Mass. Dilutes Data Security Regs To Appease Smaller Retailers

Massachusetts has watered down its proposed retail data security regulations to make them more palatable to small businesses. Calling for a "risk-based" approach that takes into account a business' size and the risk of identity theft posed by its operations, the revised regulations are intentionally vague instead of specific in several areas.

For example, in discussing third-party service-providers with access to personal information, the initial regulations called for "limiting the amount of personal information collected to that reasonably necessary to accomplish the legitimate purpose for which it is collected; limiting the time such information is retained to that reasonably necessary to accomplish such purpose; and limiting access to those persons who are reasonably required to know such information in order to accomplish such purpose or to comply with state or federal record retention requirements."

Companies were also charged with "identifying paper, electronic and other records, computing systems, and storage media, including laptops and portable devices used to store personal information, to determine which records contain personal information, except where the comprehensive information security program provides for the handling of all records as if they all contained personal information."

That section was slimmed down in the revision, which calls for "requiring such third-party service providers by contract to implement and maintain such appropriate security measures for personal information." The older version required companies to take steps to "verify" that these providers have the capacity to protect the information in a manner specified by law.

The revised section removes the word "verify" and says businesses must take reasonable steps "to select and retain third-party service providers that are capable of maintaining appropriate security measures to protect such personal information" consistent with Massachusetts and federal regulations.

Also, the revised regulation eliminates the original requirement that companies craft "a written procedure that sets forth the manner in which physical access" to personal information records is restricted. Instead, it says companies must impose "reasonable restrictions upon physical access" to those records and "storage of such records and data in locked facilities, storage areas or containers."

The state said the revised regulations, scheduled to become effective March 1, 2010, maintain identity theft protections while reinforcing "flexibility in compliance" by small businesses. Barbara Anthony, the state Undersecretary of the Office of Consumer Affairs and Business Regulation, said the state listened "to the concerns of small business leaders," and learned "there were issues regarding the impact these regulations have on those companies." She said the updated regulations "feature a fair balance between consumer protections and business realities."

Many of the wording changes are subtle. For example, the revised document says the standards apply to persons "who own or license personal information about a resident" of Massachusetts. The prior version of the sentence said the regs apply to those who "own, license, store or maintain" the personal information. The prior version said one of the purposes of the regulation was to "protect against unauthorized access to or use of such information in a manner that creates substantial risk of identity theft or fraud against such residents." The simplified revised sentence says the purpose is to "protect against unauthorized access to or use of such information that may result in substantial harm or inconvenience to any consumer."

The original regulation's definition of "encrypted" spoke of the transformation of data "through the use of an algorithmic process, or an alternative method at least as secure into a form in which meaning cannot be assigned without the use of a confidential process or key unless further defined by regulation of the Consumer Affairs and Business Regulation." The revised definition removes the words "through the use of an algorithmic process, or an alternative method at least as secure" and also deletes the "unless further defined by" section. That means, to Massachusetts, data encryption simply is "the transformation of data into a form in which meaning cannot be assigned without the use of a confidential process or key."

In detailing the duty to protect and the standards for protecting personal information, the revised regulation says, "every person that owns or licenses personal information" about a Massachusetts resident "shall develop, implement and maintain a comprehensive information security program that is written in one or more readily accessible parts and contains administrative, technical and physical safeguards that are appropriate to the (a) size, the scope and type of business of the person obligated to safeguard the personal information under such comprehensive information security program; (b) the amount of resources available to such person; (c) the amount of stored data; and (d) the need for security and confidentiality of both consumer and employee information.

Before being revised, that section said the business needed to "monitor" the information security program as well as develop, implement and maintain it. It made no mention of the program being appropriate to the company's size, type, resources, stored data and security needs. Instead, the original statement said the "comprehensive security program shall be reasonably consistent with industry standards, and shall contain administrative, technical and physical safeguards to ensure the security and confidentiality of such records."

In a statement, the Office of Consumer Affairs and Business Regulation said the regulations "make clear that (the state's new) approach to data security is a risk-based approach that is especially important to small businesses that may not handle a lot of personal information about customers. Under a risk-based approach, a business, in developing a written security program, should take into account its size, nature of its business, the kinds of records it maintains, and the risk of identity theft posed by its operations."

The state further explains its motivation for the proposed changes by noting it now "recognizes that the size of a business and the amount of personal information it handles plays a role in the data security plan the business creates." Anthony noted the new regulations are "technology neutral and acknowledge that technical feasibility plays a role in what many businesses, especially small businesses can do to protect data." She contended the approach is more consistent with federal law. "Whether it’s a small amount of employee paperwork, or a large amount of consumer information kept on an electronic database, each requires its own appropriate level of security and protection," Anthony said. "The changes we are making reflect that reality without exposing companies or consumers to a heightened risk of theft."