Cybersecurity Reputational Risk and Digital Resilience Building in the EU

As the world grows increasingly interconnected, the resilience of vital systems and infrastructures has never been more crucial. Disruptions to businesses are increasing, and the operating environment has never been more turbulent with threats from an ever-increasing number of fronts. As recently as last month, the Irish Government launched its national risk assessment, which warned of the “very high likelihood” of increased cyberattacks on Irish IT systems. To help meet these threats head-on in Ireland and across other member states, the European Union, recognising the vulnerabilities that can arise from disruptions to these systems, has introduced comprehensive legislation aimed at enhancing the resilience of entities deemed critical to the EU's social and economic stability. Scheduled to come into effect across member states on October 18th, 2024, one such regulation is the EU’s second, or evolving ‘Network and Information Systems Directive’ (NIS2) which is focused on enhancing cybersecurity and boosting digital resilience across Europe.

More importantly, there is a significant reputational risk associated with falling foul of regulatory compliance which can permeate into stakeholder confidence and relationships. Reputation risk can be summarised as the risk of failure to fulfil the expectations of your stakeholders in terms of performance and behaviour.

NIS2 aligns with the EU’s broader goal of adopting a resilience-building approach to threats, emphasising businesses need to prepare for, respond to, and recover from disruptions. NIS2 will extend the legislative scope beyond critical national infrastructure and essential services organisations (such as utilities and transport), to capture entities in 18 sectors, including public sector bodies and agencies, digital services providers (DSPs), research organisations, and certain food and manufacturing organisations. Organisations will need to review their business continuity plans to ensure they are both specific to the organisation, but also cognisant of the bigger picture interconnectivity of global businesses, as increasingly organisations depend on other functions and services to deliver products and services. NIS2 reflects a shift from reactive measures to a more proactive resilience framework, ensuring that critical entities can continue to function, even under duress, thereby safeguarding the EU’s internal market and member states' public welfare.

Reputational Threats and Opportunities

Non-Compliance Risks: Non-compliance with the new and evolving legislations is a significant reputational threat for business. Entities that fail to meet the standards will face financial penalties and increased public scrutiny. In today's digital age, news of non-compliance can spread quickly, potentially leading to a loss of stakeholder trust and confidence. Banking and telecommunications are both examples of sectors who will need to guarantee they are working with compliant organisations.

Compliance Benefits: Contrastingly, a reputational opportunity is available to businesses who wish to exceed the expectations of stakeholders and adopt a market leading position. By simply being compliant too, companies may be able to curate a competitive advantage over competitors who are not. If your services are disrupted when a client or customer needs them most, it can represent a significant breakdown in a relationship whereas conversely, being able to support them in their time of need can help bolster trust, confidence, validation, and referrals. Stewardship of best practices can help foster trust building and strengthen important stakeholder relationships.

Resilience: In recent times, the importance of resilience has been underscored by events such as the COVID-19 pandemic, wars, supply chain distributions, and increased cybersecurity threats across the globe. These challenges have shown that resilience is not just about having the right defences in place but also about being able to adapt and continue operations under altered circumstances. Businesses that wish to maintain a sustained competitive advantage over time, and amidst turbulent operating conditions must be well-protected and resilient to remain profitable through disruptions.

Role of regulation: Historically, regulation has played an important role in the adoption of business continuity and resilience. Regulations represent a pro-active approach to managing risks and issues rather than waiting for an event to happen and reacting without a plan or ambition. As such, in the context of increasing threats legislations will continue to impact businesses and adaptations will continuously need to be made.

For organisations covered by this impending legislation, the message is clear: proactive engagement with the requirements is essential. Entities should begin by thoroughly assessing their current risk management frameworks against the legislation's standards, identifying gaps, and implementing necessary enhancements.

The EU's critical entity legislation is more than just another regulatory requirement—it is a crucial component of a larger strategy designed to enhance the resilience of vital systems across the union. Noncompliance with which can present its own consequences and reputational risks.

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