Compliance

Facing up to the General Data Protection Regulation

Europe’s updated data protection rules, the General Data Protection Regulation or GDPR, become effective May 25 and could presage tougher regulation in other parts of the world.
By: | April 27, 2018

On May 25 Europe adopts the General Data Protection Regulation (GDPR), a long-planned overhaul of how businesses collect and process data. The current regulations go back more than 20 years to a pre-Facebook era when the internet’s potential was still being explored, so the new set of data protection rules was overdue.

As Risk & Insurance® reported last year, the impact of the GDPR extends beyond the European Union. Once it takes effect it will affect not only companies across the EU’s member states, but any business or public sector organization that collects and processes data about its residents.

Failure to comply with it will result in heavy fines. In many European countries, according to Aon and DLA Piper, those fines appear to be uninsurable.

As HR departments are the guardians of large amounts of personal data, many have sought guidance on what steps they should be taking in preparation. This has produced an Amazon bestseller, The Little Book of GDPR, for Darren Wray, CEO of Fifth Step, who this week gave a market briefing for the International Underwriting Association (IUA) in London on what GDPR compliance entails.

Darren Wray, CEO, Fifth Step

Other parts of the world are also revamping their data protection rules; Australia, for example, introduced the Notifiable Data Breaches (NDB) scheme in February.

However, Wray suggested that GDPR could establish itself as the new template, meaning that the HR departments within U.S. companies would do well to become familiar with its requirements, if they haven’t already done so.

Facebook is evidently aware of the repercussions. The social networking giant is about to move 1.5 billion members in Africa, Asia, Australia and Latin America currently routed through its Ireland base to the U.S., to take advantage of the latter’s more lenient privacy laws.

While the advantage might prove temporary should consumer pressure mount for a U.S. equivalent of GDPR, Facebook’s caution is understandable.

The financial penalties imposed for breaching GDPR are the greater of 4 percent of the organization’s revenue or around $24.2 million (depending upon the exchange rate at the time of the fine).

The IUA briefing also referenced the massive data security breach suffered last fall by Equifax, which took the credit reference agency months to reveal and could eventually cost it $600 million or more.

However, Wray noted that “under GDPR, the company would no longer exist.” A mandatory post- breach period of 72 hours maximum will now apply to any company that becomes aware of any personal data breach.

More unexpected was the revelation that Equifax even derived some profit from last year’s episode by providing customers affected by the breach with a free three-month fraud protection service but then charging for it once that period had elapsed.

However, it may not yet be off the hook in the UK, where regulator the Financial Conduct Authority (FCA) is deciding whether the company violated the terms of its operating licence and if compensation to consumers is appropriate.

Dawn of the DPO

The lowdown for any business with European customers is that the GDPR isn’t optional. Companies will need to comply, regardless of their location.

It means obtaining the explicit consent, or opting-in, from any individual whose personal details they collect and process and ensuring that data is handled at all stages in a legally compliant way.

It also requires distinguishing between data protection — the risk of infringing an individual’s personal rights; and data security — the risk of it being lost, deleted or abused, while categorizing personal data as either sensitive or non-sensitive as the former requires higher protection and carries additional GDPR requirements.

The lowdown for any business with European customers is that the GDPR isn’t optional. Companies will need to comply, regardless of their location.

The new regulation also extends eight basic rights to each individual whose data is collected and processed by a company, such as the right to access a copy of the details being held on them.

They can also object to the company using their data; in some cases request erasure or ‘the right to be forgotten’ so that their data is deleted; and demand rectification where any of the personal data held is inaccurate or needs to be updated.

One that Wray foresees involving particular change is the right to data portability, enabling the individual to easily log on to the data being held about them, access a copy in standard format and use it, for example, when applying to a new insurer.

As a part of the organization that deals with large volumes of data — much of it sensitive — HR departments will be particularly susceptible to the tougher standards imposed by the GDPR. Their data lifecycles have an extended lifespan, ranging from when an individual is hired to their eventual transition to a retiree.

The new rules also promise bright career prospects for the data protection officer (DPO), whose role will be an essential one for any sizeable business. &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.

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