On April 18, 2018, the Canadian government published final 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, will come into force on November 1, 2018.
The final 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 stakeholder consultations and the submissions of the Office of the Privacy Commissioner of Canada (the "Commissioner"). Although the RIAS does not have the force of law, it provides important context and information about the government's intentions and interpretation of the regulations.
As explained in the RIAS, the government has sought to harmonize the Canadian rules with the breach notification rules in the forthcoming European Union General Data Protection Regulation ("GDPR"). Harmony with the GDPR 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.
Previously, we analyzed the draft regulations and initial RIAS: see "New Rules for Mandatory Privacy Breach Notification in Canada". The final regulations include a number of welcome changes as compared to the draft regulations. In this article, we update the analysis to review the relevant PIPEDA provisions and the final regulations that will come into force on November 1, 2018, and comment on key 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. As we recently reported in "Canadian Privacy Breach Notification Rules in Force on November 1, 2018", these rules will come into force on November 1, 2018.
When the 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 final 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 final 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 tactic is already prevalent in privacy breach litigation and class actions. This could be significant in the litigation (e.g. it may support claims of punitive or aggravated damages) and it may give rise to additional potential litigation. As noted below, pursuant to the regulations, organizations will be required to keep breach records for at least two years after the date on which a breach has been confirmed, 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 in relation to breaches (including breaches that did not result in notifications to individuals), 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 of 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.
Final breach notification, reporting and record-keeping regulations under PIPEDA
Content and form of reports to the Commissioner
Pursuant to section 2 of the final regulations, a report to the Commissioner must be made in writing (sent by any secure means of communication) and contain the following information:
- the circumstances of the breach and, if known, the cause;
- the date or period during which the breach occurred, or, if neither is known, the approximate period;
- the personal information that is the subject of the breach, to the extent that the information is known;
- the number of individuals affected by the breach or, if unknown, the approximate number;
- the steps that the organization has taken to reduce risk or mitigate harm to individuals that could result from the breach;
- 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 RIAS provides that the report to the Commissioner need address only the above elements in respect of individuals who are at a real risk of significant harm. If there are other individuals affected by a breach who face little or no risk of harm, the report to the Commissioner need not address those aspects.
An organization may submit to the Commissioner any new information referred to above that the organization becomes aware of after making the report. As stated in the RIAS, this provision is intended to address situations where an organization concludes that it has suffered a breach (and therefore must report it as soon as feasible) but the full extent of the breach may not be known for many weeks or months until the investigation is complete.
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.
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 section 3 of the final 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 or, if neither is known, the approximate period;
- a description of the personal information that is the subject of the breach to the extent that the information is known;
- a description of the steps that the organization has taken to reduce the risk of harm that could result from the breach;
- a description of the steps that affected individuals could take to reduce the risk of harm that could result from the breach or to mitigate that harm; and
- contact information that the affected individual can use to obtain further information about the breach.
The final requirements above include some welcome changes to the draft regulations previously published. For example, the final regulations permit flexibility in the contact information to be included in a notice. The draft regulations had included a specific requirement to provide a toll free phone number or email address, which had been criticized and is not included in the final regulations.
The final regulations also do not include a requirement, which had been contained in the draft regulations, for the notice to include information about the organization's internal complaint process and the individual's right to file a complaint with the Commissioner. Again this is a welcome change as such a requirement would not have been in keeping with current practice, would not have furthered the objective of ensuring that individuals are notified of breaches, and could have been considered to encourage individuals to file complaints that would consume significant organizational and Commissioner resources.
Pursuant to section 4 of the final regulations, direct notification to individuals must be given "in person, by telephone, mail, email or any other form of communication that a reasonable person would consider appropriate in the circumstances." This technology neutral provision will permit considerable flexibility for organizations in how notifications are given now and in the future. This is a welcome change from the unduly narrow requirements which had been proposed in the draft regulations, which required that notice be given only 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.
Section 5 of the final regulations includes a requirement to provide indirect notification of breaches in a number of circumstances.
Indirect notification must be given "by public communication or similar measure that could reasonably be expected to reach the affected individuals." This general requirement permits considerable flexibility in how indirect notifications may be given, although it is foreseeable that there may be disputes about whether the requirement has been met in a given case.
Indirect notice could be important for smaller 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). 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 be likely to cause further harm to the affected individual;
- direct notification would be likely to cause undue hardship for the organization; or
- the organization does not have contact information for the affected individual.
The above provisions, 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 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 contact information.
Record-keeping in relation to breaches
Pursuant to section 6 of the final 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. The record keeping requirement is applicable to all breaches, not only those that give rise to a real risk of significant harm. As described in the RIAS, the government has rejected the Commissioner's request that breach records should be kept for five years.
As stated in the RIAS, the government has explicitly rejected stakeholder requests that the record keeping requirement be limited to "material" or significant breaches, stating "it was the intent of Parliament to allow the Commissioner to verify that organizations are tracking all breaches for the purpose of determining whether a breach triggers the requirement to notify individuals."
Section 6(2) of the final regulations provides that breach records must contain "any information 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 by PIPEDA in each case. This could potentially raise uncertainty about the volume and type of information to be retained, although it also permits flexibility for organizations in how they meet the record keeping requirement.
The above requirement suggests that, in respect of breaches that do not result in notifications to affected individuals, 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. However, it is notable that, as stated in the RIAS, the government has rejected the Commissioner's request that breach reports and breach records should contain details on the risk assessment conducted by the organization: "[i]mposing an obligation to provide the Commissioner with details of a risk assessment for each and every breach experienced by organizations subject to PIPEDA would be unnecessarily burdensome for regulated organizations, and is not required to achieve the overriding objective of notification, which is to provide individuals with information they need to mitigate harm resulting from the breach."
As stated in the RIAS, part of the rationale for permitting flexibility about what information must be retained under the record keeping requirement is to ensure that such information is protected from disclosure pursuant to the Access to Information Act in a scenario where the Commissioner collects the information from the organization and then receives a request for access to it under that legislation.
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 a consistent way such that incidents can be compared and aggregated to provide a repository of information on data security incidents in Canada." While that statement is 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: an efficient repository may be created, enabling the [Commissioner] to acquire a general understanding of the nature and extent of breaches occurring 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 draft and final 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 or final 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'sbehalf. However, in keeping with current practice in relation to this issue, the RIAS for the draft regulations (available here) noted 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 issues are not new considerations, 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": In lieu of including in the regulations additional factors for organizations to consider in assessing whether a breach presents a "real risk of significant harm", the Commissioner has committed to provide guidance material in the future.
- 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 coming into force 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. 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.
Organizations subject to PIPEDA must take steps now to ensure that they will meet their obligations under the new rules by the time they come into force on November 1, 2018.