On September 1, 2017, the Canadian government published proposed regulations relating to the mandatory reporting of privacy breaches under Canada's federal data protection law, the Personal Information Protection and Electronic Documents Act (PIPEDA). The regulations, available here, are currently open for public comment until October 2, 2017. The Regulatory Impact Analysis Statement ("RIAS") accompanying the publication of the regulations explains the regulations and highlights a number of the provisions which were created, and not created, in response to previous stakeholder consultations.
While in many respects the proposed regulations are consistent with current requirements and practice in Canada, as highlighted below, there are a number of controversial and problematic provisions in the regulations which will have (unintended) adverse consequences for organizations seeking to comply with PIPEDA. The prescriptive approach taken in the regulations, which cannot foresee all circumstances, is in tension with the reasonableness concept and principles-based approach taken in PIPEDA. It is hoped that these issues will be addressed before the regulations are finalized, or that the more problematic provisions are removed from the regulations in favour of practical and adaptable guidance from the Office of the Privacy Commissioner of Canada (the "Commissioner").
Following the public comment process, the regulations will be finalized and it is widely expected that the regulations and breach notification provisions in PIPEDA will come into force by the spring of 2018, potentially in alignment with the coming into force of the European Union General Data Protection Regulation ("GDPR"). The PIPEDA provisions are similar in many respects to the GDPR breach notification requirements, which is considered important for Canada-EU trade. PIPEDA has long held the status of providing adequate privacy protection in the eyes of the EU, which has permitted the free flow of personal information from the EU to Canadian organizations. Canada is plainly interested in maintaining this status.
In this short article, we review the relevant PIPEDA provisions and the proposed regulations, and comment on their potential implications for organizations subject to PIPEDA.
Breach Notification Provisions in PIPEDA
On June 18, 2015, Canada passed into law Bill S-4 - The Digital Privacy Act, which made a number of important amendments to PIPEDA. Most of the amendments came into force on June 18, 2015. However, the provisions of the law relating to mandatory breach reporting and record-keeping described in this article have not yet come into force.
When those provisions come into force, PIPEDA will include a mandatory requirement for organizations to give notice to affected individuals and to the Commissioner about privacy breaches in certain circumstances, as described below.
Section 10.1 of PIPEDA will require organizations to notify individuals (unless prohibited by law), and report to the Commissioner, all breaches where it is reasonable to believe that the breach creates a "real risk of significant harm to the individual". PIPEDA defines "significant harm" as including, among other harms, humiliation, damage to reputation or relationships and identity theft. A "real risk" requires consideration of the sensitivity of the information, the probability of misuse, and any other prescribed factor. No additional factors have been prescribed in the proposed regulations, although the Commissioner will be publishing guidance in respect of this issue.
The notice to individuals and the report to the Commissioner must be given in the prescribed form "as soon as feasible" after it is determined that a breach occurred. The notice must contain sufficient information to allow the individual to understand the significance to them of the breach, and to take steps, if possible, to reduce the risk of harm. The notice must be conspicuous and given directly to the individual, except in certain circumstances where indirect notice (e.g. posting to a website) may be permitted. Further details in respect of these matters are addressed in the regulations, as described below. The Commissioner may publish information about notices if the Commissioner determines that it would be in the public interest to do so.
Where notice is given to individuals, section 10.2 of PIPEDA will require organizations to notify other organizations and government institutions if such notice could reduce risks or mitigate harm. Consent is not required for such disclosures.
Mandatory Record-Keeping for all Breaches
Section 10.3 of PIPEDA will require organizations to keep and maintain a record of every breach of safeguards involving personal information under their control. This should mean that service providers will not have direct obligations under PIPEDA to maintain records of breaches in respect of personal information that they process for other organizations (although those other organizations are accountable under PIPEDA and will need to ensure that the providers are contractually required to provide the information necessary for the organizations to meet their record-keeping obligations).
Upon request, organizations must provide the Commissioner with such records. The Commissioner may publish information from such records if it would be in the public interest. The Commissioner may also launch an investigation or audit based on the information in the breach file.
There is no threshold associated with the record-keeping obligation-a record of all breaches must be kept, irrespective of whether they give rise to a real risk of significant harm. Nor is there any threshold before an organization would be required to provide its 'breach file' to the Commissioner.
The record-keeping requirement is an important compliance consideration and has the potential to create costs and risks for organizations. For example, in privacy-related litigation in Canada, plaintiffs' counsel often plead their claims in ways that could make a very broad swath of internal documents, policies, and information relating to previous breach incidents relevant in the discovery process. One would expect plaintiffs' counsel to request production of the 'breach file' in the course of discovery in a privacy breach litigation matter and to plead their cases to try to achieve this objective. This could be significant in the litigation and it may give rise to additional litigation. As noted below, organizations will be required to keep breach records for at least two years, which is the limitation period for bringing a civil action in most Canadian provinces. Accordingly, it is conceivable that if a plaintiff were to obtain discovery of a breach file and it reveals additional potential claims, the organization may face the risk of additional litigation in respect of those matters.
Prospective cyber insurers may also seek access to the 'breach file' in the underwriting process when assessing risk, in addition to usual questions about past breaches and incidents.
In addition, organizations considering outsourcing to a service provider may also consider requesting access to the breach file in the course of conducting due diligence and monitoring their providers and potential providers, subject to confidentiality considerations. Parties to a corporate transaction may likewise wish to review this information as part of due diligence, to assist in assessing transaction value and risk.
The Draft Regulations Under PIPEDA
Content and Form of Reports to the Commissioner
Pursuant to the draft regulations, a report to the Commissioner must be made in writing and contain the following information:
- the circumstances of the breach and, if known, the cause;
- the date or period during which the breach occurred;
- the personal information that is the subject of the breach;
- an estimate of the number of individuals at a real risk of significant harm;
- the steps that the organization has taken to reduce risk or mitigate harm to individuals;
- the steps that the organization has taken or intends to take to notify affected individuals; and
- the name and contact information of a person who can answer, on behalf of the organization, the Commissioner's questions about the breach.
The above proposed elements are largely consistent with the breach reporting requirements which have been in force in Alberta for a number of years and with Canadian practice in relation to breach reporting. In addition, as noted below, a report to the Commissioner made under this section may be used by the organization as a record of the breach of security safeguards for the purpose of the record-keeping requirement.
Content and Manner of Notification to Affected Individuals
As discussed above, PIPEDA imposes a general requirement that notifications to individuals include sufficient information to allow the individuals to understand the significance to them of the breach, and to take steps, if possible, to reduce the risk of harm. In addition, pursuant to the regulations, notifications must contain the following specific elements:
- a description of the circumstances of the breach;
- the day on which, or period during which, the breach occurred;
- a description of the personal information that is the subject of the breach;
- a description of the steps that the organization has taken to reduce the risk of harm to the affected individual resulting from the breach or to mitigate that harm;
- a description of the steps that the affected individual could take to reduce the risk of harm resulting from the breach or to mitigate that harm;
- a toll-free number or email address that the affected individual can use to obtain further information about the breach; and
- information about the organization's internal complaint process and about the affected individual's right, under PIPEDA, to file a complaint with the Commissioner.
Direct notification to individuals must be given in one of the following four ways: (a) by email or any other secure form of communication if the affected individual has consented to receiving information from the organization in that manner; (b) by letter delivered to the last known home address of the affected individual; (c) by telephone; or (d) in person.
The specific proposed requirement to provide a toll-free number in notifications has come under some criticism and may be amended. For many localized breaches, it may be perfectly reasonable to provide a local telephone number, not a toll-free number. It may also be appropriate to adopt a more technology neutral approach that could permit greater flexibility in how individuals can obtain further information (e.g. on a website or through text messaging or an application).
The proposed requirement to have obtained prior consent to use email or other secure communication to notify individuals of a breach has also come under fire. Although it is expected that in most cases individuals will have expressly or implicitly consented to receive information from an organization by email or other secure means, there may be cases where such consent may not be present. It is questionable whether a lack of consent should preclude an organization from notifying individuals in such a manner (e.g. where there is urgency or where the organization has no other means of communicating with the individual). As discussed in the next section, there is no provision that would permit indirect notification to an individual in a case where the only contact information held by the organization is, for example, an email address, and the organization does not have consent to email the individual. If the regulations are interpreted in this manner, it would lead to the perverse result that the organization would be prohibited under PIPEDA from sending either direct or indirect notice to the individual of a privacy breach that presents a real risk of significant harm.
Finally, the requirement to include in a notice to individuals information about the organization's internal complaint process and about the affected individual's right to file a complaint with the Commissioner seems unnecessary, is not in keeping with current practices in Canada, and may unduly encourage complaints to be filed.
The proposed breach notification regulations include a requirement to provide indirect notification of breaches in a number of circumstances. Indirect notification may be given only by either a conspicuous message, posted on the organization's website for at least 90 days; or by means of an advertisement that is likely to reach the affected individuals.
While indirect notice could be important for small or medium sized organizations in the event of a breach which impacts a large number of individuals (given the cost of notification and their limited resources), the proposed requirements could have adverse unintended consequences. In the proposed regulations, indirect notification must be given to an affected individual in any of the following three circumstances:
- the giving of direct notification would cause further harm to the affected individual;
- the cost of giving direct notification is prohibitive for the organization; or
- the organization does not have contact information for the affected individual or the information that it has is out of date.
In a given breach, the above provisions, if not amended, could create challenging scenarios where notification requirements need to be assessed on an individual-by-individual basis. Some affected individuals in a breach will need to receive direct notifications, whereas others may require indirect notification. For example, if an organization does not have current contact information for part of an affected group, it would be required to give indirect notice, in addition to direct notice to the group for which it had current contact information. In addition, if an organization considers that it has current contact information for all affected individuals, proceeds to give direct notifications, and then receives mail or email returns indicating that some individuals' contact information is not current, it would arguably need to give an indirect notice under the proposed regulations.
With respect to the third category of indirect notice above, it should be noted that PIPEDA requires organizations to delete or anonymize personal information that is no longer needed, and to take reasonable steps to maintain accurate personal information (although it is recognized that individuals bear a primary responsibility for updating their contact information held by an organization). Accordingly, while the ability to provide an indirect notification in the third category above may be useful, organizations should consider that reliance on that exemption in some cases might be a signal of potential compliance issues under those other PIPEDA obligations (e.g. if information has been retained too long).
Record-Keeping in Relation to Breaches
Under the proposed regulations, organizations must maintain a record of every breach of security safeguards for a minimum of 24 months after the day on which the organization determines that the breach has occurred. As stated in the RIAS, the purpose of the record-keeping obligation is "to provide the Commissioner with an ability to determine whether or not organizations are tracking all breaches and complying with the requirements to report significant breaches and notify affected individuals."
The record must contain any information pertaining to the breach that enables the Commissioner to verify compliance with the breach notification and reporting provisions - i.e. the Commissioner must be able to validate whether the organization notified and reported breaches as required in each case. This could potentially raise uncertainty about the volume and type of information to be retained. The requirement suggests that it would be prudent to include in breach records the information which led the organization to conclude that there was no real risk of significant harm, and that it was therefore not required notify individuals.
If an organization reports a breach to the Commissioner, the report may be used as a record of the breach of security safeguards to fulfill the record-keeping requirement.
The RIAS touts the requirement to keep breach records as an opportunity for organizations to track and analyze their breach experience and to learn from it. However, as noted earlier in this article, the record-keeping requirement also poses a number of potential risks and opportunities for such information to be sought out by third parties.
Finally, given the Commissioner's power to request production of breach files at any time, it may be concerning that the RIAS states that the regulations will help ensure that "breach reports to the Commissioner are provided in such a way that incidents can be compared and aggregated to provide a much needed repository of information on data security incidents in Canada; something that experts say will lead to a better shared understanding of cyber security threats" and "allow for metrics to be developed for evidence-based policy-making." While those statements are made in the context of breach reporting, not record-keeping, it would not be a stretch to consider that the Commissioner may demand access to breach records in the name of building a more complete breach repository for evidence-based policy-making. Indeed, the RIAS hints at such uses: "[the Commissioner will also use data breach information to increase awareness and understanding of the extent and nature of data breaches in Canada." Organizations subject to PIPEDA should brace for the potential that their breach files will be requested by the Commissioner.
Key Matters not Covered in the Regulations
Prior to the publication of the regulations, the Canadian government had engaged in a wide public consultation about breach notification and record-keeping. Below are comments in respect of a number of important matters arising from the consultations which did not find their way into the proposed regulations:
- Service provider breaches and obligations: Some stakeholders requested guidance about when a service provider should be required to notify individuals if the breach occurs at the service provider and affects information held on an organization's behalf. However, in keeping with current practice in relation to this issue, the RIAS notes that most stakeholders hold the view that the existing accountability principle in PIPEDA should be followed. Accordingly, the organization with control of the information will need to ensure its compliance with PIPEDA's breach record-keeping and notification requirements, and must consider the full range of contractual and other measures necessary to manage risk and compliance arising out of service provider breaches (e.g. provisions requiring the service provider to notify the client of all suspected breaches, to cooperate with the client and share information to investigate such breaches, and to provide the client with all information necessary for it to meet its notification, reporting and record-keeping obligations). While these considerations are not new, the introduction of mandatory breach notification and record-keeping requirements heightens the need to scrutinize vendor contracts and other measures to ensure that they contain the full range of necessary provisions.
- Assessing a "real risk of significant harm": The government did not include in the proposed regulations additional factors for organizations to consider in assessing whether a breach presents a "real risk of significant harm". However, the Commissioner has committed to provide guidance material to assist organizations in making such assessments
- Encryption: The regulations do not provide that breaches involving encrypted personal information will necessarily present a low risk of harm, or be exempt from notification. This concept had been opposed by the Commissioner, who notes that the level and effectiveness of encryption, and the potential compromise of encryption keys, must be considered. While this does not preclude consideration of encryption in assessing risk, the regulations do not go as far as some stakeholders would have liked.
- Assessments of the types of harms: Unlike the rules in Alberta, the proposed regulations do not require organizations to include in their breach reports an assessment of the types of harms that could result from the breach. Compiling such an assessment was considered to be unduly difficult, particularly for small and medium sized business which often lack resources and expertise in respect of such matters.
To date, much of the private sector in Canada has not had to grapple with mandatory privacy breach notification. For a number of years, the Canadian province of Alberta had the only private sector privacy law of general application that included mandatory breach reporting requirements.
The introduction of mandatory privacy breach notification, reporting and record-keeping in PIPEDA represents a sweeping change to the conduct of commercial activities in Canada. The rules will present new costs, risks and challenges for organizations, large and small, including in respect of legal risk management, compliance, incident response planning and response, and additional liability and regulatory exposures. For example, based on the breach notification experience in the United States and Canada, the risk of litigation and class actions in the wake of a data breach may be increased following a notification.
The new rules will also increase the already strong and ever-growing interest in cyber liability insurance in Canada, which often covers investigation, notification, liability, defence and other costs associated with responding to data breaches. Organizations, brokers and underwriters are sure to take note of the new rules. The introduction of mandatory breach notification rules in other jurisdictions has been seen as a crucial tipping point to strong growth in cyber insurance markets.
In light of the new rules in PIPEDA, organizations must now, more than ever, ensure that they have in place internal safeguards, policies and procedures to adequately detect, escalate and respond to privacy incidents. For example, it is crucial that organizations implement an incident response plan and training for employees regarding the need to escalate and report all suspected breaches, in ways that meet the new requirements in PIPEDA. Violations of the breach notification provisions may lead to offences and fines and potentially factor in to civil litigation.
It is hoped that the problematic aspects of the regulations highlighted above will be addressed before the regulations are finalized, or removed from the regulations in favour of practical and adaptable guidance from Commissioner. Organizations subject to PIPEDA should monitor the finalization of the regulations, and consider taking steps now to amend incident response plans and related policy documents to meet the new requirements.