The UK Cyber Security & Resilience Bill: Strengthening Supply Chains and Software Escrow’s Role

The UK’s proposed Cyber Security & Resilience (Network and Information Systems) Bill represents a major update to the NIS Regulations, widening its scope to include critical technology suppliers (such as managed service providers, data centres, and “designated critical software suppliers”) and boosting incident reporting, regulatory oversight, and information-sharing.

In this article, SES Secure’s Head of Escrow and Continuity, Mark Ryan, examines the key implications of the Bill and the growing scrutiny on operational resilience. He outlines:

• How Software Escrow aligns with the Bill’s objectives.
• How the legal and operational impacts for organisations.
• Practical recommendations for businesses from all industries, regulators, and Escrow providers.

The Importance of Software Escrow

Since its inception in the 1980’s up until the present day, Software Escrow (also known as Source Code Escrow) has consistently proven itself as a powerful risk management tool for all variations of software (on premise, SaaS/Hosted/Cloud, iOS/android and software linked to hardware).

At SES Secure, the Escrow process involves depositing source code, data, documentation, and other ancillary parts with our team of experts. Following rigorous testing and verification exercises, these materials are securely stored and are only released when a pre-determined release condition has been met, such as software vendor going out of business. Ultimately, Software Escrow enables organisations to ensure continuity when a vendor fails, becomes insolvent, or is otherwise unable to provide support. Each of these risks is gaining significance as the Bill raises expectations for supply chain resilience.

The Purpose of the CSR Bill

To appreciate the importance of Software Escrow, it is useful to begin with a summary of the Bill’s key features:

1. Expanded Regulatory Scope The Bill brings managed service providers (MSPs), data centres, and other critical third-party technology suppliers into regulatory scope. It includes a mechanism to designate certain suppliers as “critical suppliers”, making them directly subject to cyber-resilience obligations.
2. Strengthened Incident Reporting Regulated entities will have to report a wider range of “harmful cyber breaches,” with tighter timelines (e.g., notification within 24 hours, fuller reports within 72 hours). The aim is to give regulators earlier visibility into supply-chain incidents before they cascade into systemic risk.
3. Future-Proofing Powers The Bill grants the government powers to update obligations, add new sectors, or refine technical requirements through secondary legislation. This agility is intended to ensure the regime keeps pace with evolving cyber threats and technology trends.
4. Supply-Chain Risk Duties The Bill embeds a clearer supply-chain duty: regulated entities must manage cyber risk in their third-party relationships. Regulators may issue priority outcomes (i.e., strategic aims) and could direct entities to comply with specific resilience standards.

Software Escrow’s Strategic Role under the CSR Bill

Given these reforms, Software Escrow becomes especially salient. Here’s how Software Escrow aligns with and supports the Bill’s objectives:

1. Resilience and Continuity Assurance Software Escrow provides a fallback mechanism: if a vendor fails (financial collapse, acquisition, discontinuation of support), customers can access the Escrowed code and documentation and maintain operations. This is directly relevant to the Bill’s resilience expectations: regulated entities will need “appropriate and proportionate” measures to manage supplier risk.
2. Supply-Chain Risk Management The Bill’s focus on supplier obligations makes the content of vendor contracts more important than ever (e.g., what happens if support ends, who owns the code, how to recover). Software Escrow can formalise these terms clearly in contracts. Embedding Escrow in contracts ensures both parties (licensor and licensee) have certainty over release conditions (insolvency, breach, support failure, etc.)
3. Regulatory Compliance and Auditability Escrow agreements can be structured to satisfy regulatory expectations around continuity, due diligence, and third-party resilience. Escrow agents often provide verification services to prove that deposited materials are complete and up to date. This helps demonstrate to regulators (or auditors) that a regulated entity has a viable recovery path, thereby reducing systemic risk.
4. Competitive Differentiator As the Bill raises the bar for supplier resilience, vendors offering escrow (or escrow-as-a-service) will differentiate themselves by demonstrating stronger resilience credentials. For regulated customers (e.g., MSPs, critical infrastructure), choosing vendors with escrow arrangements may become a best practice or even a regulatory expectation.
5. Long-Term Operational Flexibility With the Bill granting future-proofing powers, technical requirements may change over time. Escrow ensures access to legacy code, enabling regulated entities to migrate, adapt, or redeploy critical systems in response to evolving regulations or threat landscapes.

Risks, Challenges & Considerations

Although Software Escrow provides notable advantages under the new regulatory framework, it also entails challenges and trade-offs:

1. Cost and Overhead Maintaining Escrow involves cost: regular deposits, validation and storage. For smaller vendors or MSPs especially, this could be a non-trivial burden. The regulatory regime could indirectly push smaller suppliers into Escrow, raising compliance costs. This may require support or guidance.
2. Credibility of the escrow agent The experience and tenure of Escrow agents’ employees is a critical consideration. SES Secure currently leads the industry, with an average of 18 years of experience per employee.
3. Defining Release Conditions Parties must carefully negotiate and document release triggers (e.g., insolvency, support failure), which can be legally and technically complex. Overly broad or vague triggers may lead to disputes; overly narrow triggers may undermine the protective benefit.
4. Quality of Deposits An Escrow Solution that holds incomplete, outdated, or unvalidated code/documentation is almost useless in a real release event. Regular update cycles and verification are critical. Escrow providers and beneficiaries need to ensure that deposits include all necessary build tools, dependencies, and documentation.
5. Intellectual Property (IP) and Licensing There may be IP concerns: how much of the code or documentation is escrowed, who has rights upon release, and how these intersect with licensing agreements. Licensees must negotiate intellectual property rights and usage rights in the event of release carefully.
6. Regulatory Certainty The Bill gives government powers to set technical requirements via secondary legislation, but without clarity upfront, Escrow arrangements may struggle to align with yet-to-be-determined regulations. Regulators may need to provide guidance or standards on Escrow use (e.g., what “appropriate and proportionate” means in practice, or how escrow arrangements feed into resilience assessments).

Recommendations

Given the strategic alignment between the Bill’s objectives and the value of Software Escrow, we recommend the following:

For Regulated Entities (Licensees / Critical Suppliers):

1. Map critical software dependencies: Conduct a software supply-chain audit to identify which third-party software is mission-critical to your operations.
2. Integrate Escrow into contracts: Ensure that all vendor agreements include escrow clauses with well-defined release conditions, deposit frequency, and IP rights.
3. Work with experienced escrow providers: Use Escrow agents that are long established, offer validation services, secure storage, legal expertise, insurance and have independently assessed ISO accreditations (e.g., SES Secure, NCC Group, Escode or Escrowsure).
4. Build scenario testing into resilience planning: Regularly test “mock release” scenarios to ensure that, in a real event, the escrowed materials can be built and used.
5. Maintain dialogue with regulators: Engage with relevant competent authorities to align escrow practices with expected regulatory outcomes and future secondary legislation.

For Regulators / Policymakers:

1. Issue guidance on escrow best practices: Provide non-binding but authoritative guidance on how escrow arrangements can meet resilience obligations under the Bill.
2. Promote Escrow as a compliance tool: Encourage use of escrow in critical supply-chain contracts (especially for designated critical suppliers) and include it in supervisory assessments.
3. Support small vendors: Recognise that escrow imposes costs; consider offering support, templates, or incentives for smaller suppliers to adopt escrow.
4. Evaluate Escrow in resilience frameworks: As part of post-implementation reviews, assess whether escrow is being used effectively, and whether release conditions align with real-world risk scenarios.

For Escrow Providers:

1. Tailor escrow services to the Bill’s context: Develop escrow solutions optimized for Bill-regulated sectors (e.g., MSPs, data centres), including legal templates, deposit verification, and release testing.
2. Educate stakeholders: Provide training, webinars, and materials that explain how escrow supports compliance with the Bill, highlighting its value in supply-chain risk.
3. Collaborate with industry bodies: Work with trade associations, regulators, and consultancy firms to shape escrow practices that align with upcoming legal requirements.

The UK’s Cyber Security & Resilience (Network and Information Systems) Bill marks a significant strengthening of the regulatory regime governing key digital supply chains. As the Bill brings more technology suppliers into scope and raises resilience expectations, Software Escrow is well positioned to be central to compliance strategies.

By providing a legally binding, technical fallback mechanism, escrow (from a credible escrow provider) helps insured regulated entities against supplier failure, supports robust third-party risk management, and aligns with the Bill’s emphasis on supply-chain assurance. However, realising its benefits requires careful implementation — via well-drafted contracts, regular validation, and regulatory alignment.

For businesses operating in regulated sectors, adopting Escrow is not just a technical safeguard, it’s a strategic enabler of greater resilience, trust, and regulatory confidence.

To learn more or to speak directly with Mark, please contact him by email – [email protected].