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Data Breaches: Causes, Compliance Impact, and Best Practices

November 7, 2023
Nedim Maric

What Is a Data Breach? 

A data breach is an incident where unauthorized individuals gain access to confidential data stored in a system. This data can include personal information such as credit card numbers, social security numbers, or corporate information like trade secrets and intellectual property.

Some data breaches are orchestrated by cybercriminals intending to exploit the data for malicious purposes. This could involve selling the data on the dark web, holding it ransom, or using it for identity theft. However not all data breaches are carried out by hackers. For example, some occur due to human error or insider threats.

In essence, a data breach represents a violation of trust and security. It can disrupt an organization’s operations, irreparably hurt its reputation, and in regulated industries, can result in compliance violations and legal problems. This is why every organization must have a strategy for preventing and mitigating data breaches.

In this article:

Consequences of a Data Breach 

The consequences of a data breach can be far-reaching, affecting not just businesses but also individuals and society at large:

Financial Implications for Businesses

A data breach can have severe financial implications for businesses. These include the immediate costs associated with the breach’s detection and containment, investigation, and recovery. However, the financial repercussions of a data breach extend beyond these immediate costs.

Businesses might also face financial losses due to business disruption and lost sales. Moreover, there is the looming threat of lost business opportunities and contracts due to damaged trust and reputation. In some cases, businesses may also need to compensate affected customers, adding to the overall financial burden.

Data breaches can also result in legal and regulatory penalties. Depending on the jurisdiction and the nature of the data compromised, companies may face hefty fines and sanctions. For instance, under the General Data Protection Regulation (GDPR) in the European Union, businesses can be fined up to 4% of their annual global turnover for serious data breaches.

Moreover, companies may also face lawsuits from affected customers or employees. These legal battles not only result in financial losses but also consume valuable time and resources that could otherwise be invested in productive activities.

Learn more in our detailed guide to security breach.

Reputational Damage and Loss of Customer Trust

Perhaps the most devastating consequence of a data breach is the damage it does to a company’s reputation. Customer trust is a crucial business asset, and a data breach can erode this trust.

Customers entrust businesses with their personal and financial information, expecting that it will be kept safe. A data breach shatters this expectation, leading to a loss of customer trust. This can result in customers turning to competitors, leading to a decline in customer base and revenue.

Personal and Societal Impacts

Beyond businesses, data breaches also have significant personal and societal impacts. Individuals affected by a data breach may fall victim to identity theft, financial fraud, and other forms of cybercrime. This can lead to emotional distress, financial losses, and violation of privacy.

At a societal level, data breaches can undermine trust in digital platforms and systems. This could potentially hamper the adoption of digital services, slowing down the pace of digital transformation. Moreover, large-scale data breaches can even pose a threat to national security.

4 Causes of Data Breaches

There are four main ways in which data breaches can occur:

1. Cyberattacks

Cyberattacks are a common means by which data breaches occur. Hackers employ a variety of techniques to gain unauthorized access to data. These include phishing attacks, malware, ransomware, and denial of service attacks. These attacks exploit various weaknesses in a system’s security to steal, damage, or disrupt access to data.

2. Insider Threats

Insider threats refer to data breaches that occur due to the actions of an individual within an organization. This could be a disgruntled employee, a careless staff member, or even a malicious insider working for a competitor or a cybercriminal group. Insider threats can be particularly challenging to detect and prevent, given the level of access and trust these individuals often have.

3. Human Error

Human error is another significant cause of data breaches. This could involve employees accidentally sending sensitive information to the wrong recipient, leaving systems unsecured, or falling for phishing scams. Despite being unintentional, the impact of such breaches can be just as severe.

4. System Vulnerabilities

Lastly, system vulnerabilities often serve as a gateway for data breaches. These vulnerabilities could be due to outdated software, weak passwords, or lack of proper security measures. Hackers often exploit these weaknesses to gain access to a system and the data stored within.

Data Breach Requirements in Common Compliance Standards 

General Data Protection Regulation (GDPR)

The GDPR is a European Union regulation that provides individuals with more control over their personal data. It requires organizations to protect the privacy and integrity of data they hold about EU citizens, regardless of where the company is located.

Under the GDPR, organizations are required to report a data breach to the appropriate supervisory authority within 72 hours of becoming aware of it. They must also notify affected individuals without undue delay if the breach poses a high risk to their rights and freedoms. The notification should describe the nature of the breach, the likely consequences, and the measures taken to mitigate its possible adverse effects.

The GDPR imposes significant penalties for non-compliance. Organizations can face fines of up to 20 million Euros or 4% of their global annual revenue, whichever is higher, if they fail to comply with the regulation’s requirements. In addition, they may suffer reputational damage, legal action, and loss of consumer trust.

California Consumer Privacy Act (CCPA)

The CCPA is a state statute intended to enhance privacy rights and consumer protection for residents of California. Although it has a narrower scope than the GDPR, the CCPA has substantial implications for businesses that collect, store, and process personal information of California residents.

Under the CCPA, businesses are required to disclose their data collection practices and allow consumers to opt-out of the sale of their personal information. In case of a data breach, businesses have to notify affected consumers without unreasonable delay. The notification must include details about the breach, types of information compromised, and steps consumers can take to protect themselves.

Non-compliance with the CCPA can result in penalties of up to $7,500 per violation, not to mention potential lawsuits from affected consumers. Therefore, businesses need to ensure they have robust data security measures in place to prevent data breaches and comply with the CCPA requirements.

PCI DSS

The PCI DSS is a set of security standards designed to secure credit and debit card transactions against data theft and fraud. It applies to all entities that store, process, or transmit cardholder data.

The PCI DSS requires businesses to build and maintain a secure network, protect cardholder data, maintain a vulnerability management program, implement strong access control measures, regularly monitor and test networks, and maintain an information security policy. In the event of a data breach, businesses must immediately contain and limit the exposure of cardholder data. They also need to alert all necessary parties, including their acquiring bank, card brands, and a PCI Forensic Investigator.

Failure to comply with the PCI DSS can result in penalties ranging from $5,000 to $100,000 per month. Moreover, businesses may lose their ability to process card payments, face increased transaction fees, and suffer reputational damage.

Health Insurance Portability and Accountability Act (HIPAA)

HIPAA is a federal law that protects sensitive patient health information from being disclosed without the patient’s consent or knowledge. It applies to healthcare providers, health plans, healthcare clearinghouses, and business associates of these entities.

Under HIPAA, covered entities and their business associates must implement administrative, physical, and technical safeguards to ensure the confidentiality, integrity, and availability of protected health information. In case of a data breach, they must notify affected individuals, the Secretary of Health and Human Services, and in some cases, the media, within 60 days. The notification must include a brief description of the breach, the types of information involved, the steps individuals should take to protect themselves, and what the covered entity is doing to investigate the breach, mitigate harm, and prevent further breaches.

Non-compliance with HIPAA can result in civil penalties of up to $1.5 million per violation category, per year. Criminal penalties can go up to $250,000 in fines and ten years in prison. In addition, covered entities may suffer reputational damage and loss of patient trust.

Best Practices to Prevent Data Breaches 

Conduct Regular Risk Assessments

Regular risk assessments are crucial in identifying your organization’s vulnerabilities and taking corrective actions before a breach occurs. This involves identifying and categorizing assets, evaluating potential threats, assessing vulnerability, analyzing controls, and quantifying the potential impact.

Risk assessments should be conducted at least annually or whenever significant changes occur in the business environment, such as after a merger or acquisition, when launching a new product, or when adopting new technologies.

Use Strong Authentication Methods

Strong authentication methods, such as two-factor authentication (2FA) or multi-factor authentication (MFA), can provide an additional layer of security. These methods require users to verify their identity by providing two or more pieces of evidence or credentials.

Implementing a robust password policy is equally important. This includes using unique passwords, changing them regularly, and using password managers to store them securely.

Encrypt Sensitive Data

Encryption is the process of converting data into a code to prevent unauthorized access. Sensitive data such as customer information, payment details, and internal documents should be encrypted both when stored (at-rest encryption) and when transmitted over a network (in-transit encryption). Using strong encryption algorithms and keeping encryption keys secure are vital components of this security measure.

Regularly Backup Data

Regular backups can help you recover your data in case of a breach or other forms of data loss. It’s crucial to backup data regularly and test the backups to ensure they work correctly.

You should store backups in a secure, off-site location and encrypt them to protect against unauthorized access. It’s also a good idea to keep multiple versions of backups in case one is corrupted or compromised.

Secure Physical Access

While much of data security focuses on digital threats, physical security is just as important. This involves restricting access to servers, data centers, and other areas where sensitive data is stored.

Physical security measures can include locks, biometric access controls, surveillance cameras, and security personnel. It’s also crucial to log and monitor physical access to detect and respond to any unauthorized access promptly.

Educate Employees

Employees are often the weakest link in an organization’s security chain. Therefore, it’s imperative to educate them about the importance of data security and the role they play in preventing data breaches.

This includes training them on best practices such as recognizing and reporting phishing attempts, using strong passwords, and following proper procedures when handling sensitive data. Regular training updates are also necessary to keep up with the evolving threat landscape.

Secure Applications and Databases

Software that handles and stores data should be built with security in mind. This includes securing databases through firewall rules, data masking, and access controls that limit who can view or modify the data. For applications, secure coding practices should be followed to prevent vulnerabilities that can be exploited, such as SQL injection or Cross-Site Scripting (XSS). Regular security audits and code reviews are necessary to identify and fix vulnerabilities.

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