What are the Consequences of Non-Compliance with Data Laws

Every business today can testify to the importance of integrating tech solutions with work processes. No matter the size of the business, integrating technology with business operations brings efficiency, speed, accuracy, and production quality, among other benefits. The integration will help meet customers' demands and will provide trade benefits, improved revenues, and alternative profits.

However, integrating support technology comes with potential problems that may be difficult to solve and can cause a massive loss in the business. Therefore, companies should focus on tech investment and integrate the necessary measures to embrace the vital role of technology: efficiency.

Businesses today are filled with complicated daily activities so we can’t expect everything to be done easily. Some mistakes might be caused by an internal or external source and can lead to budget losses or even complete business failure. This terrible scenario can be caused by severe data breaches that seriously damage your reputation and affect your revenue numbers.

According to the definition, a “data security breach or not being compliant with data laws is a confirmed incident that can compromise sensitive and confidential customer data and earn negative brand identity.”

A data breach occurs when “protected data has been accessed or disclosed to an unauthorized party, either intentionally or unintentionally.'' A term commonly associated with data breaches is “hacking,” which involves a malicious attacker gaining access to a device or database that has encrypted or unencrypted personal information. If the impacted organization didn’t adhere to the required data laws then it may suffer even worse consequences than the hacking incident alone.

Various data types can be exposed during a breach. For example, personal information such as credit card data, health care insurance, social security numbers, customer lists in businesses, or even software source codes may be stolen. These types of incidents are even more likely to occur if the company doesn’t follow current  data laws. Data breaches occur when an unauthorized party accesses data that should be protected under the data regulations and manipulates it to gain profit. If a data breach results in negative consequences such as theft of corporate or personal data, violation of industry or business regulations, or offending an organization or brand image, it will lead to criminal allegations.

A data security breach may also include the loss of physical media such as data tapes, hard drives, laptops, and computers that contain protected data. It can even extend as far as posting information on the World Wide Web that would normally require secure network access.

Let's dig deeper!

1. The main consequences of non-compliance

Shockingly, the average data breach takes less time to pull off than preparing a cup of tea! Research states that 80% of businesses do not realize when data breaches occur, and most of them occur in less than a minute. According to a study by Baker and Goudie in 2011, many consequences arise from failure to comply with data laws and many of these are connected with cybersecurity attacks.

First, revenue loss is the most devastating consequence of a security breach. Most businesses that experience a data breach lose potential revenues and instead accumulating additional assets they put burden on their annual budget.

For example, a poorly protected website may be hacked and its customers redirected to explore other options prepared by the hacker. In this case, the business could lose its primary source of revenue would be difficult to recover in the long run. Additionally, the downtime of an integrated IT system would lead to work disruptions and cause a ripple effect with other business processes such as production, communication, and delivery.

Let's explore those consequences in a more detail:

  • Damage to brand reputation- a data breach can permanently impact the perception of your brand. For example, when emails are hacked, the privacy of the customers’ information, such as billing, can be compromised. This leads to distortion of trust between the customer and the business, which disrupts  trading partnerships indefinitely.
  • Loss of intellectual property- the loss of design work can be just as catastrophic as the more common losses of brand image and revenues catastrophic. In most cases, attacks on construction companies target designs, blueprints, and strategies that significantly impact the businesses’ competitiveness. Hackers steal information from the website and take advantage of it by duplicating your plans, copying your techniques, and using your access permits as well.
  • Hidden costs- Surface-level expenses are only the start. There are numerous concealed costs associated with these kinds of ruptures. For example, legal expenses may become the most critical factor. Additionally, you may need to spend more on PR to clean up the mess that was made. Also, your protection premium will climb. Administrative fines are another reality that numerous managers  fail to take into account. In 2015, for instance, the FCC hammered AT&T with a $25 million fine. This was an aftereffect of a breach that revealed data identified with many records. Lastly, online vandalism often involves hackers who fancy themselves as pranksters. Although it is considered relatively harmless, it may cause many changes that are hard to notice. This may look like changing a few words on your website or contact page, or adding vulgar content to your most popular websites. Of course, these seemingly harmless changes will still require time and money to fix!

Figure 1: Consequences of a data leak

2. Data protection rules and regulations

The United States is making significant efforts to enact laws and regulations that will protect citizens against data breaches. In 2017, most American states implemented the 'Breach Notification Bill, 2017,' which requires that customers are notified when their personal information is being accessed. Similarly, other countries such as Mexico and Canada have enacted their own data and security laws. Several of these strict government laws and regulations are geared towards protecting personal, sensitive, and other forms of data to avoid data breaches.

First, the Payment Card Industry Data Security Standard requires that companies that are with the payment details, as one of the most sensitive information, to maximize security of such data. Another example is the health sector, which is prone to data breaches. Therefore, the Health Insurance Portability and Accountability Act (HIPAA) tries to regulate companies that use PHI (Personal Health Information) such as names of patients, dates of birth, addresses, treatment conditions, and social security numbers. Such regulations include the omnibus rule, which governs the reporting of data too.

Many state-specific security breach laws require private and public entities to notify customers and individuals when there has been a data breach. However, there is no specific rule to govern intellectual property. The most recent notification law revision gives organizations up to 30 days to notify their customers of an incident. Other regions vastly prefer even stricter guidelines. For instance, the European Union's General Data Protection Regulation (GDPR) requires that consumers be notified 72 hours after the incident occurs.

3. Common vulnerabilities and preventive measures towards data security breaches

According to the IBM research team, the most common reason for a CEO to be fired is the exponential business loss stemming from a data breach. Many company managers and executives fail to understand the critical importance of information security. According to the research, the average cost of an organizational data breach is $3.8Million, which would significantly impact the growth of the business. Thus it is advisable to be equipped with proper knowledge and tools in order to mitigate the factors that lead to a data breach. There are a number of common vulnerabilities of data breaches and alternate solutions are available.

4. What to keep in mind

Data breaches have become the talk of the 21st century. This buzz is mostly due to the firms that have suffered data breaches and reported them for the public good. Since breaches blindside firms and individuals, we may not see them coming and often haven’t anticipated or prepared for the extensive business costs. Several big companies have suffered significant breaches resulting in material losses as well as damage to their business image. Therefore, it is necessary to follow the data laws to improve security measures and to avoid a massive fine.

For example, in 2014 Yahoo suffered a data breach that affected more than 3 billion user accounts. The breach compromised names, email addresses, dates of birth, and other personal information. This incident resulted in a $350 million loss. In the same year, eBay's online auction business exposed usernames and other forms of personal information, which affected more than 145 million user accounts. The attack is said to have involved three employees, and the whole business remained in their hands for almost a full year (229 days)! Hackers asked customers to change their passwords among other inquiries. Luckily, financial information was stored differently from basic biodata. The company lost 13% of earnings as a result of this shocking data breach.

Other companies such as Adobe, Home Depot, VeriSign, Stuxnet.inc, RSA Security, Anthemand and Sony’s PlayStation Network have suffered data breaches too, which resulted  in disruption of operations, loss of revenues, and damage to brand image.

Many of the world’s most significant businesses hae experience security breaches that have shaken their financial base. Such threats may even sink medium- or small-sized businesses if they are not handled well. Companies should establish efficient measures to manage and protect data by applying multiple layers of defense to their systems. Decreasing the vulnerabilities and risks of attacks thereby reduces potential costs and impacts that may result from these attacks.

Therefore, it’s recommended that businesses focus on limiting hackers’ opportunities to gain access as early as possible in the business cycle.

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