Encryption May Lower Fines Under New EU Privacy Regime

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By Stephen Gardner

Companies can lower the risk of massive fines under the new European Union privacy regime by embracing encryption of personal data, privacy attorneys and data security professionals told Bloomberg BNA.

The EU General Data Protection Regulation (GDPR), which takes effect in May 2018, instructs privacy regulators to consider whether data are encrypted in setting fines for data breaches, which can reach maximums of 20 million euros ($21.9 million) or 4 percent of a company’s global annual revenue.

Companies that encrypt personal data will also be exempt from the GDPR’s new mandatory data breach notification provisions. That exemption may be a new concept in the EU but has long been a feature of U.S. state data breach notice laws, Mary J. Hildebrand, chair of the Privacy and Information Security Practice at Lowenstein Sandler LLP in Roseland, N.J., told Bloomberg BNA.

Given the risk-management benefits of using encryption under the GDPR, companies doing business in the EU should embrace the data security technology.

Encryption is increasingly seen as essential in a world in which people will continue to “leave laptops and lose discs and thumb drives,” Benjamin A. Powell, co-chair of the Cybersecurity, Privacy and Communications Practice at WilmerHale LLP in Washington, told Bloomberg BNA. Encryption is “frankly encouraged” in the GDPR, he said, and “uniformly seen as something that is best practice and should be used for sensitive data.”

Peter Van Dyck, a data protection partner with Allen & Overy (Belgium) LLP in Brussels, told Bloomberg BNA that although encryption carries initial costs, it can save money in the long-run. “The long term reputational damage a company can sustain from data breaches caused by insufficient security make the investment in security certainly worthwhile,” he said.

Security, Privacy by Design

Encrypting personal information has another benefit for companies under the GDPR. Companies that utilize encryption as the norm give themselves more flexibility in how they might use the data they collect.

The GDPR will require that companies gain explicit consent from individuals for the use of their personal information. But if there is a justification for using personal information for a compatible purpose that isn’t precisely the reason for which the information was collected, companies aren’t required to gain additional consent. One of the justification factors is whether the information used for the compatible purpose is encrypted.

EU Flag

Jacob Ginsberg, senior director with Toronto-based secure email company Echoworx, told Bloomberg BNA that such provisions mean the GDPR “is pushing not only encryption but the whole idea of security and privacy by design.” Privacy by design and security by design are models where companies include privacy protection and data security considerations from the early stages of the creation of a new product or service.

Companies are “really embracing encryption and security” and no longer view it as a “pain-in-the-neck box you have to tick,” Ginsberg said. They recognize the need to mitigate data breach risks in a world in which “cyber incidents are almost inevitable,” Powell said.

Advances in encryption technology and the growth of cybersecurity threats also mean that companies that collect and use data have no excuses to not use encryption, data security pros said.

Encryption is “the only way to protect data in transit and one way to protect stored data,” Bart Preneel, a professor at Belgium’s Leuven University Computer Security and Industrial Cryptography group, told Bloomberg BNA.

Van Dyck said that because the GDPR requires companies take special measures to safeguard information at particular risk, they “should adapt the level of security and encryption to the risk-profile of each data processing. The more risky the data processing, the stronger the security and encryption should be.”

Challenges

There are unresolved issues surrounding law enforcement access to encrypted data, including whether there may eventually be a requirement to establish back doors to allow such access, but the immediate benefits of using encryption under the new EU privacy regime generally outweigh the uncertainty, attorneys said.

Hildebrand said companies that collect and control the use of data should consider their relationships with contractors and subcontractors regarding the use of encrypted data’. Protocols are necessary for encrypting and decrypting data transferred between different parties, she said. Managing transfers of encrypted data can be “complex because you’re dealing with other parties,” Hildebrand said.

Ginsberg said that, even if encryption is used to protect personal data, companies could still suffer damaging breaches if encryption management is weak.

“Security solutions can help but ultimately, if these security solutions are not deployed fully in an organization,” breaches could still occur, Ginsberg said. Companies “need to listen to the experts and educate their users.”

To contact the reporter on this story: Stephen Gardner in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Donald G. Aplin at daplin@bna.com

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