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SEC’s Cyber Disclosure Rule: Prepping for What’s New

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SEC’s Cyber Disclosure Rule: Prepping for What’s New

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CFO JOURNAL
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https://deloitte.wsj.com/articles/secs-cyber-disclosure-rule-prepping-for-whats-new-2bb9fcf4

 1. BUSINESS
    
    --------------------------------------------------------------------------------

 2. CYBERSECURITY


SEC’S CYBER DISCLOSURE RULE: PREPPING FOR WHAT’S NEW


CERTAIN DISCLOSURES HAVE BEEN STREAMLINED, AND SOME PROPOSED ELEMENTS LIKE THE
DISCLOSURE OF BOARD EXPERTISE ARE ABSENT FROM THE FINAL RULE, BUT TIME TO
PREPARE IS SHORT

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The U.S. Securities and Exchange Commission (SEC) has finalized a new rule for
public companies requiring Form 8-K or Form 6-K disclosure of material
cybersecurity incidents as well as annual reporting regarding cybersecurity risk
management, strategy, and governance.

“The SEC had observed some inconsistency in the nature and extent of cyber
disclosures under prior interpretive guidance,” says Sandy Herrygers, a partner
with Deloitte Risk & Financial Advisory at Deloitte & Touche LLP. “The new rule
aims to standardize disclosure by providing more specific guidance on what must
be disclosed, when it must be disclosed, and where it must be disclosed, for
example in Form 8-K or 10-K filings.”

The new cyber disclosure rule requires companies to disclose incidents in a Form
8-K filing (or Form 6-K for foreign private issuers) within four business days
of when a cybersecurity incident is determined to be material. The disclosure is
required to describe the material aspects of an incident’s nature, scope,
timing, and material or reasonable likely material impacts on the registrant.
The rule includes a provision for incident disclosure to be delayed if the U.S.
Attorney General determines that immediate disclosure would pose a substantial
risk to national security or public safety.

The rule reflects that certain required information may not be available at the
time of the initial Form 8-K filing, and it provides instructions to clarify
that updated incident disclosures are required in Form 8-K amendments when
companies have additional information that was not determined or available at
the time of an initial filing, says Christine Mazor, Audit & Assurance partner
with Deloitte & Touche LLP.

The new rule also retains an intentionally broad definition of what constitutes
a cyber incident so that it extends to a series of related unauthorized
breaches, says Mazor. “For example, a series of related cyber intrusions by the
same malicious actor or a series of attacks from multiple actors exploiting the
same vulnerability could lead to a quantitatively or qualitatively material
incident that would require disclosure under the rule,” she says.

In their annual Form 10-K, companies are required by the rule to describe the
processes they have in place for assessing, identifying, and managing material
cybersecurity risks as well as the material effects of risks from cybersecurity
threats, including previous incidents. Further, companies are required to
describe the board’s oversight and management’s role and expertise in assessing
and managing material risks from cybersecurity threats.

All companies will be required to provide disclosures on cybersecurity risk
management, strategy, and governance on Form 10-K (or Form 20-F for foreign
private issuers) beginning with annual reports for fiscal years ending on or
after Dec. 15, 2023. Incident disclosures in Form 8-K or Form 6-K are required
beginning 90 days after publication in the Federal Register or on Dec. 18, 2023,
whichever is later, but smaller reporting companies will have an additional 180
days to comply.

The SEC first proposed new cybersecurity disclosures in March 2022 to provide
investors with more consistent, decision-useful information through enhanced and
standardized disclosures. Following extensive public comment, the SEC’s adopted
final rule does not contain some of the originally proposed requirements, such
as disclosure regarding the board’s cybersecurity expertise or disclosure in a
registrant’s next periodic report when, to the extent known to management, a
series of previously undisclosed individually immaterial cybersecurity incidents
become material in the aggregate.

After the SEC issued its proposed rule in 2022, many companies performed gap
analyses by evaluating their disclosure controls and procedures related to
cybersecurity and identifying differences between those and the proposed
requirements. “Companies that have performed this analysis can refresh it with
the rule now finalized,” says Herrygers.

If companies have not performed this analysis, it’s important to do so now to
prepare for disclosures that will be required at the end of their current fiscal
year, says Herrygers. “The gap analysis provides a basis for developing a road
map for planning and implementing updates and improvements to disclosure
processes to comply with the new requirements,” she says.

Given the short timeline to the effective date of the new standard—less than six
months for calendar-year companies, for example—companies might consider
beginning drafting of new disclosures for year-end filings soon, says Mazor.
“There may be people involved in producing these disclosures who are not
normally part of the year-end reporting process, so there should be adequate
time built into the review process to allow for this,” she says.

The new disclosure requirements provide companies with an opportunity to improve
their cyber risk management, strategy, and governance, says Adnan Amjad, a
partner and U.S. Cyber & Strategic Risk leader with Deloitte & Touche LLP.
“Companies can take several steps to integrate their business and cyber
strategy, improve risk management and governance, and refresh incident
management processes to enhance their cyber posture while also complying with
new disclosure requirements,” he says.

Prepare for disclosures. Companies can evaluate current reporting practices
relative to the new requirements and identify how the company’s reporting
practices are affected. They can also deploy a cross-functional team to include
the CISO, CIO, legal, and internal audit to develop and implement controls and
procedures for producing needed disclosures regarding cybersecurity incidents in
current and periodic reports; the company’s risk management, strategy, and
governance related to cyber; and the board’s oversight and management’s
expertise in managing cybersecurity.

Fortify cyber governance. If they have not already, companies can establish a
risk-based cyber strategy that aligns with the business strategy and defines
enterprisewide cybersecurity policies, standards, and procedures. They can
develop a governance framework and organization model and invest in maturing
cybersecurity and incident response capabilities. Risk metrics and reporting
with ongoing monitoring can help improve cyber risk management discipline.

Enhance response and recovery. Organizations can implement or refresh an
incident management framework with incident response plans, develop a consistent
structure, and formally define criteria for cybersecurity incident materiality
specific to their operating environment. They can build dedicated incident
management teams and deploy automation to support the incident management
function. A formalized process for root cause analysis can enhance incident
response, and testing can confirm readiness. Cross-functional cyber readiness
exercises, such as tabletops or cyber simulations, can help teams improve
response when a material cybersecurity incident occurs.

—by Tammy Whitehouse, senior writer, Executive Perspectives in The Wall Street
Journal, Deloitte Services LP



Published on  Aug 2, 2023, 9:00 PM

This publication contains general information only and Deloitte is not, by means
of this publication, rendering accounting, business, financial, investment,
legal, tax, or other professional advice or services. This publication is not a
substitute for such professional advice or services, nor should it be used as a
basis for any decision or action that may affect your business. Before making
any decision or taking any action that may affect your business, you should
consult a qualified professional advisor. Deloitte shall not be responsible for
any loss sustained by any person who relies on this publication.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private
company limited by guarantee (“DTTL”), its network of member firms, and their
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