IT and Business Insights for SMB Solution Providers

Proposed Legislation: IT Service Provider Registration and Compliance Act

Legislation and regulation are coming to our industry - fast. You no longer get to ignore this issue or put your head in the sand and pretend it's not happening. It's happening. Now you can choose to get involved and influence your future, or simply do nothing and let the legislators and bureaucrats decide your future.

Obviously, I encourage you to get involved.

For a little background, please see the download here: http://bit.ly/kp9pillars

- That is a collated version of the "9 Pillars" discussion in previous posts.

I did a webinar on this document and proposed legislation related to it. The webinar recording is here:

https://youtu.be/Ev7kwfohi-8

If you want to get involved in this discussion please fill out the form here: 

What's Next?

Well, unfortunately, I think we need to accept that we will be regulated and we need to figure out how to use that fact to improve our business - and the industry as a whole.

Below is the text of some proposed legislation. A formatted version is available at https://bit.ly/itsp-leg

(No registration or email required. Just click and download.)

Basically, the goals of this proposal are:

1) Create a statewide (province-wide) database of IT Service Providers (ITSPs) and Managed Service Providers (MSPs) with a government agency.

 - - This database would be publicly searchable.

2) Defines ITSPs and MSPs. Basically, for this discussion, ITSPs provide small amounts of labor, break/fix labor, and specialty labor. They do not manage the entire client infrastructure or provide backup and disaster recovery services. MSPs are defined as providing those higher-end services.

3) Require all registered providers (ITSPs and MPS) to report cyber security incidents for any client with whom they have a contract.

4) Require that all services of $5,000 or more by a registered provider must sign a contract between the client and technology provider. If a client refuses to sign such a contract, they limit the amount money that can be claimed in an "errors and omissions" action.

5) Require that MSP offer comprehensive security services, including backup and disaster recovery. If a client declines these services, they may not hold the service provider liable for any security breeches or related ransomware damages. In addition, the client's insurance company may refuse to cover such incidents if the client has refused these services.

6) MSPs are required to provide appropriate maintenance and patching of all software.

7) Require reporting of all cyber security incidents and payments.

The ultimate goal of this legislation is to return some sanity to both the insurance industry and the SMB tech support industry. Insurance companies should be in support of this because it attempts to make two big changes:

1) Get more clients to actually secure their systems. 

It will do some good on the prevention side, and a great deal of good on the recovery side. Whether we prevent cyber security incidents, or simply get clients back in business quickly without paying ransoms, the clients are more profitable and insurance payouts are reduced dramatically.

2) If clients cannot or will not pay for appropriate security, the insurance companies are not required to cover these incidents. 

Ultimately, we cannot force companies to secure their data. But, insurance companies and technology consultants should not bear this burden when the client does not take the actions required to secure their systems.

Overall, I believe this makes the insurance industry and the IT industry natural allies on this front.

This is a starting place!

I am not a lawyer, a legislator, a lobbyist, or an insurance broker. So there's no way this proposed legislation is perfect. But it's a place to start the discussion.

Eventually, I would love to see something along these lines introduced in every state and province in North America. And beyond that as well. I was happy to see people from Germany, the UK, and Australia on my webinar about this.

I am gathering some volunteers. So if you are interesting in helping to fine-tune the discussion, or help in any way, please fill out that form. We will try to organize some meetings soon. I know everyone is crazy busy. But regulation and legislation are coming, whether you participate or not. And it will be very sad if we are subject to legislation written by and for large corporations who do not face our challenges or even risk going out of business due to these challenges.

Please join us today.

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Now, here's the text of that proposed legislation.

Proposed: IT Service Provider Registration and Compliance Act

Drafted under the auspices of the Small Biz Thoughts Technology Community. www.smallbizthoughts.org.

Note: “The [Appropriate Agency]” in this draft legislation should be replaced by the state police, cyber crimes task force, or whoever is the most appropriate agency in the state.


IT Service Provider Registration and Compliance Act

AN ACT of the Legislature relative to registration with the Secretary of State by IT service providers and managed service providers; to provide requirements for doing business; to provide for definitions; to provide for time limitations on the reporting of cyber incidents; to provide for limitations on liability; and to provide for related matters.

Be it enacted by the Legislature of the State of_________________, [appropriate statute code] is hereby enacted to read as follows:


1. IT Service providers and managed service providers

A. The purposes of this Chapter are:

(1) To create a registration for IT service providers and managed service providers doing business in this state.

(2) To provide access for the general public to obtain information on IT service providers and managed service providers.

(3) To require IT service providers and managed service providers to report cyber security incidents and the payment of cyber security-related ransom.

(4) To define limits of liability related to cyber security and IT services


B. Definitions

As used in this Chapter, the following words and phrases shall be defined as follows:

(1) "Cyber security incident" means the compromise of the security, confidentiality, or integrity of computerized data due to the exfiltration, modification, or deletion that results in the unauthorized acquisition of and access to information maintained by a client of an IT service provider or managed service provider, as defined in this Chapter.

(2) "Cyber security-related ransom" means a type of malware that encrypts or locks valuable digital files and demands a ransom to release the files.

(3) The [Appropriate Agency] means .

(4) “IT Service Provider” means any individual, sole proprietor, partnership, corporation, limited liability company, or any similar entity or combination of entities that provides technology consulting services on an as-needed or hourly basis to companies, not-for-profit organizations, or public agencies at the state or local level in the state of ___________.

(5) "Managed Service Provider" means any individual, sole proprietor, partnership, corporation, limited liability company, or any similar entity or combination of entities that manages and maintains the information technology infrastructure or end-user systems on an ongoing basis to companies, not-for-profit organizations, or public agencies at the state or local level in the state of ___________ .

(6) “Provider” means either an IT service provider or managed service provider, as defined above.

(7) “Client” means any company or individual that engages the services of a provider.


C. Requirements for doing business

(1) A provider shall not provide IT related services in this state unless the provider has registered with the Secretary of State and remains in good standing.

(2) Beginning [ Date ] , each provider that offers IT related services in this state shall file an application for initial registration with the Secretary of State consisting of the provider's name, address, telephone number, contact person, designation of a person in this state for service of process, and provide a listing of all officers, all directors, and all owners of ten percent or more of the provider. Additionally, the provider shall file a copy of its basic organizational documents, including but not limited to articles of incorporation, articles of organization, articles of association, or partnership agreement.

(3) The Secretary of State may charge a filing fee to maintain related records, not to exceed one hundred dollars ($100.00) for each filing period.

(4) A registration shall be effective for thirty-six months, unless the registration is denied or revoked. Sixty days prior to the expiration of a registration, a provider shall submit a renewal application on a form or web site prescribed by the Secretary of State.

(5) The Secretary of State shall maintain a publicly-searchable database of all registered providers along with the beginning and ending dates of their registration, and all important information from the provider’s application, and information related to cyber security incidents and cyber security-related ransom payments as defined in this Chapter. 

(6) Each registrant shall notify the Secretary of State of any material change in the registration information no later than sixty days after the effective date of such change.


2. Contracts between Providers and Clients

A. Contract Requirements

(1) Clients who engage a provider for services totaling less than five thousand dollars ($5,000.00) in a calendar year are not required to sign a contract for services. Clients who do not sign a contract for services shall not hold any provider liable for errors or omissions in an amount greater than the total dollar amount paid to provider in the previous twelve months.

(2) Clients who engage a provider for services totaling five thousand dollars ($5,000.00) or more in a calendar year shall sign a contract for services that is consistent with this Chapter and explicitly incorporates the provisions of this Chapter.

(3) Providers are required to inform prospective clients of the requirements of this Section.


B. Backup and Maintenance Minimum Requirements

(1) Any client who engages a provider for services and signs contract or agreement for services shall agree to pay for provider to create, maintain, and test data backups for all critical client data and IT services, except as described in this Section.

(2) If client chooses to not pay for provider to create, maintain, and test data backups, client shall sign a waiver releasing provider of liability under this Chapter. Any client who chooses not to engage provider to create, maintain, and test data backups, shall not hold provider liable for errors or omissions related to any cyber security incident or cyber security-related ransom during the period of their contract.

(3) Provider shall include in all contracts the creation, maintenance, and testing of data backups for all critical client data and IT services.

(4) Provider shall include in all contracts the maintenance and patching of all software and operating systems defined in the client between client and provider.


C. Notification of cyber incidents and payment of cyber ransoms

(1) To the extent a provider has knowledge of a cyber incident that impacts a client, the provider shall notify the [Appropriate Agency] of the cyber incident within sixteen business hours of discovery of the incident. The [Appropriate Agency] shall transmit this information to the Secretary of State within twenty-four hours.

(2) If a provider is aware of a cyber incident that impacts client and the provider or client makes a payment of ransom, to the extent the provider has actual knowledge of the payment, the provider shall report the payment of the ransom to the [Appropriate Agency] within ten calendar days of the payment. The [Appropriate Agency] shall transmit this information to the Secretary of State within twenty-four hours.

(3) A provider who submits a notification pursuant to this Section shall include in the notification the name of the client.

(4) Providers shall include the requirements of this Section in all contracts with clients. Both providers and clients shall be required to comply with the provisions of this Section to the extent the contract between the provider and the client explicitly incorporates the provisions of this Chapter.


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Comments, questions, and feedback welcome.

- Karl P.

:-)

About the Author

Karl W. Palachuk, is a technology consultant, author, speaker, trainer, and coach. He is the author of fifteen books. He has built several successful businesses, including two managed services companies. His books include Managed Services in a Month and The Network Documentation Workbook. Karl is a frequent trainer and speaker in the SMB Community. His popular blog can be found at SmallBizThoughts.com. He has more than twenty years experience as an I.T. professional and serves on advisory panels for several hardware and software companies.

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