This is an essay I wrote in 2004. There is nothing here that doesn’t still ring true, especially with the latest round of Wikileaks disclosures. I wrote then and I still hold that compliance and and data security technology cannot protect an organization from a data breach. The best security countermeasures for protecting a company’s digital assets and individuals’ private information are uncompromising ethics and honest management.
On security and compliance
It’s impossible to ignore the fact that compliance (like it or not) is a driver for companies to invest in improving their software and data security past running a firewalls and anti-virus. While compliance drives companies into taking action, do compliance activities actually result in implementing and sustaining strong data security management and technology countermeasures? We will see that the answer is generally no.
There is plethora of compliance regulations. There is regulation for Privacy(HIPAA/HHS), for Children: (Children’s Online Privacy Protection Act (COPPA) for Credit Card holders: (FCRA), for merchants (PCI DSS), for Public entities (Sarbanes-Oxley), for Insurance (State laws) , for Securities trading (SEC), for Telecom (New York State Public Service Commission rulings) and many many more.
Looking at the wide variety of regulations and standards we can see that compliance really comes in only 3 flavors:
- Governance regulation such as HIPAA and SOX. Government compliance regulation is focussed on customer protection and requires a top down risk analysis process.
- Industry compliance regulation such as PCI DSS that focuses on protecting the card association supply chain, doesn’t require risk analysis and mandates a fixed control set (if you think that best-practice security control sets are a good idea, then stop and consider the abysmal failure of the Maginot line in WWII and the Bar Lev line in the Yom Kippur war in 1973).
- Vendor-neutral standards such as ISO 27001 that focuses on data and system protection, doesn’t require risk analysis nor consider asset values although it does provide what is arguable the most comprehensive set of controls.
Well-meaning as the regulators may be, there are two fundamental flaws in the security-by-compliance model:
- You can comply without being secure and use compliance as a fig-leaf for lack of data security
- You can invest in software and data security without being compliant
…We don’t invest in data loss prevention technology because it’s a criminal offense when one of our employee breaches critical filings. We feel the legal deterrent is sufficient.
IT Manager – Securities and Exchange Commission in a Middle East country
Privacy regulation trends in the US and Europe
Government-regulated privacy-protection of information is a natural response rooted in the field of telecommunications, since countries either own the telecom business outright or tightly regulate their industry. This has largely led to a view of electronic privacy as an issue of citizen rights versus state legislation and monopoly.
In the information age, privacy has two dimensions – intrusion and data breach:
- Protection against intrusion by unwanted information or criminals; similar to the constitutional protection to be secure in one’s home.
- Protection against data breach by controlling information flows about an individual’s or a business’s activities; for example preventing identify theft or protecting a company’s trade secrets.
Regulation has moved in two major directions–centralized general protection and decentralized ad-hoc protection. The EEC (European Economic Community ) has pursued the former, and passed comprehensive data protection laws with coordination on information collection and data flows. The United States, in contrast, has dealt with issues on a case-by-case basis (health-care, credit cards, corporate governance etc…) resulting in a variety of ad hoc federal and state legislation.
A synthesis of the European and the American approaches is to formulate a set of broad rules for vertical industry. This was the direction taken by the New York Public Service Commission on the issue of telecommunications privacy. However, U.S. privacy legislation remains considerably less strict than European law in the regulation of private databases. Two Representatives in the House Select Committee on Homeland Security are calling for a Privacy Czar. The Privacy Czar would be responsible for privacy policies throughout the federal government as well as ensuring private technology does not erode public privacy.
“Right now, there’s no one at home at the White House when it comes to privacy. There’s no political official in the White House who has privacy in their title or as part of their job description. Congress should take the lead here because this administration has not,” says Peter Swire, an Ohio State University law professor and former chief privacy officer in the Clinton administration in an interview with Wired back in 2006 – and in the Obama administration has anything changed?
Sarbanes Oxley: enforcing corporate governance
The Sarbanes-Oxley Act (SOX) has had a major impact on US corporate governance SOX was a response to the accounting scandals and senior management excesses at some public companies in recent years. It requires compliance with a comprehensive reform of accounting procedures for public corporations to promote and improve the quality and transparency of financial reporting by both internal and external independent auditors. SOX regulation is enforced by the Public Company Accounting Oversight Board (“the Board”).
SOX Section 404 – “Management Assessment Of Internal Controls ” is indirectly relevant to data breach. It requires an “internal control” report in the annual report which states management responsibility and assesses effectiveness of internal controls. Companies are also required to disclose whether they have adopted a code of ethics for senior financial officers and the contents of that code.
SOX Section 409 – “Real Time Disclosure” implies that a significant data breach event be disclosed on “a rapid and current basis”. SOX also increases the penalties for mail and wire fraud increased from 5 to 10 years and creates a crime for tampering with a record or otherwise impeding any official proceeding.
HSS/HIPAA: enforcing patient privacy
Each time a patient sees a doctor, is admitted to a hospital, goes to a pharmacist or sends a claim to a health plan, a record is made of their confidential health information. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) gave Congress 3 years to pass health privacy legislation. In May 2003 – the HHS (Dept of Health and Human services implemented federal protections for the privacy of individual health information under the Privacy Rule, pursuant to HIPAA. Because of limitations of HIPPA, the rule is far from seamless and will require a lot more work in the US Congress by both parties to ensure privacy of personal health information.
My conclusion on all of this is:
- SOX has been a strong driver for sales of IT products and services, but it’s totally unclear that the billions spent by corporate America on compliance has actually done much to improve customer protection.
Securities: Did we leave the cat guarding the cream?
Annette L. Nazareth, market regulation director at the U.S. Securities and Exchange Commission, outlined proposals at a securities industry conference in New York on May 21 calling for stock exchanges, as the Associated Press put it, “to abide by most of the requirements they set for companies they list.”
Insurance Industry: Federal versus free market
October 2003, witnesses before the Senate Commerce committee testified regarding insurance industry regulations. The committee analyzed the current US system, which relies on state law, and examined proposals for improving industry regulation. One of the central issues was whether or not the federal government should play a larger role in insurance industry regulation. Also discussed was the need to provide protection for consumers without forcing unnecessary regulations on insurance companies. Some senators expressed concerns about high insurance rates.
If you’re a vendor of IT products and services, it has become increasingly difficult to sell security with rising complexity of attacks and countermeasures and decision makers who find it difficult to understand what works and what doesn’t.
What will happen to the B2C security industry is hard to say. Perhaps the Intel McAfee acquisition is a sign of things to come where security becomes a B2B industry like safety manufacturers for the aerospace and automotive industries.
Until security becomes built-into the cloud, my best suggestion for a business is don’t leave your ethics at home and don’t wait for the government to tell you what you learned from your parents at age 5 – put your toys away and don’t steal from the other kids.
Tell your friends and colleagues about us. Thanks!