With increased risks from cybercrime, you may want to know what is the financial impact of data breaches on businesses. Under the Data Protection Act 2018 (DPA) and the UK General Data Protection Regulation (UK GDPR), those who process personal data have a legal obligation to safeguard it.
This guide will explore the financial impact of a data breach on companies. Also, we’ll look at other negative repercussions that may be less known, such as irreparable damage to a company’s reputation.
if you have any questions about a data protection breach at work or any aspect of seeking damages after personal data was mishandled. Simply:
- Call our team for free on 0330 043 4072
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- What Is The Financial Impact Of Data Breaches On Businesses?
- How Else Could A Data Breach Negatively Impact A Business?
- Learn More About Data Breaches
What Is The Financial Impact Of Data Breaches On Businesses?
The cost of a data breach to a company can be devastating. Depending on the size of the organisation, a data breach can involve the personal information of thousands of people. Each one of them may be able to seek compensatory damages for the harm the data breach caused them.
Firstly, there are direct financial consequences to the company such as stolen funds, loss of intellectual property or digital assets. But also, there are other less obvious repercussions such as long-term damage to the company’s reputation and its future integrity. It might be hard to put a price on impacts such as these. Additionally, as each business is different, knowing the average data breach cost or what effect one could have on the long term profitability may not benefit you.
Furthermore, any failure to fully adhere to the data processing laws can expose the company to potentially massive fines from the Information Commissioners Office (ICO) who enforce data protection rights for the public.
For example, in 2019, the ICO fined British Airways £20 million because of a data breach affecting 400,000 customers. Similarly, Easy Jet suffered a sophisticated cyber attack that accessed the personal credit and debit card data of 9 million customers.
These data breach fines, along with the threat of stolen funds and reputational damage, all contribute to the cost of a data breach that a company may face. An increase in security investments could help prevent breaches, both those that occur accidentally through human error, or those related to criminal activity, such as hacking and cyber attacks.
resources: https://www.bbc.co.uk/news/technology-54568784 https://www.bbc.co.uk/news/technology-52722626
How Else Could A Data Breach Negatively Impact A Business?
As seen above, the financial impact of data breaches can be quite significant, especially once every aspect is considered. In some cases, financial losses, such as lost customer trust, can be quite significant.
All businesses, big and small, should take steps to ensure compliance with the data protection laws in place. This could include steps like implementing a long term cybersecurity strategy, having passwords on devices containing personal data, locks on storage areas for paperwork containing personal information and training to recognise phishing attempts. Increase security investments now can help prevent future incidents and therefore, save your business money in the long run.
For example, the financial implications of a misdirected letter or an email containing personal data being shared with the wrong person can trigger a chain of events that impacts the entire firm. Therefore, all staff expected to handle personal data should be trained to prevent data security incidents. In this case, staff members handling external letters and emails could be trained to check the recipient’s details are correct as well as ensuring that the blind carbon copy (BCC) feature is used when sending emails to more than one person.
There are other negative impacts that businesses should be aware of:
Reputational Damage
Customers are far less likely to trust a company that has been involved in a serious data breach. It’s understandable that they would be reluctant to place payment and personal details with the firm. Even if that company tried its best to comply with data protection laws and was nevertheless hacked, its reputation is tarnished.
Also, a costly focused campaign to repair their reputation in the eyes of customers may not remove this stigma. Customers may be more likely to choose a competitor and typically will tell their friends about the data breach problem they experienced, along with the effects on their lives. The drain on resources trying to reverse all this is disastrous for a company that needs to attract new customers and new employees to survive.
Legal Implications
Organisations need to demonstrate that they have complied with the data protection laws we mentioned in our introduction. Part of this compliance is to show that all necessary steps were taken to protect personal data either in digital or paperwork formats.
Also, staff should be correctly trained in DPA and UK GDPR standards of data processing. Demonstrating that they understand their obligations not to lose, destroy, alter, duplicate or share data incorrectly.
An accidental data breach can be just as devastating as a deliberate one. To help prevent an accidental breach, companies can ensure that staff only have access to personal data that they require to carry out their job. For example, a cleaner won’t need the same access to personal data as a receptionist, whose job may involve signing in clients or contacting them by phone. Additionally, staff with data access should be made aware of social engineering which can be used to trick them into disclosing a subject’s personal data or expose their computer network to hackers.
Any data breach that causes financial or mental health damage to a data subject, such as an employee, customer or client of that business, can provide them with grounds to claim compensation.
Disruptive Effect On Operational Downtime
The consequences of the data breach can impact the productivity of everyone in the company. Staff may need to cease normal operations, contain the problem and set about repairing the damage. Sometimes, an outside agency might be needed to carry out a forensic investigation and deliver a data breach report into how the security incident occurred.
Also, unless corrective measures are put in place immediately, the risk of future incidents can loom large over the company and its activities. This entails an administrative cost to re-secure data, change passwords, install better IT defences, make security investments and identify vulnerabilities. This may take days or weeks, significantly impacting revenue and resources.
How Personal Data Loss Could Impact A Business
Personal data is a term used to describe information that can reveal or infer your identity when used on its own, or alongside other information. This covers things such as name, address, mobile, email and bank details. However, the ICO identifies a different class of more sensitive information called special category data. This can cover:
- Medical records and information about health.
- Political and philosophical beliefs.
- Trade union memberships and affiliations.
- Sexual orientation.
- Religious beliefs.
- Biometric data.
Depending on the nature of the organisation, they may need to retain special category data. Therefore, greater scrutiny needs to be used when processing this to prevent data breaches. Any breach involving it holds the potential to impact the individual more seriously.
When asking ‘What are the consequences of a data breach?’ it’s important to understand the devastating potential on the person when weighing up the overall data breach costs. Identity theft, needing to relocate and mental health damage to the subjects whose data was breached, as much as the data breach costs on the company as a whole, are all vital considerations. Additionally, numerous subjects may be impacted by the same incident.
Learn More About Data Breaches
You don’t need to suffer the financial impact of data breaches without options. If you would like to know more about making a data breach claim for a compromise of your personal data, speak to advisors. If you are eligible to seek compensation, one of our data breach solicitors could take the case. Please call our team for free on 0330 043 4072 or find out about making a claim for data breach compensation online.
The following resources offer broader reading on how a cyber breach can damage data security:
- Read more about what a company should do after a data breach here.
- Information on how to report a data breach to make a compensation claim.
- Here is a general guide to data protection breach claims.
External help:
- Information on the ICO enforcement and regulatory fines can be read here.
- As well as specific guidance for businesses from the ICO.
- Read some Government information on the general data protection regulation rules.
Thanks for your interest in this guide about the financial impact of data breaches and what businesses need to know. Connect with the team for any help if you are a data subject whose personal data was breached.
