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France fines facial recognition company €20 million for GDPR violations
On October 20, the French data protection agency, Commission Nationale de l’Informatique et des Libertés (CNIL), imposed a €20 million penalty against a facial recognition company for violating the EU’s General Data Protection Regulation (GDPR). In 2020, CNIL opened an investigation after receiving complaints from individuals about the company’s facial recognition software. CNIL stated in its announcement that it cooperated with its European counterparts to share the results of the investigations, as each authority is permitted to act on its own territory since the company has no establishment in Europe. The investigations identified several violations of the GDPR, including that the company allegedly unlawfully processed personal biometric data without a legal basis (a breach of article 6 of the GDPR), and failed to take into account an individual’s rights in an “effective and satisfactory way”—particularly with respect to requests for access to their data (a breach of articles 12, 15 and 17 of the GDPR). A formal notice was issued to the company last year requiring it to stop collecting and using data belonging to persons on French territory without a legal basis. The company was also ordered to “facilitate the exercise of individuals’ rights and to comply with requests for erasure.” CNIL contended that after the company failed to respond to the formal notice, it referred the matter to a restricted committee for sanctions.
The restricted committee imposed the maximum financial penalty (€20 million) under article 83 of the GDPR, and ordered the company “to stop collecting and processing data of individuals residing in France without a legal basis and to delete the data of these persons that it has already collected, within a period of two months.” Failure to comply within this time frame will result in a €100,000 penalty per day of delay. The restricted committee also cited the company for breaching its obligation to cooperate with CNIL.
UK Information Commissioner fines company £4.4 million for data breach
On October 24, the UK Information Commissioner fined a construction company £4.4 million for a data breach that allegedly allowed hackers to access thousands of employees’ personal data. According to the monetary penalty notice, the company failed to process personal data in a manner that ensured the appropriate security of individuals’ personal data as required by Article 5(1)(f) and Article 32 of the EU’s General Data Protection Regulation. This includes protecting against unauthorized or unlawful processing, against accidental loss, destruction, or damage, and using appropriate technical and organizational measures, the regulator said. As a result of insufficient security measures, the company was exposed to a cyber-attack that affected the personal data of up to 113,000 company employees, including personal information such as phone numbers, email addresses, national insurance numbers, and bank account details, among others. An investigation found that the company allegedly failed to follow-up on a suspicious activity alert, used outdated software systems and protocols, and lacked adequate staff training and insufficient risk assessments. The regulator warned companies that “[t]he biggest cyber risk businesses face is not from hackers outside of their company, but from complacency within their company.” The regulator further stressed that failure to regularly monitor for suspicious activity, act on warnings, update software, or provide training may expose other companies to a similar fine.
California’s privacy agency amends draft privacy rules ahead of meeting
In advance of an upcoming meeting of the California Privacy Protection Agency Board (CPPA) scheduled for October 28-29, the agency posted updated draft rules for implementing the California Privacy Rights Act (CPRA). As previously covered by InfoBytes, the CPRA (largely effective January 1, 2023, with enforcement delayed until July 1, 2023) was approved by ballot measure in November 2020 to amend and build on the California Consumer Privacy Act (CCPA). In July, the California Privacy Protection Agency initiated formal rulemaking procedures to adopt proposed regulations implementing the CPRA (covered by InfoBytes here).
The proposed changes to the draft rules respond to comments received during the 45-day comment period, in which several businesses expressed concerns that the requirements were confusing and complying would be costly. (See also Explanation of Modified Text of Proposed Regulations.) Key clarifying modifications include:
- Adding, amending, and striking certain definitions. The proposed changes would, among other things, revise the definition of “disproportionate effort” to clarify that it applies to service providers, contractors, and third parties as well as to businesses. The revisions also provide additional details concerning factors that should be considered when evaluating whether responding to a consumer request would require disproportionate effort. The changes also add and amend terms such as “first party,” “information practices,” “nonbusiness,” “privacy policy,” and “unstructured.”
- Outlining restrictions on how a consumer’s personal information is collected or used. The revisions propose criteria for how a business should evaluate the “reasonable expectation” of consumers concerning the collection or processing of their personal information, including how to determine the purpose for which the personal information is collected, whether it is reasonably necessary and proportionate for achieving the stated purposes, and whether it is a “business purpose” under the CCPA/CPRA. According to the CPPA’s explanation of the modified text, the “factors consider relevant GDPR principles for harmonization while articulating the statutory requirements and intent of the CCPA.”
- Providing disclosure and communications requirements. The proposed changes clarify that conspicuous links for websites should appear in a similar manner as other similarly-posted links, and provide guidance on the placement of conspicuous links in a mobile environment.
- Clarifying requirements for obtaining consumer consent. The revisions explain how different user interfaces and “choice architecture” can impair or interfere with a consumer’s ability to make a choice, and thus fail to meet the definition of consent. The revisions further address provisions related to dark patterns, explaining that “[i]f a business did not intend to design the user interface to subvert or impair user choice, but the business knows of and does not remedy a user interface that has that effect, the user interface may still be a dark pattern. Similarly, a business’s deliberate ignorance of the effect of its user interface may also weigh in favor of establishing a dark pattern.”
- Amending requirements related to a business’s privacy notice. The revisions eliminate requirements for a business to either disclose the names or business practices of third parties that the business allows to collect personal information from the consumer in the business’s notice at collection. Additionally, a business and third party may provide a single notice at collection that outlines the required information about their collective information practices.
- Amending the right to limit the use/disclosure of sensitive personal information. The proposed changes clarify that a business does not need to provide a notice of right to limit the use of sensitive personal information if the business only collects or processes sensitive personal information without the purpose of inferring characteristics about a consumer. Additionally, the revisions would make it optional for businesses to provide a means by which consumers can confirm their request to limit in order to simplify implementation at this time.
- Clarifying request to delete provisions. The revisions confirm that a business’s service provider or contractor may delete collected personal information pursuant to the written contract that it has with the business. Additionally, businesses will be permitted to provide a link to a support page or other resource that explains a consumer’s data deletion options.
- Amending requests to correct/know. The proposed changes clarify that businesses, service providers, and contractors may delay compliance with requests to correct with respect to information stored on archived or backup systems. The amendments also, among other things, clarify that consumers should make good-faith efforts to provide businesses with all relevant information available at the time of the request, provide flexibility and discretion to a business concerning whether it will provide the consumer with the name of the source from which the business received the alleged inaccurate information, and clarify that a business only needs to disclose specific pieces of personal information that it maintains and has collected about the consumer in order to confirm that the business has corrected the inaccurate information that was the subject of the consumer’s request to correct. With respect to a consumer’s right to know, the proposed changes would allow a consumer to request a specific time period for which their request to know applies.
- Amending opt-out preference signals. The proposed changes specify that a business that does not sell or share personal information is not required to process an opt-out preference signal as a valid request to opt-out. However, for businesses that do sell or share personal information, processing the opt-out preference signal means that the business is treating it as a valid request to opt-out of sale/sharing. The revisions also address when a business can ignore an opt-out signal to allow a consumer to continue to participate in a financial incentive program, and explain that when a consumer is known to the business, the “business shall not interpret the absence of an opt-out preference signal after the consumer previously sent an opt-out preference signal as consent to opt-in to the sale or sharing of personal information.” Moreover, a business may choose to display whether it has processed the consumer’s optout preference signal as a valid request to opt-out of sale/sharing on its website.
- Amending requests to opt-out of sale/sharing. The revisions, among other things, clarify that, at a minimum, a business shall allow consumers to submit requests to opt-out of sale/sharing through an opt-out preference signal and through one of the following methods—an interactive form accessible via the “Do No Sell or Share My Personal Information” link, the Alternative Opt-out Link, or the business’s privacy policy. The revisions also make various changes related to service provider, contractor, and third-party obligations.
- Clarifying requests to limit use and disclosure of sensitive personal information. The revisions clarify how sensitive personal information may be used to “prevent, detect, and investigate” security incidents “even if this business purpose is not specified in the written contract required by the CCPA and these regulations.”
The proposed changes also delete examples concerning notices of the right to opt-out of the sale/sharing of personal information through connected devices and augmented or virtual reality to simplify implementation at this time. Additionally, the proposed changes further clarify provisions related to requirements for service providers, contractors, and third parties, specifying, among other things, that businesses must contractually require these entities to provide the same level of privacy protection as is required of businesses by the CCPA and these regulations.
NYDFS reaches $4.5 million settlement over cybersecurity violations
On October 18, NYDFS announced a $4.5 million settlement with a licensed health insurance company for alleged violations of the Department’s Cybersecurity Regulation (23 NYCRR Part 500), which contributed to the exposure of consumers’ sensitive non-public information (NPI). According to NYDFS, a bad actor gained access to a shared email mailbox in 2020 via a phishing attack. This mailbox, NYDFS said, allegedly contained more than six years’ worth of consumer NPI. An NYDFS investigation found that the company allegedly, among other things, failed to implement multi-factor authentication throughout its email environment, did not limit user access privileges (thus allowing nine employees to share login credentials to the compromised mailbox), and failed to implement sufficient data retention and disposal procedures. NYDFS asserted that the cybersecurity event may have been avoided or limited in scope if these security controls had been implemented. Furthermore, the company’s alleged failure to conduct an adequate risk assessment as required by 23 NYCRR Part 500, prevented it from being able to identify the user access privilege and data disposal risks associated with the mailbox that was impacted by the phishing attack. Consequently, the company’s cybersecurity certifications for calendar years 2018 - 2021 were improper, NYDFS said.
Under the terms of the consent order, the company is required to pay a $4.5 million civil money penalty and must conduct a comprehensive cybersecurity risk assessment of its information systems. NYDFS recognized the company’s cooperation throughout the investigation and commended its ongoing and completed remediation efforts, including “devoting significant financial and other resources to enhance its cybersecurity program” and making “changes to its policies, procedures, systems, and governance structures.”
FSB outlines steps to promote convergence in cyber incident reporting
On October 17, the Financial Stability Board (FSB) released a series of recommendations for promoting convergence in cyber incident reporting (CIR). Recognizing that a “one-size-fits-all approach” is neither feasible nor preferable, FSB noted that financial authorities and financial institutions may choose to adopt the report’s recommendations as appropriate and necessary, consistent with their legal and regulatory frameworks. Among other things, the recommendations call on financial authorities to (i) establish and maintain clearly defined incident reporting objectives and explore ways to align their CIR regimes with other relevant authorities; (ii) adopt common reporting formats and develop standardized formats for exchanging incident reporting information; (iii) review the effectiveness of their CIR processes and address impediments to cross-border information sharing; (iv) engage regularly with financial institutions to foster mutual understanding of the benefits of CIR and provide guidance on effective CIR communication; and (v) implement secure forms of incident information handling to protect sensitive information. Additionally, financial authorities and institutions should collaboratively implement measures for sharing information related to cyber events and vulnerabilities in order to “combat situational uncertainty” and “pool knowledge in collective defense of the financial sector.” Financial institutions should also continuously identify and address any gaps in their CIR capabilities.
District Court enters $228 million judgment in BIPA class action
On October 12, the U.S. District Court for the Northern District of Illinois entered a judgment for $228 million after a jury found that a defendant railway company committed 45,600 reckless or intentional violations of the Illinois Biometric Information Privacy Act (BIPA). The jury’s judgment, which does not include pre-judgment interest, was entered against the defendant in the amount of $228 million (BIPA provides for statutory damages of $5,000 for every willful or reckless violation and $1,000 for every negligent violation). Class members consisting of more than 44,000 truck drivers alleged in their second amended complaint that the defendant violated BIPA when it collected, captured, and stored their biometric identifiers and biometric information without obtaining their informed written consent or providing written disclosures explaining the purpose and duration of such use. The defendant countered that it should not be held liable for biometric data collection conducted on its behalf by a third-party contractor because BIPA does not impose liability for the acts of a third party. The court disagreed, ruling, among other things, that BIPA’s language “makes clear that [the defendant] need not have ‘collected’ the data itself to be liable,” and that there is evidence that the defendant “ultimately called the shots on whether and how biometric information is collected.”
New York announces $1.9 million data breach settlement with global retailer
On October 12, the New York attorney general announced a $1.9 million settlement with an international e-commerce retailer for failing to properly handle a 2018 data breach. According to the settlement, the e-commerce owns and operates two brands (collectively, “respondents”), which experienced a data breach that caused 39 million accounts to be stolen, including accounts for more than 800,000 New York residents. The AG found, among other things, that the respondents failed to properly safeguard consumers’ information, failed to adhere to requirements for protecting stored credit card data, and misrepresented the extent of the cyberattack to consumers. As a result of the settlement, the respondents are required to pay New York $1.9 million in penalties and costs, and must maintain a comprehensive information security program that includes robust hashing of customer passwords, among other things.
Biden outlines aggressive approach for strengthening U.S. cybersecurity
On October 11, President Biden outlined actions for strengthening and safeguarding the nation’s cybersecurity. In addition to stressing the importance of improving cybersecurity and resilience measures for critical infrastructure owners and operators, the Biden administration outlined additional priorities that focus on (i) strengthening the federal government’s cybersecurity requirements; (ii) countering ransomware attacks, including by making it more difficult for criminals to move illicit money; (iii) collaborating with allies and partners to build collective cybersecurity, develop coordinated responses, and develop cyber deterrence; (iv) imposing costs on and sanctioning malicious cyber actors; (v) implementing internationally-accepted cyber “rules of the road”; (vi) strengthening cyber-education efforts; (vii) developing quantum-resistant encryption algorithms to protect privacy in digital systems such as online banking; and (viii) establishing research centers and workforce development programs under the National Quantum Initiative to protect investments, companies, and intellectual property and prevent harm as technology in this space continues to develop.
Biden issues executive order on EU-U.S. privacy shield replacement
On October 7, President Biden signed an Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities (E.O.) to address the facilitation of transatlantic data flows between the EU and the U.S. The E.O. outlines commitments the U.S. will take under the EU-U.S. Data Privacy Framework, which was announced in March as a replacement for the invalidated EU-U.S. Privacy Shield. As previously covered by InfoBytes, the Court of Justice of the EU (CJEU) issued an opinion in the Schrems II case (Case C-311/18) in July 2020, holding that the EU-U.S. Privacy Shield did not satisfy EU legal requirements. In annulling the EU-U.S. Privacy Shield, the CJEU determined that because the requirements of U.S. national security, public interest, and law enforcement have “primacy” over the data protection principles of the EU-U.S. Privacy Shield, the data transferred under the EU-U.S. Privacy Shield would not be subject to the same level of protections prescribed by the GDPR.
Among other things, the E.O. bolsters privacy and civil liberty safeguards for U.S. signals intelligence-gathering activities, and establishes an “independent and binding mechanism” to enable “qualifying states and regional economic integration organizations, as designated under the E.O., to seek redress if they believe their personal data was collected through U.S. signals intelligence in a manner that violated applicable U.S. law.” Specifically, the E.O. (i) creates further safeguards for how the U.S. signals intelligence community conducts data transfers; (ii) establishes requirements for handling personal information collected through signals intelligence activities and “extends the responsibilities of legal, oversight, and compliance officials to ensure that appropriate actions are taken to remediate incidents of non-compliance”; (iii) requires the U.S. signals intelligence community to make sure policies and procedures reflect the E.O.’s new privacy and civil liberty safeguards; (iv) establishes a multi-layer review and redress mechanism, under which the Civil Liberties Protection Officer in the Office of the Director of National Intelligence (CLPO) is granted the authority to investigate complaints of improper collection and handling of personal data and may issue binding decisions on whether improper conduct occurred and what the appropriate remediation should be; (v) directs the U.S. attorney general to establish a Data Protection Review Court (DPRC) to independently review CLPO decisions, thereby serving as the second level of the E.O.’s redress mechanism (see DOJ announcement here); and (vi) calls on the Privacy and Civil Liberties Oversight Board to review U.S. signals intelligence community policies and procedures to ensure they are consistent with the E.O.
FINRA alerts firms about rising ACATS fraud
On October 6, FINRA issued Regulatory Notice 22-21, alerting member firms to the rising trend of fraudulent account transfers of customer accounts using the Automated Customer Account Transfer Service (ACATS)—an automated system that facilitates the transfer of customer account assets from one member firm to another. FINRA explained that “ACATS fraud is related to the growing threat of new accounts being opened online or through mobile applications using stolen or synthetic identities,” and may occur when the identity of a legitimate customer of a carrying member is stolen by a bad actor to open a brokerage account online or through a mobile app at a receiving member. Bad actors, FINRA warned, may open a new account using stolen information only or through a combination of stolen and false information, and will try to move the ill-gotten assets to an external account at a different financial institution. FINRA reminded members of regulatory obligations that may apply to ACATS fraud, including know-your-customer rules, Bank Secrecy Act/AML requirements, and the Identity Theft Red Flags Rule.