Category: Regulatory Compliance

If a security vendor has ever told you that the GDPR is imposing fines of up to 4% of annual global revenue for data breaches, they are either:

  1. ignorant of the standard; and/or
  2. lying to you.

Being generous, they may not actually know they are lying, the General Data Protection Regulation (GDPR) isn’t exactly easy to decipher, but even a cursory review tells a rather obvious story. I will attempt to address the following assumptions in the course of this blog:

  1. The GDPR is >95% related to enforcing the RIGHT to privacy, not the LOSS of privacy through data breach;
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  2. The maximum fines for ANY organisation are 2% of ‘annual turnover’ for even the most egregious loss of data through breach, not 4%; and
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  3. Fines are entirely discretionary, and an appropriate security program will significantly reduce any fines levied.

Wait, there are 2 types of privacy!?

Ask a lawyer in the EU what privacy is and s/he’ll likely quote Article 12 of the Universal Declaration of Human Rights: “No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.”

From a GDPR perspective, this equates to two of its three fundamental aspects. Grossly simplified these are:

  1. Explicit consent; and
  2. Legitimacy of processing.

In other words, the vast majority of the GDPR is concerned with obtaining explicit consent for the personal data collected, and then ONLY using that data for legitimate purposes in-line with the consent received.

Even when GDPR refers to ‘security’, it is more concerned with these two fundamentals than it is with security of the data itself. That is what they mean by “security of processing“.

However, from a cybersecurity professional’s perspective – and the third fundamental aspect of the GDPR – privacy also involves loss. i.e. The data was stolen during a breach, or somehow manipulated towards nefarious ends. This is a very important part of the GDPR, Hell, it’s a very important part of being in business, but it should never be used to sell you something you don’t need.

Maximum fines?

Of the 778 numbered or lettered lines of text in the GDPR Articles section, there are only 26 that relate directly to data security (or 3.34%). These are contained within Articles 5, 25, 32, 33 and 34.

Per Article 83(4)(a) (a.k.a. ‘2% fines’) – “(a) the obligations of the controller and the processor pursuant to Articles 8, 11, 25 to 39 and 42 and 43;”

While Article 5 is contained within Article 83(5)(a) (a.k.a. ‘4% fines’), all but one line refers to security of processing, not the security of the data.

So, if it can be assumed that if the maximum fine for ANY data breach, no matter how egregious, is 2% of the annual revenue from the previous year (in the case of an undertaking), that 2% is what the EU considers the maximum for a fine to qualify as “effective, proportionate and dissuasive” (per Article 83(1)). Therefore, a fine of €10,000,000 would be reserved for any organisation with revenue over €500,000,000 annually. Fines are never there to put you OUT of business!

It must follow that if 2% is the maximum, then fines will go down the less egregious is your offence. Everything you need to determine the level of ‘egregiousness’ is contained in the 11 lines of Article 83(2)(a) – (k). Words like ‘intentional’, ‘negligent’, ‘degree’, and ‘manner’ are bandied around, all of which can be answered by you.

In this spreadsheet, I have taken a stab at adding specific questions to each of the (a) – (k) line items. Answer them all truthfully and you’ll get an indication of what I consider to be an appropriate fine based on your annual revenue: GDPR Fine Worksheet. Caveat: I am NOT a lawyer, and this is based entirely on my own experience, not anything resembling known fact.

Finally, bear in mind that as per Article 58(2), there are many ‘corrective powers’ that a supervisory authority can resort to long before levying a fine, including simple warnings (Article 58(2)(a)). Fines should be considered as a worst case scenario in their own right, let alone the amount.

Appropriate security program?

There is no such thing as 100% security, so the more you can demonstrate that your security program is appropriate to the levels of risk, fines should be the least of your problems. As long as you have everything from senior leadership buy-in, to incident response, to disaster recovery and breach notification – you know, the basics! – it is not a foregone conclusion that fines will even be considered.

Go here for more on what a security program should look like: What is a Security Program?

In conclusion…

In the UK, if you are an organisation that processes personal data and you were already a) complying with the Data Protection Act (DPA), and b) doing security properly, GDPR compliance would require only relatively minor adjustments. For those that weren’t, you have a lot of work to do now once the supervisory authority has the powers that GDPR bring to bear, and not much time to do it in (May 25, 2018).

That said, don’t do anything for compliance alone. Do it for the business, do it properly, and compliance will fall out the back end. So while it is reprehensible that security vendors are trying to exploit the GDPR for profit, if you fall for it it’s entirely your fault.

By the way, if you’re a business that is predominantly centered around the processing of personal data, the Article 58(2)(f) – “to impose a temporary or definitive limitation including a ban on processing;” can take you offline indefinitely. And yes, you can be fined on top of that.

I hate to say it, but don’t do anything until you’ve spoken to a lawyer.

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On January 13th, 2018 the Payment Services Directive 2 (PSD2) becomes national law across the EU.

Depending on whom you ask – and to a large degree what their vested interests are – PSD2 will either have little effect, or be a FinTech game changer that will kill banking as we know it.

From the bank’s perspective, they clearly don’t want change. They have been front and centre for generations when it comes to consumer interaction, and the data they have collected is a major source of their power. Start-ups on the other hand, need a way in, and access to that data is a very good place to start. Whoever controls the consumer directly, will have the best chance of controlling the consumer’s financial choices.

PSD2 itself is supposed to promote 2 things:

  1. Make it easier and safer to use internet payment services by better protecting consumers against fraud, abuse, and payment problems as well as strengthen consumer rights; and
  2. Promote innovative mobile and internet payment services. [competition in other words].

The first applies no matter who you are, bank, service provider, or merchant. Combine this with General Data Protection Regulation (GDPR) and everyone needs to protect personal data.

The second however, is supposed to create a so-called ‘level playing field’, but can start-ups truly compete against the big banks who already have the direct consumer relationship?

Innovation is not the problem, FinTech is busting at the seams with new ideas, but none of them mean much unless they are adopted by the masses. What do they have to do to displace a bank, when the chances are they will not actually be providing banking services as we understand them? And what exactly are “innovative mobile and internet payment services” in this context – and to the point of this blog [finally] – how are mobile devices going to make all the difference?

Counterintuitively, mobile phones will actually improve security. You only have to look at the sheer number of each authentication factor of which the modern smartphone is capable to realise that traditional banking apps just don’t cut it. From passwords / passphrases, to fingerprints, to geo-fencing, to whatever comes next, your phone gets as close to true identity management as any device can.

That’s not to say mobile phones are secure, they are not, and this is one of the biggest hurdles to overcome. A bad guy ‘hacking’ into one of your banks accounts is bad enough, now imagine them hacking into an app that controls access to all of your finances. Money management apps is one of the greatest potential benefits of PSD2, and one of its scariest.

As for how mobile devices will aid PSD2 adoption, you only have to look at the trends. According to Statista for the UK:

  • By the end of 2017 66% of the UK’s population will be using a smartphone – That’s 43 million people, and given the demographic, they control the lion’s share of the UK’s wealth.
  • In 2015, 58% of all smartphone owners used banking apps

It follows therefore that a good chunk of that 43 million will be using their devices for a lot more than Facebook.

The only statistic that does not back this up, is adoption of mobile payments. Despite the Apple Pays/ Samsung Pays, and the plethora of digital wallets, mobile payments have in no way realised their potential. This is not the fault of the smartphone, this has to do with the inability of the payment apps to provide any sort of value-add. From loyalty point, to instant coupons, to ratings and reviews, payment apps are not improving the BUYING experience, just adding a payment option.

PSD2 will change all of that. When you have an app that can not only help you find the best price for something, but give you the best purchase choices based on your combined financial history, now you’re providing true benefit. It’s not about how you pay, it’s about how you buy.

Yes, you can do all of this through a PC / laptop, but on what device do you spend the majority of your time online?

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This time last year I wrote Froud on Fraud: Top 5 Predictions for 2016. Unsurprisingly, none of these things has transpired. At least not yet anyway [embarrassed silence].

So why do this again, when it’s fairly clear that any insight I have – if any – is aimed more towards potential long-term trends than to short-term results?

The reason I’m taking another stab is I can’t help feeling that 2017 is going to something of a watershed year for cybersecurity. At least I hope so, because there is so much hype, scaremongering and dross out there that something needs to change. And it must change soon, before cybersecurity professionals get lumped into the same category as the better known examples of sleaze; used car salesmen, estate agents, and lawyers (no offence Sis).

The last few years has been bad for the cybersecurity/privacy profession. From Snowden, to the Snooper’s Charter, from Target to Yahoo there has been no good news. Forget that the press will not print good news if they can possibly help it, things actually are getting worse. State sponsored attacks, organised crime, numerous vulnerabilities in Android and iOS, irresponsible Internet of Things manufacturers, there is little to smile about.

But instead of coming to the rescue, the cybersecurity industry seems Hell-bent on making it worse by cashing in on the confusion. From biometrics vendors disgracefully overstating their worth, to consulting practices doing everything in their power to cross-sell and upsell their wares, it’s becoming increasingly difficult to know where to turn.

The only bright side? Legislation.

Yes, legislation. The Payments Service Directive (PSD2) and the General Data Protection Regulation (GDPR) – for example – are both designed to start putting things right in payments and data privacy respectively. No one with a vested interest in keeping things the same was ever going to do anything themselves, so now they’ll have to. Banks, large retail, you name it, there will now be a price to pay for how you treat the consumer.

And let’s face it, it’s all about the consumer.

So with the above in mind, these are my predictions for 2017:

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  1. ISO 27001 certification will be increasingly important: Unlike PCI which is entirely prescriptive, no other regulation that I have ever seen requires anything other than ‘appropriate‘ or ‘reasonable‘ security measures. Appropriate and reasonably to whom is always the first question. ISO 27001, and other frameworks like it, perform one overarching function; to provide demonstrable evidence that an organisation is taking security seriously. Whether the organisation is actually taking security seriously is another matter, but it is hard to fake certification. Not impossible mind you, just difficult. ‘Compliance’ with GDPR, and other data privacy regulations globally will look to ISO for help.
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  2. Biometrics vendors will keep pushing their wares, and fail: OK, so this one is more of a wish than a prediction, but I am so sick of the hype around biometrics that I need to vent. Yes, biometrics if very important, yes, it’s better than a password in most scenarios, but it is NOT an answer by itself. Biometrics will not replace the password, nor will it ever be a solution all by itself. It will do what every other form of authentication should do; take its rightful place in the arsenal of identity management systems.
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  3. Amazon GO will be the new model for brick & mortar: Any brick and mortar retailer not terrified by the opening of the Amazon GO store in Seattle is completely missing the point. The point is that consumers don’t care how they PAY, they care how they BUY. Cash, credit cards, even the Apple Pays and their ilk are just forms of payment, they are not relevant to how we choose the products and services we actually BUY. We demand a lot more from our merchants than a glorified cash register. In Invisible Payments, Are They Real? (Aug ’15) I went a little further than Amazon did, and will go even further in a week or so. And while I don’t expect 2017 to see a sharp increase in GO-esque stores, it’s definitely a glimpse of the near future.
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  4. Containerised Security Services: Anyone who has looked to Amazon Web Services or Azure for hosting their e-commerce systems often do so in order to outsource security as well. The fact that neither of these services provide much is often a nasty surprise. Yes, the merchants asked the wrong questions (or none at all), but it is incomprehensible to me that vendors like AWM DON’T provide comprehensive security wrappers. 2017 will see an increase in modular and full-service security programs (at least to PCI minimums) from all of the major providers. Hopefully these will be easily understandable and transparent to non-experts, because even the better service providers do a piss-poor job of getting their point across.
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  5. Automated Governance, Risk & Compliance: GRC is a fantastic concept, implemented poorly. However, with the ever increasing regulatory landscape, larger organisations simply can’t keep up with the audit  ommitments. GRC tools have traditionally been mostly manual in nature, which explains their lack of adoption. More and more GRC vendors are looking to automate compliance baseline input by providing APIs to end-point vendors (A/V, SIEM, vulnerability scanning etc) for automated input of production system data. 2017 will see GRC vendors finally focusing on the only thing that makes sense; asset management and automated baseline comparisons of known-good profiles.

OK, so 5. is a bit of a stretch, but there’s no way my OCD would allow for only 4 predictions.

What are your predictions?

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On 12 January 2016, the revised Payment Services Directive (EU) 2015/2366 entered into force in the European Union, and will apply from 13 January 2018.

Anyone know what ‘apply’ means in this context?

On August 12th, the European Banking Authority (EBA) released its Consultation Paper “On the draft Regulatory Technical Standards specifying the requirements on strong customer authentication and common and secure communication under PSD2“. There have been many articles since then trying to explain what it means, at best these are educated guesses.

All other RTSs and Guidelines entrusted to the EBA won’t be available until January 2018. Classification of Major Incidents for example.

So as the UK’s ‘competent authority’ for PSD2, it’s surprising – and more than a little disappointing – that they have so far provided zero guidance, and won’t until sometime in 2017.

For example, the most pressing questions are:

  1. If January 13, 2018 is the date when PSD2 will ‘apply’, does that mean that’s when Account Servicing Payment Service providers (ASPSPs) have to make “at least one communication interface enabling secure communication” available? Or do they have until October 2018 at the very earliest (per the Consultation Paper)?
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  2. What happens to ASPSPs if they aren’t ready? Are there penalties?
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  3. When will the FCA begin the certification process for Account Information Service Providers (AISPs) and Payment Initiation Service Provider (PISPs)?
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  4. Do ASPSPs already qualify as AISPs and PISPs if they currently perform these functions?
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  5. Does the FCA have final say in liability?

I was fortunate enough to give a series of PSD2 presentations last week to a large ASPSP, and it was clear that there is significant confusion and frustration surrounding it. I know the legal teams of the larger organisations will already be lobbying the FCA, but I think it’s about time some of these conversations get translated and filtered down to the masses.

Of the 50 people I trained in those 3 days:

  1. PSD2 knowledge was very low;
  2. So far they have received little guidance from senior leadership;
  3. 85% were more scared than optimistic;
  4. Only 10% saw any opportunity for their organisation, the rest saw their jobs threatened;
  5. Almost all saw PSD2 primarily as a force for disintermediation of the card schemes, acquirers and issuers;

Clearly this organisation is not alone, and all the planning in the world will do nothing without a goal in mind. What will PSD2 look like in 2018? What can organisations do NOW without definitive guidance? Is there really enough information out there to warrant investment at this stage?

No organisation wants to invest in business transformation without 2 things; 1) clear opportunity for doing so, and 2) clear guidance from the competent authority. Also, no organisation wants to be first while there is so much uncertainty, but no organisation wants to be last. The advantage in this respect is clearly with the new entrants in the market, not the incumbents.

All that said, wishful thinking is going to get us nowhere. The FCA will jump in only when they are good and ready, it’s up to us to do what we can in the meantime.

Here’s what senior leadership at ASPSPs could be doing:

  1. Ensure the conversations between the legal teams and the FCA are filtered down to all staff – If you’re not having these conversations with the FCA, you must start;
  2.  Set-up a task force to examine opportunities related to Access to Information (XS2A) – You’ll have to give your customer’s information away for free, don’t you want the same from your customer’s other ASPSPs?;
  3. Set-up a task force to examine opportunities related to innovation in payments – Like it or not, existing payment channels will see significant competition. Don’t be Kodak, or Blockbuster, or IBM…;
  4. Set-up training opportunities for as many staff as possible, in-house or 3rd party. – Uncertainty kills motivation, you cannot let this turn into fear; and
  5. Take a long hard look at your mobile apps and APIs, these things will have very significant impact down the road. – You cannot be left behind where customer convenience is concerned.

The time to prepare is now, the time to panic is a long way off. This may sound strange given everything I’ve written up to this point, but look at it this way:

  1. Innovation in payments will only be relevant when consumers ask for it – Just look how little impact Apple Pay and the like have had. Why would it, when it’s no more convenient or value-add than the plastic they are trying to replace.
  2. Regardless of the January 2018 date, you have years before current payment methods begin their inevitable decline – Make smart choices, don’t make choices based on perceived deadlines.
  3. Your customers are yours to lose – YOU have the existing relationship with your customer, new entrants in the game will be at significant disadvantage. Unless you do nothing.

The PSD2 is a good thing for consumers, it’s really up to ASPSPs if this is mutual.

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I have never hidden my disdain for the PCI DSS, and have written numerous blogs as to why. Not just whinging mind you, I have always included a stab at providing solutions or alternatives. But every now and again, I have to remind myself why the DSS even exists in the first place. And who needs to accept a sizeable chunk of the responsibility for it.

It’s you Mr. Retail, and you Mr. E-Commerce, and especially you Mr. Service Provider. You are every bit as culpable as the Card Brands.

Yes, the payment card technology is 50+ years old, and hopelessly outdated. Yes it’s a ridiculous way of paying now that there are so many better ways. And yes, it’s very difficult to protect cardholder data, but it’s really not complicated. All it took was effort.

But organisations didn’t make any effort. For decades on end. From stand-alone terminals, to integrated points of sale, to e-commerce, and now to mobile, the threat landscape has changed beyond measure. The corresponding risk management programs have done next to nothing.

Let’s take a quick look at the causes of 3 of the worst card data breaches to date:

  1. T.J. Maxx (2007 – 45.7M Primary Account Numbers (PANs) compromised) – I know this one’s going back a bit, but it’s one of those rare examples of where the PCI DSS was [mostly] up to speed with the prevailing threat landscape. The breach was caused by weak encryption on their wireless access points. Although Wired Equivalent Privacy (WEP) was:
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    i)   known to be vulnerable way back in 2001;
    ii)  replaced by WPA in 2003;
    iii) deprecated by the IEEE in 2004, and;
    iv) addressed specifically in the DSS from as early as v1.0 – “4.1.1 For wireless networks transmitting cardholder data, encrypt the transmissions by using Wi-Fi Protected Access (WPA) technology if WPA capable, or VPN or SSL at 128-bit. Never rely exclusively on WEP to protect confidentiality and access to a wireless LAN.”
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    …T.J.Maxx still had WEP as its standard. This vulnerability (plus horrifically poor network segmentation) lead to the compromise. It also took T.J.Maxx 18 MONTHS to find out.
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  2. Target (2013 – 40M PANs compromised) – Network access credentials stolen from a 3rd party and used to remotely log in to systems in-scope for PCI. An HVAC provider at that! Where to even begin on where Target went wrong?! But we can assume:
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    i)   vendor due diligence and management was sub-standard (addressed in Requirements 12.8.x);
    ii)  vendor access standards and monitoring were not in place (addressed in Requirements 8.1.5.a, 8.1.5.b, and 8.3.2.a);
    iii) change detection mechanisms were either not in place, or ineffective (addressed in Requirements 6.4.x);
    iv)  logging and monitoring mechanisms were either not in place, or ineffective (addressed in Requirements 10.x), and;
    v)   network segmentation was inadequate.
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  3. Home Depot (2014 – 56M PANs compromised) – Similar to Target, which makes this one even more embarrassing and unforgivable.

If we were to look at the thousands of other breaches that have occurred we would find little difference. It’s not so much concerted attacks from dedicated and skilled hackers that’s the problem, it’s the complete disregard for basic security practices by the vast majority of organisations. Organisations who KNOW better, but have chosen instead to just roll the dice.

I’m not saying that these three examples were not perpetrated by skilled hackers, but the level of skill required was significantly less than it should have been. In fact, if these organisations only had DSS levels of security controls in place, the attacks would have significantly more difficult. REAL security would have made these targets of last resort.

What Are You Going to Do About It?

As the South Africans say; If you want security, build your fence higher than your neighbour’s.” The reason the PCI DSS exists is because no one was building any fences!

The right things to do for security have, quite literally, been written down for generations. Ignore these basics and the upcoming regulations related to privacy will make PCI look like a walk in the park by comparison.

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