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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
United Kingdom | Publication | August 2021
Cybercrime is continuing to grow and pension schemes are attractive targets for cybercriminals. Ransomware is currently the biggest cybersecurity threat to schemes but few schemes are adequately prepared for a cyberattack. We look at protecting your scheme – understanding your footprint, developing a cyber incident response plan and adopting appropriate cybersecurity practices.
Cybercrime is continuing to grow in scale and complexity. UK Government figures from 2021 show that roughly four in ten UK businesses had experienced a cyberattack or cybersecurity breach in the last year. Those falling victim include sophisticated targets. A recent example involved hackers exploiting weaknesses in a widely-used file transfer programme, giving them access to data of multiple high-profile corporate entities including an international law firm, a major US supermarket and a well-known investment bank.
The Pensions Regulator sees cybersecurity as a “pressing issue” for pension schemes and has recently included new expectations for trustees in its draft single code of practice. The Pensions Regulator wants to see trustees properly addressing the very real cyber risk to their schemes.
Pension schemes are attractive targets for cybercriminals because:
The problem is compounded by the fact that many schemes are under prepared for a cyberattack. A recent Aon survey found that fewer than one in five schemes had clearly documented “cyber hygiene” policies, and only 40% stated that they had a robust incident response plan in place. Pension schemes are probably relatively soft targets for cybercriminals as a result.
Meanwhile, the regulatory landscape is becoming harsher, particularly with respect to data breaches (a common outcome of successful cyberattacks). Regulatory fines for breaches of data protection laws rose by almost 40% across Europe in 2020-2021. Fines from the UK Information Commissioner’s Office (ICO) have run into tens of millions of pounds in some recent cases.
Data breach litigation is also growing. Both individual and group actions may be brought against data controllers.
In addition to these legal risks, a high-profile cyberattack has the potential to cause significant reputational damage both to the scheme and to the sponsoring employer group. This effect may be less easy to quantify; however, it may also be more difficult to remedy. No scheme member likes the idea of their personal and financial information being insecure.
Ransomware is currently the biggest cybersecurity threat to pension schemes.
A typical ransomware attack involves an attacker gaining access to a corporate network (often via an initial phishing attack) and deploying a type of malicious software which encrypts data on the network. Typically this is accompanied by exfiltration of files and data from the victim company’s network. The attacker may demand a ransom payment – usually in cryptocurrencies such as Bitcoin or Monero – in exchange for the data to be decrypted and for stolen data to be safely deleted.
If the ransom is not paid, the attackers will not provide a decryption key, which can render some data permanently inaccessible and can necessitate reliance on backups. Worse still, attackers may also leak data stolen from the network online if the ransom is not paid. Paying a ransom, while not illegal, needs careful consideration from the point of view of compliance with international sanctions and counter-terrorism legislation.
Remember, you don’t need data to be publicly released for a cybersecurity incident to amount to a personal data breach under data protection laws. Even if an attacker merely gains access to personal data it constitutes a data breach. That can trigger reporting obligations to the ICO and potentially to the Pensions Regulator and scheme members.
Statement of the obvious, but you can be liable for failure to manage cyber risk. As highlighted by the Pensions Regulator’s cybersecurity guidance, trustees continue to be ultimately accountable for the security of scheme information and assets even where you delegate or outsource the day-to-day functions of your scheme to external administrators. That means cybersecurity is fundamental to your legal duties to ensure effective scheme governance, to protect members’ personal data and scheme assets and to pay benefits.
You need to understand your scheme’s “cyber footprint”. The footprint is the extent of the digital presence of all parties involved in the scheme and the risks they pose. Then check that all third party suppliers – and in particular any external administrator – have put sufficient controls in place.
Action points:
For each of the above, think about what help you need to make sure you are protecting your scheme appropriately. Does your sponsoring employer’s group have internal cybersecurity expertise you could draw on? If not, consider getting external expertise in to help you understand and manage the risks.
Do you have a cyber incident response plan in place? You have probably already added cyber risk to your scheme’s risk register for regular review, but how far have you thought through what you would do if a cyberattack actually happened? You need to be ready to respond rapidly to a cyberattack and meet any urgent deadlines, such as ICO notification time limits. As part of your incident response planning, think about pre-agreeing terms of engagement with third-party experts (including cyber-forensics experts, PR/communications teams and/or specialist legal counsel) so that you can hit the ground running.
Think about how you are mitigating the risk. Do you have written policies on areas such as:
If not, now’s the time to work them up and put them into practice. These are all areas where setting up the ground rules from the start, and keeping them under review, will help reduce your risk. They will also help you defend against a claim that you were not adequately protecting the scheme.
To assess and recover from a cyber incident effectively you need good data back-ups, monitoring and logging. The Pensions Regulator’s cybersecurity guidance recommends:
Appropriate monitoring, including the use of technical tools such as endpoint detection and response (EDR) software, is critical. Many regulators now expect organisations to be doing this as a cybersecurity minimum.
This is something your administrator should be doing for you, but make sure you understand what they are doing and what they would do, and in what time scale, if any discrepancies did show up.
To fulfill your data protection obligations, make sure you understand and assess what technical and organisational measures are in place as a whole. Are they appropriate to protect your scheme?
The question of data retention is a tricky one for pension schemes. On the one hand we all know that claims can come in many years after a member has transferred out and that retaining a full data set for a member is the only way to be able to check calculations if a problem comes up later.
On the other hand, data protection requirements focus on not over-retaining data. Many recent incidents have involved breaches of data which the victim organisation should not have been holding at the time of the incident (including, in some cases, in violation of the organisation’s own data retention policies). There have been a number of recent fines in this area.
That means being clear in your data retention policy what data should be retained, in what form, for how long, and why. It’s an area where legal advice can really help .
Cybersecurity insurance exists and can provide some unique policy features, such as immediate access to legal, forensic and PR / communications external service providers. That said, policy terms and coverage will vary from insurer to insurer. If your organisation has not already invested in cyber insurance, the first thing to do is to check whether your existing insurance policies (e.g. pension trustee liability (PTL) insurance) already provide some protection and to consider how cyber insurance might supplement this.
Trustees and the employers’ pension team may regularly receive sensitive information about scheme members. “Cyber hygiene” starts at home. How clear are you on how trustees/trustee directors should access and hold that information? Think about having clear policies on how the core trustee team stores and shares information, with the right controls in place, e.g. clear policies on what can and cannot be sent to personal email addresses, printed, or accessed via mobile devices.
Last but not least, cybersecurity is a rapidly developing, complex area. Cyber risks are constantly evolving, and cybersecurity measures will need to evolve with changes in the legal and cyber landscape. That means setting up regular training cycles to stay on top of what’s needed.
There are two things to focus on here, combatting complacency, and embedding an understanding of how to swing into action in a cyber-related emergency. Would it help to get a provider to run simulation exercises such as mock phishing emails for the trustee team and their administrators? “War gaming” - in other words team training involving a simulated cyber emergency - can be invaluable to expose any defects in current protocols and practise mobilising for a data breach or cyberattack.
Norton Rose Fulbright LLP has a dedicated Information Governance, Privacy and Cybersecurity team. We can help you with getting up to date on protecting your scheme’s systems and data, and we can also be there for you if a cybersecurity incident does occur. If you would like to know more, please get in touch with your usual Norton Rose Fulbright pensions contact.
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