With the EU General Data Protection Regulation (GDPR) being published in the Official Journal of the European Union a common European privacy law and the free and harmonized data traffic within the EU has been founded. After a two-year transitional period the GDPR will apply directly in all EU Member States on May 25, 2018.
Below, we provide an overview of the major changes that enterprises need to adhere as part of their privacy strategy.
The GDPR pursues the established principles of privacy law. According to Article 5 GDPR the fundamental principles of data processing are: lawfulness, fairness and transparency of data processing, purpose limitation, data minimization, accuracy and storage limitation, as well as integrity, confidentiality and accountability of the controller. Similar to Articles 28 ff. of the German Data Protection Act (BDSG), Article 6 GDPR provides data processing based on consent, on legitimate interests of the controller or a third party or if it is necessary for the performance of a contract. Also, the designation of a data protection officer in Article 37 to 39 GDPR, the possibility of commissioned data processing in Article 28 GDPR and the obligation to maintain a register of processing activities in Article 30 GDPR basically remain.
The GDPR stipulates some major changes that will have to be taken into account when processing personal data. For example, the territorial scope in Article 3 GDPR and the rights of the data subject in Articles 12 to 23 and 77 to 79 GDPR have been extended. New conditions under which the processing of data is lawful have been appointed in Articles 6 to 10 GDPR.
The GDPR pursues a risk-based privacy approach. In this context, new principles like privacy by design and privacy by default, Article 25 GDPR, and further obligations to prove compliance arising from Articles 5, 24, 32 and 82 GDPR are of high importance. In order to prove compliance with privacy requirements, certifications (Article 42 GDPR), standard contractual clauses (Articles 28 and 46 GDPR) and approved codes of conduct (Article 40 GDPR) will be major topics of privacy strategies.
In the following we focus on some major topics in more detail:
1. Extended territorial scope
2. Data transfer within a corporate group
3. Data transfer to third countries
4. Commissioned data processing
5. New rights of the data subject and extended liability
6. Transparency regulations, privacy policy
7. Data protection officer
8. Required documentation and proof, register of processing activities, certification
9. Privacy impact assessment, prior consultation
10. Notification requirements
11. Increased penalties
12. IT security, Privacy by design, privacy by default
The GDPR provides a wide territorial scope.
First of all, the GDPR applies when personal data is processed in the context of the activities of a subsidiary of a controller or a processor within the EU (subsidiary principle), Article 3 sec. 1 GDPR. In this context the place of the subsidiary and not the place of the data processing is relevant.
The subsidiary principle is complemented by the market place principle in Article 3 sec. 2 GDPR. According to this principle the GDPR applies in two situations, even when the controller or processor is not located in the EU:
In this context Article 27 sec. 1 GDPR is relevant. Enterprises covered by the market place principle are required to appoint an EU representative, unless data processing is occasional and no special categories of personal data as referred to in Articles 9 and 10 GDPR, like data concerning health, data revealing religious beliefs or ethnic origin or data relating to criminal convictions, are processed.
According to Article 4 sec. 17 GDPR an EU representative is a natural person or corporate entity established in the EU that represents a company with regard to their respective obligations under the GDPR and which serves as the contact for supervisory authorities.
The GDPR simplifies data transfer within a corporate group. According to Article 6 GDPR data processing for the purpose of the legitimate interests pursued by the controller or by a third party is permitted, as long as the interests of the data subject do not override. Recital 48 of the GDPR stipulates that the transfer of personal data within a corporate group, especially for internal administrative purposes, is such a legitimate interest. However, special requirements of Articles 44 ff. apply to the transfer of personal data to an affiliated company located in a third country outside the EU (see below).
The data transfer to third countries or international organizations is subject to Articles 44 to 55 GDPR.
According to Article 45 GDPR data transfer is permitted when the EU Commission has made an adequacy decision which states that this third country, a territory or a special sector within the country ensures an adequate level of privacy. So far the EU Commission has approved Andorra, Argentina, Canada, Faroe Islands, Guernsey, Israel, Isle of Man, Jersey, New Zealand, Switzerland and Uruguay. These decisions shall remain in force until amended, replaced or repealed by the EU Commission.
In the absence of such a decision, personal data may be transferred to a third country or an international organization when appropriate safeguards for an adequate level of protection are provided and enforceable rights and legal remedies are available to the data subject. Article 46 GDPR provides the following possibilities:
In these cases a special authorization from the supervisory authority is not required.
Upon approval of the supervisory authority, data transfer can take place if appropriate contractual clauses have been established.
According to Article 49 GDPR the data transfer to a third country can take place on one of the following conditions:
According to Article 49 sec. 6 the controller shall document the risks of the data transfer and the safeguards that guarantee a reasonable protection of privacy in the third country in its register of data processing activities. Pursuant to Article 49 sec. 5 GDPR the EU and member states can expressly limit the transfer of specific categories of personal data to a third country.
A note specifically for data transfers to the US:
Until the decision of the European Court of Justice (ECJ) in October 2015, the transfer of data to the U.S. could be based on the Safe Harbor Agreement. In October 2015, the ECJ ruled in a case against Facebook that the transfer of personal data to the US based on the Safe Harbor Agreement is no longer permitted. In the ECJ’s opinion the legal situation in the US does not guarantee adequate privacy safeguards, in particular regarding the access of US authorities to personal data from the EU. Moreover, the ECJ has criticized the lack of legal protection for data subjects. As a result, a large number of companies have based their transfer of personal data to the US on EU standard contract clauses. However, this temporary legal approach is likely to be suspended too as the EU standard contract clauses will be soon subject to another review by the ECJ (read more). Moreover, the European Parliament as well as the EU Data Protection Officer recently published their criticism on the EU-US Privacy Shield, which was recently negotiated between the EU and the US to replace the Safe Harbor Agreement. Therefore the legal basis for the transfer of personal data to the US remains uncertain.
Similar to Section 11 BDSG, the GDPR provides the possibility of commissioned data processing. During commissioned data processing personal data is carried out on behalf and in accordance with instructions by the controller. It is based on a contractual agreement between the processor and the controller.
According to Article 28 sec. 3 and 5 GDPR this agreement shall be in writing or in electronic form and shall stipulate the following topics:
The European Commission or the supervisory authority may provide standard contractual clauses for the commissioned data processing, Article 28 sec. 7 and 8 GDPR.
The controller remains responsible for selecting a processor that provides sufficient safeguards that the data processing will meet the requirements of the GDPR. However, Article 28 sec. 5 GDPR provides the explicit possibility to use certifications (Article 42 GDPR) or approved codes of conduct (Article 40 GDPR) to prove the qualification of the processor.
The most important alteration probably is the liability of the processor for material and non-material damages of data subjects resulting out of an infringement of its obligations or resulting out of non-compliance with the controller’s orders, Article 82 sec. 2 GDPR.
The GDPR provides new and partially extended rights of the data subject.
Compared to Article 34 BDSG the new Article 15 GDPR expands the right of access to personal data. In addition to the already applicable information about
also the following information need to be provided:
The scope of the right on information is no longer determined by the purpose of data processing. However, according to Article 15 sec. 3 GDPR special requirements apply to methods of automated decision making, such as profiling.
Article 15 sec. 3 GDPR states that a copy of the stored data shall be provided to the data subject free of charge. The controller may charge a reasonable fee based on his administrative costs for additional copies requested.
According to Article 16 GDPR the data subject has the right to request the correction of inaccurate data and the completion of incomplete data.
Article 17 GDPR stipulates the “right to be forgotten”. Given one of the reasons in Article 17 GDPR applies, the data subject may request the immediate deletion of all of its personal data. Thus, data shall be erased if they are no longer required for the processing or when the data subject withdraws its consent and there is no legal basis for data processing. If the controller published the personal data he has to inform any third parties processing the data about the deletion request.
Under certain conditions named in Article 18 GDPR the right of processing is restricted. Furthermore, Article 21 GDPR provides the data subject’s right to object.
Also, the GDPR introduced the right of data portability, Article 20 GDPR. If the data processing is based on consent or operated by automated procedures, on request of the data subject its data shall be provided in a structured, commonly used and machine-readable format. If technically feasible the data shall be transmitted directly from one controller to another.
The GDPR extends the data subject’s right of compensation and liability. According to Article 82 GDPR controller and processor are liable for all material and non-material damages caused by infringement of the regulation. The new rules lead to a significant extension of compensation claims. The current legal situation regularly provides claims for material damages only. Compensation for non-material damages is limited to serious infringements with high intensity of intervention.
According to Article 77 GDPR the date subject has the right to file a complaint with the responsible supervisory authority and according to Article 79 GDPR it has a right to an effective judicial remedy in case of infringements of the GDPR.
A fundamental principle of GDPR is the transparency of data processing. Therefore Articles 12, 13 and 14 GDPR state the obligation of the controller to provide extensive information:
According to Article 13 GDPR all essential information shall be provided in precise, transparent, understandable and easy accessible form as well as in a clear and simple language at the time the data is collected. In particular the data subject shall be informed about:
and about their rights (new)
If the data are used for an automated decision-making, including profiling, information must be provided on
If it is intended to continue processing data for other purposes (new), the data subject needs to be informed in advance.
Current privacy policies, particularly used online, may still be used. However, the new mandatory legal notices shall be added.
Unlike before, the obligation to designate a data protection officer in Article 37 GDPR is narrowed down to certain conditions. In particular a data protection officer shall be designated in any case where:
Furthermore, according to Article 37 sec. 4 GDPR, a data protection officer shall be designated, if the national law of the Member State requires it. Here, the GDPR offers the Member States a scope to pass legislation on their own regard. The national regulations resulting out of this clause need to be considered at least by the controller, who has a subsidiary in that particular Member State. Therefore, if the German legislature does not repeal or replace Article 4 f BDSG, the present requirements for the designation of a data protection officer will remain. Anyway, companies should wait for official statements on how Germany will proceed before considering essential or-ganizational changes.
According to Article 39 GDPR the tasks of the data protection officer include the obligation
Contrary to current legislation, Article 37 sec. 2 GDPR expressly provides that a corporate group may appoint a single data protection officer.
At several points, the GDPR provides obligations of the controller to demonstrate compliance with the regulation, for example:
These obligations to demonstrate compliance are of high practical relevance in the following constellations:
The GDPR does not describe in detail how compliance should be demonstrated. But it explicitly provides controllers and processors with the opportunity to have their data processing operations certified by accredited certifications bodies (Articles 42, 43 GDPR) or to demonstrate compliance by adhering codes of conduct (Articles 40, 41 GDPR). Therefore the importance of certifications will significantly grow.
In accordance with Article 43 GDPR privacy certificates, seals and marks of conformity can be granted by certification bodies and supervisory authorities. All approved instruments will be registered and published by the European Data Protection Board. This guarantees the trustworthiness of certificates and certification bodies.
Codes of conduct in accordance with Article 40 GDPR are supposed to be prepared by associations and other bodies representing categories of processors in order to substantiate the requirements of the GDPR considering the specific features of different fields of data processing. In this respect, the goal is to consider the special needs of micro as well as small and medium size enterprises. The codes of conduct will be published and approved by the European Data Protection Board or the national supervisory authorities.
Another possibility to demonstrate compliance with the regulation is to maintain a register of processing activities. Article 30 sec. 1 GDPR provides a corresponding obligation of the controller. Similar to the internal procedure index in Article 4 g sec. 1 BDSG the register shall contain the following information:
According to Article 30 sec. 2 GDPR the processor has to maintain a register of all categories of processing activities carried out on behalf of the controller, which has to contain the following information:
According to Article 30 sec. 3 GDPR the register shall be in writing or in electronic form. There are no further formal requirements.
The register shall be made available to the supervisory authority if requested while the obligation to provide parts of the register to the data subject (Article 4 g sec. 2 BDSG) does not apply anymore. However, it is replaced by the obligation to provide information required by Articles 13 and 14 GDPR.
The obligation to maintain a register of processing activities does not apply to enterprises or organizations employing fewer than 250 employees as long as the data processing is not likely to result in a risk for the data subjects, is not only occasional and no special categories of personal data are processed, Article 30 sec. 5 GDPR.
If the nature, scope, context or purpose of data processing are likely to result in a high risk to the rights and freedoms of the data subject, the processor has the obligation to perform a so-called privacy impact assessment, Article 35 GDPR. This allows the controller or the processor to decide on the required and adequate measures to protect the data.
When determining whether a high risk results out of the data processing, it should be taken into account which risks for the data subject may result out of destruction, loss, unauthorized disclosure or unauthorized access.
Inter alia a high risk can be assumed if the personal data breach may lead to a significant economic, social or physical, material or non-material damage if it is not addressed in an appropriate and timely manner. Examples are impending loss of control over personal data, limitation of rights, discrimination, identity theft, identity fraud, financial losses, repeal of anonymization, reputation damage and loss of confidentiality of data that are covered by professional secrecy. According to Article 35 sec. 3 GDPR a high risk results particularly from:
In the course of the privacy impact assessment the necessity of data processing and the risks for the rights of the data subject are listed and the resulting adequate privacy measures are specified.
In accordance with Article 36 GDPR the supervisory authority needs to be consulted prior to the data processing if the privacy impact assessment indicates such a high risk that the protection of the personal data cannot be guaranteed based on the available technical and financial resources.
The general obligation to register in accordance with Article 4 d BDSG does not apply anymore.
In Articles 33 and 34, the GDPR stipulates which measures need to be adopted in the case of a data breach.
According to Article 33 GDPR the controller shall notify the supervisory authority without undue delay, at least within 72 hours after becoming aware of the breach. Nature and extend of the data breach, its likely consequences and the measures to mitigate its possible affects need to be documented. According to Article 83 GDPR the early and comprehensive notification of the supervisory authority as well as a sufficient documentation can affect the amount of an administrative fine why it is in the controller’s own interest.
If a high risk to the rights and freedoms of the data subject arises from the data breach, it has to be communicated to the data subject without undue delay, Article 34 GDPR. According to recital 85 GDPR a high risk can be assumed when the personal data breach may lead to a significant economic, social or physical, material or non-material damage if it is not addressed in an appropriate and timely manner. Examples, mentioned in recital 85 GDPR are: Impending loss of control over personal data, limitation of rights, discrimination, identity theft, identity fraud, financial losses, repeal of anonymization, reputation damage and loss of confidentiality of data that are covered by professional secrecy.
The GDPR leads to a considerable increase of administrative fees that may be imposed in case of infringements.
Currently the BDSG allows fines up to EUR 300,000.00 per each individual case. Article 83 GDPR increases the administrative fines to an amount up to EUR 20,000,000.00, or 4 percent of the global annual turnover of the preceding financial year.
The administrative fine is determined in each case individually and should be effective, proportionate and dissuasive. In this regard, the supervisory authority may take specified criteria into account, when deciding on the amount of the administrative fine. Inter alia the following criteria are relevant:
The proof of adequate technical and organizational measures to protect personal data has a reducing affect. In this context, the already discussed principals of privacy by design, privacy by default, certification and compliance with approved codes of conduct are taken into account by the supervisory authorities. Therefore, by implementing appropriate and secure data processing operations, controllers can significantly influence the amount of an administrative fine.
However, further sanctions may be determined by the Member States.
The GDPR strengthen the focus on an technology driven approach and IT security measures.
Article 32 GDPR states that safeguards, depending on the individual protection requirements, need to be implemented. The necessary technical and organizational measures include:
To determine the individual protection requirements, the specific risks for the data subject should be considered, e.g. the risk of destruction, loss, unauthorized disclosure or unauthorized access.
According to Article 25 GDPR the principles of privacy shall already be considered during the development and implementation of products, services, applications and technical processes (privacy by design). The appropriate technical design shall ensure that:
The principle of privacy friendly settings (privacy by default) in Article 25 GDPR provides that by default, IT systems and applications shall only process personal data which are necessary for each specific purpose.
These principles show a modern, technology driven approach and therefore the GDPR reveals clearly pragmatic approaches: Prevention rather than sanctions, privacy by default, embedding of privacy and data security in the design, full functionality, protection during the entire life cycle, visibility, transparency and respect of the user’s privacy. The processing risk of the controller can be reduced considerably, if risks are already minimized on a technical level and data is protected by adequate technical and organizational measures.
However, the GDPR does not contain a catalogue of technical and organizational measures as the catalogue specifying Article 9 sec. 1 BDSG. In order to determine, which specific safeguards need to be taken, the nature, scope and content of the processed data, the purpose and the circumstances of the data processing, including the respective business processes, IT systems, applications and infrastructures need to be analyzed individually. Therefore, enterprises should address the issue of IT security and privacy by design by using compliance audits, certification and Best Practice Guidelines. The GDPR also provides the possibility to comply with approved industry-specific codes of conduct, Article 40 GDPR.
Beside the established privacy principles, the GDPR introduces new approaches based on the ideas of prevention and risk calculation. Concepts like privacy by design, standardization and certification shift privacy requirements to a technical level, which hopefully leads to more pragmatic privacy concepts in the future. Therefore the GDPR should not only be seen as a challenge but also as an opportunity for enterprises. The extended possibilities to ensure and demonstrate compliance based on standards and certifications are likely to improve the risk and control management. This might improve the potential and capability to realize data-driven business models.
Therefore companies should use the transition period not only to implement the new requirements, but also to analyze their potentials to create new opportunities under the GDPR.