The latest guidance from the SEC explicitly states that companies should discuss their cyber-security measures to investors and disclose "material" security incidents.
The
Securities and Exchange Commission issued some guidelines suggesting that
companies should report cyber-incidents that may affect the bottom line.
The
SEC's Corporate Finance Division issued the guidance on Oct. 12, explaining how
organizations should report any cyber-incidents that could have an adverse
effect on their finances or operations. Under current SEC guidelines, companies
have to report incidents that have an unfavorable impact on corporate financial
performance, but this is the first time cyber-security issues were explicitly
mentioned.
The
guidance is a strong recommendation, and the SEC can't enforce it the way it
can with a regulation. The goal is to give investors information about the
risks. Even though it isn't a regulation and is just a guidance, this is
"very good news for cyber-security," according to Chris Wysopal, CTO
and co-founder of Veracode.
"They
don't have to disclose what happened or how, but they have to say something,
which will make people start asking questions," Wysopal told
eWEEK.
People
will ask how long the company knew about the incident and what had happened,
forcing the company to eventually disclose more details, he said.
The
SEC guidelines stopped short of recommending that companies divulge everything.
Instead, companies should "take into account all available relevant
information, including prior cyber incidents and the severity and frequency of
those incidents," the guidance said. Cyber-risks should be disclosed if
they are significant enough to make investing in the company speculative or
risky, or if the consequences of the incident would have a "material
effect" on operations and finances.
Any
theft of intellectual property "almost automatically" means the
effect is material and should be disclosed, according to Wysopal. He noted that
Intel had recently listed in its SEC filings an attack on its networks that
resulted in some lost source code and intellectual property.
Organizations
should also disclose cyber-incidents that could affect their products, services,
or relationships with customers and partners, or that could result in
significant legal proceedings, the SEC recommended. They also need to consider
the probability of an incident occurring and measure the potential costs and
other consequences that may arise as a result of compromised assets, loss of
sensitive data or operational disruption.
"As
with other operational and financial risks," the guidance states,
"registrants should review, on an ongoing basis, the adequacy of their
disclosure relating to cyber-security risks and cyber-incidents."
In
the event of a breach, public companies must provide "certain disclosures
of losses" both during and after a breach. However, if the incident is
discovered after the quarter ends but before financial statements have been
filed, the company can decide whether or not it is "necessary" to
disclose it.
"We
are mindful of potential concerns that detailed disclosures could compromise
cyber-security efforts-for example, by providing a 'roadmap' for those who seek
to infiltrate a registrant's network security-and we emphasize that disclosures
of that nature are not required under the federal securities laws," the
guidelines read.
Sen.
John Rockefeller, D-W.Va., praised the SEC guidance in a statement to journalists,
saying it changes "everything." Investors will be able to evaluate
companies based on the ability to keep networks secure. "Intellectual
property worth billions of dollars has been stolen by cyber criminals, and
investors have been kept completely in the dark," Rockefeller's statement
said, adding, "We want an informed market and informed consumers, and this
is how we do it."
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