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As predicated, and to quote a well known film staring Adam Sandler, the SEC final ruling on cyber is ‘opening up a can of whoop-ass’. Not only requiring covered entities to disclose material cyber risks and incidents (See our Bloomberg paper – https://lnkd.in/e7SXj-aB). But as cyber regulation shifts cyber risk ‘Left of bang’ and onto the financial statements of covered entities. It changes the role cyber insurance plays in corporate risk mitigation, as covered entities are required to mitigate cyber risk through regulation.
A further consequence of the shift ‘Left of Bang’ is the increased legal and compliance liability placed on Directors and Officers (D&O). Liability that will materialize through regulatory submissions, especially if companies report cyber posture to regulators that is not correct. For those familiar with DFARS 252.204-7012 effecting defence contractors, a gap that could become apparent when covered entities submit their material risks to the SEC, that includes supply chain risk.
One notes that many cyber policies already exclude violations related to securities laws, so a policy that would cover a breach might not provide coverage if shareholders sue on the basis of the SEC disclosure. So one wonders the effect of cyber regulation on D&O insurance and the increased liabilities boards could face with their regulatory submissions. Especially if a covered entity suffers a cyber attack and its cyber posture is questioned.
Ted Dziekanowski Rachel V. Rose, JD, MBA Bob Dix
#cybersecurity #cyberriskmanagement #cyberregulation #cyberinsurance #directorsandofficers
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