Technology and Cyber Security Incident Reporting for Federally Regulated Financial Institutions
On January 24, 2018, the Office of Superintendent of Financial Institutions (“OSFI”) published a Technology and Cyber Security Incident Reporting Advisory (“Advisory”) setting out new reporting requirements for technology and cyber security incidents. The Advisory applies to all federally regulated financial institutions (“FRFIs”), which includes all banks in Canada, and all federally incorporated or regulated trust and loan companies, insurance companies, cooperative credit associations, fraternal benefit societies and pension plans.
Under the Advisory, a technology or cyber security incident is defined as an incident that has “the potential to, or has been assessed to, materially impact the normal operations of an FRFI, including confidentiality, integrity or availability of its systems and information” (“Incident”).
The Incident reporting requirements under the Advisory will become effective on March 31, 2019 and will apply to all FRFIs. Third party service providers who have access to FRFI operations, information systems or data, should also be made aware of the reporting requirements under the Advisory, as they may be required to support FRFIs with their reporting obligations.
Due to the increased digitization of the financial services industry, OSFI has recently taken steps to re-examine its oversight role and approach to enhancing and managing cyber security at FRFIs. In taking these steps, one of OSFI’s key priorities has been to strengthen its ability to anticipate and respond to severe but plausible risks (including cyber risks) to the Canadian financial system within the broader context of the Government of Canada’s National Cyber Security Strategy, as was highlighted in its 2018-2019 Departmental Plan and 2017-2020 Priorities.
The Advisory sets out the requirements, which are meant to supplement OSFI’s expectations for FRFIs’ incident management frameworks, for: (a) when FRFIs must report Incidents to OSFI; and (b) Incident reports. The FRFIs’ obligations are intended to help OSFI identify areas where FRFIs can take steps to proactively prevent such incidents or to improve their resiliency in cases where an incident has occurred.
When read together with OSFI’s key priorities, the Advisory appears to provide OSFI with greater cyber security oversight and the ability to collect data points to assess whether adjustments (if any) should be made to its guidance on FRFIs’ incident management frameworks.
Under the Advisory, FRFIs will be required to report Incidents which they assess to be of a high or critical severity level. FRFIs are responsible for assessing whether an Incident is sufficiently material (in accordance with their respective incident management frameworks) to be reported to OSFI. To assist in determining whether an Incident is of a high or critical severity level, the Advisory provides the following non-exhaustive list of characteristics which may be attributable to reportable Incidents:
- Significant operational impact to key/critical information systems or data;
- Material impact to FRFI operational or customer data, including confidentiality, integrity or availability of such data;
- Significant operational impact to internal users that is material to customers or business operations;
- Significant levels of system/service disruptions;
- Extended disruptions to critical business systems/operations;
- Number of external customers impacted is significant or growing;
- Negative reputational impact is imminent (e.g. public/media disclosure);
- Material impact to critical deadlines/obligations in financial market settlement or payment systems (e.g. Financial Market Infrastructure);
- Significant impact to a third party deemed material to the FRFI;
- Material consequences to other FRFIs or the Canadian financial system; or
- An FRFI incident has been reported to the Office of the Privacy Commissioner or local/foreign regulatory authorities.
Further, the Appendix to the Advisory provides the following non-exhaustive list of some examples of reportable Incidents:
Account takeover botnet campaign is targeting online services using new techniques, current defences are failing to prevent customer account compromise.
• High volume and velocity of attempts;
• Current controls are failing to block attack;
• Customers are locked out; or
• Indication that accounts have been compromised.
Service Availability & Recovery
Technology failure at data center.
• Critical online service is down and alternate recovery option failed; or
• Extended disruption to critical business systems and operations.
Third Party Breach
A material third party is breached, FRFI is notified that third party is investigating.
• Third party is designated as material to the FRFI; or
• Material impact to FRFI data is possible
FRFI has received an extortion message threatening to perpetrate a cyber attack (e.g. DDoS for Bitcoin).
• Threat is credible; or
• Probability of critical online service disruption
When an FRFI determines that an Incident is of a high or critical severity level, the FRFI must provide an initial written or electronic report to its OSFI Lead Supervisor and to [email protected], as promptly as possible, but no later than 72 hours following such determination. The initial report must include the following:
- Date and time the incident was assessed to be material;
- Date and time/period the incident took place;
- Incident severity;
- Incident type (e.g. DDoS, malware, data breach, extortion);
- Incident description, including: (a) known direct/indirect impacts (quantifiable and non-quantifiable), including privacy and financial; (b) known impact to one or more business segment, business unit, line of business or regions, including any third party involved; (c) whether incident originated at a third party, or has impact on third party services; and (d) the number of clients impacted;
- Primary method used to identify the incident;
- Current status of incident;
- Date for internal incident escalation to senior management or Board of Directors;
- Mitigation actions taken or planned;
- Known or suspected root cause; and
- Name and contact information for the FRFI incident executive lead and liaison with OSFI.
Where specific details are unavailable at the time of the initial report, the FRFI must indicate “information not yet available” and provide the best known estimate of when all such details are expected to become available.
Further, following its provision of the initial report to OSFI, the FRFI is expected to provide:
- Regular updates (e.g. daily) to OSFI as new information becomes available and until all material details about the reportable Incident have been provided;
- Situation updates, including any short term and long term remediation actions and plans until the reportable Incident has been contained or resolved; and
- A report on the FRFI’s post-incident review and lessons learned once the reportable Incident has been contained, recovered and closed.
In relation to the foregoing updates, depending on the severity, impact and velocity of the reportable Incident, the OSFI Lead Supervisory may request that an FRFI change the method and frequency of any such updates.
The Advisory presents some compliance uncertainties and challenges for FRFIs. For example:
- Materiality: The expectation for FRFIs to determine whether an Incident is of a high or critical severity level, may produce inconsistent results on what constitutes a reportable Incident amongst FRFIs. For example, FRFIs will need to assess how many of the characteristics an Incident must have and how much of an impact they must make to be deemed sufficiently material to be reported to OSFI. When FRFIs are uncertain about Incident materiality, they should consult their OSFI Lead Supervisor.
- Timing: Since there is no bright line test for whether an Incident constitutes a reportable Incident or not, the timing on reporting may be indeterminable.
- Conflicting Obligations: The obligation to report on any details pertaining to a third party involved in a reportable Incident may conflict with contractual obligations that the FRFI owes to such third party, such as confidentiality obligations.
OSFI may address some of the challenges presented above in its future guidelines.
FRFIs should review their incident management framework and possibly adjust their cyber risk management policies and procedures to: (a) align with OSFI’s expectations; and (b) ensure that material Incidents are reported to OSFI in a timely manner. In reviewing their incident management framework, FRFIs should consider the following:
- Policies and Procedures for Incident Assessment and Reporting: FRFIs should consider whether their written policies and procedures (including training materials) should be updated to ensure that applicable personnel: (a) are able to understand and assess the characteristics of reportable Incidents and their severity levels; and (b) are sufficiently trained to send Incident reports to OSFI in accordance with the requirements set out in the Advisory.
- Third Party Service Providers: FRFIs should review agreements with third party service providers who have access to FRFI information systems, data and operations to ensure that such service providers are required to report all technology and cyber security incidents, and associated details, so that the FRFI can assess whether such incidents are reportable to OSFI. Further, FRFIs should consider whether their written policies and procedures for contracting with third party service providers should be revised to ensure all such incidents, and associated details, are reported to the FRFI.
- Privacy Reporting: FRFIs should be made aware that the reporting obligations under the Advisory are distinct from the breach notification requirements found in in Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”), which came into force on November 1, 2018. For example:
- The timing for when a material Incident must be reported to OSFI under the Advisory differs from when a privacy breach must be reported to the Office of the Privacy Commissioner under PIPEDA; and
- The materiality threshold for reportable Incidents under the Advisory is for Incidents that are of a high or critical severity level, whereas the threshold for reporting privacy breaches under PIPEDA is where there is a “real risk of significant harm”.
 Pursuant to s. 10.1(6) of PIPEDA, “the notification shall be given as soon as feasible after the organization determines that the breach [of security safeguards involving personal information under its control] has occurred.”
 Pursuant to s. 10.1(1) of PIPEDA, “An organization shall report to the Commissioner any breach of security safeguards involving personal information under its control if it is reasonable in the circumstances to believe that the breach creates a real risk of significant harm to an individual.