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SpiderLabs Blog

Choppy Regulatory Waters ahead for EU SMEs?

There's been a reasonable amount of coverage of the (proposed) data protection legal framework changes for the European Union, which the European Commission summarizes [1] as:

The legal framework consists of two legislative proposals:

  • A proposal for a Regulation of the European Parliament and of the Council on the protection of individuals with regard to the processing of personal data and on the free movement of such data (General Data ProtectionRegulation), and
  • A proposal for a Directive of the European Parliament and of the Council on the protection of individuals with regard to the processing of personal data by competent authorities for the purposes of prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and the free movement of such dat

The regulation piece consists of multiple articles that define its scope, the fundamental principles of the regulation, the rights of data subjects as well as the responsibilities for data processors and controllers.

It includes interesting requirements for businesses, such as:

  • Obligatory implementation of appropriate measures for the security of personal data processing;
  • Obligatory notification to the relevant national supervisory body(e.g. the ICO in the UK, see: and to the affected individuals, when personal data breaches occur.

Its not just large organizations and public bodies that will be impacted when the Regulation comes into force (subject to amendments prior to its enaction), the commission expressly states that the regulation will provide a consistent level of protection for individuals through "legal certainty and transparency for economic operators, including micro, small and medium-sized enterprises".

Whilst not all micro, small and medium-sized enterprises process, store or transmit personal data - its safe to say a substantial number do. Will new legal requirements be realistic for smaller businesses?

Given there are 23m entities defined as micro, small, and medium-sized enterprises in the EU, and that they account for 99% ofall enterprises across the 27 EU member states [2] – it would be counter productive to the Commission's objectives for the Regulation to be watered-down too much for smaller firms.

On the other hand, approximately 9 of 10 (of the23m) fall into the micro category, i.e. less than 10 employees and sub-2m Euro revenues [3]; where the ability to comply with (even basic) new regulatory requirements is not straightforward. (Awareness of a requirement, deadlines for compliance, and potential costs, are not new issues with respect to compliance).

Sensibly the proposal places some of the responsibility for raising awareness on the relevant national supervisory authorities. This includes both public awareness as well as "specific measures directed at controllers and processors, including micro, small and medium-sized enterprises".

Given that its only at proposal stage, there is scope for changes to be made prior to it coming into effect. For instance, the Bar Council of England and Wales recommended that the Commission consider custodial sentences for the most serious breaches of data protection. Which when combined with mandatory disclosure adds an interesting dimension to director liability for businesses. [4]

The debate on what precisely constitutes personal data continues. A number of organizations have raised concerns that moving away from a "general definition" of personal data toward more prescriptive requirements, would result in the Regulation being unable to deal with evolving technology. In either case, smaller businesses will need more prescriptive guidance from the national supervisory authorities if they are realistically expected to comply.

The proposed regulation does consider the specific nature of micro, small and medium sized enterprises with a handful of derogations. But right now its difficult to foresee the scale of the impact to smaller businesses at this stage. In part that will be down to the national supervisory authorities and how aggressively they pursue enforcement/fines. Assuming they do, it could mean:

1) The (possibility of) potential director liability and the (likely)requirement for mandatory breach disclosure may mean businesses are forced to implement appropriate technical security controls and documenting appropriate levels of due-diligence, which will introduce new costs and/or be a new concept for smaller businesses.

2) This will likely provide additional motivation for smaller businesses to outsource personal data storage, processing and transmission to expert 3rd party providers. Inevitably, as we've seen with our own Global Security Report, outsourcing to insecure 3rd parties is a common problem for smaller businesses, and the risk-transfer benefit is often either overstated and/or misunderstood.

3) The inherent uncertainties may potentially give rise to somewhat more quantitative risk-transfer through specialist cyber insurance. Although insuring against the fines themselves would introduce an element of moral hazard, insuring against the following items may become more commonplace:

  • The business interruption(loss in revenue) as a result of a cyber incident; and/or
  • The potential downturn in sales following breach disclosure as a result of a loss in customer confidence; and/or
  • The cost of 3rdparty digital forensic/incident response work required to assess the impact of a breach.

As a final note, the Regulation may be a catalyst for broad-based review of national cyber crime laws, such as the UK's Computer Misuse Act (and its handful of updates) as there are surprisingly few prosecutions proceeded against, under these types of laws across member states. (At least when considering the past few years worth of increases in reported cybercrime and public awareness thereof [5]).

[1] The regulation draft -

[2] EU SME stats -

[3] EU SME definition -

[4] Bar Council of England and Wales Response-

[5] ... there's a number of reasons for this, but that's best explored in a follow up post

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