How to avoid a €100 million data fine in Europe by Jennifer Baker

17/08/2014 17:50

A law approved by the European Parliament on Wednesday (12/3/2014) and aimed at protecting citizens’ privacy comes with sweeping penalties for breaches—up to €100 million (US$139 million) or 5 percent of global annual turnover, whichever is larger.

The European Data Protection Regulation will apply not only to European companies, but any company that does business in the European Union.

“This means that U.S. companies, even if they do no business in Europe, should be prepared to meet or exceed the EU regulation for the purposes of business operations,” said Ross Federgreen, founder of consultancy Compliance Solutions and Resources founder, in an email.

Breaches include transferring data out of the EU without explicit permission or using data in a way contrary to the obligatory privacy notice on corporate websites. Data breach notification must also take place as quickly as possible, ostensibly within 24 hours. Where this cannot achieved within 24 hours, an explanation of the reasons for the delay must be submitted to regulators.

“These requirements are being created by politicians. Their definition of adequate security may be different from businesses. It is vitally important that privacy professionals understand the requirements,” said Sam Pfeifle of the International Association of Privacy Professionals (IAPP).

The organization says there are four key areas to consider for compliance with the new regulation.

First, under the new law all businesses employing more than 250 staff will be required to appoint a Data Protection Officer. The DPO should have more than a compliance role, according to the IAPP. An effective DPO needs to be someone strategic, who can be involved in product development.

The IAPP also recommends setting up privacy steering committees or privacy working groups at every stage of product and service development. This would go a long way to implementing Justice Commissioner Viviane Reding’s “privacy by design” framework.

In addition, data security does not equal privacy. “Many privacy professionals are focused completely on breaches and combatting them, but now they must take a wider view. Just because you haven’t been breached doesn’t mean you haven’t committed a privacy violation,” said Pfeifle. Processing of data must be carried out in full accordance with the new law. Where, when and why personal data is processed must be disclosed to the user.

Finally, the new law creates a so-called “one-stop shop.” This means that companies do not need to deal with 28 different national authorities. A company’s home-country regulator is likely to be the main point of contact. Businesses should foster a good relationship with their regulator, advises the IAPP. “Regulators have said time and again that they’re not interested in fining and smacking down those who are trying their best. They want to focus on those who are ignoring best practices,” according to the organization.

Some businesses, including some communications services providers, will also have additional complications to contend with.

“As it stands, mobile operators would be subject to a dual regulatory regime and restrictions that do not apply to other Internet players, including on their use of traffic and location data and separate requirements for customer consent. We call on the Council to reduce the inconsistencies between the Data Protection Regulation and the ePrivacy Directive,” said Tom Phillips, chief regulatory officer of the GSMA, which represents the interests of mobile operators worldwide.

Heavy data users such as IT companies will also want to take special note of the regulation. Any search engine, social networking site or cloud storage provider must obtain prior authorization from a national data protection authority in the EU before releasing an EU citizen’s personal data to another country.

“This will hamper Europe’s ability to take advantage of new ways of using data. This will put Europe at a disadvantage to other parts of the world that are embracing the new technologies,” warned Digital Europe, a lobbying group that represents 10,000 tech, telecom and electronics companies.

Although the law has been approved by Parliament, its final form has yet to be determined through discussions with the EU council of member states. Normally member states approve laws as a matter of course, but the Data Protection Regulation has been one of the most heavily lobbied pieces of EU legislation and remains controversial.

“It’s a little bit too early to comment because the game is not played yet and we expect a lot of opposition in the council. We have said from the beginning that Parliament must take into account the smaller businesses, not just the Googles and Microsofts,” said Luc Hendrickx, Enterprise Policy Director at UEAPME, the small and medium-size enterprise employers organization.