European Union: Entry into force with grace period of Network and Information Security Directive (NIS2) to ensure a higher level of cybersecurity

On 16 January 2023, the Network and Information Security Directive (NIS2) enters into force with a grace period. The Member States are required to transpose the NIS 2 by 17 October 2024 and enforce the requirements from 18 October 2024. The NIS2 imposes cybersecurity obligations across sectors, including energy, transport, banking and finance, health, and providers of public electronic communications networks and digital services. The NIS2 includes definitions, cybersecurity incident reporting requirements and sanction mechanisms. The NIS2 specifies the incidents that would be classified as “significant” and provides clarity regarding the classification of entities as “essential” or “important”. The entities classified as “essential” include qualified trust service providers, public electronic communications network providers or publicly available electronic communications services, and entities listed in Annexes I and II. Entities not listed as “essential” are classified as “important”. The “essential entities” will be subject to the ex-ante and ex-post regulatory regimes, and the “important entities” will be subject only to the ex-post regulatory regime. The incidents that caused or are “capable of causing severe operational disruption or financial losses” and those that affected or are “capable of affecting other natural or legal persons” will be subject to notification and reporting requirements. Under NIS2, Member States are required to ensure the covered entities implement cybersecurity risk management measures to minimise the impact of incidents. The measures include establishing preventive, detective and responsive systems, employing cryptography and encryption and running backup management and disaster recovery. Furthermore, the NIS2 changes the time frame for reporting cyber incidents. The providers will be required to provide an early warning to the Computer Security Incident Response Teams and the competent authorities without delay and within 24 hours after they become aware of a possible cyber incident that could cause a significant impact or “have a cross-border impact”. Finally, the providers will also be required to submit a report within a month after the incident, outlining the severity of the cyber incident and its impacts and, upon request from competent authorities, an intermediate report. The Members States are required to establish penalties for non-compliance with the cybersecurity risk management measures and reporting requirements at a maximum of EUR 10 million or up to 2% of the global turnover for “essential entities”. The fines for “important entities” would be EUR 7 million or 1.4 % of the global turnover.