An EU court decision and legislative moves in the U.S. and UK make compliance with privacy regulations increasingly difficult. Arnall Golden Gregory partner Kevin L. Coy sets the scene for what’s likely to come in the next few months.
Transfers of personal data from the European Union/European Economic Area to the United States and other countries without adequacy decisions, including transfers using the new standard contractual clauses (SCC) adopted in 2021, are increasingly subject to enhanced diligence by data exporters in Europe. These transfers are also subject to additional scrutiny by European supervisory authorities following the 2020 Schrems II decision by the EU’s Court of Justice, including increased use of transfer impact assessments (TIA).
At the same time, the United Kingdom has adopted its own approach to standard contractual clauses and is considering amendments to the UK GDPR, which if adopted, would diverge from the EU GDPR. The EU and the U.S. also continue to move forward with efforts to address the concerns raised by Schrems II court and stand up a new transatlantic data privacy framework to replace the Privacy Shield Framework that effectively was invalidated by the CJEU decision.
EU standard contractual clauses
In June 2021, the European Union adopted the new EU SCCs for transfers of personal data from the European Economic Area (the 27 EU Member States, plus Norway, Iceland and Lichtenstein) to third countries that lack European Commissions finding their privacy laws to be “adequate,” including the United States. These new EU SCCs, designed to reflect GDPR, create additional options for contracting parties and address Schrems II considerations, replaced several sets of older standard contractual clauses that had been in use for many years. Transition rules for the new EU SCCs required that they be used in new agreements entered into after Sept. 27, 2021. For agreements entered into before that date that relied on the old EU SCCs, they can continue to be used, but they must be replaced no later than Dec. 27, 2022. As a result, organizations that are still relying on the old EU SCCs as part of legacy agreements should be taking steps to replace them by Dec. 27.
Transfer impact assessments
One issue that has received a significant increase in attention since the Schrems II decision is the need for a transfer impact assessment in connection with transfers of personal data from the EU/EEA to third countries that lack adequate privacy protections. There is language in the old EU SCCs requiring the parties to consider risks posed by the law of the third country where personal data was to be transferred, which predates Schrems II, but that language typically did not draw much attention. Schrems II and subsequent recommendations from the European Data Protection Board, as well as the possibility of enforcement actions by individual supervisory authorities, have increased requests for TIAs.
Frequently, because the data importer in the United States (or other third countries where personal data may be transferred) is, or at least is expected to be, better situated to understand how local laws affect them than the data exporter in Europe, data importers increasingly are asked to complete TIA questionnaires or otherwise assist in the evaluation of the relevant laws of the data importer’s country. In the case of the U.S., this involves considerations of U.S. surveillance laws, including Section 702 of the Foreign Intelligence Surveillance Act (FISA) and related executive orders referenced in the Schrems II decision.
Organizations receiving transfers of personal data from the EU/EEA should consider how these laws may impact them, if this has not already been done, in anticipation of requests from partners that transfer personal data from the EU/EEA. While there is no set template for a TIA, drawing from the recommendations from the European Data Protection Board, they frequently seek an analysis of “problematic” surveillance or other laws, as well as information about whether/how frequently the data importer has been subject to such requests, and what safeguards the data importing organization has in place to protect personal data from the EU/EEA.
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New UK standard contractual clause options
Because of Brexit, the United Kingdom is in a slightly different place when it comes to standard contractual clauses for transferring personal data from the UK to the U.S. or other jurisdictions that lack adequacy decisions. On March 21, 2022, the UK approved new mechanisms for data transfers to third countries, replacing the old EU SCCs, which continued to be relied upon for transfers of personal data from the UK post-Brexit. The UK approved a standalone, UK-specific international data transfer agreement. In addition, the UK agreed that the new EU SCCs may be used, provided that a UK-specific addendum is added, which customizes the new EU SCCs for the UK. The customization required by the addendum focuses primarily on technical matters, changing EU-related references to UK-related references, as well as addressing choice of law and forum issues.
Many organizations will find the addendum approach preferable because it facilitates the transfer of personal data from the EEA as well as the UK (and Switzerland if a separate Swiss addendum is included). Organizations that are dealing only with data transfers from the UK, however, may prefer the UK standalone agreement. Under the UK transition rules, the old EU SCCs could no longer be used after Sept. 21, 2022, and must be replaced in legacy agreements no later than March 21, 2024, although the EU’s Dec. 27 deadline will drive the replacement of many legacy agreements that covered both EU and UK transfers.
UK data protection reform
One of the post-Brexit goals of the British government under former Prime Minister Boris Johnson was to reform the UK’s data protection laws. As part of the UK’s Brexit process, the UK essentially transposed the EU GDPR into UK law, creating the UK GDPR. The UK government then set about a lengthy consultation process that considered ways to make the UK GDPR less bureaucratic while retaining a high level of data protection. Data protection reform was announced as a legislative priority for Parliament during the Queen’s Speech in May 2022, and a reform bill, the Data Protection and Digital Information bill, was introduced in Parliament on July 18, 2022. The 192-page bill, if adopted, would make numerous changes to the UK GDPR.
From an international data transfer perspective, this would include eliminating the requirement for many organizations outside the UK to appoint a data protection representative in the UK. The bill would also replace the EU GDPR’s “adequacy” framework with a UK-specific framework. Consideration of the bill was put on hold when Liz Truss became prime minister in September. It is not yet clear what priority the reform bill will be given under the new administration of Prime Minister Rishi Sunak, but it was announced at the end of October that the UK government would engage in additional consultations in the coming weeks and retention of the UK’s EU adequacy decision would be “at the heart” of the UK’s approach. Organizations subject to UK GDPR or engaging in personal data transfers from the UK should monitor developments with respect to the reform legislation.
New EU-US data transfer framework
An open item to be on the lookout for, likely in the spring of 2023, is the new EU-U.S. transatlantic data transfer framework being negotiated by the EU and the U.S. to replace the Privacy Shield Framework and address concerns raised by the CJEU in Schrems II when it invalidated the adequacy decision for the Privacy Shield program. President Joe Biden and EU President Ursula von der Leyen announced an “agreement in principle” on the new framework March 25, 2022. Finalization of the agreement has taken longer than some anticipated. On Oct. 7, Biden signed an executive order intended to address CJEU concerns about U.S. government surveillance and redress mechanisms for data subjects. The order is under review by the European Commission in anticipation of a new adequacy decision likely in the spring of 2023.
An adequacy decision would mean that the new EU SCCs and TIAs should not be required for transfers to participating companies in the U.S., although parties could still elect to use them or conclude they are needed in cases where transfers involve third countries in addition to the U.S. Privacy advocates, including Max Schrems, have criticized the order as being insufficient. Litigation challenging a new adequacy decision seems likely, but it would be an available transfer strategy unless it was struck down by the CJEU. Parallel agreements are expected with the United Kingdom and potentially with Switzerland as well.
The requirements for U.S. organizations joining the new program are expected to be similar to the current requirements for participation in the Privacy Shield program, although transition details have not yet been announced. Organizations interested in quickly joining the new program should consider benchmarking their privacy program against the requirements of the Privacy Shield program because if the new transatlantic data transfer framework takes the same approach as the earlier Privacy Shield and Safe Harbor programs, an organization self-certifying compliance will be expected to be in compliance with the program’s requirements at the time they seek join the program.