SEC Proposes Change to Cybersecurity Reporting Requirements for Public Companies

With the threat of irrevocable reputational harm and damage to consumer trust brought on by data breaches to public companies, the United States Security and Exchange Commission (“SEC”) recently proposed new cybersecurity reporting requirements. In March, SEC Chair Gary Gensler noted these new amendments will, “strengthen investors’ ability to evaluate public companies’ cybersecurity practices and incident reporting.”[1] If the proposed amendments pass, it would impose new requirements on board of directors, including management reporting, organization, and board composition.[2]

The proposals aim to promote incident disclosure and increase risk management, strategy, and governance disclosure of data breaches.[3] One amendment would require a company to notify shareholders and the SEC within four business days when a material cybersecurity incident occurs.[4] The SEC would also require standardized disclosure of a company’s cybersecurity risk management and strategy, management’s role in implementing cybersecurity policies, and the board of directors’ cybersecurity expertise.[5]

As the SEC signals the necessity of new disclosure policies, companies should assess their current cyber reporting practices and procedures. The proposals aim to bridge the gap between business executives and security executives to ensure cybersecurity is included in their everyday business conversations and reporting practices.[6] In preparation of these proposals, companies can educate their board on their policies and procedures regarding cyber security risks. It is no longer the sole job of the chief information security officer to translate technology risk to business risk.[7]

[1] SEC Proposes Rules on Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure by Public Companies, SEC (Mar. 9, 2022), https://www.sec.gov/news/press-release/2022-39

[2] Id.

[3]  Public Company Cybersecurity, Proposed Rules, https://www.sec.gov/files/33-11038-fact-sheet.pdf (last visited Sep. 22, 2022).

[4] Id.

[5] Id.

[6] Insight Report, World Economic Forum Global Cybersecurity Outlook (January 2022), https://www3.weforum.org/docs/WEF_Global_Cybersecurity_Outlook_2022.pdf.

[7] Bob Ackerman, New SEC Cybersecurity Reporting Requirements: Three Things Companies Need To Do Now, Forbes (May 25, 2022) https://www.forbes.com/sites/forbesfinancecouncil/2022/05/25/new-sec-cybersecurity-reporting-requirements-three-things-companies-need-to-do-now/?sh=2d78e01e6f05.