securities and Exchange Commission (SEC) provides a detailed outline regarding the Division of Corporate Finance’s views on disclosure obligations relating to cybersecurity risks and cyber-incidents. The disclosure guidance in the U.S. may raise concerns for U.S. public companies as the detailed guidelines may be read to require detailed cybersecurity disclosure which could provide useful information to potential hackers and competitors. To respond to this concern, the SEC’s staff acknowledges that “detailed disclosures could compromise cybersecurity efforts“ and that “disclosures of that nature are not required under the U.S. federal securities laws“. However, despite the acknowledgement, from a practical perspective, there remains a challenge as to where to draw the line and still be in compliance with the guidelines. In Canada, though the CSA’s Staff Notice 11-326 is not as elaborate as the SEC’s guidance, companies also have the difficult task of balancing disclosure that is sufficient for the purposes of legal compliance against disclosure that may provide a road map for a cyber-attack.

Negative Recommendations from Proxy Firms and Impact on Ability to Get Re-elected

In 2014, following a cyber-attack on Target, Institutional Shareholder Services recommended that the shareholders of Target withhold their vote in favour of the members of the board of directors who were on the company’s audit and corporate-responsibility committees on the basis that they failed to properly manage the cyber risks faced by the company. Though Glass, Lewis & Co. did not make the same recommendation regarding Target’s directors, it is clear that boards who fail (or are seen to have failed) to manage cybersecurity issues adequately may be at risk for a negative recommendation from proxy advisory firms. A negative recommendation combined with the application of a majority voting policy (now required for all TSX-listed issuers), could have the potential to put at risk some directors’ re-election, not to mention potentially exposing the directors to liability.

Potential Responsibility for Breach of Duties

In the U.S., a number of derivative suits have recently followed in the wake of cyber-attacks. This development is evidence of shareholders’ increasing willingness to sue directors for a breach of their duties in relation to the management of cyber risks. For example, in Palkon v. Holmes (D.N.J. 2014), often referred as the Wyndham case, a shareholder of a Delaware incorporated company tried to bring such a suit following three separate cyber-attacks on the company during a two-year period that allowed hackers to obtain the personal information of over 600,000 customers. The shareholder alleged that the directors had breached their duties to the company and wasted its assets. In Canada, a breach by directors of their fiduciary duties or their duties of care could also lead to a suit against directors based on a derivative action or an oppression action, both of which allow a court to make any order it considers appropriate, which may include an order that the directors pay compensation.

Whether in the U.S. or Canada, poor oversight of the management of cybersecurity could make it difficult or impossible for a board to rely on the business judgment rule in the event of a lawsuit. The business judgment rule provides that a court will defer to the business judgment of the directors if they took the time to inform themselves of issues and impact on the company, and acted with honesty in the best interests of the company. In Palkon v. Holmes – the “Wyndham” case referred to above – the board’s management of the cyber crises and the application of the business judgment rule led to the dismissal of the derivative suit at the motion stage. As a matter of illustration, in that case, the board of directors held 14 quarterly meetings in which it discussed the cyber-attacks and company security policies and proposed security enhancements. The board of directors also appointed the audit committee to investigate the breaches, and that committee met at least 16 times to review cybersecurity. The company also hired a technology firm to recommend security enhancements, which the company had begun to implement. In contrast, in a case where liability is triggered by an omission, it could be significantly more difficult to invoke the business judgment rule in the board’s defence. For example, if there is no risk management system in place for dealing with cyber-attacks, it could be argued that this inaction or omission should not be protected by the business judgment rule since there was no “decision” of the board’s members.

Practical Ways to Oversee Cybersecurity

There is no “one size fits all” solution in term of overseeing the management of cybersecurity, but rather a set of steps that boards may want to consider so that they can arrive at the solution that works best for their company. These steps consist of:

  • evaluating the risk;
     
  • considering the cybersecurity measures that should be put in place;
     
  • considering the cyber-attack response plan that should be adopted; and
     
  • considering what is the required level of disclosure in the circumstances.Whether each of these steps, or even each of its components, will be taken will depend on the board and its appreciation of the facts and circumstances surrounding the company.

Evaluate the Risk

The first phase in evaluating the risk is determining who will play a key role in the oversight process: the board itself, the audit committee, the risk committee or another committee (i.e. IT committee). As part of this step, the board may want to determine whether the members of the board or the committee have the requisite knowledge or expertise to understand IT issues and how they translate into business issues. If IT knowledge or expertise at the board or committee level is not up to par, the board or the committee may need to consider hiring independent IT specialists to help it make reasonable and informed decisions as well as inquiries with senior management.

The second phase in the evaluation process is understanding what are the most sensitive data assets of the company (from a competition, privacy or disclosure perspective) and what may put them at risk. Here, the board or the committee may require information on:

  • where the risk is coming from (e.g. does the risk come from the company’s own IT system only, the use of a cloud, or from the IT system of those that do business with the company such as third-party suppliers and partners?);
     
  • how well the detection systems work;
     
  • any past cyber breach attempts and responses taken;
     
  • what assets, information or data are at risk;
     
  • the estimated cost and expenses the company will incur if any of the “at risk” items are affected by a successful cyber-attack; and
     
  • the coverage the company has under its insurance policies with respect to cyber breaches (many D&O policies and general commercial policies do not cover electronic data breaches).

In order for the board or committee to fulfil its duties, it is essential that it be provided with sufficient, appropriate and timely information on relevant IT matters and assets. However, board or committee members may not want to wait for such information to be provided to them: depending on the facts and circumstances, they may need to be proactive and ask questions.

At every stage, cyber risk assessment should be done within a proper “risk framework”. In January 2015, the Committee of Sponsoring Organizations of the Treadway Commission released guidance on how its 2013 framework and 2014 Enterprise Risk Management—Integrated Framework can help companies evaluate and respond to cybersecurity risks.

Consider the Measures that Should be Put in Place

The next step is for the board or the committee to consider whether additional protection measures should be put in place. As recommended in National Policy 58-201 – Corporate Governance Guidelines, a board’s mandate should not only identify the risks but also ensure that appropriate systems are put in place to manage these risks. Thus the board or the committee will want to inform itself with respect to questions such as the following, as appropriate:

  • whether the security systems and IT measures put in place to protect the assets, information or data is proportionate to the exposure faced by the company should such assets, information or data be compromised by a cybersecurity breach and/or exposed;
     
  • whether additional measures ought to be put in place including employee education on cybersecurity, supplemental insurance policies, the imposition of contractual security requirements on third parties who have access to or are connected to the company’s electronic data and new security systems;
     
  • whether there is sufficient and appropriate reporting information provided to the board;
     
  • who will be tasked with implementing the additional measures and reporting back to the board or the committee and whether that person is given sufficient power, budget and support to do so; and
     
  • how often and under what circumstances the board or committee should be briefed on cybersecurity and how such review analysis and review process is documented.

Consider the Response Plan that Should be Adopted

Given that it is likely a situation of when a cybersecurity breach will occur rather than if it will occur, the board or the committee may also want to consider adopting a response plan in reaction to a cybersecurity breach. As with any crisis, a poor response can be as damaging as the events that led to the crisis. Here, the board or committee may want to determine:

  • what the elements of the plan should consist of, including communication plans, legal disclosure obligations, plans to minimize business disruptions and damages;
     
  • if outside advisers such as legal counsel and public relations specialists could help with the creation and execution of the plan and with privilege issues;
     
  • within the company, who should be responsible for implementing the plan and reporting back to the board or the committee and whether that person is given sufficient power and support to do so; and
     
  • how often the plan will be tested and adjusted.

Consider the Appropriate Level of Disclosure Following a Cyber-Incident

As with any incident affecting a public company, public disclosure following a cyber-incident is key for a company to preserve its brand and reputation, limit the board of directors’ potential liability and manage the other potentially large costs associated with the incident. Here, the board or the committee may want to ensure that management is in a position, if needed, with the help of outside legal counsel, to

  • efficiently determine the level of materiality of the attack and whether the incident constitutes a “change to the business, operations or affairs” of the company in order to determine whether a press release should be issued immediately; and
     
  • determine the level of work that needs to be completed in advance of a public disclosure (i.e. identify the scope of the cyber-attack – including its impact on merchant and customer data – where the intrusion came from, whether it was due to a failure of the company’s protection measures, what remediation work should be put in place, the available means for customers or other affected stakeholders to get additional information and whether the risk factors and other related public disclosure are sufficiently broad to include all the potential consequences of a data breach).

In addition, when a company is due to file its continuous disclosure documents such as its financial statements, Management Discussion & Analysis or Annual Information Form, the board or the committee should question whether an update regarding such cyber-incidents or a material fact regarding cybersecurity of the company should be disclosed. Even though most public companies would prefer to limit disclosure as much as possible, board members should bear in mind that the best approach is sometimes to include a complete disclosure (including potential consequences) when the spotlight is not on the company rather than having to build a disclosure framework, including material details of an attack, when everyone is looking and some stakeholders are trying to use the opportunity to carry out their own agenda. In addition, as was the case in many of the recent incidents, the cyber-attack may first be detected by a government agency or a banking partner rather than the company that is under attack, thereby putting even more pressure on the board and management to make sure (i) the company’s initial disclosure is complete and up-to-date and (ii) there are plans in place which provide for the efficient disclosure of any new material change or material fact, as applicable, in compliance with securities laws in a way which will limit damage to the company’s reputation

Depending on the facts and circumstances surrounding a company, the stakes associated with cyber-attacks can be high. Members of a board of directors may not want to wait for an attack before considering cybersecurity risks facing their company. During a cyber-attack, when everything is moving quickly and in real time, preparedness is key as directors usually won’t have the luxury of time when trying to understand, analyze and react to the breach.

SEC issues cybersecurity guidance for registered investment advisers and funds

In a recent investment management guidance update, the United States Securities and Exchange Commission (SEC) addressed the need for greater cybersecurity measures to protect confidential and sensitive information held by registered investment companies and registered investment advisers. The SEC identified several measures, in light of recent cyber-attacks on financial services firms, that funds and advisers may wish to consider in addressing cybersecurity risks, including:

  • implementing strategies, through written policies and employee training, to detect, prevent and respond to security threats, such as controlling access to systems and data, data encryption, restricting the use of removal storage media, and incident response planning;
     
  • conducting periodic assessments of the nature and location of sensitive information, the vulnerability of the firm’s information technology systems, existing security controls and processes, the likely impact of a systems breach, and the effectiveness of governance structures in managing cybersecurity risks; and
     
  • creating a strategy designed to prevent, detect and respond to cybersecurity threats.

     

FTC report on the Internet of Things urges companies to adopt privacy and data security best practices

Michael Decicco

On January 27, 2015, the United States Federal Trade Commission (FTC) released a report discussing privacy and data security in consumer devices connected to the internet. 

The Internet of Things (IoT)

The FTC defined the IoT to include things such as devices or sensors, other than computers, smartphones or tablets, that connect, communicate or transmit information with or between each other through the internet.  For example, smart thermostat systems or washers and dryers that utilize Wi-Fi for remote monitoring.

Data Security and Privacy Risks

While the FTC acknowledged some benefits of the IoT, it cautioned that the IoT presents a variety of data security and privacy risks.  The risks include: (i) the enabling of unauthorized access to and misuse of personally identifiable information (PII), (ii) the facilitation of attacks on other interconnected systems, and (iii) the creation of safety risks.  While the first two risk factors are common in the traditional computing environment, the third represents a new, physical type of risk.  For example, it may be possible to remotely hack into a connected medical device and change its settings, impeding its therapeutic function.

Recommendations

Data Security

The FTC recommended that companies focus on data security when developing connected devices and offered the following approaches to IoT companies when developing their products:

  • building security into the devices at the outset of development by conducting an initial privacy or security assessment, considering how to minimize the data collected and retained, and testing security measures before launching the product;
     
  • ensuring that their personnel practices promote good security;
     
  • retaining service providers that are capable of maintaining reasonable security and providing reasonable oversight;
     
  • implementing a defense-in-depth approach for systems with significant risk in which security measures are considered at several levels;
     
  • imposing reasonable access control measures to limit the ability of an unauthorized person to access a consumer’s device, data or network; and
     
  • continuing to monitor products throughout the life cycle and, to the extent feasible, patch known vulnerabilities.

Data Minimization

The FTC also recommended that IoT companies should reasonably limit their collection and retention of PII.  These practices, known as data minimization, can help mitigate privacy-related risks.  The FTC recommended that:

  • IoT companies should examine their data practices and business needs and develop policies and practices that impose reasonable limits on the collection and retention of PII; and
     
  • to the extent there is a need to collect and store PII, IoT companies should consider whether they can do so while maintaining the PII in a de-identified form.

Notice and Choice

The FTC acknowledged the difficulty of notifying customers of a company’s privacy practices and offering customers a method to modify privacy settings in the IoT context.  However, the FTC made clear that simply making a privacy policy available on a website is not sufficient – the FTC recommended that companies should find ways to meaningfully present privacy notices and choices to customers, including in the set-up or purchase of the IoT device itself.

Canadian Implications

The Office of the Privacy Commissioner of Canada previously highlighted the IoT as creating potential privacy issues.  In September 2014, the Commissioner called for proposals under the 2015–16 Contributions Program and specifically highlighted the IoT as an area that needed to be explored.

The recommendations contained in the FTC’s report provide useful guidance and best practices for companies operating in the IoT space in Canada to mitigate privacy and data security risks.

New privacy bill would require breach notification, allow Commissioner to make orders

David Elder -

In an apparent attempt to apply pressure to the government to amend the federal private sector privacy law, New Democrat Digital Issues Critic Charmaine Borg recently introduced a private members bill that would introduce mandatory data breach reporting and provide the Privacy Commissioner of Canada with direct enforcement powers.

The government’s own bill to amend the Personal Information Protection and Electronic Documents Act (PIPEDA) was introduced in September of 2011, but Bill C-12, as the bill is known, has not moved forward since that time. 

The New Democrat bill, known as C-475, differs from C-12 in several important ways.

First, C-475 would require that organizations report data breaches to the Privacy Commissioner, who would then determine whether the organization would be required to notify affected individuals (although organizations would not be precluded from providing such notice).   By contrast, Bill C-12 includes a provision that would require organizations to report data breaches to the Privacy Commissioner, as well as to notify affected individuals in certain circumstances.

Bill C-475 also contemplates what appear to be lower standards for the types of breaches that require reporting, or with respect to which the Privacy Commissioner may require notification of affected individuals, likely resulting in more reports and notifications than under the government bill. 

In this regard, Bill C-12 requires organizations to report material breaches of security safeguards involving personal information; Bill C-475 requires organizations to notify the Privacy Commissioner where a reasonable person would conclude that there exists a possible risk of harm to an individual as a result of the breach. With respect to notification of affected individuals, Bill C-12 would require organizations to notify an individual where it is reasonable to conclude that the breach creates a real risk of significant harm to the individual; Bill C-475 would provide that the Privacy Commissioner may require an organization to notify affected individuals to whom there is “an appreciable risk of harm” as a result of the breach.

Bill C-475 would also provide the Privacy Commissioner with new enforcement powers respecting compliance with PIPEDA as a whole, including the ability to issue orders requiring organizations to take corrective action to come into compliance with the law and to publish notices of any such action taken or proposed to be taken. The Bill would also provide the Privacy Commissioner with the ability to seek from the Federal Court penalties of up to $500,000 against organizations that do not comply with orders issued by the Commissioner. 

The Bill would also create a private right of action whereby individuals affected by any violation of PIPEDA that was made the subject of a Privacy Commissioner order may seek damages for losses suffered as a result of the non-compliance.

At the same time, the New Democrat bill omits several important business-friendly reforms contained in the government bill, including a clearer and more expansive carve out for business contact information and a prospective business transaction exception that would allow businesses to disclose personal information without consent in the context of certain transactions, including mergers, acquisitions and financing.

Privacy lessons learned: do your homework about home work

David Elder -

A recently publicized privacy breach by a Canada Revenue Agency (CRA) employee underlines the need for all organizations to impose strict controls and safeguards respecting the ability of employees to remove sensitive data from the workplace.

In a widely reported story, it was recently discovered, through a request under the Access to Information Act, that confidential material respecting Canadian taxpayers, contained in hundreds of documents and tens of thousands of email messages sent and received by a CRA employee, were downloaded in unencrypted form to CDs taken home and retained by a CRA auditor, at least some of which were subsequently copied to a third party’s laptop.   While the CDs have been recovered, the laptop – thought to contain the tax files of at least 2,700 Canadians – is still missing. 

Although the incident in question raises concerns with respect to the Privacy Protection Policy issued to government institutions under the Privacy Act, it also provides important lessons for private sector organizations, which are subject to similar legal requirements. All Canadian private sector privacy laws, both federal and provincial, include data protection requirements that require private organizations to protect personal information with appropriate security safeguards, including physical, organizational and technical measures.

The first - and most obvious – lesson from the CRA case is to minimize the ability of employees and consultants to remove personal information from company premises. The less data that leaves the building or the company servers/network, the less the risk that it may be lost, stolen or otherwise disclosed to unauthorized parties.

Recognizing that, in today’s mobile and networked world, it is unavoidable that work will be done by some employees outside the office, the second lesson is to employ robust safeguards to protect the personal data that must be accessed and used outside company premises. 

One approach is to have clear policies respecting removal from the office of personal information and required practices for the protection of devices on which it is stored. Such policies should be readily available and regularly communicated to employees; however, such “soft” controls are not, by themselves, a complete solution. Policies will always be breached by some employees (which, in fact, is what occurred in the CRA case) and organizations will likely still be accountable for such breaches

Another, more reliable, layer of protection is to use “hardwired” security: robust physical, and particularly, technological measures that keep personal information secure and confidential.

One of the best technological protections for data on portable storage media and devices is encryption, since strongly encrypted data remains inaccessible to most third parties, even if the device itself falls into the wrong hands, which tends to happen frequently with portable devices such as laptops and flash drives. Encryption has been strongly endorsed by privacy commissioners across Canada, and is generally considered to the required standard of protection for personal information stored on portable devices. In the health information context, he Ontario Information and Privacy Commissioner has gone so far as to suggest that the loss or theft of a device containing encrypted personal information would not generally be considered to be a loss or theft of personal information.

Other important technological solutions would include configuring most computerized corporate equipment to block the ability to download content to portable storage devices, logging and retaining each incident of such activity for the few devices for which such downloading may be permitted (such as those accessible by senior IT and security professional). However, even this kind of encryption scheme is not foolproof, as there is still room for inappropriate action by IT and security employees. In fact, in the CRA case, the data in question was actually copied to the unencrypted CDs by a Government IT technician, contrary to Government policy.

Recognizing such vulnerabilities, another technological solution adopted by many companies with a mobile workforce is to host all records on company controlled servers, using a “virtual desktop” solution to allow employees to access workplace files remotely via a secure internet connection. Such a solution eliminates entirely the need for storage on portable devices, as all documents and data are stored in the corporate system.

A final lesson here is to consider notifying the appropriate federal or provincial privacy commissioner(s) of any material data breaches, even if there is no legal requirement to do so (while federal legislation including such a requirement is currently before Parliament, at present only the Province of Alberta requires breach notification by private sector organizations). Such notification was apparently not done in the CRA case, depriving the CRA of potentially useful advice as to appropriate taxpayer notifications or other remedial action – as well as leaving the Office of the Privacy Commissioner flat-footed when contacted by media about the breach.  

This post is part of an occasional series highlighting the lessons that businesses can learn from recent news items and events.

SEC releases guidance for the disclosure of cybersecurity incidents

In the wake of a number of high-profile cybersecurity incidents, the SEC’s Division of Corporation Finance recently released disclosure guidance on the topic of cybersecurity. While the guidance creates no new legal obligations, it is intended to provide clarity regarding the forms of disclosure that registrants may have to make. In the release, the Division of Corporation Finance recognized that while no current disclosure requirements explicitly refer to cybersecurity, there are a number of existing disclosure obligations that may require registrants to disclose cybersecurity risks or incidents.

Such cyber incidents may be deliberate or unintentional, and include gaining unauthorized access to digital systems for the purpose of misappropriating assets or sensitive information, causing operational disruption or corrupting data. Meanwhile, the concept of a cyber attack also includes actions that don’t require unauthorized access to a computer system, such as denial-of-service attacks on websites. Cyber attacks may be carried out by insiders or third parties, and may use sophisticated technology to circumvent network security, or more traditional techniques like guessing or stealing a password to gain access to a computer network.


Ultimately, the guidance considers six areas in which disclosure of cybersecurity risks or incidents may be required under current regulations:

  • Risk Factors: The guidance provides that registrants “should disclose the risk of cyber incidents if these issues are among the most significant factors that make an investment in the company speculative or risky.” In making this determination, registrants should look at the severity and frequency of past cyber incidents, and should consider the probability and potential costs and other consequences of future incidents. Registrants should also consider the adequacy of any protective measures which are in place.
    The guidance also states that in order to place the discussion of cybersecurity risks in context, registrants may need to disclose known cyber attacks or threats, instead of simply stating that these events may occur. The guidance notes, however, that there is no requirement to disclose information that would compromise a registrant’s cybersecurity.
  • Management’s Discussion and Analysis (MD&A): Where the consequences of a known cyber incident (or the risk of a potential incident) represent a material event, trend or uncertainty that is likely to have a material effect on the registrant’s financial condition or other elements of the registrant’s reported financial results, this should be discussed in the registrant’s MD&A.
  • Description of Business: The guidance provides that registrants should disclose any cyber incidents which materially affect the registrant’s “products, services, relationships with customers or suppliers, or competitive conditions” in the registrant’s Description of Business.
  • Legal Proceedings: If a registrant is party to a material pending legal proceeding that involves a cyber incident, this may need to be disclosed in the registrant’s Legal Proceedings disclosure.
  • Financial Statement Disclosures: The guidance outlines several ways in which cyber incidents may impact financial statement disclosures. Registrants will need to ensure that prevention costs, contingent losses, and customer incentives provided in the wake of an incident are properly recognized. A cyber incident may also result in diminished future cash flows and an accompanying impairment of assets such as goodwill, trademarks, or patents. Further, the reassessment of assumptions underlying the estimates made in preparing financial statements may be required, and registrants must explain the risk or uncertainty of a reasonably possible change in its estimates in the near-term that would be material to financial statements.
  • Disclosure Controls and Procedures: Finally, where cyber incidents pose a risk to a registrant’s ability to record, process or report information required in SEC filings, a registrant may consider whether this risk renders the registrant’s disclosure controls and procedures ineffective. As an example, the guidance highlights the situation where “if it is reasonably possible that information would not be recorded properly due to a cyber incident affecting a registrant’s information systems, a registrant may conclude that its disclosure controls are ineffective.”

Ultimately, the guidance underscores the important role that cybersecurity plays in business and the potential impact should cybersecurity be compromised. Given the number of ways in which cybersecurity threats or incidents may materially impact a business, registrants must carefully consider whether they are obligated to disclose such incidents through one or more of the six categories above.