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Limelight Articles

Limelight 03/17

Mandatory data breach notification scheme

Author, Katherine Czoch

Privacy Amendment (Notifiable Data Breaches) Act 2017


On 22 February 2017, the Privacy Amendment (Notifiable Data Breaches) Act 2017 (Cth) (the Act) received Royal Assent. The Act amends the Privacy Act 1988 (Cth) (the Privacy Act) to establish a mandatory nationwide data breach notification scheme (the Scheme).

To whom does the Scheme apply?

The Scheme applies to all entities subject to the Privacy Act, including Commonwealth government agencies, private sector organisations with an annual turnover exceeding $3M and some specified private sector  organisations with an annual turnover of less than $3M, such as health service providers and credit reporting agencies.

When does the Scheme apply?

The Scheme is set to be implemented at a yet to be specified date within the next 12 months.

To what does the Scheme apply?

The Scheme applies  to an “eligible data breach”, which occurs when:

  • there is unauthorised  access  to,  unauthorised disclosure of, or loss of, personal information held by an entity; and
  • a reasonable person would conclude that the access, disclosure or loss would be likely to result in serious harm to any of the individuals to whom the information relates.

Personal Information” is defined in the Privacy Act as:

  • Information or an opinion, whether true or not, and whether recorded in a material form or not, by an identified individual, or an individual who is reasonably identifiable.

Examples of “Personal Information”’ provided by the Office of the Australian Information Commissioner (the Commissioner) are an individual’s name, signature, address, telephone number, date of birth, medical records, bank account details and commentary or opinion about a person.

The Act does not define “serious harm”, but the relevant Explanatory Memorandum states that serious harm could include, but is not limited to, “serious physical, psychological, emotional, economic and financial harm, as well as serious harm to reputation”. An individual being distressed or upset at the breach would not in itself be sufficient to require notification.

What are entities obliged to do under the Scheme?

Assessment of suspected breach

An entity that becomes aware “that there are reasonable grounds to suspect that there may have been an eligible data breach of the entity” must carry out a “reasonable and expeditious assessment” of whether this amounts to an eligible data breach within 30 days of this awareness.

In determining whether a reasonable person would conclude that access to or disclosure of the information would be likely, or would not be likely to result in serious harm to the individuals to whom the information relates, the entity should have regard to the type or sensitivity of the information (whether the information is protected by security measures including technology that makes the information unintelligible or meaningless) the persons or the kinds of persons who obtained or could obtain the information and the nature of the harm.

Notification of eligible data breach

If an entity has reasonable grounds to believe that an eligible data breach has occurred, the entity must prepare a statement to be provided to:

  • the Commissioner; and
  • individuals to whom the information relates. The statement must include:
  • the identity and contact details of the entity;
  • a description of the eligible data breach;
  • the kind or kinds of information concerned; and
  • the steps  individuals  should  take  in  response  to eligible data breach.
  • In terms of notifying individuals, the entity has the discretion  to  either  notify  the  contents  of   the statement:
  • to each individual to whom the information relates; or
  • to individuals “at risk” from the eligible data breach. Where it is not practicable for an entity to do either, theentity must publish a copy of the statement on its website (if it has one) and take reasonable steps to publicise the contents of the statement.

The entity should use its normal method of communication with the individual. This is to reduce compliance costs for entities and also to avoid individuals dismissing the communication as a scam. If an entity does not have a normal method of communication, it can use reasonable steps such as communication by email, telephone or post.

Consequences of non-compliance

Failure to undertake the required assessment and notification under the Scheme is deemed to be an interference with the privacy of an individual under the Act and the Commissioner may instigate an investigation, make a determination, seek enforceable undertakings and pursue civil penalties.

Civil penalties only apply for serious or repeated interferences with privacy. Serious or repeated interferences with the privacy of an individual attract a maximum penalty of $360,000 for individuals and $1,800,000 for bodies corporate.

Reaction and comparative schemes

Many Australian industry groups have reacted negatively to the Scheme, stating that it imposes an unreasonable compliance burden. However, the Scheme actually sets a lower bar than a number of other jurisdictions.

Most US states have had data breach notification schemes in place for over a decade, with California introducing the first scheme in 2002. The US schemes usually require a company to notify the affected customers in writing of the breach within a certain period of time – the shortest being 10 days.

Some states require notification in all circumstances where there has been unauthorised disclosure although there are exemptions in some states when the data is  encrypted. However, personal information has a narrower definition in the US. It is generally confined to information such as social security numbers, driver’s licence numbers or state identification card numbers or bank account numbers, credit card numbers or debit card numbers in combination with any necessary security code, access code or password that would permit access to the account. In some US states, personal information also includes medical information.

The European Union has recently passed the General Data Protection Regulation which introduces a data breach notification scheme to come into effect in 2018. Notification needs to be made if there is likely to be a “high risk” to individuals’ rights and freedoms due to the breach. The notification must be made within 72 hours of awareness. Penalties for non-compliance can be up to the higher of 2% of annual worldwide turnover or €10M.

Preparing for the implementation of the Scheme

Although the Scheme is not yet in effect, there are proactive steps that entities can now take to prepare for the Scheme’s implementation.

The notification requirements under  the Scheme can be costly and result in adverse publicity to entities so entities are advised to take steps to avoid or mitigate data breaches so as to minimise the risk of having to make a notification.

Notably the Scheme provides that:

  • An assessment of whether a breach is an eligible data breach requires an assessment of whether the information is protected by security measures which would make the information unintelligible or meaningless.
  • If an entity has taken remedial action after the breach has been identified and, as a result of the action, a reasonable person would conclude that the access or disclosure would not be likely to result in serious harm to  any of the individuals, then  the entity  need not disclose the information

Now would therefore be an ideal time for entities to undertake reviews of their internal protocols for the protection of their clients/customers’ personal information and the processes in place for the timely identification and response to data breaches.

The protocols should include that the suspected data breach be assessed within 30 days to determine if it is an eligible data breach under the Scheme, but ideally it would involve an immediate assessment of any remedial measures that could be taken to attempt to avoid the need for notification.

Insurers should be aware that legal costs are likely to increase for insureds covered by the Privacy Act following the introduction of the Scheme due to:

  • The costs of notification, including the costs of assessing data  breaches  to  determine  if  any notification is necessary.
  • An increase in the number of investigations by the Commissioner. The Commissioner already undertakes own-motion investigations of data breaches when it becomes aware of data breaches. Subject to  the resources available to the Commissioner, we expect the   number  of   these   investigations   to   increase following the implementation of the Scheme. Although the outcome  of these investigations tends to be the Commissioner     simply    recommending     remedial measures to be taken by entities to improve their data security systems,  responding to the investigation by making submissions, providing documents and access to systems and making  staff available for interviews can be costly.
  • An increase in the number of complaints made by individuals to the Commissioner. In addition to own- motion investigations, the Commissioner adjudicates complaints made by individuals against entities for interferences with their privacy. We expect that the number of complaints will rise if entities are required to notify individuals of data breaches. Compensation previously    awarded    by    the    Commissioner    to

individuals has not exceeded $20,000 per complaint but in conjunction with this the Commissioner has required entities to undertake reviews of their processes and staff training on handling personal information.

Entities should also review their insurance policies to consider whether they would be covered for the costs of responding to data breaches. Such cover could potentially be available under directors and officers, management liability, cyber or professional indemnity policies.
Date: 14 March 2017

This publication constitutes a summary of the information of the subject matter covered. This information is not intended to be nor should it be relied upon as legal or any other type of professional advice. For further information in relation to this subject matter please contact the author.