Recent high profile data privacy breaches have brought the Hong Kong Personal Data (Privacy) Ordinance (Cap. 486) ("PDPO") under the spotlight. Hong Kong was one of the first countries in Asia to enact a data privacy law, and was considered ahead of its time (the PDPO came into operation in 1996). However, the world has caught up, and Hong Kong is now in danger of falling behind.

Over the last couple of years we have seen various countries updating their data privacy laws to keep abreast of changes in technology, as well as changes in the expectations of the public as to their data privacy rights. Japan amended the Act on the Protection of Personal Information which came into force in 2017; China's new Cybersecurity Law came into effect in June 2017; Australia introduced a mandatory data breach notification scheme on 22 February 2018; the EU General Data Protection Regulation ("GDPR") that came into force on 25 May 2018; Vietnam passed a new Cybersecurity Law that will came into operation on 1 January 2019; and Thailand's Personal Data Protection Bill is expected to be enacted in the near future.

Shortcomings of the PDPO?

The Hong Kong's Privacy Commissioner for Personal Data ("PCPD") has a statutory obligation to review the PDPO from time to time. The PCPD's last review resulted in the 2012 amendments, the major change of which was the introduction of direct marketing restrictions. New concerns have arisen on the potential inadequacies of the PDPO. In particular, the absence of a mandatory data breach notification system, inadequate penalties for failing to comply with the PDPO, the lack of regulation of data processors, and the lack of cross-border transfer restrictions. This has resulted in the PCPD announcing that he will carry out a review of the PDPO in order to recommend potential changes.

DATA BREACH NOTIFICATION

There is currently no provision in the PDPO obliging data users to notify affected data subjects or the PCPD of any data beach, no matter what the scope or potential impact of the breach is. Whilst notification is strongly recommended by the PCPD, no direct sanctions are imposed on data users for failing to do so.

In contrast, the GDPR requires data controllers to report any data breach within 72 hours of it being discovered if the breach is likely to result in any risk to an individual's rights or freedoms. This obligation does not just rest with the data controllers, but also data processors who are obligated to promptly notify their customers and relevant data controllers. South Korea also imposes a mandatory data breach notification, as well as Australia, which requires a notification to be made if the breach is likely to result in serious harm to any affected individuals.

The reporting of all data breaches (no matter how minor) would be impractical. However, taking a page from the GDPR and the new provisions in Australia, an obligation to notify affected data subjects and the PCPD of any data breaches that meet a certain threshold (e.g. a breach that could result in harm to the data subjects), would be a reasonable change to the PDPO. Considering the upheaval and criticisms voiced by the public in the wake of recent data breaches, such a notification requirement would be on a par with what the public already expects.

SANCTIONS

The slew of data breaches over the last year has raised concerns that the sanctions imposed on data users are insufficient. A breach of any of the data protection principles under the PDPO (e.g. failure to implement adequate security measures to protect the personal data, etc.) does not in itself constitute an offence or result in any penalties. Instead, the PCPD has the power to issue an enforcement notice requiring the data user to take steps to rectify or prevent the recurrence of the breach. It is only if a data user fails to comply with the enforcement notice, or commits a new breach on the same facts, that such will amount to an offence. Even then, the maximum fine that can be imposed is only HK$ 50,000 and 2 years imprisonment (plus a daily fine of HK$ 1,000 if the offence continues). If a data user has breached more than one enforcement notice, then the maximum fine goes up to HK$ 500,000 and 3 years imprisonment. The situation is slightly different in relation to the direct marketing restrictions, the breach of which constitutes a direct offence and can incur a maximum fine of up to HK$ 1,000,000 and 5 years imprisonment.

In comparison, the GDPR imposes fines of up to 4% of the annual global turnover of a data controller or EUR 20 million, whichever is higher. The difference in sanctions between the GDPR and PDPO is overwhelmingly apparent, and explains why organisations all over the world were scrambling to ensure compliance prior to the GDPR taking effect. The PDPO lacks the teeth that would ensure more widespread compliance. For now, the greatest threat to data users is damage to their reputation rather than any financial penalty.

DATA PROCESSORS

Only data users (i.e. those who control the collection, use and processing of personal data) are held ultimately responsible to the PCPD and data subjects for any breach of the PDPO, but not their data processors. Given that a large amount of data breaches are linked to data processors, having some statutory sanctions for data processors makes sense, rather than having data users simply rely on their contractual arrangements with data processors to be able to recover any losses they may suffer.

Unlike the PDPO, the GDPR imposes direct obligations on data processors, who are now accountable to the regulators and data subjects for any breaches. These obligations include keeping a record of their processing activities, implementing security measures, appointing a data protection officer, only processing personal data in accordance with the documented instructions of the relevant data controller, and so on. Data subjects even have the right to bring an action directly against a data processor to recover damages suffered due to the data processor's breach of the GDPR.

As data users can only assert a limited amount of control over their data processors (in terms of contractual obligations), it is reasonable to expect data processors to be held equally accountable for any failure to comply with the PDPO, and to not place the burden of compliance solely on the data users' shoulders. Often data breaches arise at the data processor level, and trying to obtain their cooperation with rectifying or mitigating a breach can be difficult. At present, data users need to rely on ensuring that they have robust contracts in place so that they can hold data processors liable for any breaches and secure their assistance.

CROSS-BORDER TRANSFERS

Hong Kong has the distinction of being one of the first jurisdiction in Asia to adopt a data privacy regime, but also one that has not brought into force provisions dealing specifically with cross-border data transfers. Section 33 of the PDPO ("Section 33"), which deals with cross-border data transfers, has never been brought into operation since its enactment in 1995. The only requirements currently in effect are the general notification and consent requirements under the PDPO, which apply equally to the use and transfer of personal data whether inside or outside of Hong Kong. There have been many discussions in the past by the PCPD and the government on whether or not to bring Section 33 into effect. So far, little progress has been made save for a non-binding guidance note issued by the PCPD in December 2014 on cross-border transfers25.

If Section 33 was brought into force as is, then the transfer of personal data out of Hong Kong would be prohibited, save in the following circumstances:

  1. the recipient country is included in a "white list" issued by the PCPD (i.e. jurisdictions that are considered to have laws substantially similar to, or which serve the same purpose as, the PDPO);
  2. the data user reasonably believes that the recipient 25 Please refer to the PCPD's Guidance on Personal Data Protection in Cross-border Data Transfer at: https://www.pcpd.org.hk//english/resources_ centre/publications/files/GN_crossborder_e.pdf. country has laws substantially similar to, or which serve the same purpose as, the PDPO;
  3. the data subject has consented to the transfer;
  4. the data user has reasonable grounds for believing that the transfer is necessary to avoid or mitigate any adverse action against the data subject, and it is not practicable to obtain the data subject's consent; but if it were practicable, the data subject would provide their consent;
  5. the personal data is subject to an exemption from data protection principle 3 of the PDPO (e.g. prevention or detection of crime, etc.); or
  6. the data user has taken all reasonable precautions and exercised due diligence to ensure that the personal data will not be used in a manner inconsistent with the provisions of the PDPO (e.g. data user conducts due diligence on the transferee and enters into a data transfer agreement, etc.).

In light of the approach being taken by other jurisdictions, it is likely that the PCPD would recommend that further changes be made to Section 33 before it is brought into operation. For example, the GDPR has provisions allowing the cross-border transfer of data within a corporate group, if it is pursuant to binding corporate rules that have been approved by the relevant National Data Protection Authority. In addition, the cross-border transfer of personal data may be permitted where model clauses are incorporated in the relevant data transfer agreements, or the transfer is necessary for the performance of a contract between the data subject and data controller.

Implementing cross-border transfer restrictions similar to those under the GDPR, may have the dual effect of protecting the personal data, whilst not imposing a major burden on the operation of a data user's business.

Conclusion

To ensure that Hong Kong remains competitive and is not seen as a "risky" jurisdiction for hosting data, it is important that our data privacy legislation continues to evolve. The PCPD has stated that in making any recommendations for reform, he will take into account the interests of all stakeholders, any legitimate purpose and pressing need for the change, the need for proportionality, and Hong Kong's situation as well as global developments. He will seek to achieve a balance between protecting the rights of individuals, with the need to ensure a free flow of data and freedom of expression.

The PCPD's recommendations would just be the start – the drafting of any subsequent bill and the legislative procedure may mean that it could take years before any changes in the PDPO will be seen. In fact, the 2012 amendments took three years from the issuance of the consultation document until its final enactment.

Footnote

25. Please refer to the PCPD's Guidance on Personal Data Protection in Cross-border Data Transfer at: https://www.pcpd.org.hk//english/resources_ centre/publications/files/GN_crossborder_e.pdf.

the data user has taken all reasonable precautions and exercised due diligence to ensure that the personal data will not be used in a manner inconsistent with the provisions of the PDPO (e.g. data user conducts due diligence on the transferee and enters into a data transfer agreement, etc.).

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