GLOBAL PRIVACY PREDICTIONS FOR 2008

By Steve Kenny

   1. Increasing Privacy Risks
      The world is currently producing between 1 and 2 exabytes of unique information per year (an exabyte is a billion gigabytes or 1018 bytes). This type of volume of data production, a subset of which is personal information production, creates fundamental controllability issues with respect to data management. Personal information increasingly is stored on a disparate array of storage mediums, from paper archives to optical disks and portable devices, and the challenge of managing this is multiplying. The result is data breaches, of which we are witnessing an alarming increase. The challenge is compounded by the complex multi-jurisdictional regulatory minefield that organisations need to navigate. In 2008 privacy will be recognised not as a marginal, but a key contributory factor to reputational risk. The effects of this are fourfold:

      -There likely will be more breach incidents in 2008 than in 2007, and certainly more will be disclosed.

      -This will affect the degree of trust consumers place in companies managing their personal data. The corollary of this effect is that the consumer market segment, which places an economic value on their privacy, is likely to increase in terms of economic importance.

      -Organisations will revisit their risk management frameworks to consider the appropriate approach to managing privacy as a component of reputational risk.

      -The audit function of corporations with the most value at risk will hold IT, compliance and legal functions to greater account for privacy.

   2. Service Providers
      The complexity of full-service privacy needs only can be addressed by a very limited number of tier 1 service providers, leading to the start of a shake-out period in privacy services competition. The service model in most demand increasingly will consolidate IT, regulatory compliance and forensic capabilities — across a few specific service areas, such as records management.

   3. Binding Corporate Rules
      Currently there is a transition from the 'early adopter' to the 'fast follower' phase of binding corporate rules (BCR) applications. In 2008, the removal of two constraints will accelerate this transition. First, the legal frameworks of a few key European countries such as Spain have placed constitutional restrictions on the ability of corporations to use the 'unilateral declaration' approach to bind legal entities within a corporate group. This constraint likely will be removed early in 2008 due to well advanced proposed legislative changes in Spain that will enable companies with Spanish operations to rely upon these 'unilateral declarations' — or deed polls. This will set a precedent in other countries, such as Italy, with similar constraints. Secondly, data protection authorities will move up the learning curve in dealing with BCR applications. This will increase the transparency and efficiency of how global firms move through the application and syndication process. Some degree of competition between national data protection authorities in attracting global companies to lodge applications in their jurisdictions likely will ensue.

   4. EU Data Breach Law
      Following the precedent of California SB 1386 and the similar legislation it has encouraged in other U.S. states, the EU in 2008 is likely to adopt data breach regulations. The rationale behind this is one of both pragmatism and legitimacy. It can be argued that EU human rights legislation already makes disclosure mandatory, and breach legislation can be considered as a means to 'bind' European data controllers to their compliance obligations — the ultimate intention of Directive 95/46/EC. In the U.S., there is also an emergent trend toward state liability laws — Minnesota being the first. More U.S. states likely will follow suit. Conversely, I do not expect explicit director liability provisions to be introduced in the EU, although the clamour for these from key data protection authorities may increase.

   5. EU Law and the APEC Framework: Fire and Ice
      The pace at which the Article 29 Committee has approved the adequacy of other countries' regulatory regimes is starting to damage the relevance of the directive's application in the global information economy. This situation actually has helped reinforce the relevance of the Asia Pacific Economic Cooperation framework that increasingly is recognised as an important development. The Article 29 committee is able to respond strategically to this situation by increasing the speed by which countries with established data protection frameworks, such as Australia, New Zealand and Japan, are approved. This debate will become more transparent in 2008, thereby creating the antecedents of a global data protection framework.

   6. Business Models
      Two primary constraints on personal data fuelled business models are the 'hard' enforcement of European data protection regulation and customer abstention. While the former is extremely unlikely to happen, the latter remains a possibility and represents a key operational risk requiring management. That risk or abstention, however, is perhaps more of a European and U.S. customer issue, and increasingly will be counter-balanced by the Asian population mass. This emergent consumer group increasingly is well-informed, and inclined, to leverage the economic value of their personal information. The implication is that well-run, personal data-fuelled business models, will become increasingly valuable.

Steve Kenny is Principal Advisor, Privacy Services Leader for KPMG, based in London. He may be reached at steve.kenny@KPMG.co.uk.