EUROPEAN COMMISSION Brussels, 16.12.2020 COM(2020) 823 final 2020/0359(COD) Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on measures for a high common level of cybersecurity across the Union, repealing Directive (EU) 2016/1148 (Text with EEA relevance) {SEC(2020) 430 final} - {SWD(2020) 344 final} - {SWD(2020) 345 final}



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL •Reasons for and objectives of the proposal This proposal is part of a package of measures to improve further the resilience and incident response capacities of public and private entities, competent authorities and the Union as a whole in the field of cybersecurity and critical infrastructure protection. It is in line with the Commission’s priorities to make Europe fit for the digital age and to build a future-ready economy that works for the people. Cybersecurity is a priority in the Commission’s response to the COVID-19 crisis. The package includes a new Strategy on Cybersecurity with the aim of strengthening the Union’s strategic autonomy to improve its resilience and collective response and to build an open and global internet. Finally, the package contains a proposal for a directive on the resilience of critical operators of essential services, which aims to mitigate physical threats against such operators. This proposal builds on and repeals Directive (EU) 2016/1148 on security of network and information systems (NIS Directive), which is the first piece of EU-wide legislation on cybersecurity and provides legal measures to boost the overall level of cybersecurity in the Union. The NIS Directive has (1) contributed to improving cybersecurity capabilities at national level by requiring Member States to adopt national cybersecurity strategies and to appoint cybersecurity authorities; (2) increased cooperation between Member States at Union level by setting up various fora facilitating the exchange of strategic and operational information; and (3) improved the cyber resilience of public and private entities in seven specific sectors (energy, transport, banking, financial market infrastructures, healthcare, drinking water supply and distribution, and digital infrastructures) and across three digital services (online marketplaces, online search engines and cloud computing services) by requiring Member States to ensure that operators of essential services and digital service providers put in place cybersecurity requirements and report incidents. The proposal modernises the existing legal framework taking account of the increased digitisation of the internal market in recent years and an evolving cybersecurity threat landscape. Both developments have been further amplified since the onset of the COVID-19 crisis. The proposal also addresses several weaknesses that prevented the NIS Directive from unlocking its full potential. Notwithstanding its notable achievements, the NIS Directive, which paved the way for a significant change in mind-set, in relation to the institutional and regulatory approach to cybersecurity in many Member States, has also proven its limitations. The digital transformation of society (intensified by the COVID-19 crisis) has expanded the threat landscape and is bringing about new challenges which require adapted and innovative responses. The number of cyber -attacks continues to rise, with increasingly sophisticated attacks coming from a wide range of sources inside and outside the EU. The evaluation on the functioning of the NIS Directive, conducted for the purposes of the Impact Assessment, identified the following issues: (1) the low level of cyber resilience of businesses operating in the EU; (2) the inconsistent resilience across Member States and sectors; and (3) the low level of joint situational awareness and lack of joint crisis response. For example, certain major hospitals in a Member State do not fall within the scope of the NIS Directive and hence are not required to implement the resulting security measures, while in another Member State almost every single healthcare provider in the country is covered by the NIS security requirements. Being an initiative within the Regulatory Fitness Programme (REFIT), the proposal aims at reducing the regulatory burden for competent authorities and compliance costs for public and private entities. Most notably, this is achieved by abolishing the obligation of competent authorities to identify operators of essential services and by increasing the level of harmonisation of security and reporting requirements to facilitate regulatory compliance for entities providing cross-border services. At the same time, competent authorities will also be given a number of new tasks, including the supervision of entities in sectors so far not covered by the NIS Directive. •Consistency with existing policy provisions in the policy area This proposal is part of a wider set of existing legal instruments and upcoming initiatives at Union level aimed at increasing the resilience of public and private entities against threats. In the area of cybersecurity, these are notably Directive (EU) 2018/1972 establishing the European Electronic Communications Code (the cybersecurity-related provisions of which will be replaced by the provisions of the proposal at hand) and the proposal for a Regulation on digital operational resilience for the financial sector (COM(2020) 595 final), which will be considered as lex specialis to the proposal at hand once both acts have come into force. In the area of physical security, the proposal complements the proposal for a Directive on the resilience of critical entities, which revises Directive 2008/114/EC on the identification and designation of European critical infrastructures and the assessment of the need to improve their protection (ECI Directive), which establishes a Union process for identifying and designating European critical infrastructures, and sets out an approach for improving their protection. In July 2020, the Commission adopted the EU Security Union Strategy, which acknowledged the increasing interconnection and interdependency between physical and digital infrastructures. It underlined the need for a more coherent and consistent approach between the ECI Directive and the Directive (EU) 2016/1148 concerning measures for a high common level of security of network and information systems across the Union. The proposal is therefore closely aligned with the proposal for a Directive on the resilience of critical entities, which aims at enhancing the resilience of critical entities against physical threats in a large number of sectors. The proposal aims to ensure that competent authorities under both legal acts take complementary measures and exchange information as necessary regarding cyber and non-cyber resilience, and that particularly critical operators in the sectors considered to be ‘essential’ per the proposal at hand are also subject to more general resilience-enhancing obligations with an emphasis on non-cyber risks. •Consistency with other Union policies As set-out in the Communication ‘Shaping Europe’s digital future’, it is crucial for Europe to reap all the benefits of the digital age and to strengthen its industry and innovation capacity, within safe and ethical boundaries. The European strategy for data sets out four pillars – data protection, fundamental rights, safety and cybersecurity – as essential pre-requisites for a society empowered by the use of data. In a resolution from 12 March 2019, the European Parliament called “[…] on the Commission to assess the need to further enlarge the scope of the NIS Directive to other critical sectors and services that are not covered by sector-specific legislation”. The Council, in its conclusions from 9 June 2020, welcomed “[…] the Commission’s plans to ensure consistent rules for market operators and facilitate secure, robust and appropriate information-sharing on threats as well as incidents, including through a review of the Directive on security of network and information systems (NIS Directive), to pursue options for improved cyber resilience and more effective responses to cyber-attacks, particularly on essential economic and societal activities, whilst respecting Member States’ competences, including the responsibility for their national security.” Furthermore, the proposed legal act is without prejudice to the application of competition rules laid down in the Treaty on the Functioning of the European Union (TFEU).

Given that a significant part of the cybersecurity threats have their origin outside of the EU, a coherent approach to international cooperation is needed. This Directive shall constitute a reference model to be promoted in the context of the EU’s cooperation with third countries, notably when providing external technical assistance. 2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY •Legal basis The legal basis for the NIS Directive is Article 114 of the Treaty on the Functioning of the European Union, whose objective is the establishment and functioning of the internal market by enhancing measures for the approximation of national rules. As held by the Court of Justice of the EU in its judgement in Case C‑58/08 Vodafone and others, the resort to Article 114 TFEU is justified where there are differences between national rules which have a direct effect on the functioning of the internal market. Equally, the Court held that where an act based on Article 114 TFEU has already removed any obstacle to trade in the area that it harmonises, the Union legislature cannot be denied the possibility of adapting that act to any change in circumstances or development of knowledge having regard to its task of safeguarding the general interests recognised by the Treaty. Finally, the Court held that the measures for the approximation covered by article 114 TFEU are intended to allow a margin of discretion, depending on the general context and the specific circumstances of the matter to be harmonised, as to the method of approximation most appropriate to achieve the desired result. The proposed legal act would remove obstacles to, and improve the establishment and functioning of the internal market for essential and important entities by: establishing clear generally applicable rules on the scope of application of the NIS Directive, harmonising the rules applicable in the area of cybersecurity risk management and incident reporting. Current disparities in this area, both at legislative and supervisory levels, as well as national and EU levels, are obstacles to the internal market because entities that engage in cross-border activities face different, and possibly overlapping, regulatory requirements and/or their application, to the detriment of the exercise of their freedoms of establishment and of provision of services. Different rules also have a negative impact on the conditions of competition in the internal market when it comes to entities of the same type in different Member States. •Subsidiarity (for non-exclusive competence) Cybersecurity resilience across the Union cannot be effective if approached in a disparate manner through national or regional silos. The NIS Directive partly addressed this shortcoming, by setting a framework for network and information systems security at national and Union levels. However, its transposition and implementation also brought to light inherent shortcomings and limits of certain provisions or approaches, such as the unclear delimitation of the scope of the directive leading to significant differences in the extent and depth of de facto EU intervention at Member State level. Furthermore, since the COVID-19 crisis, the European economy has grown even more dependent on network and information systems than ever before and sectors and services are increasingly interconnected. EU intervention going beyond the current measures of the NIS Directive is justified mainly by: (i) the increasingly cross-border nature of the NIS-related threats and challenges; (ii) the potential of Union’s action to improve and facilitate effective and coordinated national policies; and (iii) the contribution of concerted and collaborative policy actions to effective protection of data protection and privacy. •Proportionality The rules proposed in this Directive do not go beyond what is necessary to meet the specific objectives satisfactorily. The envisaged alignment and streamlining of security measures and reporting obligations relate to Member States and businesses’ requests to improve the current framework. The proposal takes account of the already existing practices in the Member States. An enhanced level of protection achieved through such streamlined and coordinated requirements is proportionate to the increasingly high risks faced including those presenting a cross-border element; they are reasonable and generally corresponding to the interest of the entities involved in ensuring continuity and quality of their services. The costs for ensuring systematic cooperation amongst Member States would be small as compared to the economic and societal losses and damages caused by cybersecurity incidents. Furthermore, the stakeholder consultations held in the context of the review of the NIS Directive, including the results of the Open Public Consultation and targeted surveys, show support for the revision of the NIS Directive along the above-mentioned lines. •Choice of the instrument The proposal will further streamline the obligations imposed on businesses and ensure a higher level of harmonisation thereof. At the same time, the proposal aims at providing Member States with the flexibility needed to take into account national specificities (such the possibility to identify additional essential or important entities going beyond the baseline set by the legal act). The future legal instrument should therefore be a Directive, as this legal instrument allows for targeted improved harmonisation as well as a certain degree of flexibility for competent authorities. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •Ex-post evaluations/fitness checks of existing legislation The Commission has carried out an evaluation of the functioning of the NIS Directive. It has analysed its relevance, EU added value, coherence, effectiveness and efficiency. The main findings of this analysis are: ·The scope of the NIS Directive is too limited in terms of the sectors covered, mainly due to: (i) increased digitisation in recent years and a higher degree of interconnectedness, (ii) the scope of the NIS Directive no longer reflecting all digitised sectors providing key services to the economy and society as a whole. ·The NIS Directive is not sufficiently clear when it comes to the scope for operators of essential services and its provisions do not provide sufficient clarity regarding national competence over digital service providers. This has led to a situation in which certain types of entities have not been identified in all Member States and are therefore not required to put in place security measures and report incidents. ·The NIS Directive allowed wide discretion to the Member States when laying down security and incident reporting requirements for operators of essential services (hereinafter called ‘OES(s)’). The evaluation shows that in some instances Member States have implemented these requirements in significantly different ways, creating additional burden for companies operating in more than one Member State. ·The supervision and enforcement regime of the NIS Directive is ineffective. For example, Member States have been very reluctant to apply penalties to entities failing to put in place security requirements or report incidents. This can have negative consequences for the cyber resilience of individual entities.

·The financial and human resources set aside by Member States for fulfilling their tasks (such as OES identification or supervision), and consequently the different levels of maturity in dealing with cybersecurity risks, vary greatly. This further exacerbates the differences in cyber resilience between Member States. ·Member States do not share information systematically with one another, with negative consequences in particular for the effectiveness of the cybersecurity measures and for the level of joint situational awareness at EU level. This is also the case for information sharing among private entities, and for the engagement between the EU level cooperation structures and private entities. •Stakeholder consultations The Commission has consulted a broad range of stakeholders. Member States and stakeholders were invited to participate in the Open Public Consultation and in the surveys and workshops organised by Wavestone, CEPS and ICF, who the Commission has contracted to carry out a study supporting the review of the NIS Directive. The consulted stakeholders included competent authorities, Union bodies dealing with cybersecurity, operators of essential services, digital service providers, entities providing services outside the scope of the current NIS Directive, trade associations and consumer organisations and citizens. In addition, the Commission has been in constant touch with the competent authorities in charge of implementing the NIS Directive. The Cooperation Group has extensively covered various cross-cutting and sectoral implementation aspects. Finally, during its NIS country visits in 2019 and 2020, the Commission has interviewed 154 public and private entities, as well as 117 competent authorities. •Collection and use of expertise The Commission has contracted a consortium of Wavestone, CEPS and ICF to support the Commission in the review of the NIS Directive. The contractor has not only reached out to the stakeholders directly affected by the NIS Directive through target surveys and workshops but has also consulted with a wide range of experts in the field of cybersecurity, such as cybersecurity researchers and cybersecurity industry professionals. •Impact assessment This proposal is accompanied by an impact assessment, which was submitted to the Regulatory Scrutiny Board (RSB) on 23 October 2020 and received a positive opinion with comments by the RSB on 20 November 2020. The RSB recommended improvements in some areas with a view to: (1) better reflect the role of cross-border spillovers in the problem analysis; (2) better explain what success would look like for the initiative; (3) further justify the list of policy options; (4) further elaborate on the costs of the proposed measures. The impact assessment was adjusted to address these points, as well as more detailed comments from the RSB. It now includes more detailed explanations of the role of cross-border spillovers in the field of cybersecurity, a clearer overview of how success can be measured, a more detailed explanation of the design and logic behind the different policy options and actions considered within these options, a more detailed explanation of the aspects analysed in relation to the sectorial scope of the NIS Directive and further clarifications regarding costs. The Commission considered a number of policy options for improving the legal framework in the area of cyber resilience and incident response: ·“Do nothing”: The NIS Directive would remain unchanged and no other measures of non-legislative nature would be taken to target the problems identified by the evaluation of the NIS Directive. ·Option 1: There would be no changes at legislative level. Instead, the Commission would issue recommendations and guidelines (such as on the identification of operators of essential services, security requirements, incident notification procedures and supervision), upon consultation of the Cooperation Group, the EU Agency for Cybersecurity (ENISA) and, as applicable, the network of Computer security incident response teams (CSIRTs). ·Option 2: This option entails targeted amendments to the NIS Directive, including an extension of the scope and several other amendments that would aim at guaranteeing certain immediate solutions to the problems identified, providing more clarity and further harmonisation (such as provisions to harmonise identification thresholds). The amended NIS Directive would however maintain the main building blocks, approach and rationale. ·Option 3: This scenario entails systemic and structural changes to the NIS Directive (through a new directive) envisaging a more fundamental shift of approach towards covering a wider segment of the economies across the Union, yet with a more focused supervision targeting big and key players. It would also streamline the obligations imposed on businesses and ensure a higher level of harmonisation thereof, create a more effective setting for operational aspects, as well as establish a clear basis for enhanced shared responsibilities and accountability of various stakeholders on cybersecurity measures. The Impact Assessment concludes that the preferred option is option 3 (i.e. systemic and structural changes to the NIS framework). In terms of effectiveness, the preferred option would clearly determine the scope of application of the NIS Directive, extended to a more representative fraction of EU economies and societies, and the streamlining of requirements, along with a more defined framework for supervision and enforcement that would aim at increasing the level of compliance. It also entails measures aimed at improving policy building approaches at Member States level and changing the paradigm thereof, promoting new frameworks for supplier relationships risk management and coordinated vulnerability disclosure. At the same time, the preferred policy option establishes a clear basis for shared responsibilities and accountability and envisages mechanisms aimed at fostering more trust among Member States, both authorities and industry, incentivising information sharing and ensuring a more operational approach, such as the mutual assistance and the peer-review mechanisms. This option would also provide for an EU crisis management framework, building on recently launched EU operational network, and would ensure more involvement of ENISA, within its current mandate, in holding an accurate overview of the cybersecurity state of the Union. In terms of efficiency, while the preferred option would entail additional compliance and enforcement costs for businesses and Member States, it would also lead to efficient trade-offs and synergies, with the best potential out of all policy options analysed to ensure an increased and consistent level of cyber resilience of key entities across the Union that would eventually lead to cost savings for both businesses and society. This policy option would lead to certain additional administrative burden and compliance costs for the Member States authorities. However, on balance, on the medium and long term it would also bring substantial benefits through increased cooperation among Member States, including at operational level, as well as incentivising, through mutual assistance, peer-review mechanisms and better overview of and interaction with key businesses, an overall increase in cybersecurity capabilities at national and regional level. The preferred policy option would also ensure to a great extent coherence with other legislation, initiatives or policy measures, including sector-specific lex specialis. Addressing the currently persisting insufficiency of cybersecurity preparedness at a Member State level and at the level of companies and other organisations could result in efficiency gains and reduction of additional costs resulting from cybersecurity incidents. ·For essential and important entities, increasing the level of cybersecurity preparedness could result in mitigating potential loss of revenue due to disruptions – including from industrial espionage – and could reduce the large expenses for an ad-hoc threat mitigation. Such gains are likely to outweigh the necessary investment costs. Reducing fragmentation in the internal market would also improve the level playing field among operators. ·For Member States, it could further reduce the risk of growing budgetary expenses for ad-hoc threat mitigation and additional costs in case of emergencies related to cybersecurity incidents. ·For citizens, addressing cybersecurity incidents it is expected to result in reduced loss of income due to economic disruption.

The increased levels of cybersecurity across the Member States and the ability of companies and authorities to respond quickly to an incident and mitigate its impact will most likely result in an increase of the overall trust of citizens in the digital economy, which might have a positive impact on growth and investment. Increasing the overall level of cybersecurity is likely to lead to an increased overall security and smooth uninterrupted functioning of essential services, which are critical for the society. The initiative may also contribute to other social impacts such as reduced levels of cybercrime and terrorism and increased civil protection. Increasing the level of cyber preparedness for businesses and other organisations may avoid potential financial losses as a result of cyberattacks thus preventing the need to lay off employees. Increasing the overall level of cybersecurity could also lead to the prevention of environmental risks/damage in case of an attack on an essential service. This could be particularly valid for the energy, water supply and distribution or transport sectors. By strengthening the cybersecurity capabilities, the initiative could lead to more use being made of latest generation ICT infrastructures and services that are also environmentally more sustainable and to the replacement of inefficient and less secure legacy infrastructures. This is expected to contribute also to reducing the number of costly cyber incidents, freeing up resources available for sustainable investments. •Regulatory fitness and simplification The proposal foresees a general exclusion of micro and small entities from the NIS scope and a lighter ex-post supervisory regime applied to a large number of the new entities under the revised scope (so-called important entities). These measures aim to minimise and balance the burden put on companies and public administrations. Furthermore, the proposal replaces the complex identification system for operators of essential services with a generally applicable obligation and introduces a higher level of harmonisation of security and reporting obligations, which would decrease compliance burden, especially for entities providing cross-border services. The proposal minimizes compliance costs for SMEs, as entities are required to take only those measures necessary to ensure a level of security of network and information systems that is appropriate to the risk presented. •Fundamental rights The EU is committed to ensuring high standards of protection of fundamental rights. All voluntary information sharing arrangements between entities that this Directive promotes would be conducted in trusted environments in full respect of Union data protection rules, notably Regulation (EU) 2016/679 of the European Parliament and of the Council. 4.BUDGETARY IMPLICATIONS See financial fiche 5.OTHER ELEMENTS •Implementation plans and monitoring, evaluation and reporting arrangements The proposal includes a general plan for monitoring and evaluating the impact on the specific objectives, requiring the Commission to carry out a review at least [54 months] after the date of entry into force, and to report to the European Parliament and the Council on its main findings. The review is to be conducted in line with the Commission’s Better Regulation Guidelines. •Detailed explanation of the specific provisions of the proposal The proposal is structured around several main policy areas, which are inter-related and serve the purpose of raising the level of cybersecurity in the Union. Subject matter and scope (Article 1 and Article 2) The Directive, in particular: (a) lays down obligations for the Member States to adopt a national cybersecurity strategy, designate competent national authorities, single points of contact and CSIRTs; (b) provides that Member States shall lay down cybersecurity risk management and reporting obligations for entities referred to as essential entities in Annex I and important entities in Annex II; (c) provides that Member States shall lay down obligations on cybersecurity information sharing. It applies to certain public or private essential entities operating in the sectors listed in Annex I (energy; transport; banking; financial market infrastructures; health, drinking water; waste water; digital infrastructure; public administration and space) and certain important entities operating in the sectors listed in Annex II (postal and courier services; waste management; manufacture, production and distribution of chemicals; food production, processing and distribution; manufacturing and digital providers). Micro and small entities within the meaning of Commission Recommendation 2003/361/EC of 6 May 2003 are excluded from the scope of the Directive, except for providers of electronic communications networks or of publicly available electronic communications services, trust service providers, Top-level domain name (TLD) name registries and public administration, and certain other entities, such as the sole provider of a service in a Member State. National cybersecurity frameworks (Articles 5 to 11)

Member States are required to adopt a national cybersecurity strategy defining the strategic objectives and appropriate policy and regulatory measures with a view to achieving and maintaining a high level of cybersecurity. The Directive also establishes a framework for Coordinated Vulnerability Disclosure and requires Member States to designate CSIRTs to act as trusted intermediaries and facilitate the interaction between the reporting entities and the manufacturers or providers of ICT products and ICT services. ENISA is required to develop and maintain a European vulnerability registry for the discovered vulnerabilities. Member States are required to put in place National Cybersecurity Crisis Management Frameworks, inter alia by designating national competent authorities responsible for the management of large-scale cybersecurity incidents and crises. Member States are also required to designate one or more national competent authorities on cybersecurity for the supervisory tasks under this Directive and a national single point of contact on cybersecurity (SPOC) to exercise a liaison function to ensure cross-border cooperation of Member State authorities. Member States are also required to designate CSIRTs. Cooperation (Articles 12 to 16) The Directive establishes a Cooperation Group to support and facilitate strategic cooperation and the exchange of information among Member States and to develop trust and confidence. It also establishes a CSIRTs network to contribute to the development of confidence and trust between the Member States and to promote swift and effective operational cooperation. A European Cyber Crises Liaison Organisation Network (EU - CyCLONe) is established to support the coordinated management of large-scale cybersecurity incidents and crises and to ensure the regular exchange of information among Member States and EU institutions. ENISA is required to issue in cooperation with the Commission a biennial report on the state of cybersecurity in the Union. The Commission is required to establish a peer-review system allowing regular peer-reviews of the Member States’ effectiveness of cybersecurity policies. Cybersecurity risk management and reporting obligations (Articles 17 to 23) The Directive requires Member States to provide that management bodies of all entities under the scope to approve the cybersecurity risk management measures taken by the respective entities and to follow specific cybersecurity-related training. Member States are required to ensure that entities under the scope take appropriate and proportionate technical and organisational measures to manage the cybersecurity risks posed to the security of network and information systems. They are also required to ensure that entities notify the national competent authorities or the CSIRTs of any cybersecurity incident having a significant impact on the provision of the service they provide. TLD registries and the entities providing domain name registration services for the TLD shall collect and maintain accurate and complete domain name registration data. Furthermore, such entities are required to provide efficient access to domain registration data for legitimate access seekers. Jurisdiction and Registration (Articles 24 and 25) As a rule, essential and important entities are deemed to be under the jurisdiction of the Member State where they provide their services. However, certain types of entities (DNS service providers, TLD name registries, cloud computing service providers, data centre service providers and content delivery network providers, as well as certain digital providers) are deemed to be under the jurisdiction of the Member State in which they have their main establishment in the Union. This is to ensure that such entities do not face a multitude of different legal requirements, as they provide services across borders to a particularly high extent. ENISA is required to create and maintain a registry of the later type of entities. Information sharing (Articles 26 and 27) Member States shall provide rules enabling entities to engage in cybersecurity-related information sharing within the framework of specific cybersecurity information-sharing arrangements, in compliance with Article 101 TFEU. In addition, Member States shall allow entities outside the scope of this Directive to report, on a voluntary basis, significant incidents, cyber threats or near misses. Supervision and enforcement (Articles 28 to 34) Competent authorities are required to supervise the entities under the scope of the Directive, and in particular to ensure their compliance with the security and incident notification requirements. It distinguishes between an ex ante supervisory regime for essential entities and an ex post supervisory regime for important entities, the later requiring competent authorities to take action when provided with evidence or indication that an important entity does not meet the security and incident notification requirements. The Directive also requires Members States to impose administrative fines to essential and important entities and defines certain maximum fines.

Member States are required to cooperate and assist each other as necessary when entities provide services in more than one Member State or when an entity’s main establishment or its representative is located in a certain Member State but its network and information systems are located in one or more other Member States. 2020/0359 (COD) Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on measures for a high common level of cybersecurity across the Union, repealing Directive (EU) 2016/1148 (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Economic and Social Committee, Having regard to the opinion of the Committee of the Regions, Acting in accordance with the ordinary legislative procedure, Whereas: (1)Directive (EU) 2016/1148 of the European Parliament and the Council aimed at building cybersecurity capabilities across the Union, mitigating threats to network and information systems used to provide essential services in key sectors and ensuring the continuity of such services when facing cybersecurity incidents, thus contributing to the Union's economy and society to function effectively. (2)Since the entry into force of Directive (EU) 2016/1148 significant progress has been made in increasing the Union’s level of cybersecurity resilience. The review of that Directive has shown that it has served as a catalyst for the institutional and regulatory approach to cybersecurity in the Union, paving the way for a significant change in mind-set. That Directive has ensured the completion of national frameworks by defining national cybersecurity strategies, establishing national capabilities, and implementing regulatory measures covering essential infrastructures and actors identified by each Member State. It has also contributed to cooperation at Union level through the establishment of the Cooperation Group and a network of national Computer Security Incident Response Teams (‘CSIRTs network’). Notwithstanding those achievements, the review of Directive (EU) 2016/1148 has revealed inherent shortcomings that prevent it from addressing effectively contemporaneous and emerging cybersecurity challenges. (3)Network and information systems have developed into a central feature of everyday life with the speedy digital transformation and interconnectedness of society, including in cross-border exchanges. That development has led to an expansion of the cybersecurity threat landscape, bringing about new challenges, which require adapted, coordinated and innovative responses in all Member States. The number, magnitude, sophistication, frequency and impact of cybersecurity incidents are increasing, and present a major threat to the functioning of network and information systems. As a result, cyber incidents can impede the pursuit of economic activities in the internal market, generate financial losses, undermine user confidence and cause major damage to the Union economy and society. Cybersecurity preparedness and effectiveness are therefore now more essential than ever to the proper functioning of the internal market. (4)The legal basis of Directive (EU) 1148/2016 was Article 114 of the Treaty on the Functioning of the European Union (TFEU), the objective of which is the establishment and functioning of the internal market by enhancing measures for the approximation of national rules. The cybersecurity requirements imposed on entities providing services or economically relevant activities vary considerably among Member States in terms of type of requirement, their level of detail and the method of supervision. Those disparities entail additional costs and create difficulties for undertakings that offer goods or services cross-border. Requirements imposed by one Member State that are different from, or even in conflict with, those imposed by another Member State, may substantially affect those cross-border activities. Furthermore, the possibility of suboptimal design or implementation of cybersecurity standards in one Member State is likely to have repercussions on the level of cybersecurity of other Member States, notably given the intense cross-border exchanges. The review of Directive (EU) 2016/1148 has shown a wide divergence in its implementation by Member States, including in relation to its scope, the delimitation of which was very largely left to the discretion of the Member States. Directive (EU) 2016/1148 also provided the Member States with very wide discretion as regards implementing the security and incident reporting obligations set out therein. Those obligations were therefore implemented in significantly different ways at national level. Similar divergence in the implementation occurred in relation to that Directive’s provisions on supervision and enforcement. (5)All those divergences entail a fragmentation of the internal market and are liable to have a prejudicial effect on its functioning, affecting in particular the cross-border provision of services and level of cybersecurity resilience due to the application of different standards. This Directive aims to remove such wide divergences among Member States, in particular by setting out minimum rules regarding the functioning of a coordinated regulatory framework, by laying down mechanisms for the effective cooperation among the responsible authorities in each Member State, by updating the list of sectors and activities subject to cybersecurity obligations and by providing effective remedies and sanctions which are instrumental to the effective enforcement of those obligations. Therefore, Directive (EU) 2016/1148 should be repealed and replaced by this Directive. (6)This Directive leaves unaffected the ability of Member States to take the necessary measures to ensure the protection of the essential interests of their security, to safeguard public policy and public security, and to allow for the investigation, detection and prosecution of criminal offences, in compliance with Union law. In accordance with Article 346 TFEU, no Member State is to be obliged to supply information the disclosure of which would be contrary to the essential interests of its public security. In this context, national and Union rules for protecting classified information, non-disclosure agreements, and informal non-disclosure agreements such as the Traffic Light Protocol, are of relevance.

(7)With the repeal of Directive (EU) 2016/1148, the scope of application by sectors should be extended to a larger part of the economy in light of the considerations set out in recitals (4) to (6). The sectors covered by Directive (EU) 2016/1148 should therefore be extended to provide a comprehensive coverage of the sectors and services of vital importance for key societal and economic activities within the internal market. The rules should not be different according to whether the entities are operators of essential services or digital service providers. That differentiation has proven obsolete, since it does not reflect the actual importance of the sectors or services for the societal and economic activities in the internal market. (8)In accordance with Directive (EU) 2016/1148, Member States were responsible for determining which entities meet the criteria to qualify as operators of essential services (‘identification process’). In order to eliminate the wide divergences among Member States in that regard and ensure legal certainty for the risk management requirements and reporting obligations for all relevant entities, a uniform criterion should be established that determines the entities falling within the scope of application of this Directive. That criterion should consist of the application of the size-cap rule, whereby all medium and large enterprises, as defined by Commission Recommendation 2003/361/EC, that operate within the sectors or provide the type of services covered by this Directive, fall within its scope. Member States should not be required to establish a list of the entities that meet this generally applicable size-related criterion. (9)However, small or micro entities fulfilling certain criteria that indicate a key role for the economies or societies of Member States or for particular sectors or types of services, should also be covered by this Directive. Member States should be responsible for establishing a list of such entities, and submit it to the Commission. (10)The Commission, in cooperation with the Cooperation Group, may issue guidelines on the implementation of the criteria applicable to micro and small enterprises. (11)Depending on the sector in which they operate or the type of service they provide, the entities falling within the scope of this Directive should be classified into two categories: essential and important. That categorisation should take into account the level of criticality of the sector or of the type of service, as well as the level of dependency of other sectors or types of services. Both essential and important entities should be subject to the same risk management requirements and reporting obligations. The supervisory and penalty regimes between these two categories of entities should be differentiated to ensure a fair balance between requirements and obligations on one hand, and the administrative burden stemming from the supervision of compliance on the other hand. (12)Sector-specific legislation and instruments can contribute to ensuring high levels of cybersecurity, while taking full account of the specificities and complexities of those sectors. Where a sector–specific Union legal act requires essential or important entities to adopt cybersecurity risk management measures or to notify incidents or significant cyber threats of at least an equivalent effect to the obligations laid down in this Directive, those sector-specific provisions, including on supervision and enforcement, should apply. The Commission may issue guidelines in relation to the implementation of the lex specialis. This Directive does not preclude the adoption of additional sector-specific Union acts addressing cybersecurity risk management measures and incident notifications. This Directive is without prejudice to the existing implementing powers that have been conferred to the Commission in a number of sectors, including transport and energy. (13)Regulation XXXX/XXXX of the European Parliament and of the Council should be considered to be a sector-specific Union legal act in relation to this Directive with regard to the financial sector entities. The provisions of Regulation XXXX/XXXX relating to information and communications technology (ICT) risk management measures, management of ICT-related incidents and notably incident reporting, as well as on digital operational resilience testing, information sharing arrangements and ICT third party risk should apply instead of those set up under this Directive. Member States should therefore not apply the provisions of this Directive on cybersecurity risk management and reporting obligations, information sharing and supervision and enforcement to any financial entities covered by Regulation XXXX/XXXX. At the same time, it is important to maintain a strong relationship and the exchange of information with the financial sector under this Directive. To that end, Regulation XXXX/XXXX allows all financial supervisors, the European Supervisory Authorities (ESAs) for the financial sector and the national competent authorities under Regulation XXXX/XXXX, to participate in strategic policy discussions and technical workings of the Cooperation Group, and to exchange information and cooperate with the single points of contact designated under this Directive and with the national CSIRTs. The competent authorities under Regulation XXXX/XXXX should transmit details of major ICT-related incidents also to the single points of contact designated under this Directive. Moreover, Member States should continue to include the financial sector in their cybersecurity strategies and national CSIRTs may cover the financial sector in their activities. (14)In view of the interlinkages between cybersecurity and the physical security of entities, a coherent approach should be ensured between Directive (EU) XXX/XXX of the European Parliament and of the Council and this Directive. To achieve this, Member States should ensure that critical entities, and equivalent entities, pursuant to Directive (EU) XXX/XXX are considered to be essential entities under this Directive. Member States should also ensure that their cybersecurity strategies provide for a policy framework for enhanced coordination between the competent authority under this Directive and the one under Directive (EU) XXX/XXX in the context of information sharing on incidents and cyber threats and the exercise of supervisory tasks. Authorities under both Directives should cooperate and exchange information, particularly in relation to the identification of critical entities, cyber threats, cybersecurity risks, incidents affecting critical entities as well as on the cybersecurity measures taken by critical entities. Upon request of competent authorities under Directive (EU) XXX/XXX, competent authorities under this Directive should be allowed to exercise their supervisory and enforcement powers on an essential entity identified as critical. Both authorities should cooperate and exchange information for this purpose. (15)Upholding and preserving a reliable, resilient and secure domain name system (DNS) is a key factor in maintaining the integrity of the Internet and is essential for its continuous and stable operation, on which the digital economy and society depend. Therefore, this Directive should apply to all providers of DNS services along the DNS resolution chain, including operators of root name servers, top-level-domain (TLD) name servers, authoritative name servers for domain names and recursive resolvers. (16)Cloud computing services should cover services that allow on-demand and broad remote access to a scalable and elastic pool of shareable and distributed computing resources. Those computing resources include resources such as networks, servers or other infrastructure, operating systems, software, storage, applications and services. The deployment models of cloud computing should include private, community, public and hybrid cloud. The aforementioned service and deployment models have the same meaning as the terms of service and deployment models defined under ISO/IEC 17788:2014 standard. The capability of the cloud computing user to unilaterally self-provision computing capabilities, such as server time or network storage, without any human interaction by the cloud computing service provider could be described as on-demand administration. The term ‘broad remote access’ is used to describe that the cloud capabilities are provided over the network and accessed through mechanisms promoting use of heterogeneous thin or thick client platforms (including mobile phones, tablets, laptops, workstations). The term ‘scalable’ refers to computing resources that are flexibly allocated by the cloud service provider, irrespective of the geographical location of the resources, in order to handle fluctuations in demand. The term ‘elastic pool’ is used to describe those computing resources that are provisioned and released according to demand in order to rapidly increase and decrease resources available depending on workload. The term ‘shareable’ is used to describe those computing resources that are provided to multiple users who share a common access to the service, but where the processing is carried out separately for each user, although the service is provided from the same electronic equipment. The term ‘distributed’ is used to describe those computing resources that are located on different networked computers or devices and which communicate and coordinate among themselves by message passing. (17)Given the emergence of innovative technologies and new business models, new cloud computing deployment and service models are expected to appear on the market in response to evolving customer needs. In that context, cloud computing services may be delivered in a highly distributed form, even closer to where data are being generated or collected, thus moving from the traditional model to a highly distributed one (‘edge computing’). (18)Services offered by data centre service providers may not always be provided in a form of cloud computing service. Accordingly, data centres may not always constitute a part of cloud computing infrastructure. In order to manage all the risks posed to the security of network and information systems, this Directive should cover also providers of such data centre services that are not cloud computing services. For the purpose of this Directive, the term ‘data centre service’ should cover provision of a service that encompasses structures, or groups of structures, dedicated to the centralised accommodation, interconnection and operation of information technology and network equipment providing data storage, processing and transport services together with all the facilities and infrastructures for power distribution and environmental control. The term ‘data centre service’ does not apply to in-house, corporate data centres owned and operated for own purposes of the concerned entity. (19)Postal service providers within the meaning of Directive 97/67/EC of the European Parliament and of the Council, as well as express and courier delivery service providers, should be subject to this Directive if they provide at least one of the steps in the postal delivery chain and in particular clearance, sorting or distribution, including pick-up services. Transport services that are not undertaken in conjunction with one of those steps should fall outside of the scope of postal services. (20)Those growing interdependencies are the result of an increasingly cross-border and interdependent network of service provision using key infrastructures across the Union in the sectors of energy, transport, digital infrastructure, drinking and waste water, health, certain aspects of public administration, as well as space in as far as the provision of certain services depending on ground-based infrastructures that are owned, managed and operated either by Member States or by private parties is concerned, therefore not covering infrastructures owned, managed or operated by or on behalf of the Union as part of its space programmes. Those interdependencies mean that any disruption, even one initially confined to one entity or one sector, can have cascading effects more broadly, potentially resulting in far-reaching and long-lasting negative impacts in the delivery of services across the internal market. The COVID-19 pandemic has shown the vulnerability of our increasingly interdependent societies in the face of low-probability risks. (21)In view of the differences in national governance structures and in order to safeguard already existing sectoral arrangements or Union supervisory and regulatory bodies, Member States should be able to designate more than one national competent authority responsible for fulfilling the tasks linked to the security of the network and information systems of essential and important entities under this Directive. Member States should be able to assign this role to an existing authority. (22)In order to facilitate cross-border cooperation and communication among authorities and to enable this Directive to be implemented effectively, it is necessary for each Member State to designate a national single point of contact responsible for coordinating issues related to the security of network and information systems and cross-border cooperation at Union level. (23)Competent authorities or the CSIRTs should receive notifications of incidents from entities in an effective and efficient way. The single points of contact should be tasked with forwarding incident notifications to the single points of contact of other affected Member States. At the level of Member States’ authorities, to ensure one single entry point in every Member States, the single points of contacts should also be the addressees of relevant information on incidents concerning financial sector entities from the competent authorities under Regulation XXXX/XXXX which they should be able to forward, as appropriate, to the relevant national competent authorities or CSIRTs under this Directive. (24)Member States should be adequately equipped, in terms of both technical and organisational capabilities, to prevent, detect, respond to and mitigate network and information system incidents and risks. Member States should therefore ensure that they have well-functioning CSIRTs, also known as computer emergency response teams (‘CERTs’), complying with essential requirements in order to guarantee effective and compatible capabilities to deal with incidents and risks and to ensure efficient cooperation at Union level. In view of enhancing the trust relationship between the entities and the CSIRTs, in cases where a CSIRT is part of the competent authority, Member States should consider functional separation between the operational tasks provided by CSIRTs, notably in relation to information sharing and support to the entities, and the supervisory activities of competent authorities. (25)As regards personal data, CSIRTs should be able to provide, in accordance with Regulation (EU) 2016/679 of the European Parliament and of the Council as regards personal data, on behalf of and upon request by an entity under this Directive, a proactive scanning of the network and information systems used for the provision of their services. Member States should aim at ensuring an equal level of technical capabilities for all sectorial CSIRTs. Member States may request the assistance of the European Union Agency for Cybersecurity (ENISA) in developing national CSIRTs. (26)Given the importance of international cooperation on cybersecurity, CSIRTs should be able to participate in international cooperation networks in addition to the CSIRTs network established by this Directive.

(27)In accordance with the Annex to Commission Recommendation (EU) 2017/1548 on Coordinated Response to Large Scale Cybersecurity Incidents and Crises (‘Blueprint’), a large-scale incident should mean an incident with a significant impact on at least two Member States or whose disruption exceeds a Member State’s capacity to respond to it. Depending on their cause and impact, large-scale incidents may escalate and turn into fully-fledged crises not allowing the proper functioning of the internal market. Given the wide-ranging scope and, in most cases, the cross-border nature of such incidents, Member States and relevant Union institutions, bodies and agencies should cooperate at technical, operational and political level to properly coordinate the response across the Union. (28)Since the exploitation of vulnerabilities in network and information systems may cause significant disruption and harm, swiftly identifying and remedying those vulnerabilities is an important factor in reducing cybersecurity risk. Entities that develop such systems should therefore establish appropriate procedures to handle vulnerabilities when they are discovered. Since vulnerabilities are often discovered and reported (disclosed) by third parties (reporting entities), the manufacturer or provider of ICT products or services should also put in place the necessary procedures to receive vulnerability information from third parties. In this regard, international standards ISO/IEC 30111 and ISO/IEC 29417 provide guidance on vulnerability handling and vulnerability disclosure respectively. As regards vulnerability disclosure, coordination between reporting entities and manufacturers or providers of ICT products or services is particularly important. Coordinated vulnerability disclosure specifies a structured process through which vulnerabilities are reported to organisations in a manner allowing the organisation to diagnose and remedy the vulnerability before detailed vulnerability information is disclosed to third parties or to the public. Coordinated vulnerability disclosure should also comprise coordination between the reporting entity and the organisation as regards the timing of remediation and publication of vulnerabilities. (29)Member States should therefore take measures to facilitate coordinated vulnerability disclosure by establishing a relevant national policy. In this regard, Member States should designate a CSIRT to take the role of ‘coordinator’, acting as an intermediary between the reporting entities and the manufacturers or providers of ICT products or services where necessary. The tasks of the CSIRT coordinator should in particular include identifying and contacting concerned entities, supporting reporting entities, negotiating disclosure timelines, and managing vulnerabilities that affect multiple organisations (multi-party vulnerability disclosure). Where vulnerabilities affect multiple manufacturers or providers of ICT products or services established in more than one Member State, the designated CSIRTs from each of the affected Member States should cooperate within the CSIRTs Network. (30)Access to correct and timely information on vulnerabilities affecting ICT products and services contributes to an enhanced cybersecurity risk management. In that regard, sources of publicly available information on vulnerabilities are an important tool for entities and their users, but also national competent authorities and CSIRTs. For this reason, ENISA should establish a vulnerability registry where, essential and important entities and their suppliers, as well as entities which do not fall in the scope of application of this Directive may, on a voluntary basis, disclose vulnerabilities and provide the vulnerability information that allows users to take appropriate mitigating measures. (31)Although similar vulnerability registries or databases do exist, these are hosted and maintained by entities which are not established in the Union. A European vulnerability registry maintained by ENISA would provide improved transparency regarding the publication process before the vulnerability is officially disclosed, and resilience in cases of disruptions or interruptions on the provision of similar services. To avoid duplication of efforts and seek complementarity to the extent possible, ENISA should explore the possibility of entering into structured cooperation agreements with similar registries in third country jurisdictions. (32)The Cooperation Group should establish a work programme every two years including the actions to be undertaken by the Group to implement its objectives and tasks. The timeframe of the first programme adopted under this Directive should be aligned with the timeframe of the last programme adopted under Directive (EU) 2016/1148 in order to avoid potential disruptions in the work of the Group. (33)When developing guidance documents, the Cooperation Group should consistently: map national solutions and experiences, assess the impact of Cooperation Group deliverables on national approaches, discuss implementation challenges and formulate specific recommendations to be addressed through better implementation of existing rules. (34)The Cooperation Group should remain a flexible forum and be able to react to changing and new policy priorities and challenges while taking into account the availability of resources. It should organize regular joint meetings with relevant private stakeholders from across the Union to discuss activities carried out by the Group and gather input on emerging policy challenges. In order to enhance cooperation at Union level, the Group should consider inviting Union bodies and agencies involved in cybersecurity policy, such as the European Cybercrime Centre (EC3), the European Union Aviation Safety Agency (EASA) and the European Union Agency for Space Programme (EUSPA) to participate in its work. (35)The competent authorities and CSIRTs should be empowered to participate in exchange schemes for officials from other Member States in order to improve cooperation. The competent authorities should take the necessary measures to enable officials from other Member States to play an effective role in the activities of the host competent authority. (36)The Union should, where appropriate, conclude international agreements, in accordance with Article 218 TFEU, with third countries or international organisations, allowing and organising their participation in some activities of the Cooperation Group and the CSIRTs network. Such agreements should ensure adequate protection of data. (37)Member States should contribute to the establishment of the EU Cybersecurity Crisis Response Framework set out in Recommendation (EU) 2017/1584 through the existing cooperation networks, notably the Cyber Crisis Liaison Organisation Network (EU-CyCLONe), CSIRTs network and the Cooperation Group. EU-CyCLONe and the CSIRTs network should cooperate on the basis of procedural arrangements defining the modalities of that cooperation. The EU-CyCLONe’s rules of procedures should further specify the modalities through which the network should function, including but not limited to roles, cooperation modes, interactions with other relevant actors and templates for information sharing, as well as means of communication. For crisis management at Union level, relevant parties should rely on the Integrated Political Crisis Response (IPCR) arrangements. The Commission should use the ARGUS high-level cross-sectoral crisis coordination process for this purpose. If the crisis entails an important external or Common Security and Defence Policy (CSDP) dimension, the European External Action Service (EEAS) Crisis Response Mechanism (CRM) should be activated. (38)For the purposes of this Directive, the term ‘risk’ should refer to the potential for loss or disruption caused by a cybersecurity incident and should be expressed as a combination of the magnitude of such loss or disruption and the likelihood of occurrence of said incident. (39)For the purposes of this Directive, the term ‘near misses’ should refer to an event which could potentially have caused harm, but was successfully prevented from fully transpiring. (40)Risk-management measures should include measures to identify any risks of incidents, to prevent, detect and handle incidents and to mitigate their impact. The security of network and information systems should comprise the security of stored, transmitted and processed data. (41)In order to avoid imposing a disproportionate financial and administrative burden on essential and important entities, the cybersecurity risk management requirements should be proportionate to the risk presented by the network and information system concerned, taking into account the state of the art of such measures. (42)Essential and important entities should ensure the security of the network and information systems which they use in their activities. Those are primarily private network and information systems managed by their internal IT staff or the security of which has been outsourced. The cybersecurity risk management and reporting requirements pursuant to this Directive should apply to the relevant essential and important entities regardless of whether they perform the maintenance of their network and information systems internally or outsource it. (43)Addressing cybersecurity risks stemming from an entity’s supply chain and its relationship with its suppliers is particularly important given the prevalence of incidents where entities have fallen victim to cyber-attacks and where malicious actors were able to compromise the security of an entity’s network and information systems by exploiting vulnerabilities affecting third party products and services. Entities should therefore assess and take into account the overall quality of products and cybersecurity practices of their suppliers and service providers, including their secure development procedures. (44)Among service providers, managed security services providers (MSSPs) in areas such as incident response, penetration testing, security audits and consultancy play a particularly important role in assisting entities in their efforts to detect and respond to incidents. Those MSSPs have however also been the targets of cyberattacks themselves and through their close integration in the operations of operators pose a particular cybersecurity risk. Entities should therefore exercise increased diligence in selecting an MSSP. (45)Entities should also address cybersecurity risks stemming from their interactions and relationships with other stakeholders within a broader ecosystem. In particular, entities should take appropriate measures to ensure that their cooperation with academic and research institutions takes place in line with their cybersecurity policies and follows good practices as regards secure access and dissemination of information in general and the protection of intellectual property in particular. Similarly, given the importance and value of data for the activities of the entities, when relying on data transformation and data analytics services from third parties, the entities should take all appropriate cybersecurity measures. (46)To further address key supply chain risks and assist entities operating in sectors covered by this Directive to appropriately manage supply chain and supplier related cybersecurity risks, the Cooperation Group involving relevant national authorities, in cooperation with the Commission and ENISA, should carry out coordinated sectoral supply chain risk assessments, as was already done for 5G networks following Recommendation (EU) 2019/534 on Cybersecurity of 5G networks, with the aim of identifying per sector which are the critical ICT services, systems or products, relevant threats and vulnerabilities.

(47)The supply chain risk assessments, in light of the features of the sector concerned, should take into account both technical and, where relevant, non-technical factors including those defined in Recommendation (EU) 2019/534, in the EU wide coordinated risk assessment of 5G networks security and in the EU Toolbox on 5G cybersecurity agreed by the Cooperation Group. To identify the supply chains that should be subject to a coordinated risk assessment, the following criteria should be taken into account: (i) the extent to which essential and important entities use and rely on specific critical ICT services, systems or products; (ii) the relevance of specific critical ICT services, systems or products for performing critical or sensitive functions, including the processing of personal data; (iii) the availability of alternative ICT services, systems or products; (iv) the resilience of the overall supply chain of ICT services, systems or products against disruptive events and (v) for emerging ICT services, systems or products, their potential future significance for the entities’ activities. (48)In order to streamline the legal obligations imposed on providers of public electronic communications networks or publicly available electronic communications services, and trust service providers related to the security of their network and information systems, as well as to enable those entities and their respective competent authorities to benefit from the legal framework established by this Directive (including designation of CSIRT responsible for risk and incident handling, participation of competent authorities and bodies in the work of the Cooperation Group and the CSIRT network), they should be included in the scope of application of this Directive. The corresponding provisions laid down in Regulation (EU) No 910/2014 of the European Parliament and of the Council and Directive (EU) 2018/1972 of the European Parliament and of the Council related to the imposition of security and notification requirement on these types of entities should therefore be repealed. The rules on reporting obligations should be without prejudice to Regulation (EU) 2016/679 and Directive 2002/58/EC of the European Parliament and of the Council. (49)Where appropriate and to avoid unnecessary disruption, existing national guidelines and national legislation adopted for the transposition of the rules related to security measures laid down in Article 40(1) of Directive (EU) 2018/1972, as well as of the requirements of Article 40(2) of that Directive concerning the parameters related to the significance of an incident, should continue to be used by the competent authorities in charge of supervision and enforcement for the purposes of this Directive. (50)Given the growing importance of number-independent interpersonal communications services, it is necessary to ensure that such services are also subject to appropriate security requirements in view of their specific nature and economic importance. Providers of such services should thus also ensure a level of security of network and information systems appropriate to the risk posed. Given that providers of number-independent interpersonal communications services normally do not exercise actual control over the transmission of signals over networks, the degree of risk for such services can be considered in some respects to be lower than for traditional electronic communications services. The same applies to interpersonal communications services which make use of numbers and which do not exercise actual control over signal transmission. (51)The internal market is more reliant on the functioning of the internet than ever before. The services of virtually all essential and important entities are dependent on services provided over the internet. In order to ensure the smooth provision of services provided by essential and important entities, it is important that public electronic communications networks, such as, for example, internet backbones or submarine communications cables, have appropriate cybersecurity measures in place and report incidents in relation thereto. (52)Where appropriate, entities should inform their service recipients of particular and significant threats and of measures they can take to mitigate the resulting risk to themselves. The requirement to inform those recipients of such threats should not discharge entities from the obligation to take, at their own expense, appropriate and immediate measures to prevent or remedy any cyber threats and restore the normal security level of the service. The provision of such information about security threats to the recipients should be free of charge. (53)In particular, providers of public electronic communications networks or publicly available electronic communications services, should inform the service recipients of particular and significant cyber threats and of measures they can take to protect the security of their communications, for instance by using specific types of software or encryption technologies. (54)In order to safeguard the security of electronic communications networks and services, the use of encryption, and in particular end-to-end encryption, should be promoted and, where necessary, should be mandatory for providers of such services and networks in accordance with the principles of security and privacy by default and by design for the purposes of Article 18. The use of end-to-end encryption should be reconciled with the Member State’ powers to ensure the protection of their essential security interests and public security, and to permit the investigation, detection and prosecution of criminal offences in compliance with Union law. Solutions for lawful access to information in end-to-end encrypted communications should maintain the effectiveness of encryption in protecting privacy and security of communications, while providing an effective response to crime. (55)This Directive lays down a two-stage approach to incident reporting in order to strike the right balance between, on the one hand, swift reporting that helps mitigate the potential spread of incidents and allows entities to seek support, and, on the other hand, in-depth reporting that draws valuable lessons from individual incidents and improves over time the resilience to cyber threats of individual companies and entire sectors. Where entities become aware of an incident, they should be required to submit an initial notification within 24 hours, followed by a final report not later than one month after. The initial notification should only include the information strictly necessary to make the competent authorities aware of the incident and allow the entity to seek assistance, if required. Such notification, where applicable, should indicate whether the incident is presumably caused by unlawful or malicious action. Member States should ensure that the requirement to submit this initial notification does not divert the reporting entity’s resources from activities related to incident handling that should be prioritised. To further prevent that incident reporting obligations either divert resources from incident response handling or may otherwise compromise the entities efforts in that respect, Member States should also provide that, in duly justified cases and in agreement with the competent authorities or the CSIRT, the entity concerned can deviate from the deadlines of 24 hours for the initial notification and one month for the final report. (56)Essential and important entities are often in a situation where a particular incident, because of its features, needs to be reported to various authorities as a result of notification obligations included in various legal instruments. Such cases create additional burdens and may also lead to uncertainties with regard to the format and procedures of such notifications. In view of this and, for the purposes of simplifying the reporting of security incidents, Member States should establish a single entry point for all notifications required under this Directive and also under other Union law such as Regulation (EU) 2016/679 and Directive 2002/58/EC. ENISA, in cooperation with the Cooperation Group should develop common notification templates by means of guidelines that would simplify and streamline the reporting information requested by Union law and decrease the burdens for companies. (57)Where it is suspected that an incident is related to serious criminal activities under Union or national law, Member States should encourage essential and important entities, on the basis of applicable criminal proceedings rules in compliance with Union law, to report incidents of a suspected serious criminal nature to the relevant law enforcement authorities. Where appropriate, and without prejudice to the personal data protection rules applying to Europol, it is desirable that coordination between competent authorities and law enforcement authorities of different Member States be facilitated by the EC3 and ENISA. (58)Personal data are in many cases compromised as a result of incidents. In this context, competent authorities should cooperate and exchange information on all relevant matters with data protection authorities and the supervisory authorities pursuant to Directive 2002/58/EC. (59)Maintaining accurate and complete databases of domain names and registration data (so called ‘WHOIS data’) and providing lawful access to such data is essential to ensure the security, stability and resilience of the DNS, which in turn contributes to a high common level of cybersecurity within the Union. Where processing includes personal data such processing shall comply with Union data protection law. (60)The availability and timely accessibility of these data to public authorities, including competent authorities under Union or national law for the prevention, investigation or prosecution of criminal offences, CERTs, (CSIRTs, and as regards the data of their clients to providers of electronic communications networks and services and providers of cybersecurity technologies and services acting on behalf of those clients, is essential to prevent and combat Domain Name System abuse, in particular to prevent, detect and respond to cybersecurity incidents. Such access should comply with Union data protection law insofar as it is related to personal data. (61)In order to ensure the availability of accurate and complete domain name registration data, TLD registries and the entities providing domain name registration services for the TLD (so-called registrars) should collect and guarantee the integrity and availability of domain names registration data. In particular, TLD registries and the entities providing domain name registration services for the TLD should establish policies and procedures to collect and maintain accurate and complete registration data, as well as to prevent and correct inaccurate registration data in accordance with Union data protection rules. (62)TLD registries and the entities providing domain name registration services for them should make publically available domain name registration data that fall outside the scope of Union data protection rules, such as data that concern legal persons. TLD registries and the entities providing domain name registration services for the TLD should also enable lawful access to specific domain name registration data concerning natural persons to legitimate access seekers, in accordance with Union data protection law. Member States should ensure that TLD registries and the entities providing domain name registration services for them should respond without undue delay to requests from legitimate access seekers for the disclosure of domain name registration data. TLD registries and the entities providing domain name registration services for them should establish policies and procedures for the publication and disclosure of registration data, including service level agreements to deal with requests for access from legitimate access seekers. The access procedure may also include the use of an interface, portal or other technical tool to provide an efficient system for requesting and accessing registration data. With a view to promoting harmonised practices across the internal market, the Commission may adopt guidelines on such procedures without prejudice to the competences of the European Data Protection Board. (63)All essential and important entities under this Directive should fall under the jurisdiction of the Member State where they provide their services. If the entity provides services in more than one Member State, it should fall under the separate and concurrent jurisdiction of each of these Member States. The competent authorities of these Member States should cooperate, provide mutual assistance to each other and where appropriate, carry out joint supervisory actions. (64)In order to take account of the cross-border nature of the services and operations of DNS service providers, TLD name registries, content delivery network providers, cloud computing service providers, data centre service providers and digital providers, only one Member State should have jurisdiction over these entities. Jurisdiction should be attributed to the Member State in which the respective entity has its main establishment in the Union. The criterion of establishment for the purposes of this Directive implies the effective exercise of activity through stable arrangements. The legal form of such arrangements, whether through a branch or a subsidiary with a legal personality, is not the determining factor in that respect. Whether this criterion is fulfilled should not depend on whether the network and information systems are physically located in a given place; the presence and use of such systems do not, in themselves, constitute such main establishment and are therefore not decisive criteria for determining the main establishment. The main establishment should be the place where the decisions related to the cybersecurity risk management measures are taken in the Union. This will typically correspond to the place of the companies’ central administration in the Union. If such decisions are not taken in the Union, the main establishment should be deemed to be in the Member States where the entity has an establishment with the highest number of employees in the Union. Where the services are carried out by a group of undertakings, the main establishment of the controlling undertaking should be considered to be the main establishment of the group of undertakings. (65)In cases where a DNS service provider, TLD name registry, content delivery network provider, cloud computing service provider, data centre service provider and digital provider not established in the Union offers services within the Union, it should designate a representative. In order to determine whether such an entity is offering services within the Union, it should be ascertained whether it is apparent that the entity is planning to offer services to persons in one or more Member States. The mere accessibility in the Union of the entity’s or an intermediary's website or of an email address and of other contact details, or the use of a language generally used in the third country where the entity is established, is as such insufficient to ascertain such an intention. However, factors such as the use of a language or a currency generally used in one or more Member States with the possibility of ordering services in that other language, or the mentioning of customers or users who are in the Union, may make it apparent that the entity is planning to offer services within the Union. The representative should act on behalf of the entity and it should be possible for competent authorities or the CSIRTs to contact the representative. The representative should be explicitly designated by a written mandate of the entity to act on the latter's behalf with regard to the latter's obligations under this Directive, including incident reporting. (66)Where information considered classified according to national or Union law is exchanged, reported or otherwise shared under the provisions of this Directive, the corresponding specific rules on the handling of classified information should be applied.

(67)With cyber threats becoming more complex and sophisticated, good detection and prevention measures depend to a large extent on regular threat and vulnerability intelligence sharing between entities. Information sharing contributes to increased awareness on cyber threats, which, in turn, enhances the entities’ capacity to prevent threats from materialising into real incidents and enables the entities to better contain the effects of incidents and recover more efficiently. In the absence of guidance at Union level, several factors seem to have inhibited such intelligence sharing, notably uncertainty over the compatibility with competition and liability rules. (68)Entities should be encouraged to collectively leverage their individual knowledge and practical experience at strategic, tactical and operational levels with a view to enhance their capabilities to adequately assess, monitor, defend against, and respond to, cyber threats. It is thus necessary to enable the emergence at Union level of mechanisms for voluntary information sharing arrangements. To this end, Member States should actively support and encourage also relevant entities not covered by the scope of this Directive to participate in such information-sharing mechanisms. Those mechanisms should be conducted in full compliance with the competition rules of the Union as well as the data protection Union law rules. (69)The processing of personal data, to the extent strictly necessary and proportionate for the purposes of ensuring network and information security by entities, public authorities, CERTs, CSIRTs, and providers of security technologies and services should constitute a legitimate interest of the data controller concerned, as referred to in Regulation (EU) 2016/679. That should include measures related to the prevention, detection, analysis and response to incidents, measures to raise awareness in relation to specific cyber threats, exchange of information in the context of vulnerability remediation and coordinated disclosure, as well as the voluntary exchange of information on those incidents, as well as cyber threats and vulnerabilities, indicators of compromise, tactics, techniques and procedures, cybersecurity alerts and configuration tools. Such measures may require the processing of the following types of personal data: IP addresses, uniform resources locators (URLs), domain names, and email addresses. (70)In order to strengthen the supervisory powers and actions that help ensure effective compliance, this Directive should provide for a minimum list of supervisory actions and means through which competent authorities may supervise essential and important entities. In addition, this Directive should establish a differentiation of supervisory regime between essential and important entities with a view to ensuring a fair balance of obligations for both entities and competent authorities. Thus, essential entities should be subject to a fully-fledged supervisory regime (ex-ante and ex-post), while important entities should be subject to a light supervisory regime, ex-post only. For the latter, this means that important entities should not document systematically compliance with cybersecurity risk management requirements, while competent authorities should implement a reactive ex -post approach to supervision and, hence, not have a general obligation to supervise those entities. (71)In order to make enforcement effective, a minimum list of administrative sanctions for breach of the cybersecurity risk management and reporting obligations provided by this Directive should be laid down, setting up a clear and consistent framework for such sanctions across the Union. Due regard should be given to the nature, gravity and duration of the infringement, the actual damage caused or losses incurred or potential damage or losses that could have been triggered, the intentional or negligent character of the infringement, actions taken to prevent or mitigate the damage and/or losses suffered, the degree of responsibility or any relevant previous infringements, the degree of cooperation with the competent authority and any other aggravating or mitigating factor. The imposition of penalties including administrative fines should be subject to appropriate procedural safeguards in accordance with the general principles of Union law and the Charter of Fundamental Rights of the European Union, including effective judicial protection and due process. (72)In order to ensure effective enforcement of the obligations laid down in this Directive, each competent authority should have the power to impose or request the imposition of administrative fines. (73)Where administrative fines are imposed on an undertaking, an undertaking should be understood to be an undertaking in accordance with Articles 101 and 102 TFEU for those purposes. Where administrative fines are imposed on persons that are not an undertaking, the supervisory authority should take account of the general level of income in the Member State as well as the economic situation of the person in considering the appropriate amount of the fine. It should be for the Member States to determine whether and to what extent public authorities should be subject to administrative fines. Imposing an administrative fine does not affect the application of other powers by the competent authorities or of other penalties laid down in the national rules transposing this Directive. (74)Member States should be able to lay down the rules on criminal penalties for infringements of the national rules transposing this Directive. However, the imposition of criminal penalties for infringements of such national rules and of related administrative penalties should not lead to a breach of the principle of ne bis in idem, as interpreted by the Court of Justice. (75)Where this Directive does not harmonise administrative penalties or where necessary in other cases, for example in cases of serious infringements of the obligations laid down in this Directive, Member States should implement a system which provides for effective, proportionate and dissuasive penalties. The nature of such penalties, criminal or administrative, should be determined by Member State law. (76)In order to further strengthen the effectiveness and dissuasiveness of the penalties applicable to infringements of obligations laid down pursuant to this Directive, the competent authorities should be empowered to apply sanctions consisting of the suspension of a certification or authorisation concerning part or all the services provided by an essential entity and the imposition of a temporary ban from the exercise of managerial functions by a natural person. Given their severity and impact on the entities’ activities and ultimately on their consumers, such sanctions should only be applied proportionally to the severity of the infringement and taking account of the specific circumstances of each case, including the intentional or negligent character of the infringement, actions taken to prevent or mitigate the damage and/or losses suffered. Such sanctions should only be applied as ultima ratio, meaning only after the other relevant enforcement actions laid down by this Directive have been exhausted, and only for the time until the entities to which they apply take the necessary action to remedy the deficiencies or comply with the requirements of the competent authority for which such sanctions were applied. The imposition of such sanctions shall be subject to appropriate procedural safeguards in accordance with the general principles of Union law and the Charter of Fundamental Rights of the European Union, including effective judicial protection, due process, presumption of innocence and right of defence. (77)This Directive should establish cooperation rules between the competent authorities and the supervisory authorities in accordance with Regulation (EU) 2016/679 to deal with infringements related to personal data. (78)This Directive should aim at ensuring a high level of responsibility for the cybersecurity risk management measures and reporting obligations at the level of the organisations. For these reasons, the management bodies of the entities falling within the scope of this Directive should approve the cybersecurity risk measures and supervise their implementation. (79)A peer-review mechanism should be introduced, allowing the assessment by experts designated by the Member States of the implementation of cybersecurity policies, including the level of Member States’ capabilities and available resources. (80)In order to take into account new cyber threats, technological developments or sectorial specificities, the power to adopt acts in accordance with Article 290 TFEU should be delegated to the Commission in respect of the elements in relation to risk management measures required by this Directive. The Commission should also be empowered to adopt delegated acts establishing which categories of essential entities shall be required to obtain a certificate and under which specific European cybersecurity certification schemes. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Inter-institutional Agreement of 13 April 2016 on Better Law-Making. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States' experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts. (81)In order to ensure uniform conditions for the implementation of the relevant provisions of this Directive concerning the procedural arrangements necessary for the functioning of the Cooperation Group, the technical elements related to risk management measures or the type of information, the format and the procedure of incident notifications, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council. (82)The Commission should periodically review this Directive, in consultation with interested parties, in particular with a view to determining the need for modification in the light of changes to societal, political, technological or market conditions. (83)Since the objective of this Directive, namely to achieve a high common level of cybersecurity in the Union, cannot be sufficiently achieved by the Member States but can rather, by reason of the effects of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Directive does not go beyond what is necessary in order to achieve that objective. (84)This Directive respects the fundamental rights, and observes the principles, recognised by the Charter of Fundamental Rights of the European Union, in particular the right to respect for private life and communications, the protection of personal data, the freedom to conduct a business, the right to property, the right to an effective remedy before a court and the right to be heard. This Directive should be implemented in accordance with those rights and principles, HAVE ADOPTED THIS DIRECTIVE:

CHAPTER I General provisions Article 1 Subject matter 1.This Directive lays down measures with a view to ensuring a high common level of cybersecurity within the Union. 2.To that end, this Directive: (a)lays down obligations on Member States to adopt national cybersecurity strategies, designate competent national authorities, single points of contact and computer security incident response teams (CSIRTs); (b)lays down cybersecurity risk management and reporting obligations for entities of a type referred to as essential entities in Annex I and important entities in Annex II; (c)lays down obligations on cybersecurity information sharing. Article 2 Scope 1.This Directive applies to public and private entities of a type referred to as essential entities in Annex I and as important entities in Annex II. This Directive does not apply to entities that qualify as micro and small enterprises within the meaning of Commission Recommendation 2003/361/EC. 2.However, regardless of their size, this Directive also applies to entities referred to in Annexes I and II, where: (a)the services are provided by one of the following entities: (i)public electronic communications networks or publicly available electronic communications services referred to in point 8 of Annex I; (ii)trust service providers referred to point 8 of Annex I; (iii)top–level domain name registries and domain name system (DNS) service providers referred to in point 8 of Annex I; (b)the entity is a public administration entity as defined in point 23 of Article 4; (c)the entity is the sole provider of a service in a Member State;

(d)a potential disruption of the service provided by the entity could have an impact on public safety, public security or public health; (e)a potential disruption of the service provided by the entity could induce systemic risks, in particular for the sectors where such disruption could have a cross-border impact; (f)the entity is critical because of its specific importance at regional or national level for the particular sector or type of service, or for other interdependent sectors in the Member State; (g)the entity is identified as a critical entity pursuant to Directive (EU) XXXX/XXXX of the European Parliament and of the Council [Resilience of Critical Entities Directive], or as an entity equivalent to a critical entity pursuant to Article 7 of that Directive. Member States shall establish a list of entities identified pursuant to points (b) to (f) and submit it to the Commission by [6 months after the transposition deadline]. Member States shall review the list, on a regular basis, and at least every two years thereafter and, where appropriate, update it. 3.This Directive is without prejudice to the competences of Member States concerning the maintenance of public security, defence and national security