15 June 2016

New cybersecurity obligations on the way for essential service providers

After nearly three years of intensive negotiations, the first comprehensive cybersecurity legislation in the EU is nearing its final adoption. The EU Network and Information Security Directive will establish a cybersecurity cooperation infrastructure between EU member states and introduce information security obligations for operators of vital services and key digital service providers. These entities will be required to implement appropriate technical and organisational measures to prevent and minimise the impact of network and information incidents, demonstrate effective implementation of security policies, and notify serious cyber incidents to competent authorities. Businesses operating in key sectors of the economy, such as energy, transport, financial market infrastructures, and health and digital infrastructures, should be aware of these new obligations and update their cybersecurity policies and processes.

After successful negotiations, the Council of the European Union adopted the EU Network and Information Security Directive (NIS Directive) on 17 May 2016, and the European Commission supported the Council’s proposal in first reading two weeks later. The final sign-off by the European Parliament is expected in early July and the directive is expected to enter into force in August 2016.  Member states will have 21 months to implement the directive in their national laws and an additional six months to designate the businesses that will be subject to the directive.

The NIS Directive aims to ensure a high common level of cybersecurity throughout the EU. The directive will create a Cooperation Group composed of representatives of member states, the European Commission and the EU Agency for Network and Information Security (ENISA). The Cooperation Group will support and facilitate strategic cooperation and information exchange. For supervision, monitoring, risk and incident handling, and operational cooperation on specific information incidents, the member states must designate national competent authorities, single points of contact and national Computer Security Incidents Response Teams (CSIRTs).

The NIS Directive will further establish certain obligations for two categories of market players: operators of essential services and digital service providers.

Operators of essential services
Organisations operating within specified sectors listed in annex II to the directive may qualify as an operator of essential services. Those sectors include:

  • electricity, oil and gas (for example, oil storage and transmission operators)
  • air, rail, water or road transport (for example, passenger and freight transport companies or railway infrastructure managers)
  • banking (for example, credit institutions)
  • financial market infrastructure (for example, stock exchanges or CCPs)
  • health (for example, hospitals and other health care providers)
  • drinking water supply and distribution (for example, water suppliers and distributors)
  • digital infrastructure (for example, internet exchange points and domain name systems providers)

Within those sectors, the member states will define specific public or private entities that fall under the directive, based on the following criteria:

  • they provide a service that is essential for the maintenance of critical societal and/or economic activities
  • this service depends on network and information systems
  • an incident could have significant disruptive effects on the provision of that service.

The directive specifically requires member states to exempt organisations that are already subject to sector-specific EU regulatory regimes that provide equivalent obligations regarding security of networks and reporting incidents (for example, certain organisations in the water transport sector or some banking and financial market infrastructures).

Different regime for digital service providers (DSP)
The directive will apply differently to digital service providers. Other than in the case of operators of essential services, the directive does not offer discretion to member states to determine which digital service providers will be subject to the new requirements. The directive will apply to all operators (except for micro and small enterprises) that provide:

  • online marketplaces
  • online search engines
  • cloud computing services.

Digital service providers that operate in multiple EU member states will only be subject to the national rules implementing the directive in the state of their main establishment in the EU (in principle, the location of their EU head office). DSP that have their main establishment outside the EU can be subject to the NIS Directive if they offer their services within the EU.

Obligation to implement appropriate cybersecurity measures
Entities that qualify as operators of essential services or DSP must take appropriate technical and organisational measures to manage the risks posed to the security of their network and information systems. Furthermore, they must implement measures to prevent and minimise the impact of security incidents, with a view to ensuring the continuity of those services. For operators of essential services, the member states will further specify in their implementing acts what measures should be taken and what measures are appropriate for specific providers or categories of providers. For DSP, this will be further specified by the European Commission.

National competent authorities will in any event have powers to require the operators of essential services to:

  • provide information necessary to assess the security of their network and information systems, including documented security policies
  • provide evidence of the effective implementation of security policies, such as independent security audits
  • execute binding instructions issued by competent authorities to remedy the deficiencies identified in their operations

In contrast, DSP will not be required to provide evidence of effective security policies implementation or execute binding instructions of national competent authorities. But they will be required to specifically address in their implementing measures such aspects as security of systems and facilities, incident handling, business continuity management, monitoring and auditing, and compliance with international standards. In addition, DSP must remedy any failure to meet security and incident notification requirements if so instructed by the national competent authority.

Obligation to report cybersecurity incidents
Operators of essential services and DSP must notify the competent authority or the CSIRT “without undue delay” of any incident that has a significant impact on the continuity of the essential services they provide. Only the incidents that have an actual adverse effect on the security of the network and information system must be reported. In assessing the significance and impact of the incident, the operators must evaluate:

  • the number of users affected
  • the duration of the incident
  • the geographical spread of the incident.

DSP should in addition assess the extent of the disruption to the functioning of the service and how it impacts economic and societal activities. However, a DSP is obliged to notify an incident only where the provider has access to the information needed to assess the impact of an incident against all the above criteria.

Confidentiality of notification
Without further elaboration, the directive specifies that notification of cyber incidents should not expose the notifying party to increased liability. The notified competent authority or the CSIRT can decide to share information about the incident with other member states affected by the incident. In this connection, the NIS Directive states that the security, commercial interests and confidentiality of the operator’s information should be protected. Ways to ensure this include limiting exchange of information to information that is necessary for application of the directive, relevant and proportionate to the purpose of the exchange. But it is unclear how exactly these provisions will operate in practice.

 

In addition, the authorities may inform the public about individual incidents. They may do so where public awareness is needed to prevent an incident or handle an ongoing incident. The directive provides for prior consultation of the notifying operator in this case, but does not elaborate on how the operator’s interests would be balanced against the public interest and what the operator’s remedies are to stop information about the incident from being published.

Implementation in the Netherlands
In the Netherlands, the exact implementing measures for the NIS Directive have not been announced yet. However, in anticipation of the directive, the Dutch government has introduced a legislative proposal that would cover at least the incident notification requirements for operators of services that are vital to Dutch society. The Cybersecurity Breach Notification Bill introduces mandatory notifications of serious security breaches or loss of integrity of vital electronic information systems. The explanatory memorandum identifies the same vital industries as provided under the NIS Directive, but also includes the telecom and nuclear sectors. However, the critical infrastructure list has not been finalised yet. As under the NIS Directive, further regulation must identify specific companies that meet the ‘vital provider’ definition.

Effect on businesses
The NIS Directive will mostly impact businesses that qualify as essential service operators or DSPs – both in and outside the EU. It is suggested that businesses operating in the industries mentioned above closely monitor the national implementation measures taken by member states where the businesses are established or active. This enables them to establish whether they will be listed as an operator of essential services and what the exact scope of their new obligations will be.

We further recommend these businesses to consider adopting appropriate cybersecurity policies and implement risk-based incident response procedures. In addition, they should review and update their agreements with third parties, where necessary. This is because the directive explicitly states that the security and incident reporting applies to the operators of essential services and DSP regardless whether they perform the maintenance of their network and information systems internally or outsource it.

Finally, businesses can verify whether they already have information security or incident reporting duties under other EU or national legislation. For instance, a security incident notification obligation already exists under personal data protection laws in some member states and will apply EU-wide once the new EU General Data Protection Regulation comes into force. We note that there may be overlap in notification obligations.

Read more in our article on the new Dutch cyber security bill.