More than malware: unmasking the hidden risk of cybersecurity regulations

Cybersecurity investments are made within a complex and ever-evolving environment, where regulatory changes represent a significant risk factor. While cybersecurity regulations aim to minimize cyber risks and enhance protection, the uncertainty arising from frequent changes or new regulations can significantly impact organizational response strategies. This paper explores the determinants and implications of regulatory risks associated with cybersecurity, aiming to provide a deeper understanding of how these risks influence strategic decision-making. The study delves into the suggestion of preventive and mitigative controls that enable businesses to adapt to and mitigate potential disruptions caused by regulatory changes, thereby preserving their established cybersecurity practices. Another key contribution of this study is the introduction of a stochastic econometric model that illustrates how regulatory risks and uncertainties can affect investment behaviors, often prompting a “wait-and-see” stance. This model synthesizes the complex relationship among investment choices, regulatory changes, and cybersecurity risks, providing insights into the dynamic nature of cybersecurity investment strategies. The research findings offer valuable guidance for risk management and strategic planning in cybersecurity investments. By comprehensively understanding the drivers and impacts of regulatory risks, businesses and policymakers can develop more effective risk evaluation and management approaches. This is essential for sustaining a strong cybersecurity posture while navigating the changing regulatory environment.