SEC Issues Final Cybersecurity Disclosure Rules for Public Companies

SEC Cyber Disclosure

The Securities and Exchange Commission (SEC) finalized new rules last week by a vote of 3-2 that will require public companies to disclose more information about cybersecurity-related incidents, risk management, strategy, and governance. A joint comment letter by The Real Estate Roundtable and Nareit about the SEC proposal was cited nearly a dozen times in the final rule. (SEC fact sheet | Roundtable-Nareit comment letter, May 9, 2022)

Industry Objections

  • The Roundtable and Nareit expressed a number of concerns in their May 2022 letter about the proposed rule’s rigid incident reporting deadlines and granular requirements, which the industry organizations stated may unintentionally exacerbate cybersecurity risks for issuers while imposing unjustified burdens. (Roundtable Weekly, May 13, 2022)
  • Under the new rules, registered companies must report cyber-attacks by filing an 8-K form with the SEC within four business days, which The Roundtable and Nareit objected to in their joint letter.
  • Responding to these concerns, the SEC stated in its final rule that it is “… providing for a delay for disclosures that would pose a substantial risk to national security or public safety, contingent on a written notification by the Attorney General, who may take into consideration other Federal or other law enforcement agencies’ finding.” (Pensions and Investments, July 26)
  • The SEC also responded to industry concerns by stating it had “streamlined” its requirements on cyber-attack disclosures to focus more on the potential effects, rather than the details of the incident itself. (Wall Street Journal, July 26 | PillsburyLaw and GreenbergTaurig)
  • The agency states in its final rule, “To that end, to balance investors’ needs with the concerns raised by commenters …The final rules will require the registrant to describe the material aspects of the nature, scope, and timing of the incident, and the material impact or reasonably likely material impact on the registrant, including its financial condition and results of operations.”
  • SEC Chairman Gary Gensler emphasized that the final rule does not require disclosure of non-material information related to incidents—unlike the original proposal issued in March 2022. (SEC news release, July 26, 2023 and Roundtable Weekly, March 18, 2022)

New Disclosures Required

Federal Register
  • Public real estate companies will also be required to disclose the board of directors’ oversight of cybersecurity threats, identify any board committee (or subcommittee) responsible for cybersecurity oversight, and the processes by which the board or (sub) committee is informed about these risks.
  • The final SEC rule will become effective on September 5, according to a notice today in the Federal Register. All registered public companies, other than smaller reporting companies, must begin complying by Dec. 18, 2023.

The Roundtable’s Homeland Security Task Force will remain engaged with government officials and private sector partners on industry best practices to detect, protect, and respond to a variety of key threats, including cyber-attacks.

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Senate Bill Introduced to Require Federal Guidance on Cybersecurity Insurance

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Federal guidance on cyber insurance policies is the focus of a new bipartisan Senate bill introduced on Feb. 21 that aims to protect businesses and consumers against cyberattacks. (PoliticoPro, Feb. 21)

Cyber Issues

  • The Insure Cybersecurity Act will direct the National Telecommunications and Information Administration (NTIA) to mitigate digital risk by developing recommendations for issuers, agents, brokers, and customers to improve communication over cybersecurity insurance coverage levels.
  • Co-sponsored by Sens. John Hickenlooper (D-CO) and Shelley Moore Capito (R-WV), the bill also directs a NTIA task force to develop policy recommendations relating to ransomware or ransom payments, and the “terminology used in policies to include or exclude losses” due to cyber terrorism or acts of war.
  • Hickenlooper is the new chair of the Commerce Committee’s Subcommittee on Consumer Protection, Product Safety, and Data Security.
  • 2021 Government Accountability Office report found that ambiguity in policy language can result in misunderstandings and litigation between issuers and policyholders—and underestimations of coverage needed to protect against cyber risks.

The Roundtable’s Homeland Security Task Force continues working with the Real Estate Information Sharing and Analysis Center (RE-ISAC), federal officials, and real estate companies about threats to the business cyber environment with the aim of mitigating cyber intrusions.

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Treasury and CISA Seek Comments on Potential National Cyber Insurance Program

CISA LogoAs cyberattacks pose an increasing threat to the real estate industry and the U.S. economy, the government is seeking input from policyholders, critical infrastructure owners, and operators on a potential federal response for catastrophic cyber incidents, including whether a national cyber reinsurance program is warranted. (Treasury Department Notice, Sept. 29 and NextGov, Sept. 28)

Response to Catastrophic Cyber Attacks

Terrorism & Cybersecurity

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  • The Roundtable and its partners in the Coalition to Insure Against Terrorism (CIAT) have raised concerns about the need for effective insurance products to help manage the risks of catastrophic cyberattacks. (CIAT comment letter on the 2022 Report on the Effectiveness of the Terrorism Risk Insurance, May 16)
  • Insurers and the federal government’s Terrorism Risk Insurance Program (TRIP) may not cover the expanding range of such losses. For example, TRIP may only cover cyberattacks if they can be considered “terrorism” under its defined program criteria. (Roundtable Weekly, June 24)
  • Separately, CISA is requesting input on the implementation of cyber incident reporting requirements (due Nov. 14). CISA is also hosting a series of public listening sessions in cities throughout the nation as an additional means of gathering stakeholder responses on definitions for the proposed rules, the form and content of reports, enforcement procedures, and information protection policies. (Federal Register and Notice of Public Listening Sessions, Sept. 12)

Cybersecurity has long been a focus of The Roundtable’s Homeland Security Task Force (HSTF) and the Real Estate Information Sharing and Analysis Center. Cybersecurity issues and CRE will be discussed during the next HSTF meeting on Jan. 25, 2023—held in conjunction with The Roundtable’s State of the Industry meeting. (Roundtable Meeting Calendar)

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GAO Recommends Government Assessment of Federal Backstop for Catastrophic Cyberattacks

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The US Government Accountability Office (GAO) recommended in a June 21 report that the federal government should assess the need for a potential insurance backstop for cyberattacks on critical infrastructure. (GAO summary “Cyber Insurance: Action Needed to Assess Potential Federal Response to Catastrophic Attacks”)

Growing Cyber Threats

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  • With the growing proliferation of cyberattacks, the challenge of mitigating and managing this expanding risk poses an increasing challenge to the U.S. economy and real estate.
  • Insurers and the government’s terrorism risk insurance program originally established under the Terrorism Risk Insurance Act (TRIA) may not be able to cover the expanding range of such losses. For example, TRIA may only cover cyberattacks if they can be considered “terrorism” under its defined program criteria.
  • TRIA was reauthorized in 2019 and extended for seven years through 2027. The legislation included a request for a study on evolving cyber terrorism risks. (Coalition to Insure Against Terrorism)
  • The Roundtable has raised concerns about the need for policyholders to have access to effective insurance products to help manage the risks of catastrophic cyberattacks—particularly in the context of TRIA-backed coverage for cyber terrorism attacks. (See May 16, 2022 joint comment letter on “2022 Report on the Effectiveness of the Terrorism Risk Insurance Program”)
  • This month’s GAO report acknowledges that although some cyber incident costs are covered in part by the private cyber insurance market, growing cyber threats have created uncertainty in this evolving market.
  • The report also notes that cyber incidents can spill over from the initial target to economically linked firms, thereby magnifying damage and threats to the overall economy. “Cyber insurance and the Terrorism Risk Insurance Program (TRIP)—the government backstop for losses from terrorism—are both limited in their ability to cover potentially catastrophic losses from systemic cyberattacks,” the report adds. (See report summary)

Federal Insurance Backstop

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  • Federal agencies “have not assessed the extent to which risks to critical infrastructure from catastrophic cyber incidents and potential financial exposures warrant a federal insurance response,” the report states.
  • GAO states a government study that addresses a federal insurance response should include clear criteria for coverage, specific cybersecurity requirements, and a dedicated funding mechanism with concessions from all market participants.
  • The report concludes that the Department of the Treasury’s Federal Insurance Office (FIO) and the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) should jointly assess the cyberattack risks that warrant a federal insurance response, and inform Congress of the results of their assessment.

The Roundtable’s Homeland Security Task Force discussed the issue of cybersecurity and a potential federal backstop during its June 17 meeting, held in conjunction with The Roundtable’s 2022 Annual Meeting. (Roundtable Weekly, June 17)

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SEC Proposes 4-day Cybersecurity Reporting Requirements for Public Companies; Roundtable’s HSTF Plans Security Threat Briefings

Gary Gensler of the SEC

The Securities and Exchange Commission (SEC) on March 9 issued a proposed rule that would require publicly traded companies to disclose a cybersecurity incident within four days of determining a breach is “material,” or important to the average investor. (BGov, March 11 and SEC News Release | Proposed Rule | Fact Sheet)

Proposed SEC Requirements

  • SEC Chair Gary Gensler, above, said, “Today, cybersecurity is an emerging risk with which public issuers increasingly must contend. I am pleased to support this proposal because, if adopted, it would strengthen investors’ ability to evaluate public companies’ cybersecurity practices and incident reporting.” (Bloomberg, March 9)
  • An SEC spokesperson noted that the crisis in Ukraine gave these proposals “special relevance.” (CNBC, March 9 and see story below on The Roundtable’s upcoming March 25 discussion on the Ukraine conflict)
  • The proposed SEC amendments would include requirements around reporting material cybersecurity incidents – and providing periodic updates for previously reported cybersecurity incidents. (Wall Street Journal, March 9)
  • The proposal also would require periodic reporting related to:
    • a registrant’s policies and procedures to identify and manage cybersecurity risks;
    • the registrant’s board of directors’ oversight of cybersecurity risk; and
    • management’s role and expertise in assessing and managing cybersecurity risk and implementing cybersecurity policies and procedures.
  • The Real Estate Roundtable is planning to provide comments on the SEC proposal in advance of the May 9, 2022 submission deadline and looks forward to Roundtable members’ input. The proposed four-day reporting timeframe for companies to provide cyber disclosures may not provide enough time for companies to discover the full extent of an incident. (BGov, March 11)

Cybersecurity Threats

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  • An Audit Analytics report  released last year showed the number of cybersecurity intrusions reported by public companies increased from 28 breaches in 2011 to 117 in 2020.
  • The average cost of a corporate data breach was $4.24 million in 2021, according to an annual IBM Security report.
  • Separately, the $1.5 trillion omnibus bill spending bill enacted on March 11 included the Cyber Incident Reporting for Critical Infrastructure Act. The legislation establishes a narrower 72-hour window for critical infrastructure owners and operators to disclose a cyberattack to the Cybersecurity and Infrastructure Security Agency (CISA). Certain businesses are also required to report any ransom payments to the federal government within 24 hours, among other changes. (Brownstein Hyatt Farber Schreck, March 14)

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  • The Real Estate Roundtable’s Homeland Security Task Force (HSTF) is coordinating briefings on the following security threats through the Real Estate Information Sharing and Analysis Center (RE-ISAC):
    • April: DHS Sector Outreach and Programs (Active Shooter, and other soft target resources for the Commercial Facilities Sector)
    • May: DHS Fusion Center overview
    • June: US Secret Service cybercrime
    • August: The Protective Security Advisor Program
    • September: FBI cybersecurity/cybercrimeNovember: The InfraGard program 

Roundtable members interested in participating can contact Andy Jabbour of the RE-ISAC. 

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Russian Aggression Raises Cybersecurity Concerns for CRE

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Russian aggression against Ukraine has included cyberattacks that could potentially spillover to U.S. networks that serve commercial real estate. (GlobeSt, March 2) 

Spillover or Direct Threats 

  • Since the imposition of American sanctions, direct Russian retaliation to U.S. networks could include malware, supply chain disruption and cyberattacks on critical infrastructure. (The Hill, March 3)
  • Senate Intelligence Committee Chairman Mark Warner (D-VA) recently told Axios that Russian cyber weapons inside Ukraine could spread to NATO member states. In 2017, Russia’s NotPetya malware was unleashed in Ukraine, causing billions of dollars in damage to companies worldwide. (Axios, Feb. 23)
  • “If you’re suddenly having 190,000 troops attack Ukraine, chances are that the cyberattack will not be a single piece of malware,” Warner told Axios. “The chances of that staying within the Ukrainian geographic border is quite small. It could spread to America, could spread to the U.K., but the more likely effect will be spreading to adjacent geographic territory [such as] Poland.” (Axios, Feb. 23)
  • GlobeSt on March 2 addressed potential cyber threats to CRE. “The largest vulnerabilities for real estate companies are systems such as HVAC, elevators, lighting, metering, parking, and physical access control,” according to Tom Shircliff of Intelligent Buildings.
  • Homeland Security Today also reported in January about a cyberattack on a German engineering firm’s building automation system that locked the owners out of the system and rendered three-quarters of several hundred devices in the building nonoperational. 

CRE’s Response 

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  • The RE-ISAC has also worked with InfraGard National Capital Region (InfraGardNCR) to establish the Commercial Facilities Cyber Working Group (CCWG), a virtual effort to share cyber threat intelligence. The group shares threat reports, ransomware victim examples, and other information on a regular basis. 
  • RE-ISAC Managing Director Andy Jabbour interviewed James Whalen, Boston Properties’ SVP, Chief Information & Technology Officer on the steps commercial real estate companies are takings to meet cybersecurity threats. (Gate 15, March 23, 2021 and Blended Threats: Holding Buildings Hostage)

FBI Recommendations 

cyber security control room

This week, the FBI recommended organizations take the following steps:

  1. Review recent cybersecurity advisories, such as the Department of Homeland Security’s recent “Shields Up” warning that urged “all organizations – regardless of size – adopt a heightened posture when it comes to cybersecurity and protecting their most critical assets.” (TechCrunch, March 2)
  2. Know your networks; especially if you have even a tangential relationship with Russia and surrounding countries.
  3. Know your Cyber Incident Response plan. If you don’t have one, you should. Make sure the FBI and info sharing are embedded in that plan. Lower your thresholds for reporting.
  4. Report mis, dis, mal information, a tried-and-true tactic of the Russian government, including on your social media.
  5. In the event of a compromise, call the FBI.

The Real Estate Roundtable’s Homeland Security Task Force continues to work with key law enforcement, intelligence agencies and the RE-ISAC on protective measures that businesses can take to create infrastructure resistant to physical damage and cyber breaches. (Information on joining the RE-ISAC)   

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Roundtable and Business Coalition Weigh In on Legislation Requiring Ransomware Attack Reports

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Bipartisan legislation that would require private sector companies to report ransomware attacks to federal authorities was advanced this week by the Senate Homeland Security and Governmental Affairs Committee. A broad, 37-member coalition that includes The Real Estate Roundtable on Oct. 4 provided detailed suggestions to Senate and House congressional committees about provisions that should be included in any bill that would impose a compulsory cyber incident notification program on the business community. (Cybersecurity coalition letter and Committee mark-up)

Why It Matters

  • The Cyber Incident Reporting Act (S. 2875) – sponsored by Committee Chairman Gary Peters (D-MI) and Ranking Member Rob Portman (R-OH) – would require certain owners and operators of critical infrastructure operators to report hacks within 72 hours and ransom payments within 24 hours to the Cybersecurity and Infrastructure Security Agency (CISA).  Organizations failing to do so would potentially banned from doing business with the federal government. (The Hill, Set. 28 and PoliticoPro, Oct. 5)
  • The committee also approved the Federal Information Security Modernization Act of 2021 (S. 2902), which would require agencies and contractors to report on cyberattacks.
  • The congressional bills aim to update the Federal Information Security Modernization Act, signed into law in 2014. Sen. Portman noted two reports on issued by the Homeland Security Committee since 2019 that found massive cybersecurity shortcomings at several federal agencies.
  • The Senate Homeland Security Committee’s leadership may seek to merge their legislation may with a bill (S. 2010) from the Senate Intelligence Committee. Sen. Peters said he may also seek to include S. 2875 in House-passed defense policy legislation (H.R. 4350), which also includes language requiring cyber incidents. (BGov and PoliticoPro, Oct. 5)

Private Sector Concerns

Senate Homeland Security and Governmental Affairs Committee

  • The business coalition’s Oct. 4 letter to the Senate Committees on Intelligence, Homeland Security and Government Affairs and the House Committee on Home  recommended several provisions that should be central to a mandatory reporting regime, including:
    • Establish a prompt reporting timeline of not less than 72 hours. Legislation should reflect an appropriate, flexible standard for notifying government about significant cyber incidents.
    • Attach reporting to confirmed cyber incidentsBusinesses need clarity in reporting requirements, which should be targeted to well-defined and confirmed cyber incidents.

    • Confine reports to significant and relevant incidents .A list should be limited in reach—particularly excluding small businesses using existing federal rules—and risk based.

    • The business industry comments recommended that federal cybersecurity reporting legislation should also include robust liability protections; consistent federal reporting requirements; restrictive government use of reported data; and guarantee substantial input from industry to protect the rulemaking process. 

Identifying Critical Infrastructure

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  • In the House, a separate bill that would identify systemically important infrastructure was introduced Oct. 5 by Homeland Security Committee Ranking Member John Katko (R-NY), Rep. Abigail Spanberger (D-VA) and Rep. Andrew Garbarino (R-NY). (Katko one-pager on the bill)
  • The bill would authorize CISA to prioritize infrastructure operators considered so crucial to the U.S. economy, public health and national security that a disruption to their operations due to a cyberattack would be considered debilitating. (Katko news release, Oct. 5) 

The Roundtable’s Homeland Security Task Force continues to work with key law enforcement and intelligence agencies and the Real Estate Information Sharing and Analysis Center (RE-ISAC) on protective measures that businesses can take to create infrastructure resistant to physical damage and cyber breaches.  

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White House Urges Companies to Build Cyber Defenses as Ransomware Attacks Increase; Commercial Facilities Cyber Working Group Sharing Information on Threats

 Anne Neuberger White House Deputy National Security Advisor for Cyber and Emerging Technology

The increasing frequency and size of ransomware cyberattacks on U.S. companies prompted the White House on June 2 to issue a stark warning urging businesses to take “immediate steps” to increase their ransomware defense based on the federal government’s best practices. (White House  Deputy National Security Advisor for Cyber and Emerging Technology Anne Neuberger, above)

A National Threat

  • Ransomware is a type of malicious computer network attack where criminals encrypt an organization’s data and demand payment to restore access. In some instances, attackers may also steal an organization’s information and demand additional payment in return for not disclosing the information to the public.
  • The document from the White House’s Neuberger notes, “All organizations must recognize that no company is safe from being targeted by ransomware, regardless of size or location. Much as our homes have locks and alarm systems and our office buildings have guards and security to meet the threat of theft, we urge you to take ransomware crime seriously and ensure your corporate cyber defenses match the threat.” (White House, What We Urge You To Do To Protect Against The Threat of Ransomware and Readout of Neuberger Meeting)
  • In the past month, $15 million in cyber-ransom was paid to hackers in bitcoin by Colonial Pipeline and JBS USA, the world’s largest meat-processing company. The U.S. Justice Department reported on June 7 that it had retrieved $2.3 million paid by Colonial. (Axios, June 9 and CNBC, June 8)
  • In an interview with the Wall Street Journal this week, FBI Director Christopher Wray compared the challenge of countering the threat of ransomware to the 9/11 terrorist attacks and that the agency was currently investigating about 100 different types of ransomware.
  • Wray also testified on June 10 before the House Judiciary Committee that companies should not make ransomware payments to hackers but instead contact the FBI for help to restore stolen data. Wray said, “There are a whole bunch of things we can do to prevent this activity from occurring, whether they pay the ransom or not, if they communicate and coordinate with law enforcement right out of the gate. That’s the most important part,” he added. (AP, June 10)
  • Additional hearings this week on ransomware and other cyber threats to infrastructure where held by the Senate Homeland Security and Governmental Affairs Committee on June 8 and the House Homeland Security Committee on June 9.

CRE and Cybersecurity

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  • The RE-ISAC has worked with InfraGard National Capital Region (InfraGardNCR) to establish the Commercial Facilities Cyber Working Group (CCWG), a virtual effort to share cyber threat intelligence. The group shares threat reports, ransomware victim examples, and other information on a regular basis. 

Resources and Reference

cybersecurity control room

For more information, contact Gate 15 Managing Director and RE-ISAC staff Andy Jabbour or The Roundtable’s RE-ISAC Executive Director and HSTF Liaison Chip Rodgers.

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