When Disaster Strikes: Ensuring Your Bank is Equipped to Handle Data Breaches

Banks and other financial institutions must have a security program in place with defined processes in the event of a breach, even when the breach is not the result of any failure of their own. It’s not just best practice – it’s the law.

• By Jon Tavares
• Jan 15, 2018

It seems like there’s a new data breach every day. The Equifax data breach, which affected nearly 146 million consumers, in September is probably the most widely publicized, but there have been scores more since, including the Sonic Drive-In breach affecting over five million consumers’ debit and credit card numbers, and there is no apparent end in sight. In times like these, consumers turn to their financial institution for security and assistance.

Banks and other financial institutions must have a security program in place with defined processes in the event of a breach, even when the breach is not the result of any failure of their own. It’s not just best practice – it’s the law.

An increase in crime, and a lack of government intervention

Surprisingly, there is not a lot of regulatory guidance for what a financial institution must do in response to a suspected breach of customer data, beyond the Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice (Incident Response Guidance) issued in 2005.

Yet in the time since the guidance was written, there have been more than 8,000 recorded data breaches affecting over 1 billion consumer records. This only includes those reported to the media and/or federal or state governmental agencies, there could be more. More cause for concern, the numbers are increasing at an alarming rate, with a clear trigger point in 2015.

In 2015, data breaches reached a level of more than seven times the number that occurred in 2005. This year alone, there have been more than 1,200 breaches of consumer data, affecting more than 172 million consumers’ data.

While the majority of these data breaches were not from financial institutions, that doesn’t mean they are without fault. So far in 2017, there have been 80 breaches, affecting 2.9 million consumers, just from financial institutions.

The numbers are chilling. With so many people affected, the outlook seems grim. When disaster strikes, what action can, and should you take?

Regulation Drivers for Information Response Programs

While not much guidance has recently been published, in 2001, the Federal Reserve Board, FDIC, OCC, and OTS (the Agencies) issued the Interagency Guidelines Establishing Information Security Standards (Security Guidelines) in accordance with the Gramm-Leach-Bliley Act (GLBA).

The Security Guidelines require every financial institution to have an information security program designed to ensure the security and confidentiality of customer information; protect against any anticipated threats or hazards to the security or integrity of such information; and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.

In 2005, the Agencies issued the Incident Response Guidance interpreting § 501(b) of the GLBA and the Security Guidelines and describing response programs, including customer notification procedures, that financial institutions should develop and implement to address unauthorized access to or use of customer information that could result in substantial harm or inconvenience to a customer. It is this guidance you can use to take action, and empower your financial institution during what can feel like a powerless situation. There are six key features of an effective Incident Response Program – here’s what you action you need to take.

Step 1: Assessing the nature and scope of the incident

The Security Guidelines require an institution to protect against unauthorized access to or use of customer information that could result in substantial harm or inconvenience to any customer. Substantial harm or inconvenience is most likely to result from improper access to sensitive customer information, as this type of information is most likely to be misused, as in the commission of identity theft.

Step 2: Notifying the Regulator

Notify the primary federal regulator as soon as possible of any incident involving unauthorized access to or use of sensitive customer information.

Step 3: Notifying Law Enforcement

Notify appropriate law enforcement authorities, in addition to filing a timely SAR in situations involving federal criminal violations requiring immediate attention.

Step 4: Notifying the public

Immediately upon becoming aware of an incident of unauthorized access to sensitive customer information, you should conduct a reasonable investigation to promptly determine the likelihood that the information has been or will be misused. If you determine that misuse of your information about a customer has occurred or is reasonably possible (i.e. if sensitive customer information was improperly accessed), you should notify the affected customer as soon as possible.

You may, however, delay the customer notice if an appropriate law enforcement agency determines that notification will interfere with a criminal investigation and provides you with a written request for the delay. In such cases, you should send the notification as soon as the notification will no longer interfere with the investigation. In addition to federal regulations on Incident Response Programs, each state has its own laws regarding notification of security breaches involving personal information. Check with the state attorney general’s office for each state in which you do business.

At a minimum, your customer notice should:

• Describe the incident and the type of customer information subject to unauthorized access or use.
• What your institution has done, and continues to do, to protect the customers’ information from further unauthorized access.
• A telephone number for customers to call for further information and assistance.
• A reminder to remain vigilant over the next 12 to 24 months, and to promptly report incidents of suspected identity theft to the institution.

Step 5: Containing and Controlling the Incident

Processes need to be in place to prevent further unauthorized access to or use of customer information, for example, by monitoring, freezing, or closing affected accounts, while preserving records and other evidence. Additionally, in the event of a data breach, internal or external, your account holders will turn to their financial institution for guidance and support. It is important that your program include a step for employee education. All personnel handling customer calls should be familiar with the incident and all the information in the notice. They should be familiar with the information on the FTC’s and CFPB’s websites. Finally, they should be familiar with the process for consumers to place fraud alerts on their consumer reports and how to request free copies of their consumer reports.

Step 6: Notifying Consumer Reporting Agencies

When you send notices to a large number of customers that include contact information for the consumer reporting agencies, you should also notify the nationwide consumer reporting agencies prior to sending the notices to the consumers.

Data breaches are a threat whether you are a service provider, financial institution, or consumer. With the numbers reaching the millions, it can be hard to comprehend or know where to start. By having an effective program in place, in compliance with guidelines laid out by the Agencies, you can protect your financial institution and customers from additional damage, offer hope in dark times.