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Red Flags Rule delay reveals troubling pattern developing

May 1 passed without the raising of the Red Flags: The Federal Trade Commission announced a delay in the enforcement of the Red Flags Rule, which requires companies to come up with programs to detect and respond to financial data breaches or identity theft.

Last week, the FTC said it will delay enforcement until Aug. 1, “to give creditors and financial institutions more time to develop and implement written identity theft prevention programs.”

This is the second enforcement delay of a major data protection law. Massachusetts extended enforcement of its 201 CMR 17.00 law until Jan. 1, from the original enforcement date of May 2009, also to give constituents more time to get into compliance.

Security expert and contributor Paul Roberts of The 451 Group sees a pattern developing, which he relayed in an email:

I think the decision to delay Red Flag Rule enforcement is yet more evidence that the public sector has a lot to learn about formulating and then implementing data privacy regulations. What’s so interesting is how closely the FTC’s Red Flag Rule headache parallels Massachusetts regulators’ headaches trying to implement their “toughest in the nation” data privacy laws.

“The lesson in both cases is that regulators need to put down the sledgehammer when writing these new rules and spend more time refining their scope and soliciting input from the private sector so that they understand the practical impact of new requirements on businesses, nonprofits and individuals. Practically: Some kind of phased-in approach to enforcement would seem to make sense. And, as with the PCI regulations, it might be smarter to have an iterative process to writing these kinds of regulations, rather than trying to fix a complex problem (data theft, data privacy) in one fell swoop. So you might start with small-bore regulations that have teeth, but are focused on clear problems and easy to implement, then expand and refine them over time, as conditions change.

Seems like smart advice. Perhaps security, compliance and risk managers from corporate America should start calling for a change of strategy from federal and state lawmakers. But on the other hand, he’s also right about the fact that the “public sector has a lot to learn about formulating and then implementing data privacy regulations.” As we have also pointed out, many compliance, security and risk managers are finding themselves out of the loop, creating a major disconnect between the new laws and the efforts many companies are putting forth to get into compliance.

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