10 Feb 2012
Data protection rules to be reformed, with greater burden foreseen for companies selling to consumers
On 25 January 2012, the European Commission announced that it has proposed a comprehensive reform of the EU’s 1995 data protection rules to strengthen online privacy rights. The proposals come in the wake of technological progress and globalisation having profoundly changed the way personal data is collected, accessed and used. In addition, the 27 EU Member States have implemented the initial rules, adopted in 1995, differently, resulting in confusing divergences in enforcement.
While a reformed single law will do away with the current fragmentation, leading to a more harmonised and consistent application for Hong Kong traders selling their consumer goods in multiple Member States, it will also come at a cost. The reforms will build upon the current regime, making it inevitably more hard-hitting for companies that use consumer data in the context of their business (or otherwise), throughout the EU-27. Any failure to observe the future rules could also result in far higher penalties than is currently the case.
The Commission's proposals update and modernise the principles enshrined in the 1995 Data Protection Directive to further guarantee privacy rights in the future. They include a policy Communication setting out the Commission's objectives, and two legislative proposals: a Regulation setting out a general EU framework for data protection and a Directive on protecting personal data processed for the purposes of prevention, detection, investigation or prosecution of criminal offences and related judicial activities.
It should be kept in mind that personal data is any information relating to an individual, whether it relates to his or her private, professional or public life. It can be anything from a name, a photo, an email address, bank details, postings on social networking websites, medical information, or a computer's IP address. The proposed changes will give people more control over their personal data and make it easier to access it. They are designed to make sure that people's personal information is protected – no matter where it is sent, processed or stored – even outside the EU, as may often be the case in relation to online transactions.
Hong Kong sellers making use of personal data, which can be simply a name or an e-mail address of a single customer, (e.g., in the context of a sale, and then simply wishing to store it) will be affected by the rules and therefore should carefully examine them. Key changes to the current rules include the following:
- There is to be a single set of rules on data protection, valid across the EU. Unnecessary administrative requirements, such as notification requirements for companies, will be removed.
- Organisations will only have to deal with a single national data protection authority in the EU country where they have their main establishment. Likewise, consumers can refer to the data protection authority in their country, even when their data is processed by a company based outside the EU.
- Companies will see an increased responsibility and accountability for those processing personal data. For example, companies must notify the national supervisory authority of serious data breaches as soon as possible (if feasible, within 24 hours).
- Wherever consent is required for data to be processed, it is clarified that it has to be given explicitly, rather than assumed.
- Individuals must be granted easier access to their own data and be able to transfer personal data from one service provider to another more easily (the right to “data portability”).
- A “right to be forgotten” will help people to better manage data protection risks online: people will be able to ensure that their data is deleted if there are no legitimate grounds for having it retained.
- EU rules must apply if personal data is handled abroad by companies that are active in the EU market and offer their services to EU citizens. Thus, Hong Kong companies operating online in he EU will likely be directly affected.
- Independent national data protection authorities will be strengthened so they can better enforce the EU rules at home. They will be empowered to fine companies that violate EU data protection rules. This can lead to penalties of up to €1 million or up to 2% of the global annual turnover of a company.
- A new Directive will apply general data protection principles and rules for police and judicial cooperation in criminal matters. The rules will apply to both domestic and cross-border transfers of data.
Companies operating throughout the EU are jittery about the new and harsher penalties under the proposed rules. The least severe action against a breach of the law will be a written warning which will be sent when there is “a first and non-intentional non-compliance”.
However, for more serious infringements, sanctions of up to 250,000 euros or 0.5% of global turnover in the case of an enterprise will apply where companies do not comply with requests by a data subject (e.g., a consumer). Fines of up to 500,000 euros or 1% of global turnover will apply for violations such as not complying with “the right to be forgotten”, or failure to rectify incorrect personal data. The highest fines, which are up to a million euros or 2% of global turnover, will apply to infringements such as a failure to appoint a data protection officer or to notify authorities of a breach in relation to personal data.
The Commission's proposals will now be passed on to the European Parliament and EU Member States (meeting within the Council of Ministers) for discussion. They will take effect two years after they have been adopted. A set of Frequently Asked Questions can be accessed at: