[BreachExchange] New Rules for Mandatory Privacy Breach Notification in Canada

[Audrey McNeil]

https://www.lexology.com/library/detail.aspx?g=7817c6db-8b2c-4fa7-a6ae-
ce9bc561dbdd

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 (
http://www.gazette.gc.ca/rp-pr/p1/2017/2017-09-02/html/reg1-eng.php), 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.

Background

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.

Indirect Notification

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.

Conclusion

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.
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