Data Privacy And Banking Compliance Under Eu’s GDPR And Data Protection Laws In India
Summary: The rise of electronic banking has heightened concerns around data privacy, prompting regulatory changes like the EU’s General Data Protection Regulation (GDPR) and India’s Digital Personal Data Protection Act (2023). GDPR, effective since 2018, ensures strict data protection standards for firms handling EU citizens’ data, including consent management, data portability, and breach notifications. Failure to comply can lead to severe penalties. India’s new Act, while drawing inspiration from GDPR, emphasizes data localization, requiring sensitive personal data to be stored within India, and introduces similar requirements for consent and breach notifications. Banks face challenges in complying with both regulations, particularly due to conflicting data localization requirements, cross-border data transfers, and managing data subject rights. To ensure compliance, banks are adopting strategies such as appointing Data Protection Officers (DPOs), investing in encryption and anonymization, and conducting regular audits and risk assessments. Despite these challenges, financial institutions must stay vigilant, enhance security measures, and build a culture of compliance to maintain customer trust and adhere to evolving data protection standards.
INTRODUCTION
The surge in electronic banking has created data privacy as a significant issue that most financial institutions around the globe face. Among these, the General Data Protection Regulation (GDPR) in the European Union and the recently enacted Digital Personal Data Protection Act in India have shifted the way the banks manage, process and maintain customer’s personal data. This article examines these laws in detail and explores specific provisions, compliance issues which exist and the strategies used by the various banks in relation to these laws. As a result, this kind of article, utilizing the specified view of the specificities of the governance of data protection in the context of banking, intends to shed light on changes in banking organization’s compliance with new standards on data security
and privacy.
OVERVIEW OF GDPR AND DATA PROTECTION LAWS IN INDIA
The GDPR that went into operation in 2018 can be described as a broad data protection regulation for any firm that processes data relating to EU citizens, irrespective of the geographical location of the firms. GDPR mandates a certain highest level of protection measures such as consent of the user, right to erasure, right to data portability and data protection measures. Consequences of failing to abide by GDPR are stiff and punitive, with potential fines given up to €20 million or 4% of worldwide turnover, whichever is greater. These strict preclusions are especially crucial for banks, as they work with large amounts of personal data and deal with GDPR high standards. From the Indian perspective, the trend has been accosted by The Digital Personal Data Protection Act of 2023, which aims at providing legal recognition to protect data pertaining to citizens. Some of its provisions make it mandatory for data to be stored within India or with a company operating in this country- data localization (Section 17), provisions concerning (Section 7)- consent management, how the consent of the user is to be obtained or merely on its breach, provisions that require banks to inform Indian authorities of their data breaches. The Act also provided for a (Section 22)-Data Protection Authority, also known as DPA, which has the role of enforcement in the exercise. While they derive from GDPR, the Indian law has some differences – data localisation and restrictions on cross-border data transfer limitations (Sections 17 and 18), and it will indeed pose certain problems to banks operating internationally.
CHALLENGES IN BANKING COMPLIANCE WITH GDPS AND INDIAN DATA PROTECTION LAWS
The first area which formed a significant issue for banks under these frameworks is data localisation. GDPR allows the free transfer of data within the Member States of the European Union but regulates cross-border transfers to third countries. On the other hand, India’s data protection laws are assertive of the fact that sensitive personal data must be stored in the country, which proves to be inconvenient for bigger banks that utilize cross border data transfer. The use of the two frameworks complicates the data storage and processing requirements for the identified banks operating in cross-border structures and leads to the enhancement of operating costs. Some other concerns for banks include data subject rights and consent. Banks of the EU countries need the user’s prior consent for data processing based
on the GDPR and have to act on the received requests for data access or erasure. Indian law, too, has brought similar consent-based requirements, but the shift may need more specific approaches. For banks, these regulations entail not only improving techniques for gaining consent but also building ways of processing data access and deletion requests from the client. It can be very difficult for some banks, especially those with large amounts of data and an array of operations, as the implementation of such systems can take a lot of time and money. The last two areas are consent and data rights management, besides compliance, which is a
complex area due to rigorous data breach notification requirements. Communicating with the supervising authorities is required where the data breach is identified, according to GDPR, within 72 hours at the most, stressing that prompt reaction is required. The Indian law regulating the protection of data also emphasizes breach notifications, although it may provide certain procedures. These criteria push banks to build effective acknowledgement and occurrence management systems and typically cost high in terms of cybersecurity architecture and personnel development.
APPROACHES/STRATEGIES FOR BANKS TO ENSURE COMPLIANCE
Different techniques are being used by banks to approach these data protection regulations. Among the first is the appointment of Data Protection Officers (DPOs), which is mandatory under GDPR and preferred under Indian law. They are greatly responsible for dealing with policies on data privacy, handling of requested data and ensuring that the banks are in compliance with the laid down laws. For multinational banks, the appointment of a DPO can also provide an efficient way of dealing with regulators and clients across different countries. It is also observed that along with the appointment of DPOs, the banks are also putting serious money into secure data measures like encryption & anonymization. Encryption makes data to be unavailable to those who are not authorised while anonymization eradicates sensitive information if there is a breach. Employee training is also important to make the staff well informed of their obligations in handling corporate data and pin down potentially careless workers. Some of the measures being taken by many of the banks that we surveyed include carrying out frequent audits checking on the potential risks and also frequently carrying out data protection impact assessments (DPIAs).
Cross-border data flow or international transfer of data is another area of interest, especially concerning transfer under GDPR. To transfer data outside the EU in a legal way, banks are also allowed to use the Standard Contractual Clauses (SCCs) and data protection agreements to assign such data. While there are indigenous data protection laws in India, the domestic data localization standards are different from global ones, and the Indian banks are in the process of compliance with the ICT framework while implementing best practices in data protection. The combined approach helps the banks to keep off compliance risks and still support their clients in conducting their activities across the globe.
CONCLUSION
Data protection, especially in the banking sector, is a dynamic factor that needs institutions to be on the lookout continuously. Both modern legislation, such as GDPR and Indian data protection laws, provide elaborate instruments for data protection and consumer data security, but they also entail a large set of obligations for banks. To go around these regulations, the banks should ensure they hire entitled DPOs, enhance their security measures, and put effective mechanisms for managing data. With the recent advancements in data privacy regulation, institutions in the financial industry will have to remain vigilant as they build up a culture of compliance and remain innovative in their best practices to secure the customers’ trust within a very regulated sector.
Notes:-
1 Regulation – 2016/679 – en – GDPR – EUR-lex, EUR (2016), https://eur-lex.europa.eu/eli/reg/2016/679/oj (last visited OCT 20, 2024).
2 Digital Personal Data Protection act 2023 | Ministry of Electronics and Information Technology, Government of India (2023), https://www.meity.gov.in/content/digital-personal-data-protection-act-2023 (last visited Nov 2, 2024).
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