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Regulating Business Continuity

Al Berman DRI International. Regulating Business Continuity. Post-9/11. Sarbanes-Oxley Act of 2002 HIPAA, Final Security Rule FFIEC BCP Handbook -2003/ 2008 Fair Credit Reporting Act NASD Rule 3510 NERC Security Guidelines FERC Security Standards NAIC Standard on BCP

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Regulating Business Continuity

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  1. Al Berman DRI International Regulating Business Continuity

  2. Post-9/11 Sarbanes-Oxley Act of 2002 HIPAA, Final Security Rule FFIEC BCP Handbook -2003/ 2008 Fair Credit Reporting Act NASD Rule 3510 NERC Security Guidelines FERC Security Standards NAIC Standard on BCP NIST Contingency Planning Guide FRB-OCC-SEC Guidelines for Strengthening the Resilience of US Financial System NYSE Rule 446 California SB 1386 Australia Standards BCM Handbook GAO Potential Terrorist Attacks Guideline Federal and Legislative BC Requirements for IRS Basel Capital Accord MAS Proposed BCP Guidelines (Singapore) NFA Compliance Rule 2-38 FSA Handbook (UK) BCI Standard, PAS 56 (UK) Civil Contingencies Bill (UK) FPC 65 NYS Circular Letter 7 ASIS State of NY FIRM White Paper on CP NISCC Good Practices (Telecomm) Australian Prudential Standard on BCM HB221 HB292 BS25999 SS507 TR19 CA Z1600 ISO/PAS 22399 Pre-9/11 Consumer Credit Protection Act OMB Circular A-130 FEMA Guidance Document Paperwork Reduction Act ISO 27002 (Previously ISO17799) FFIEC BCP Handbook Computer Security Act 12 CFR Part 18 Presidential Decision Directive 67 FDA Guidance on Computerized Systems used in Clinical Trials ANSI/NFPA Standard 1600 Turnbull Report (UK) ANAO Best Practice Guide (Australia) SEC Rule 17 a-4 FEMA FPC 65 CAR DRII BCI Title IX – 110-53 1991 - 2001 2002 -------------------------------------------------------2008

  3. BCP Standards for Financial Institutions • Federal Financial Institutions Examination Council (FFIEC) BCP Handbook • Business continuity planning is about maintaining, resuming, and recovering the business, not just the recovery of the technology. • The planning process should be conducted on an enterprise-wide basis. • A thorough business impact analysis and risk assessment are the foundation of an effective BCP. • The effectiveness of a BCP can only be validated through testing or practical application. • The BCP and test results should be subjected to an independent audit and reviewed by the board of directors. • A BCP should be periodically updated to reflect and respond to changes in the financial institution or its service provider(s). not just the recovery of the technology

  4. BCP Standards for Financial Institutions • NASD Rule 3510 Rule 3510 will require a business continuity plan that addresses, at a minimum: • Data back-up and recovery (hard copy and electronic) • Mission critical systems • Financial and operational assessments • Alternate communications between customers and the firm • Alternate communications between the firm and its employees • Business constituent, bank and counter-party impact • Regulatory reporting • Communications with regulators

  5. BCP Standards for Financial Institutions • NYSE Rule 446 • National Association of Insurance Commissioners (NAIC) • National Futures Association Compliance Rule 2-38 • (a) Members and member organizations must develop and maintain a written business continuity and contingency plan establishing procedures to be followed in the event of an emergency or significant business disruption. Members and member organizations must make such plan available to the Exchange upon request. • (b) Members and member organizations must conduct a yearly reviewof their business continuity and contingency plan to determine whether any modifications are necessary in light of changes to the member's or member organization's operations, structure, business or location. (a) Each Member must establish and maintain a written business continuity and disaster recoveryplanthat outlines procedures to be followed in the event of an emergency or significant business disruption. The plan shall be reasonably designed to enable the Member to continue operating, to reestablish operations, or to transfer its business to another Member with minimal disruption to its customers, other Members, and the commodity futures markets.

  6. BCP Standards for Financial Institutions • Electronic Funds Transfer Act - held that banks were liable for actual damages caused by failing to transfer funds in a timely fashion. This required the establishment of contingency plans to meet the standard of “reasonable” standard of care (the care that a reasonable man would exercise under the circumstances; the standard for determining legal duty.) • Basel Committee’s Capital Accords and Sound Practices for the Management and Supervision of Operational Risk - “Banks should have in place contingency and business continuity plans to ensure their ability to operate on an ongoing basis and limit losses in the event of severe business disruption.” – Seventh Principle in Sound Practices for Management and Supervision of Operational Risk • Reserve Bank of India - Operational Risk Management - Business Continuity Planning - Business Continuity planning is a key pre-requisite for minimising the adverse effects of one of the important areas of operational risk – business disruption and system failures.

  7. BCP Standards for Insurance Companies • NYS Circular Letter 7 • Board of Directors support • Training and education • Scenario based and operational plans • Testing and communications plans • Annual updates and changes submitted to the Department, starting on June 1, 2005

  8. Not Just IT • FFIEC – March 2008 • “Business continuity planning is about maintaining, resuming, and recovering the business, not just the recovery of the technology.” “The planning process should be conducted on an enterprise-wide basis”. • Australian Prudential Standard – April 2005 • “Business continuity management (BCM) describes a whole of business approach to ensure critical business functions can be maintained, or restored in a timely fashion” • Monetary Authority of Singapore– June 2003 • “Business Continuity Management (“BCM”) is an over-arching framework that aims to minimise the impact to businesses due to operational disruptions.It not only addresses the restoration of information technology (“IT”) infrastructure, but also focuses on the rapid recovery and resumption of critical business functions for the fulfillment of business obligations.”

  9. BCP Standards for the Healthcare/Life Science Industries • Health Insurance Portability and Accountability Act of 1996 (HIPAA), Final Security Rule • 7. Contingency Plan (§ 164.308(a)(7)(i)) • We proposed that a contingency plan must be in effect for responding to system emergencies. The plan would include an applications and data criticality analysis, a data backup plan, a disaster recovery plan, an emergency mode operation plan, and testing and revision procedures. • In this final rule, we make the implementation specifications for testing and revision procedures and an applications and data criticality analysis addressable, but otherwise require that the contingency features proposed be met.

  10. HIPAA BCP REQUIREMENTS • State privacy laws are NOT preempted by federal privacy rules, unless there is a direct conflict • If state law is “more stringent,” or covers an area not covered by federal rules, state law controls Is it enough ????

  11. HIPAA - Impact of State Laws • State privacy laws are NOT preempted by federal privacy rules, unless there is a direct conflict • If state law is “more stringent,” or covers an area not covered by federal rules, state law controls

  12. BCP Standards for the Healthcare/Life Science Industries Manufacturing Laboratory Clinical • FDA’s GxP: GoodPractices • FDA Guidance on Computerized Systems in Clinical Trials IX. SYSTEM CONTROLS B. Contingency Plans Written procedures should describe contingency plans for continuing the study by alternate means in the event of failure of the computerized system. C. Backup and Recovery of Electronic Records Backup and recovery procedures should be clearly outlined in the SOPs and be sufficient to protect against data loss. Records should be backed up regularly in a way that would prevent a catastrophic loss and ensure the quality and integrity of the data.

  13. BCP Standards for the Energy Industry • Federal Electric Reliability Council’s (FERC) Security Standards for Electric Market Participants, July 2002 (draft) • North American Electric Reliability Council’s (NERC) Security Guidelines for the Electricity Sector, June 2002 Business Continuity: Every participant operating a critical electric resource shall have contingency plans that define roles, responsibilities and actions for protecting the rest of the electric grid and market from the failure of its own critical resources. Those plans should further define the roles, responsibilities and actions needed to quickly recover or reestablish electric grid and market functions, processes and systems, in the event that a critical physical or cyber resource fails or suffers harm or attack. Such plans shall be tested or exercised regularly. • Continuity of Business Processes: • Reduces the likelihood of prolonged interruptions and enhances prompt resumption of operations when interruptions occur. Consider flexible plans that address key areas such as telecommunications, information technology, customer service centers, facilities security, operations, generation, power delivery, customer remittance and payroll processes. It is useful to revise and test plans on a regular basis. It also is advisable to train personnel so they fully understand their roles with respect to the plans.

  14. Cross-Industry BCP Standards • Sarbanes-Oxley Act of 2002 SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS. (a) RULES REQUIRED.—The Commission shall prescribe rules requiring each annual report required by section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) to contain an internal control report, which shall— (1) state the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (2) contain an assessment, as of the end of the most recent fiscal year of the issuer, of the effectiveness of the internal control structure and procedures of the issuer for financial reporting. (b) INTERNAL CONTROL EVALUATION AND REPORTING.—With respect to the internal control assessment required by subsection (a), each registered public accounting firm that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. An attestation made under this subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement. IS THERE BCP IN SARBANES-OXLEY????

  15. Is There BCP in Sarbanes-Oxley? • PCAOB (Public Company Accounting Oversight Board) NO “Furthermore, management's plans that could potentially affect financial reporting in future periods are not controls. For example, a company's business continuity or contingency planning has no effect on the company's current abilities to initiate, authorize, record, process, or report financial data. Therefore, a company's business continuity or contingency planning is not part of internal control over financial reporting."

  16. Is There BCP in Sarbanes-Oxley? • Practitioners YES

  17. Municipal Governments “Therefore, I have ordered the Department of Homeland Security to undertake an immediate review, in cooperation with local counterparts, of emergency plans in every major city in America.” President Bush 9/15/05

  18. Municipal Governments • Continuity of Operations (COOP) • Continuity of Government (COG) • FEMA Federal Preparedness Circular (FPC) 65 • Originally Issued – June 1999 – James Lee Witt • Revised – June 2004 – Michael Brown

  19. Rating COOP Compliance FEMA 65 Crosswalk

  20. Are They A Client? • FFIEC – Appendix E - Interdependencies • THIRD-PARTY PROVIDERS, KEY SUPPLIERS, AND BUSINESS PARTNERS • outsourcing information, transaction processing, and settlement activities • Institutions should review and understand service providers' BCPs and ensure critical services can be restored within acceptable timeframes based upon the needs of the institution - If possible the institution should consider participating in their provider’s testing process. HOW FAR DOES THIS EXTEND?????

  21. Are They A Client? • HIPAA – Business Associate (aka Chain of Trust) • the business associate must--(1) implement safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of the electronic protected health information that it creates, receives, maintains, or transmits on behalf of the covered entity; (2) ensure that any agent, including a subcontractor, to whom it provides this information agrees to implement reasonable and appropriate safeguards;

  22. Singapore – The Model for the Future? • Standard for Business Continuity / Disaster Recovery Service Providers (SS507) - Singapore is the first country in the world to introduce a Standard and Certification program for BC/DR service providers. Developed by the Infocomm Development Authority of Singapore and the IT Standards Committee (ITSC), the Standard specifies the stringent requirements for BC/DR service providers. These requirements benchmark against the top practices in the region and stipulate the operating, monitoring and up-keeping of BC/DR services offered. • TR19 – Technical Reference 19 - aims to help Singapore based enterprises build competence, capacity, resilience and readiness to respond to and recover from events that threaten to disrupt normal business operations. • PROPOSED BUSINESS CONTINUITY MANAGEMENT REQUIREMENTS FOR SGX MEMBERS – May 2008

  23. China & Japan • Chinese Business Continuity Management Committee (CBCM) • Setting Standards for Chinese • Emergency Response • Business Continuity • Still IT Centric (Committee exists under technology directorate) • Will Greatly Influence its “Business Partners” • Japanese Continuity Management & Planning Organization. (CMPO) • Business Continuity Advancement Organization. (BCAO)

  24. Standards • Uniform Commercial Code • Preparing for foreseeable business disruption • National Institute of Standards and Technology (NIST) • Contingency Planning Guide for Information Technology Systems • IT Governance Institute Standards COBIT • Control objectives for information and related technology

  25. ISO Standards and Business Continuity • ISO/TS 16949 -Applicable to any supplier to automotive original equipment manufacturer • ISO 27002 (Previously Designated (ISO17799) - Deals with Information Security • ISO 9001, Quality Management - Record Retention and Data Availability • ISO 14001, Environmental Mgt - Emergency Preparedness and Response • ISO/PAS 22399 – Societal Security - Guideline for incident preparednessand operational continuity management Section 6.3.2. Contingency Plans The organization shall prepare contingency plans to satisfy customer requirements in the event of an emergency such as a utility interruptions, labor shortages, key equipment failure, and field returns. • 11 BUSINESS CONTINUITY MANAGEMENT • 11.1 ASPECTS OF BUSINESS CONTINUITY MANAGEMENT • 11.1.1 Business continuity management process • 11.1.2 Business continuity and impact analysis • 11.1.3 Writing and implementing continuity plans • 11.1.4 Business continuity planning framework • 11.1.5 Testing, maintaining and re-assessing business continuity plans

  26. Is It BCP? Business Continuity vs.Vital Records • Foreign Corrupt Practices Act– “Make and keep records and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets.” • SEC Rule 17a - Record Retention Requirements • IRS Procedure 86-19 -Requires off-site protection, as well as documentation of computer records maintaining tax information. • European Union Privacy - Data Privacy • Under the Safe Harbor, organizations that have committed to cooperate and comply with the European Data Protection Authorities (DPAs) • PATRIOT ACT, ACH RULES, G-L-B, AS/NZ 4390, Records Management Standard, et. al.

  27. Legal Standards • Liability of Corporations • Liability of Corporate Executives • Liability to Outside Parties • Standard of Negligence • Standard of Care: • Prudent Man Doctrine • Exercise same care in managing company affairs as in managing own affairs. • Informed Business Judgment v. Gross Negligence

  28. Case Law – Legal Precedence • Blake v. Woodford Bank & Trust Co. (1977) – Foreseeable workload – failure to prepare • Sun Cattle Company, Inc.vs. Miners Bank (1974) – Computer System Failure – Foreseeable Computer Failure • Uniform Commercial Code – Preparing for foreseeable business disruption

  29. Meeting the Standards US v. Carroll Towing Co. (1947) 1. Probability of Harm (P): the chance that a damaging event will occur 2. Magnitude of Harm (M): the amount of financial damage that would occur should a disaster happen 3. Cost of Prevention (C): the price of putting in place a means of preventing the disaster’s effects P * M = C

  30. Negligent Failure To Plan/Prepare – Liability Pandemics • 2003 – Canadian Nurses who contracted SARS file suit stating that the Government was Negligent in not preparing for the second wave of the disease after the first wave was identified. • Munich Re: • American Bar Association

  31. BS25999 • Part 1 is an extension of PAS56 • Guidance • Prescriptive • Not Performance Based • Part 2 • Certification Body • Specification • Auditable • Create Ability to Demonstrate Compliance • Stage 1 – Audit – Initial Assessment – Desktop Review • Successful Completion Required Before Moving To Stage 2 • Stage 2 -Conformance Audit - Certification Audit • Demonstrate Implementation • Failure Requires Corrective Action Plan Which Must be Agreed Upon • Completion of Stage 1 & 2 Allows for Application to BS 25999 Certification Manager for Certification • Surveillance Audits • (To be fair, British standard BS25999 introduced "Maximum Tolerable Period of Disruption" (MTPD), another mind-bender destined for the verbal scrap heap, as well.)

  32. PUBLIC LAW 110-53 “IMPLEMENTING RECOMMENDATIONS OF THE 9/11 COMMISSION ACT OF 2007” TITLE IX

  33. The Holy Grail or SOX for Business Continuity • The Program Was Called For In Title IX Of "The Implementing The 9/11 Commission Recommendations Act Of 2007“ (Public Law 110-53) Which Addresses A Diversity Of Other National Security Issues As Well. It Was Signed Into Law By The President On August 3, 2007. • Intent – To Implement The Findings Of The 9/11 Commission • NFPA 1600 Was Recommendation Of Commission For Standard • DRII’s Professional Practices Are The Basis For BCP In NFPA 1600 • Will It Become A “Standard”???? • Voluntary • Non-punitive • Unsuccessful Attempts By Federal Government To Address Private Sector BCM • Overcome Investments By Private Sector • Strain On Small And Medium Sized Businesses In Supply Chain

  34. Title IX – 110-53 a. Goal of the new program is to provide a method to independently certify the emergency preparedness of private sector organizations, including their disaster / emergency management and business continuity programs.  The program focuses on certifying the preparedness of businesses and other private sector entities, and does not involve any individual professional certification.  b.  The program will be voluntary.c.  Key stakeholders are invited to participate in the development of the program.  Consultation with a variety of organizations and various sectors is required by the legislation.  Program development will likely include involvement by a diversity of private sector advisory groups and others.d.  The program will be administered outside of government by 3rd party organizations with experience / expertise in managing and implementing voluntary accreditation and certification programs.e.  One or more preparedness standards can be designated.  NFPA 1600 is reference by example.f.  Existing industry efforts, certifications and reporting in this area will not be duplicated or displaced, but rather recognized and integrated.g.  Special consideration will be made for small business.h.  Proprietary and confidential information is to be protected.

  35. Defining “The Standard” • Process Used By Sloan Interdisciplinary Team • Representatives of: • ASIS, DRI International, NFPA, RIMS • Review Existing Regulations • FFIEC, NYSE, SEC, NASD • NERC • HIPAA • Provide “Credit” for Work Already Done • Reduce Start From Scratch Opposition • Create Core Elements for Standard Core elements are those basic components that, when implemented within an organization’s unique governance and culture, provide the underlying framework to enable the organization to sustain itself in spite of a disruptive event (i.e., the “common set of criteria for preparedness, disaster management, emergency management, and business continuity programs...." called for under the law.)

  36. Core Elements 13 Become 8 • Policy statement and management commitment - Scope, program roles, responsibilities, and resources • Risk identification, assessments and criticality impact analyses, including legal and other requirements • Prevention and Mitigation Evaluation and Planning • Incident management (procedures and controls before, during and after a disruption, including emergency management of people, business operations and technology) includes communications • Recovery Planning - May be considered to include rebuilding, repairing, and / or restoring • Awareness and training • Exercises and testing • Program revision and improvement

  37. Process Mapping

  38. Standards Crosswalk • NFPA 1600:2007 Standard on Disaster/ Emergency Management and Business Continuity Programs • CSA Z1600 Standard on Emergency Management and Business Continuity Programs • DRI International Professional Practices for Business Continuity Planners • BS 25999-2: 2007 Business Continuity Management – Part 2: Specification • ASIS International - Organizational Resilience: Preparedness and Continuity Management - Best Practices Standard Probably Become Part of ISO/PAS 22399 • TR19:2005 Technical Reference for Business Continuity Management (BCM) includes TS507 • ISO/PAS 22399:2007 Societal Security: Guidelines for Incident Preparedness and Operational Continuity Management

  39. Flexibility Within A Framework • Existing Industry Efforts • Regulations • FFIEC – NYSE – SEC – HIPAA – NERC • Standards • ISO, ANSI, BSI NOT Sarbanes-Oxley

  40. Results

  41. Process For Implementation of Title IX 1.  DHS will designate one or more organizations to act as the accrediting body, and oversee the certification process, and to accredit qualified third parties to carry out the certification program. 2.  DHS will separately designate one or more standards for assessingprivate sector preparedness. 3.  DHS will provide information and promote the business case forvoluntary compliance with preparedness standards. 4.  DHS will monitor the effectiveness program on an on-going basis.

  42. Process For Implementation of Title IX • Appointment by DHS of Designated Officer October 1, 2007 • Ashley Moore– FEMA • Enter into Agreement for standard February 28, 2008 Marcus Pollack- FEMA

  43. DHS Selects ANSI-ASQ National Accreditation Board To Support Voluntary Private Sector Preparedness Certification Program Release Date: July 30, 2008 Release Number: HQ-08-148 WASHINGTON, D.C. -- The Department of Homeland Security announced today that it has signed an agreement with the ANSI-ASQ National Accreditation Board (ANAB) to establish and oversee the development and implementation of the accreditation and certification requirements for the Voluntary Private Sector Preparedness Accreditation and Certification Program.  This program is directed by Public Law 110-53, Implementing the Recommendations of the 9/11 Commission Act of 2007, requiring the department to establish a common set of criteria for private sector preparedness in disaster management, emergency management and business continuity. Under Title IX of the Act, the department is charged with a number of core tasks to establish the voluntary program, to include the designation of an organization to act as an accrediting body.  In this role, ANAB will be responsible for overseeing the certification process, managing the accreditation, and accrediting qualified third parties to carry out certifications of private sector entities. ANAB was selected based on its experience and expertise in managing and implementing accreditation programs. As required by the Act, Homeland Security Secretary Michael Chertoff previously designated an officer within the department to be responsible for the accreditation and certification program.  R. David Paulison, Administrator of the Federal Emergency Management Agency, serves as the designated officer and will chair an internal Private Sector Preparedness Council comprised of department leadership from the Science & Technology Directorate, Private Sector Office and the Office of Infrastructure Protection. The Private Sector Preparedness Council will focus on the remaining requirements of the Act. This includes selecting program standards, defining and promoting the business case for private sector entities to work toward voluntary certification, overseeing the program's progress, and providing regular updates to Congress.  Learn more at www.fema.gov/privatesectorpreparedness

  44. Gaining Accreditation

  45. Implications • Certification • Benefit To Passing Certification • If You Can’t Pass Don’t Start • Legal • Litigation Standard • “Voluntary Negligence” • No Teeth • Non-Punitive Will it meet customer requirements

  46. What We Know Right Now • Title IX of PL 110-53 is an unfunded effort, there are no tangible rewards; e.g., tax reductions in the form of deductions or tax credits to use as an incentive. While there are ongoing efforts to provide some insurance relief for business continuity planning, at this time no such incentives are available – Sloan Foundation Report • FEMA has been designated to lead the effort • ANSI – will oversee the certification process • Manage Accreditation • Accredit third parties to carry out certification • Collaborate to develop procedures and requirements for certification and accreditation

  47. Now For The Misinformation Although voluntary right now, these standards could soon be federal mandatesfor all private industry.- Not To Be Named Consulting Firm in advertising for their webinar Will share their best practices to meet the new "national preparedness standard" known as NFPA 1600 – Not To Be Named Consulting Firm • This voluntary program offers a number of potential benefits to the certified organization, including:  • Possible insurance premium advantages • Enhanced credit ratings • Competitive differentiation - Not To Be Named Consulting Firm

  48. Assessing The Business Continuity Process • DRII Evaluates Planning Process, Implementation and Testing Across The 10 Professional Practices – MAPS TO CORE ELEMENTS • Includes Subcategories • Ability To Weight Each Category • Utilizes The Same Scoring As It Does For Certifying Professionals • Questions Require a Yes Or No • Recommendations Are Provided When a “No” Answer Is Provided • May Be Customized For Industry, Country Or Regulatory Considerations • Will Contribute To a Worldwide Database

  49. Q & A Thank You Statements concerning legal matters should be understood to be general observations based solely on our experience as risk consultants and should not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with your own qualified legal advisors in these areas

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