After almost four years of debate, the European Commission, Parliament and Council finally reached political agreement on the proposed General Data Protection Regulation (the “GDPR”) in December 2015.
The final official text of the GDPR has yet to be released and is currently still subject to legal-linguistic review. However, a compromise text has been made available on the European Parliament’s website (the “Compromise Text”) and, whilst there may be some tweaking around the edges before the final version is published in the Official Journal, this offers a good insight for organisations as to what will be required of them when the GDPR finally comes into effect.
This eBulletin gives an overview of what has been agreed in relation to some of the key compliance issues for organisations, including as to data security and sanctions which are not only relevant from a pure data protection compliance perspective, but also in the broader context of data issues and cyber security.
Business Impact Summary
- Extra-territoriality – the GDPR will extend to data controllers located outside of the EU who offer goods and services to EU citizens or monitor their behaviour.
- Fair Processing Information – the GDPR will require data controllers to provide more information to data subjects in their fair processing notices.
- Consent – consent will need to be freely given, specific, informed and unambiguous, involving a clear affirmative action on behalf of the data subject.
- Rights of the Data Subjects – the GDPR will provide more transparency for data subjects with respect to the processing of their data, as well as enhanced rights to rectify, delete, restrict, or object to, data being processed. There will be additional obligations on data controllers when dealing with subject access requests, save that manifestly unfounded or excessive requests may be refused.
- Controller/Processor Accountability – the GDPR will give statutory recognition to best practice concepts such as data protection by design, imposing greater accountability on data controllers, as well as placing data processors on the hook for certain regulatory liability for the first time.
- International Transfers – binding corporate rules will be given statutory recognition; criteria for adequacy decisions are set-out, and new possibilities for adequate protection are provided in the form of codes of conduct and certifications.
- Data Protection Officer – the mandatory appointment of a data protection officer for organisations will be restricted to limited circumstances involving sensitive personal data or the monitoring of data subjects.
- Security – the GDPR will set-out slightly more detailed requirements for security of data but the responsibility for determining appropriate security measures will remain with the data controller.
- Data Breaches – the GDPR will introduce a new mandatory requirement for data controllers to notify the regulatory authority of personal data breaches.
- Sanctions – the GDPR will provide for two tiers of sanctions, with maximum fines of up to EUR 20 million or 4% of annual worldwide turnover, whichever is greater.
- Guidance, Codes of Conduct and Certifications – the GDPR sets out certain areas where we can expect/hope to either see further guidance in the future from the new European Data Protection Board, or potentially the development of approved Codes of Conduct and/or certification mechanisms.
According to Article 3 of the Compromise Text, the GDPR will not only apply to organisations established within the European Union, but also to organisations located outside of the European Union but offering goods or services to, or monitoring the behaviour of, European data subjects.
The Recitals to the Compromise Text give some guidance regarding the interpretation of “monitoring” in Article 3, providing that monitoring would include the tracking of individuals on the internet to profile them for the purposes of analysing them or predicting their personal preferences.
The Compromise Text therefore confirms Europe’s intention to extend the scope of current data protection regulation. Technology companies in particular, who may currently locate their servers outside of the EU and therefore be out of scope of data protection regulation, may now find themselves subject to the GDPR if they are targeting EU customers. Questions remain regarding the effective enforceability of these new data protection obligations against non-EU controllers, but there is no doubt that the long arm of EU data protection law is trying to reach beyond EU borders.
The GDPR allows Member States during the two year period for implementation to deviate from the Regulation to make more specific rules to ensure the protection of the rights/freedoms in respect of processing employee personal data in the employment context. This expressly includes measures for, among other things, the transfer of data between group companies and monitoring in the workplace. Employers will need to be alert to these further amendments.
Fair Processing Information
Article 14 and 14a of the Compromise Text set out details of so-called fair processing information to be provided to individuals about the processing of their personal data.
The requirements are much more detailed than those under the current Data Protection Act 1998, which requires that fair processing notices should simply include details of: (i) the data controller’s identity; (ii) the purpose or purposes for which the data controller intends to process the information; and (iii) any extra information the data controller needs to give individuals in the circumstances to enable it to process the information fairly. The Compromise Text provides that data controllers should provide the data subject with significantly more information, including:
- details of the period for which the personal data will be stored, or if this is not possible, the criteria used to determine this period;
- where the processing is based on the data controller’s legitimate interests, details of those legitimate interests;
- where the processing is based on consent, the existence of the data subject’s right to withdraw consent at any time;
- the existence of the data subject’s rights, including the right to make subject access requests, the right to rectification and deletion of personal data, and the right to make a complaint to the regulatory authority; and
- where the data controller intends to transfer the personal data to a third country, details of such transfers, including the appropriate safeguards in place.
Whilst this is a more detailed legal requirement for data controllers than under the current regime, it is fair to say that the additional information required to be given to data subjects is broadly in line with current market best practice advice (at least in the UK). What the GDPR appears to be seeking to do, is making current voluntary best practice now a mandatory legal requirement. Organisations will therefore need to undertake a comprehensive review of their current practices in order to be able to carry out a gap analysis and identify what changes (if any) need to be made in order to bring them into line with the new requirements.
Data subject consent is defined in Article 4 of the Compromise Text as any freely given, specific, informed and unambiguous indication of the data subject’s wishes by which the data subject, either by a statement or by a clear affirmative action, signifies agreement to personal data relating to them being processed.
The requirements for “unambiguous” consent and for a “clear affirmative” action on the part of the data subject are both new, and likely to have significant implications for data controllers with respect to how they go about gathering data subject consent. In particular, the requirement for clear affirmative action means that silence, pre-ticked boxes or inactivity will no longer constitute valid consent.
Contrary to previous proposals, the Compromise Text does not invalidate consent given by employees in the employee/employer context. However, the Recitals to the Compromise Text state that, in order to safeguard that consent has been freely-given, it will not be a valid legal ground for data processing where there is a clear imbalance between the data subject and the controller. It therefore seems likely that consent will be interpreted very narrowly in the context of employee consent, leaving employers to consider other ways in which they can justify the processing of employee data.
It is worth noting that a request for consent must be represented in a manner distinguishable from other matters and the performance of a service must not be conditional upon consent to processing personal data if that is not necessary for the performance of that contract. This may require data controllers to reconsider how data processing consents are obtained in the context of a contract.
It is also worth noting that, despite considerable debate around the subject, there remains a distinction in the Compromise Text between the type of consent required for processing of personal data and that required for the processing of sensitive personal data. Processing of sensitive personal data will require the “explicit” consent of the data subject.
Rights of the Data Subjects
There are various themes running through the Compromise Text. One such theme relates to the rights of data subjects and transparency with respect to the processing of personal data. The Compromise Text confirms that the GDPR will place numerous obligations of transparency on to data controllers. Under Chapter III of the Compromise Text, data controllers will be required to provide a significant amount of information to data subjects, both at the time of collection of the data (see the paragraph relating to “Fair Processing Information” above) and also in the event that the data subject makes a subject access request, including the purposes and detail behind the processing (e.g. what legitimate interests were being pursued, details of transfers outside the UK and suitable safeguards to protect the personal data, as well as how long the information is being held). Whilst the concept of subject access rights is not new, the obligation on data controllers to provide additional information to the data subject (e.g. informing the data subject of his/her right to request rectification or erasure of data or to object to the processing of their personal data, the right to withdraw their consent, and to lodge a complaint with the regulatory authority) increase the already significant administrative burden associated with responding to such requests.
Furthermore, Article 12 of the Compromise Text provides that information provided in response to a subject access request must be provided by the data controller free of charge unless the request is manifestly unfounded or excessive in which case a reasonable fee may be charged (with no guidance as to how either should be interpreted). The GDPR also gives the data controller the option to refuse to act on a request where it is manifestly unfounded or excessive, but the data controller has the burden of showing this. Data controllers also only have one month in which to respond to a subject access request, although this time period can be extended by up to two months where necessary, taking into account the complexity of the request and the number of requests.
Overall, although the process for dealing with subject access requests does not appear to be hugely different under the GDPR to that with which organisations are already used to dealing, it remains to be seen whether the enhanced transparency obligations will further encourage data subjects to make more of these types of requests in the future.
In addition to the right of subject access, data subjects will have other express rights under the GDPR: the right to rectification (i.e. rectifying inaccurate personal data); the right to be forgotten (i.e. the right to deletion of personal data in a number of situations); the right to restrict, or object to, processing of their personal data and the right to data portability (i.e. to receive their personal data in a structured, machine-readable format).
There is a general theme of data controller accountability running through the Compromise Text. Enhanced levels of transparency for data subjects (see paragraphs on “Fair Processing Information” and “Rights of Data Subjects” above for further details) mean that data controllers will be made to be held more accountable for their data processing actions than under the current Directive.
In addition, Article 23 of the Compromise Text gives statutory recognition to the concept of “data protection by design”. This concept is not a new one and has been promoted by regulators (at least in the UK) as a best practice method of data protection compliance for some time. However, the GDPR will now turn such best practice into a statutory requirement.
The Compromise Text also sets out more detailed legal requirements to apply to the controller/processor relationship, and to processors in general. Article 26 of the Compromise Text sets out a number of requirements for the contract between data controllers and data processors and also provides that these requirements may be set out in some form of standard contractual clauses under Member State law. This may therefore be an area where we can expect to see further guidance in the future and potentially the introduction of controller/processor standard clauses similar to the ones already available for international transfers.
The Compromise Text also makes data processors directly subject to regulation for the first time. Article 27 of the Compromise Text directly prohibits data processors from processing personal data except on instructions from the data controller. Breach of this provision could be subject to an administrative fine of up to EUR 10 million or 2% of annual worldwide turnover whichever is greater. Article 30 of the Compromise Text also extends data security obligations to data processors as well as data controllers (see paragraph on “Security” below for further details).
Although many aspects of the proposed GDPR have been criticised for being overly bureaucratic, the international transfer provisions appear to provide a little more scope for organisations to transfer data overseas in a compliant manner.
In particular, the Compromise Text provides that adequacy decisions made by the European Commission can apply to specific processing sectors or territories within a country, as well as to a country as a whole. This could result in future adequacy decisions finding specific industry sectors or states to provide adequate protection for data. For example in the USA, where sector specific or state specific privacy legislation may provide adequate protection despite there being no overall data protection law at a federal level. The Compromise Text also clarifies the process by which adequacy decisions should be made, setting out detailed criteria on which the European Commission should consult.
In addition, the Compromise Text removes any uncertainty relating to the effective scope of binding corporate rules (“BCRs”). The Compromise Text provides statutory recognition for BCRs, as well as a clearly defined process for their approval, as set out in Article 43 of the Compromise Text. According to Article 43, provided that any submitted BCRs are legally binding, confer enforceable rights on data subjects and satisfy certain further requirements as to their content, then they should be approved by the appropriate regulatory authority.
The Compromise Text also introduces two new grounds for the adequacy of international transfers, being transfers subject to an “approved code of conduct” or an “approved certification mechanism” (see paragraph on “Guidance, Codes of Conduct and Certifications” below for further details).
The whole issue of international transfers remains the subject of much debate at the moment, with the deadline for agreement of a new “Safe Harbor 2.0” having expired at the end of January, the recent promise of a new “EU-US Privacy Shield”, and the Article 29 Working Party threatening to review the status of standard contractual clauses and BCRs as compliance mechanisms in light of the decision of the Court of Justice of the European Union in the Schrems case in October last year. Organisations will need to keep abreast of the debate and perhaps refrain from taking immediate action until the position is clearer.
Data Protection Officer
Previous drafts of the GDPR suggested that data controllers would be subject to a new mandatory requirement to appoint a specially trained data protection officer (“DPO”) with a long list of qualifications, to take responsibility for the organisation’s compliance with the GDPR. This requirement would apply to any organisation employing more than 250 people or processing personal data relating to 5,000 or more data subjects.
The position in the Compromise Text appears to be considerably less onerous. Section 4 of Chapter IV of the Compromise Text provides that the appointment of a DPO will only be mandatory where the core activities of the data controller consist of processing operations which require: (i) regular and systematic monitoring of data subjects on a large scale; or (ii) processing on a large scale of sensitive personal data. For all other organisations, the appointment of a DPO will be voluntary.
The second category referred to above seems quite self-explanatory. An organisation that processes a lot of sensitive personal data as part of its core business, such as a healthcare insurance provider, will need to engage a DPO to oversee data protection compliance.
However, the scope of the first category, which refers to “regular and systematic monitoring” is less clear. The Recitals to the Compromise Text give some guidance by providing that monitoring relates to tracking individuals on the internet to profile them for the purposes of analysing them or predicting their personal preferences.
Although the mandatory requirement to appoint a DPO has been limited by the Compromise Text, organisations that are going to be subject to this requirement will need to start planning for the recruitment of such a person. The prescriptive qualification requirements of the DPO, which were proposed in earlier versions of the GDPR have also been removed from the Compromise Text. Instead, the Recitals to the Compromise Text refer simply to a person with expert knowledge of data protection laws and practices, and provide that the necessary level of expert knowledge should be determined according to the data processing operations carried out and the protection required for the personal data processed by the controller or the processor.
The Compromise Text introduces the requirement for the data protection officer not to be dismissed or penalised by the data controller or processor for performing his tasks. This appears to grant the employee a protected status akin to trade union officials when carrying out their activities and leaves open the question of if/how an employee would enforce that right.
With respect to data security, the Compromise Text suggests that the requirements are going to be slightly more prescriptive about what organisations need to have in place from a security perspective but not overly so, and certainly not as prescriptive as earlier drafts of the GDPR had suggested.
For example, Article 30 of the Compromise Text lists security measures such as:
- pseudonymisation and encryption of personal data;
- ability to ensure the ongoing confidentiality, integrity, availability and resilience of systems and services;
- ability to restore the availability and access to data; and
- a process for regularly testing, assessing and evaluating the effectiveness of technical and organisational security measures.
These are all basic measures that organisations should have in place in order to comply with the current legislation (even though the current legislation does not set out detailed requirements). However, the Compromise Text is no more prescriptive than outlined above, meaning that the legal requirements with respect to security are, perhaps surprisingly, not much more stringent than under the current Directive. Although, it is worth noting that the security requirements are now legally extended to data processors as well as data controllers, putting processors on the hook for the first time for regulatory liability.
However, this is perhaps an area where we can hope and expect to see further guidance in the future from the new European Data Protection Board, required under Article 66 of the Compromise Text to publish guidance with respect to compliance with certain aspects of the GDPR. In the meantime, organisations will need to carry out an impact/risk assessment and review of existing security processes and procedures to determine whether they pass muster under the new rules.
Article 30 of the Compromise Text also provides that adherence to an approved code of conduct (pursuant to Article 38) or an approved certification mechanism (pursuant to Article 39) may be used as an element to demonstrate compliance with the security requirements set out in the GDPR. It therefore seems that the EU is hoping to encourage industry to work together to produce its own guidance and standards in this area (for further details regarding the code of conduct and certification mechanisms provided for in the Compromise Text, please see the paragraph “Guidance, Codes of Conduct and Certifications” below).
As expected, the Compromise Text confirms that the GDPR will introduce a requirement for data controllers to notify the regulatory authority of personal data breaches. Article 31 of the Compromise Text provides that data controllers shall, without undue delay and, where feasible, not later than 72 hours after having become aware of it, notify the regulatory authority of a data breach. The only exception to this rule is in cases where the breach is “unlikely to result in a risk for the rights and freedoms of individuals”.
The Compromise Text does not give any examples of types of breaches unlikely to result in a risk to the rights and freedoms of individuals. However, the Recitals to the Compromise Text give some insight as to what risks to rights and freedoms of individuals could include. They provide that a personal data breach may result in physical, material or moral damage to individuals such as loss of control over their personal data or limitation of their rights, discrimination, identity theft or fraud, financial loss, unauthorised reversal of pseudonymisation, damage to the reputation, loss of confidentiality of data protected by professional secrecy or any other economic or social disadvantage to the individual concerned. Given this long list of possible consequences of data breaches, it seems likely that the exemption to the notification requirement will be interpreted very narrowly and data controllers should therefore exercise caution if looking to rely on it.
The Compromise Text goes in to further detail about the notification itself in Article 31. This Article provides that the notification must at least:
- describe the nature of the personal data breach including where possible, the categories and approximate number of data subjects concerned and the categories and approximate number of data records concerned;
- describe the likely consequences of the personal data breach;
- set out details of the data protection officer or other point of contact; and
- describe the measures taken or proposed to be taken by the controller to address the personal data breach, including, where appropriate, to mitigate its possible adverse effects.
And it is not just the regulatory authority that has to be notified of data breaches. The Compromise Text also sets out a requirement for data controllers to notify individual data subjects of data breaches. Article 32 of the Compromise Text provides that, when the personal data breach is likely to result in a high risk of the rights and freedoms of individuals being compromised, the data controller shall notify the data subject without undue delay. The notification to the data subjects must be in clear and plain language and should contain much of the information also required to be given to the regulatory authority. There are some limited exceptions to the obligation to notify. However, the Compromise Text also provides that, if the controller has not already communicated the personal data breach to the data subject, the regulatory authority may nonetheless require it to do so.
The new data breach notification requirements are likely to place a significant additional compliance burden on data controllers. The short timeframe for notification required means that organisations are going to have to ensure they have processes in place to be able to act quickly in the event of a breach and be able to rapidly gather significant amounts of information about the breach. The de minimus threshold provided for notification seems likely to be construed very narrowly, meaning that even minor data breaches may need to be notified, placing additional strain not only on the data controllers but also the regulatory authorities themselves.
The new sanctions, and specifically the level of fines provided for under the GDPR, have been the subject of much discussion. In the UK, organisations haven’t had to unduly worry about data protection fines to date as these have been capped at £500,000. However, it has been clear from the outset of the GDPR process (back in January 2012), that the EU wished to increase the level of fines available for breaches of data protection law. That being said, the specific proposals for fines varied greatly between the EU institutions. The European Commission originally suggested fines of EUR 1 million, whilst the European Parliament increased this vastly to EUR 100 million or 5% of annual worldwide turnover.
The Compromise Text provides for a two-tier system of fines. Minor breaches of some of the more administrative provisions of the GDPR will be subject to a maximum fine of EUR 10 million or 2% of annual worldwide turnover (whichever is greater). More fundamental breaches of, for example, the data protection principles, will be subject to a higher fine of EUR 20 million or 4% of annual worldwide turnover (whichever is greater). It is worth noting that it is not clear from the wording of the Compromise Text whether the fines relating to a percentage of annual worldwide turnover would apply to group turnover or just the turnover of the legal entity in breach. The Recitals refer to the definition of undertaking in Articles 101 and 102 TFEU but this in itself is not determinative of the issue.
As a general comment, data protection is going to have to be something that all organisations pay closer attention to going forward. The way that the GDPR has fines and caps for failure to meet simple compliance measures, such as failing to appoint an EU representative, means that data protection compliance will have to be scrutinised at a level of detail that simply wasn’t necessary before.
Guidance, Codes of Conduct and Certifications
The Compromise Text contains a number of mechanisms through which organisations can hope to get some guidance on interpretation of, and compliance with, the GDPR.
Under the GDPR a new European Data Protection Board will be established. Article 66 of the Compromise Text sets out the tasks of the European Data Protection Board, which include issuing guidelines, recommendations and best practices in relation to certain aspects of the GDPR.
The GDPR also envisages the establishment of codes of conduct and certification mechanisms which may be used by data controllers as an element to demonstrate compliance with certain aspects of the GDPR.
Pursuant to Article 38 of the Compromise Text, associations or other bodies representing categories of controllers or processors will be encouraged to draw up codes of conduct. Examples of areas which may be the subject of future codes of conduct include:
- fair and transparent data processing;
- legitimate interests;
- exercise of the rights of the data subjects;
- measures to ensure security of processing;
- notification of personal data breaches to the regulatory authority; and
- transfer of personal data to third countries.
The Compromise Text also provides for a certification mechanism under which controllers and processors can be certified by an accredited certification body with an appropriate level of data protection expertise. Certifications will be voluntary and used as a means of demonstrating compliance with the GDPR but will not reduce the responsibility of the controller or processor for actual compliance with the GDPR.
In these ways, it seems that the EU is hoping to encourage industry to work to produce its own guidance and standards for particulars area of compliance, although it remains to be seen whether or not any associations or other bodies will rise to the challenge of producing such guidance and whether this will prove helpful to data controllers or cause confusion if the codes of conduct are not consistent with either the European Data Protection Board’s guidelines from time to time or the Information Commissioner’s guidance.
Subject to the legal-linguistic review mentioned above, the final text of the GDPR will now need to be formally approved by the European Parliament and the Council and published in the Official Journal. There will then be a two year implementation period before the GDPR comes into effect, meaning that organisations should expect the new rules to apply from sometime in 2018.
To view a copy of the Compromise Text, please click here.
The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2021