9 of 10 directors support regulator action on cybersecurity

Board members say regulators should hold businesses liable for breaches

In a study released this morning, nine out of 10 corporate board members said that regulators should hold businesses liable for breaches if they haven't taken reasonable steps to secure customer data.

This was a surprise to Veracode, the company that conducted the study jointly with the New York Stock Exchange.

"I think they feel that their companies are making reasonable efforts to secure customer data," said Chris Wysopal, CTO and CISO at Boston-based Veracode "And they want the people who are the bad actors policed. The people who are giving the industry a bad name by not protecting customer data."

So far, there has been one related case, he said, where the FTC has stepped in. Late this summer, The US Court of Appeals has ruled that the FTC mandate to protect consumers against fraudulent, deceptive and unfair business practices extends to oversight of corporate cybersecurity efforts -- and lapses -- in a case involving Wyndham Hotels and Resorts. Hackers broke in three times between 2008 and 2010 and stole more than 600,000 bank card numbers from the company.

Nearly 50 percent of respondents who were aware of that lawsuit said that the case has influenced their discussions about cybersecurity liability.

There have also been court cases allowing class-action lawsuits against companies, and three out of five respondents said that they expect the number of these breach-related lawsuits to increase.

But it is still too early to tell exactly what guidelines companies are going to be expected to follow, though the ongoing legal actions may start to provide some clarity.

"That is going to be the basis for what is considered reasonable," Wysopal said.

But corporations don't want to be left holding the bag, either, when the problems are caused by third parties.

According to the survey, 90 percent of the respondents also said that third-party software providers should be held liable when vulnerabilities are found in their packaged software.

"People don't want to absorb the risk that is in the software," said Wysopal. "But we are going to have some challenges changing the status quo."

Typically, published user license agreements absolve software providers from liability, he said. But it does happen that a corporate customer is able to negotiate a contract where the software developer accepts some responsibility.

"I've seen those, but it's not common place right now," he said. "An example might be a large manufacturer, say, that has a software company writing software for one of its devices. I've seen certain levels of care in delivering that software put into place and if defects are found then the product liability will then fall back on the supplier."

According to the survey, two-thirds of respondents said they have either begun or are planning to insert liability clauses into contracts with their third-party providers.

As the Internet of Things expands, these kinds of contracts are likely to become more frequent, Wysopal said, with each industry seeing its own specific nuances.

"There is little risk due to my weather application on my mobile device, but there might be a lot of risk to something controlling critical infrastructure or a medical device or a self-driving car," he said. "Software that's life and death has to be near perfect. We're going to see that with the Internet of Things we're going to have real safety issues involved -- its not just information anymore."

It's also not clear whether the pressure for change will come from regulation, lawsuits, or from cyberinsurance, he said.

"There's no clear answer yet," he said. "But the direction we're heading in is that for different levels of risks different standards of care are going to be required."

And cyberinsurance itself is likely to get more specialized as well, instead of the generic policies often being written today.

"A software company will have one kind, a consumer company will have another kind, a bank will have another kind," he said.

Today, according to the survey, a majority of listed corporations already have cybersecurity insurance. But, of those, only 35 percent specifically insure against software coding and human errors that can lead to loss of sensitive data.

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