The GBP 183 million fine that accentuates the false economy of IT cutbacks
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It’s been a tough couple of years for British Airways (BA). 2017 saw an IT failure that resulted in 726 flights getting cancelled and 75,000 passengers being stranded on a busy holiday weekend. The fallout from this incident was around GDP 80 million in compensation paid to passengers and an almost immediate 4% drop in the share price.

Then, in 2018, the British carrier fell victim to a security breach in which around 500,000 people had their personal data, including their credit card details, stolen by hackers.

It is this breach that British Airways is now told that it will be fined 183 million British Pounds for. The fine was announced by the British Information Commissioner’s Office (ICO), and if it stands, it will be the biggest fine ever imposed for a data breach in the UK or elsewhere in Europe. In fact, the fine dwarfs previous fines issued up until now.

The biggest fines issued by the ICO in the UK were to Facebook and Equifax – both of whom were fined GBP 500,000.

Facebook’s fine was for the notorious Cambridge Analytica data scandal, where the information of 87 million Facebook users was shared with the political consultancy through a quiz app that collected data from participants as well as their friends without their consent.

Equifax Ltd. fine was for something more similar to the British Airways case: In May 2017, hackers stole personal data including names, dates of birth, addresses, passwords, driving licences and financial details of 15 million UK customers. In its ruling, the ICO said that Equifax had failed to take appropriate steps to ensure the protection of this sensitive data despite warnings from the US government.

But these fines were all from before the General Data Protection Regulation (GDPR) came into effect. Now, under the new rules, fines can be as high as EUR 10,000,000 or 2% of total global annual turnover for the previous year (whichever is higher) for lesser data breach incidents. For significant data breaches and non-compliance, the fines can be double that: EUR 20,000,000 or 4% of total global annual turnover (whichever is higher).

British Airways’ GBP 183 million fine is the equivalent of 1.5% of its turnover in 2017. Had the ICO gone for the maximum limit, the fine could have been as much as GBP 489 million.

A lot can still happen before the fine is finally issued, and BA is likely to dispute the decision in court (Willie Walsh, the CEO of BA’s parent company, IAG, has said they will). But even if the fine ends up being significantly lower, there are obvious lessons to be learned from this case:

 

  1. “People’s personal data is just that—personal.” These were the words spoken by Elizabeth Denham, the ICO Information Commissioner, in response to media enquiries on the fine. In other words: companies will need to take data privacy extremely seriously from now on or expect very hefty fines.

 

  1. Attitude matters. British Airways chairman and chief executive, Alex Cruz, said in a statement that BA was “…surprised and disappointed in this initial finding from the ICO. British Airways responded quickly to a criminal act to steal customers’ data. We have found no evidence of fraud/fraudulent activity on accounts linked to the theft. We apologize to our customers for any inconvenience this event caused.”

Although we can’t know this for certain, the response may reflect what could be described as an “attitude problem” in how BA has been dealing with the ICO: a whiff of arrogance, blaming the breach on criminal hackers and failing to accept any blame or real responsibility for the incident.

We know from other GDPR cases in other countries that any failure to cooperate with the authorities may result in larger fines. Full transparency, full cooperation and accepting responsibility are the way to go. If it’s your data, then the buck stops with you.

  1. The risks associated with IT cutbacks just went through the roof. The operating losses following the financial crises of 2008 made the carrier slash back its IT budgets (as well as other “expenditures”). Airlines, in general, are notorious for under-spending on IT, but when combining that with further cutbacks on IT expenditure, disaster may ensue. BA’s recent IT related woes may or may not be a direct result of under-spending on IT, but in the court of public opinion, this connection has been made.

 

In any case, with the new fine regime under the GDPR, the risks associated with under-spending on IT – and on IT security in particular – have now gotten substantially bigger.

More than ever, the notion that IT is an expenditure that can be cut back on is a false economy.

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Claus has more than 17 years of experience in both strategic and tactical guidance for vendors and service providers in the IT and telecommunications space. Having worked as an analyst and a consultant in both Europe and Asia, Claus has supported clients with local, regional and global briefs to position their offerings and grow their businesses in their target markets. These have included Google, Microsoft, IBM, AT&T, Orange and SingTel. Previously, Claus spent nine years at IDC Asia Pacific, where he climbed the ranks to launch and lead IDC’s Emerging Technology practice. In Asia and Europe, Claus is also a renowned speaker and blogger, who continues to evaluate and forecast how disruptive technologies impact the marketplace and how digitization is transforming business models across all industries. Claus is based in Copenhagen, Denmark, which also marks Ecosystm’s extension and coverage in the EMEA region.


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