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5 Damaging Consequences of a Data Breach

5 damaging consequences of a data breach

about the author

Data breaches continue to dominate headlines around the world. Despite a greater emphasis being placed on data security, hackers are continually finding new ways to circumvent defences to gain access to valuable corporate data and credentials.

Whether it’s through sophisticated social engineering techniques, ransomware, malware or third party supply chain cyber attacks, hackers are trying every available tactic to infiltrate, expose and profit from this sensitive information.

According to a Risk Based Security research report, within the first nine months of 2019, 5,183 breaches were reported, exposing more than 7.9 billion compromised records. Compared to 2018, the total number of data breaches was up 33.3% and the total number of records exposed more than doubled, up 112%.

Unfortunately, this worrying increase in data breaches does not correlate with an increase in organisational preparedness. In fact, many organisations are woefully underprepared and fail to implement the basic security measures that are needed to prevent a cyber attack by hackers.

In a recent study conducted by Kaspersky, more than half of the recipients (57%) said they do not have a cyber security policy in place, rising to more than two-thirds (71%) of medium-sized businesses (250 to 549 employees).

It’s this complacency to cyber security that exposes organisations to significant risk and places them under intense scrutiny, both with regulators and their customers, should a breach take place.

Organisations need to fully grasp the far-reaching consequences that a data breach could have on their business if they want to mitigate risk and defend against attack.

Some of the more damaging consequences of a data breach include:

1. Financial Loss

The financial impact of a data breach is undoubtedly one of the most immediate and hard-hitting consequences that organisations will have to deal with. According to a recent study by the Ponemon Institute, the cost of a data breach has risen 12% over the past five years to £3.2m on average globally.

Costs can include, compensating affected customers, setting up incident response efforts, investigating the breach, investment in new security measures, and legal fees, not to mention the eye-watering regulatory penalties that can be imposed for non-compliance with the GDPR (General Data Protection Regulation).

Organisations in breach of the GDPR can be fined up to 4% of annual global turnover or 20 Million Euros, whichever is greater. If organisations are under any illusion that these financial penalties will not be enforced, the recent fines imposed on British Airways and Marriot have highlighted just how seriously the ICO intends to take GDPR violations.

A breach can also significantly impact a company’s share price and valuation. This is exactly what happened to Yahoo after it was breached in 2013. The breach was leaked in 2016 when the company was about to be bought over by US telecoms company Verizon. The acquisition went ahead with the company buying Yahoo for a discounted rate of $4.48 billion, around $350 million less than the original asking price.

2. Reputational Damage

The reputational damage resulting from a data breach can be devastating for a business. Research has shown that up to a third of customers in retail, finance and healthcare will stop doing business with organisations that have been breached. Additionally, 85% will tell others about their experience, and 33.5% will take to social media to vent their anger.

News travels fast and organisations can become a global news story within a matter of hours of a breach being disclosed. This negative press coupled with a loss in consumer trust can cause irreparable damage to the breached company.

Consumers are all too aware of the value of their personal information and if organisations can’t demonstrate that they have taken all the necessary steps to protect this data, they will simply leave and go to a competitor that takes security more seriously. A data breach can easily result in identity theft when sensitive information is exposed to unauthorised individuals. Hackers can use this information to steal a person’s identity and commit fraudulent activities, such as opening new accounts or making unauthorised purchases.

Reputational damage is long-lasting and will also impact an organisation’s ability to attract new customers, future investment and new employees to the company.

3. Operational Downtime

Business operations will often be heavily disrupted in the aftermath of a hack. Organisations will need to contain the data breach and conduct a thorough investigation into how it occurred and what systems were accessed.

Operations may need to be completely shut down until investigators get all the answers they need. This process can take days, even weeks to identify vulnerabilities, depending on the severity of the breach. This can have a huge knock-on effect on revenue and an organisation’s ability to recover.

According to Gartner, the average cost of network downtime is around $5,600 per minute. This equates to around $300,000 per hour. This will obviously differ depending on the size of organisation and the industry affected, but clearly, it can have a devastating impact and significantly affect business productivity.

4. Legal Action

Under data protection regulations, organisations are legally bound to demonstrate that they have taken all the necessary steps to protect personal data. If this data security is compromised, whether it’s intentional or not, individuals can seek legal action to claim compensation.

There has been a huge increase in class action lawsuits in both the US and UK as victims seek monetary compensation for the loss of their leaked data.

Equifax’s 2017 data breach affected more than 145 million people worldwide and the company has paid out more than $700 million in compensation to affected US customers. The breach affected an estimated 15 million customers in the UK, who have now launched their own separate legal action in the high court seeking £100 million in compensation.

As the frequency and severity of breaches continue to rise, we can expect to see more of these group cases being brought to court.

5. Loss of Sensitive Data

If a data breach has resulted in the loss of sensitive personal data, the consequences can be devastating. Personal data is any information that can be used to directly or indirectly identify an individual. This includes everything from, name, passwords, IP address and credentials. It also includes sensitive personal data such as biometric data or genetic data which could be processed to identify an individual.

The reality is that if a critical patient had their medical records deleted in a data breach it could have a serious knock-on effect on their medical treatment and ultimately their life. Biometric data is also extremely valuable to cybercriminals and worth a lot more than basic credit card information and email addresses. The fallout from breaches that expose this data can be disastrous and exceed any financial and reputational damage.

Regardless of how prepared your organisation is for a data breach, there is no room for complacency in today’s evolving cyber security landscape. You must have a coordinated security strategy in place that protects data privacy, reduces threats and safeguards your brand’s reputation.

MetaCompliance specialises in providing the best cyber Security Awareness Training available on the market. Our products directly address the specific challenges that arise from cyber threats and corporate governance by making it easier for users to engage in cyber security and compliance. Get in touch for further information on how we can help transform cyber security training within your organisation.

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