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.