Data Protection & CybersecurityPrivacy & Cybersecurity

Do you monitor the privacy compliance of your suppliers, agents & shops?

The GDPR obliges to put in place stringent tools to monitor the privacy compliance of your suppliers, agents and shops to avoid liabilities and damages.

I had already discussed in a previous post about the new risks/liabilities that the EU General Data Protection Regulation (GDPR) poses on suppliers, agents, shops (e.g. in case of retailers and fashion companies) and in general terms those entities that process personal data on behalf of third parties, the so called “data processors“. But this post looks at the issue from the perspective of the party (the “data controller“) that instructs the data processor and their ability to monitor the privacy compliance of the instructed parties.

Do you monitor the privacy compliance of your suppliers, agents and shops?

Up until now, my personal experience has been that there was a tendency to draft data processing agreements or letters of appointment of data processors with a standard format which was used for any type of supplier, agent or contractor, regardless of the categories of data and modalities of data processing activity that it was meant to perform.

The scenario completely changes with the EU Privacy Regulation that will oblige companies to renegotiate all the data processing agreements with those entities processing personal data on their behalf, such as their trade agents, cloud or IoT suppliers, payroll providers, retail shops etc.. Indeed, the GDPR provides for a detailed list of instructions that have to be contained in the data processing agreement. Below is an outline of its main provisions together with description on why the ability to monitor the privacy compliance of third parties processing personal data on behalf of your company matters with the GDPR.

How long is the line of processing?

Data processors shall be instructed to “not engage another processor without prior specific or general written authorisation of the controller“. This is a principle which is “in theory” already in place, but we had clients where the “line of data processing” was made of 5+ entities which were sometimes almost totally ignored by the data controller that had not even been notified of their identity. The EU Data Protection Regulation introduces more flexibility in appointing processors that act on behalf of other processors, but such flexibility still requires that data controllers are able to have at any time a full picture of the data processing activities performed on their behalf.

Is data kept secure and you have full control of data breaches?

Data processors need to be required to comply with the same “appropriate technical and organisational measures to ensure a level of security appropriate to the risk” that are imposed on the instructing party (i.e. the data controller). But how is this complied with by for instance banks or insurance companies that usually have thousands of independent trade agencies on the territory which in some cases are small companies? Likewise, can companies still rely on services provided by start-ups or small/medium sized companies?

Also, a procedure for the notification of data breaches (i.e. unlawful access of personal data) shall be put in place. This might be easy in the cases of well structured entities (e.g. a cloud provider), but again when we have our small trade agents that lose their laptop and do not notify a data breach to the instructing party as they don’t want to risk to lose their client, a major issue might arise.

How are audits performed?

The GDPR requires that the data processor commits to make available to the controller all information necessary to demonstrate compliance with its privacy obligations  and allow for and contribute to audits, including inspections, conducted by the controller or another auditor mandated by the controller.

This obligation is reinforced by the need for data processors to keep a “record of all categories of processing activities carried out on behalf of a controller“. Indeed, let’s consider for instance a cloud provider or a trade agent that might process personal data on behalf of a large number of entities, such entities shall keep a record of the categories of processing activities carried out by each of their customers.

Your defence cannot be the data processor’s privacy misconduct

The feedback that we usually receive from some clients is that they cannot be held liable for their data processors’ misconduct if the latter contravened to the instructions provided by them. It is true that in case of such misconducts the data processor itself will risk the “famous” very large fines, but the GDPR introduces the principle of accountability that places the burden of proof of demonstrating compliance with privacy obligations on the data controller, which makes the ability to monitor it even more relevant.

This means that the mere execution of a “standard” data processing agreement would not suffice. This has to be accompanied at least by periodic trainings (e.g. by means of webinars), audits and procedures aimed at checking data processors’ level of compliance and correcting potential misconducts.

Likewise, data controllers shall ensure that the security measures put in place by data processors are compliant, and this might be ensured for instance obliging agents to perform any activity carried on behalf of a controller in a “safe” virtual environment set up by the controller.

Also, it is crucial to have a procedure to handle the termination of agreements in order to ensure that an illegal processing of personal data or a data breach occurs just because the supplier/agent keeps some data on its devices/servers.

Indeed, the ability to monitor the privacy compliance of suppliers is relevant throughout the whole life of the relationship between the parties.

How do you select your agents, suppliers and shop personnel?

Because of the scenario above, the selection of agents, suppliers and shop personnel will require a much more detailed due diligence on them. Data protection authorities have not yet accredited certification entities which might certify the level of privacy compliance of their clients, but this is likely to become in the long term a “must-have” or at least will represent a competitive advantage.

Regardless of the presence of any sort of certification, it is recommendable that – in order to monitor and test the privacy compliance of such third parties – companies

  1. map all their suppliers, agents and their sub-processors that shall be disclosed;
  2. oblige those entities to provide the registry required by the GDPR, outlining – among others – all the data processing activities performed on behalf of the instructing company and the measures put in place to protect personal data;
  3. exclude those suppliers/agents/contractors that are too small or reluctant/unable to comply with the GDPR privacy obligations, requiring in any case suppliers to have a very limited line of data processors;
  4. perform – even remotely through webinars with multiple questions – a training on the measures required by the GDPR and repeat such training at least every other year;
  5. enter into a new data processing agreement with such entities compliant with the terms of the GDPR;
  6. perform periodic random audits and have in place technical measures aimed at identifying potential illegal access or processing of personal data processed on their behalf; and
  7. require each supplier/agent/contractor to send at the end of each year the updated version of the registry of point 2 above together with a statement conforming the full compliance with the GDPR and the lack of any event to report.

On the same topic, you can review below the other posts of this series

#1 Which companies shall care about it?

#2 Will fines be really massive?

#3 Did you run a privacy impact assessment?

#4 New risks for tech suppliers

#5 What changes with the one stop shop rule?

#6 How the new privacy data portability right impacts your industry

#7 What issues for Artificial Intelligence?

#8 How to get the best out of data?

#9 Are you able to monitor the privacy compliance of your suppliers, agents and shops?

#10 What liabilities for the data protection officer?

#11 Are you able to handle a data breach?

#12 Privacy by design, how to do it?

#13 How data on criminal convictions of employees become a privacy risk

#14 Red flag from privacy authorities on technologies at work

#15 Need a GDPR compliant data processing agreement?

#16 Is your customers’ data protected from your employees?

#18 Data retention periods, an intrigued rebus under the GDPR

#19 Legitimate interest and privacy consent, how to use them?

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Giulio Coraggio

I am the location head of the Italian Intellectual Property & Technology department and the global co-head of the IoT and Gaming and Gambling groups at the world-leading law firm DLA Piper. IoT and artificial intelligence influencer and FinTech and blockchain expert, finding solutions to what's next for our client's success.

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