Risk and PCI-DSS

I recently had lunch with a friend and we spent a lot of time talking about PCI. I am heavily involved in some PCI-related activities at work that has resulted in me knowing more about PCI then I would care to. I wanted to document some of the subject matter we discussed especially with regard to: how to approach a PCI compliance assessment project, states of compliance, and articulating risk related to requirement gaps.

So where to begin? Well, you can start by going to the PCI Standards Council website – there is a load of information there. You can find out:

1.    The merchant level of your business based on the number of card transactions your company performs.
2.    The kind of validation actions you are required to take.
3.    How your “validation actions” need to be validated.

One point I would like to throw out there for companies with numerous subsidiaries is you need to work with your QSA to determine if the subsidiaries that are under your company umbrella are separate from a compliance perspective or if they are under the compliance status of the parent company. Not understanding this early in the process could result in a lot of wasted time.

Another point on this topic is that one needs to understand the flow of PAN through your environment. Visually (and accurately) representing this very early in the process will reduce assumptions and be of great benefit through the assessment lifecycle.

In general, PCI Compliance seems to be very binary – you are either compliant or not; the severity of one’s non-compliance is where the grey is. Non-compliance can result in fines, increased transaction fees, and whatever other penalties exist. I will end this thought with stating that not all QSAs are created equal nor are all payment processors created equal. On the PCI Council website – they advise people to choose QSAs that know your industry – that is great advice. Some payment processors will recommend QSAs for you. Do your homework and make sure it is a QSA you are comfortable with.

Let’s talk risk and PCI. I think of PCI risk different then some folks. I separate the risk of being non-compliant from the risk of the gaps themselves. Let me explain.

Risk associated with just being non-compliant (no incident has occurred): Merchants can be fined for not being compliant. In this type of scenario – the merchant’s payment processor could levy the fine. As a matter of fact, the card associations can fine the payment processor who can then fine the merchant. Fine amounts can vary and there is no guarantee that you will be fined for being out of compliance. Also, it would appear that fines for this type of non-compliance are independent of the number of requirement gaps. So whether a merchant has one requirement gap or dozens – the fine is for being non-compliant. If an organization is not compliant – the expected annualized loss magnitude for not being complaint would be the expected monthly fine amount multiplied by 12.

Risk associated with being non-complaint; an incident has occurred. This is where the pucker factor starts. This is a situation where a merchant has suffered a breach and is non-compliant or possibly even compliant. There are numerous resources out there about the fines that can be levied against the merchants by the card associations, payment processor fines / increases transaction charges, card replacement costs, reputation costs and much, much more. This is a worst case loss scenario from a risk perspective. For large merchants, I would think that monetary impact would easily be hundreds of thousands of dollars to a couple million dollars; more depending on the size of the breach. TJX is a good *worst* worst case benchmark.

Risk associated with the gaps themselves. When it comes to assessing the gaps – or risk issues – I prefer to assess them independent of the compliance status. Even though a single risk issue can result in a state of non-compliance which has its own risk (fine) amounts – what good is it for the risk issue itself to assume the risk amount of not being compliant in cases where you have multiple gaps? So, I prefer to think of them independently. This allows for better mitigation prioritization, cost benefit analysis, and being more objective in how you articulate the risk to the decision makers.

If you think about what I have written you can easily imagine a situation where a merchant could justify remaining out of compliance because the cost of not being compliant (in absence of a breach) is cheaper then becoming compliant. For some companies that may be a viable option (though few would probably ever admit that is their approach), but most companies want to be compliant, want to show due care to their customers / consumers, and do not want to take the chance on a breach and the reputation impact that comes with that.

Finally, for most companies – achieving compliance cannot happen with one stroke of the magic wand. There may be a period of time between gap identification and mitigation, which means the company, needs to manage that risk accordingly. I hope some of my thoughts above might help with that (combined with your legal council input, leadership input, your QSA, etc.)

Now, if the PCI Security Standards Council would take more of a risk based approach in determining level of compliancy and magnitude of fines – that would be pretty cool. And no, using CVSS scores to tag technical vulnerabilities is not really a risk based approach.

** Late addition to the post ** – My next post will be about a positive PCI QSA experience I recently had.


3 Responses to Risk and PCI-DSS

  1. Travis says:

    The problem with comparing risk to compliance in dollar values is taking into account the fact of a data breach. If a company’s data is lost, there is the cost of damaging the company’s public image. Which in the long run can be much more harmful, especially in today’s economy where consumers are wanting to stretch their dollars further. What a company needs is a solution which is more cost effective to them and can do more then just get them PCI complaint, but get them closer to being compliant with other regulations.

  2. Chris Hayes says:

    @Travis – Right, wrong or indifferent – PCI-DSS is quickly – or already is in certain circles – becoming the “standard”. There is no reason not to presume that other regulatory/oversight bodies – whether government or private – will not adopt PCI-DSS or the like. I have found this to be a great “contributing factor” in regards to explaining the exposure of not being complaint over the long run to business decision makers. To be honest – a lot of the standards are common sense and overlap with with what FRC auditors are looking for, as well as Internal Audit groups for organizations that are large enough to have them.

    Thanks for commenting as well as reading my blog! Happy Holidays!

  3. Jack says:


    You mention “showing due care” to customers, etc., but I would submit that PCI as “due care” is a bit of a Potemkin Village — i.e., the appearance of due care, but without substance. This isn’t completely true, of course, as PCI compliance does reflect an attempt at due diligence. Actual due care would be better reflected in being able to prioritize risk issues effectively (which PCI absolutely fails on) and cost-effective control selection (which PCI doesn’t address).


%d bloggers like this: