Digital Service Providers under the Network and Information Systems Directive – will your business be affected?
Are you a digital service provider? If so, you may be subject to new information security standards and incident reporting-related obligations.
These obligations are separate to those contained in the General Data Protection Regulation that took effect in May 2018, which at this stage is true to say businesses are becoming increasingly well informed on.
The EU Directive on the Security of Network and Information Systems (the “NIS Directive“) took effect on 9 May 2018 and had to be transposed into Member State law by the same date. Such national implementing laws further specify how the regime applies in the respective Member State and also set out fines for businesses in breach of their obligations. In Ireland, the NIS Directive was transposed on 18 September 2018 by way of a statutory instrument in the form of the European Union (Measures for a High Common Level of Security of Network and Information Systems) Regulations 2018 (the “2018 Regulations“)1 . Both the NIS Directive and the 2018 Regulations are supplemented by Commission Implementing Regulation (EU) 2018/151 (the “Implementing Regulation“), which provides further detail on the obligations imposed on Digital Service Providers (“DSPs“) by the Directive. We have here a complex web of obligations.
The aim of the NIS Directive is to “lay down measures with a view to achieving a high common level of security of network and information systems within the Union so as to improve the functioning of the internal market.” It is therefore an attempt to harmonise cyber security and information security standards across the EU, on the basis that “network and information systems and services play a vital role in society. Their reliability and security are essential to economic and societal activities, and in particular to the functioning of the internal market.” Imposing statutory security obligations on the public and private sectors is a difficult proposition as evidenced by the fact that few countries or international organisations have implemented statutory solutions to the cyber security challenge.
The NIS Directive and the 2018 Regulations apply to two categories of economic and societal actors. First, they apply to ‘Operators of Essential Services’ (“OESs“), defined by reference to seven categories of activity, including energy, transport, and the health sector. Non-traditional utilities in the form of providers of digital infrastructure, consisting of IXPs, DNS service providers and TLD name registries, also fall within the definition of OESs. Interestingly, a number of sectors, such as telecoms providers and trust service providers are not in scope, instead being caught by separate legislation.2
Secondly, the NIS Directive and the 2018 Regulations apply to DSPs that fall within three categories. These are:
- Online marketplaces 3 ;
- Online search engines 4; and
- Cloud computing services, including IaaS, PaaS and SaaS operators. 5
One important distinction between OESs and DSPs is that the respective national competent authority 6 was obliged to name the OES or identify them by a set of criteria prior to 9 November 2018. On the other hand, companies must themselves determine whether they fall under the definition of a DSP and then comply with the obligations imposed on them in terms of security measures by the NIS Directive, the Implementing Regulation and the 2018 Regulations. In this context, it should be noted that the 2018 Regulations specifically state that only those DSPs are included within its scope which are not micro or small enterprises. These are defined as companies which employ fewer than 50 people and whose annual turnover and/or annual balance sheet does not exceed €10.000.000.7
Under the NIS Directive and the 2018 Regulations, DSPs are required to take “appropriate and proportionate technical and organisational measures to manage the risks posed to the security of network and information systems which they use in the context of offering services […] within the Union.”
The NIS Directive and the 2018 Regulation’s information security provisions are therefore not an objective standard and lack any definitive qualitative or quantitative measures, instead requiring DSPs to determine the measures necessary to adequately safeguard their business. What this means, according to the legislation, is that “having regard to the state of the art”, the “appropriate security measures” shall “ensure” a level of security of network and information systems “appropriate to the risk posed” to the respective DSP.
The NIS Directive supplies a list of elements that shall be taken into account when implementing such proportionate technical and organisational measures. These include:
- The security of systems and facilities;
- Incident handling;
- Business continuity management;
- Monitoring, auditing and testing; and
- Compliance with international standards.
Furthermore, DSPs need to take measures to “prevent and minimise the impact of incidents affecting the security of their network and information systems on the services […] with a view to ensuring the continuity of those services.” If the three pillars of information security are prevention, detection and remediation, it can be seen that the NIS Directive and the 2018 Regulations attempt to deal with all three. The NIS Directive and 2018 Regulations place onerous information security obligations on DSPs. Ultimately, compliance with objectives will be reviewed retrospectively, through the prism of a cyber breach, which is never a comfortable position to be in.
In the event of an “incident having a substantial impact” on the provision of their services, DSPs must notify the computer security incident response teams (“CSIRT”), which is a unit of the Department of Communications, Climate Action and Environment, known as the National Cyber Security Centre.
What is considered an incident having a substantial impact is defined in more detail by the Implementing Regulation, which states that it is an incident where at least one of the following apply:
- The service is unavailable for at least 5 million user hours
- More than 100,000 users across the EU are affected;
- A risk to public safety, public security or loss of life is created; or
- Damage is caused to at least one user in the EU which exceeds €1,000,000.
Under the 2018 Regulations, it is an offence to fail to notify the CSIRT of such incidents within 72 hours of becoming aware of the incident or to fail to inform the CSIRT of the resolution of such an incident within the same timeframe.
Powers and penalties
The NIS Directive allows Member States to determine fines locally for failure to ensure entities have implemented the necessary technical and organisational measures and failure to report incidents having a substantial impact. In Ireland, fines for non-compliance with the 2018 Regulations range from €50,000 (in the case of an individual) to €500,000 (in the case of a body corporate).9 Compared to the GDPR, these are not high fines. However, they are material enough as the regulatory authority has ancillary powers which potentially impact on the conduct of business and thus are noteworthy. This is not dissimilar to the pre-GDPR position in Ireland, where data protection compliance was an issue not because of potential financial penalties, but because of the need to be legally compliant with regulator powers over the manner in which data was processed by the organisation. Depending on the circumstances of the incident, the competent authority or CSIRT may inform the public, thus posing a significant risk to the reputation of an affected business.10 Under the 2018 Regulations, DSPs may also be required to provide the information necessary to assess the security of their network and information systems, including documented security policies to competent authorities.
DSPs should put the NIS Directive on their agenda and ensure they are in compliance with their obligations under the NIS Directive, Implementing Regulation and the 2018 Regulations. While the regulatory landscape under the NIS Directive is less well developed than the longstanding data protection landscape, even with the introduction of GDPR, what is clear is that this is a significant package of EU and Irish legislation focussing on organisational information security obligations. The legislation is complex in its drafting, but clear in its requirements and has enough teeth to be meaningful. Organisations need to be in compliance with their legal obligations.
- S.I. No. 360 of 2018.
- Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) and Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23rd July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC.
- Defined by the 2018 Regulations as “a digital service that allows consumers or traders, or both, as respectively defined in the European Union (Alternative Dispute Resolution for Consumer Disputes) Regulations 2015 (S.I. No 343 of 2015) to conclude online sales or service contracts with traders either on the online marketplace’s website or on a trader’s website that uses computing services provided by the online marketplace.”
- Defined by the 2018 Regulations as “a digital service that allows users to perform searches of, in principle, all websites or websites in a particular language on the basis of a query on any subject in the form of a keyword, phrase, or other input, and returns links in which information related to the requested content can be found.”
- Defined by the 2018 Regulations as “a digital service that enables access to a scalable and elastic pool of shareable computing resources.”
- The national competent authority and single point of contact in respect of DSPs is the Minister for Communications, Climate Action and Environment (the “Minister”) (Art. 8(1) of the 2018 Regulations).
- As defined in Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and medium-sized enterpri
- Which is defined as number of affected users in the EU for a duration of 60 minutes.
- Regulation 22(14).
- Regulation 22(9).