The US Securities and Exchange Commission (SEC) adopted new rules for cybersecurity risk management, strategy, governance, and incident disclosure by public companies on July 26, requiring public companies to disclose material cybersecurity incidents within four days of an attack. Additionally, registrants must annually report their process, if any, for assessing, identifying, and managing material risks from cybersecurity threats.
"Whether a company loses a factory in a fire — or millions of files in a cybersecurity incident — it may be material to investors," said SEC Chair Gary Gensler. "Currently, many public companies provide cybersecurity disclosure to investors. I think companies and investors alike, however, would benefit if this disclosure were made in a more consistent, comparable, and decision-useful way. Through helping to ensure that companies disclose material cybersecurity information, today's rules will benefit investors, companies, and the markets connecting them."
The new rules, which the SEC passed on by a 3-2 vote, will require registrants to disclose on Form 8-K any cybersecurity incident the registrant determines to be material and to describe the material aspects of the incident's nature, scope and timing, as well as its material impact or reasonably likely material impact on the registrant. The notification will generally be due four business days after a material breach has been identified.
The ruling also allows the disclosure to be delayed if the US Attorney General determines that immediate disclosure would pose a substantial risk to national security or public safety and notifies the SEC of such determination in writing.
These new cybersecurity incident reporting rules are set to take effect in December or 30 days after publication in the Federal Register. The SEC will grant smaller companies an additional 180 days to conform to the new regulation and provide Form 8-K disclosures.
The second new rule will require registrants to describe their processes for identifying and managing material risks from cybersecurity threats and the material effects or reasonably likely material effects of risks from previous cybersecurity incidents. These disclosures will be required in a registrant's annual report on Form 10-K.
The rulings cover some of the same ground that is currently under consideration with the proposed SEC rule Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure in that the recently instituted rules will require registrants to describe the board of directors' oversight of risks from cybersecurity threats and management's role and expertise in assessing and managing material risks from cybersecurity threats.
The previously proposed ruling, which is now undergoing a public comment period, would put in place a long list of new instructions requiring periodic disclosures about a registrant's policies and procedures to identify and manage cybersecurity risks, management's role in implementing cybersecurity policies, and procedures, and the board of directors' cybersecurity expertise, if any, and its oversight of cybersecurity risk.
The SEC did not indicate how the latest rulings will interact with the previously proposed rules.
For additional insights into how CISOs can navigate the latest ruling and cybersecurity at the Board of Directors level, read our blog