The General Data Protection Regulation will come into effect on May 25, 2018, and will provide a modernized compliance framework for data protection. Because of the extraterritorial reach, entities that operate in the U.S. should take note and consider complying with the regulation.  While having a data protection officer, as mandated under the GDPR, is not a new concept and is required for entities operating in countries such as Singapore and Germany, the extraterritorial scope of GDPR greatly broadens the number of companies that may need to hire one. Article 37(1) of GDPR requires the designation of a DPO in the following circumstances: where the processing is carried out by a public authority or body; where the core activities of the controller or the processor consist of processing operations, which require regular and systematic monitoring of data subjects on a large scale; or where the core activities of the controller or the processor consist of processing on a large scale of special categories of data or personal data relating to criminal convictions or offenses.

Due to the extraterritorial scope of GDPR, many companies will be required to spend money on either an internal DPO or a third-party entity such as a law or IT firm to act as their external DPO. According to one study by the IAPP, more than 28,000 new DPOs need to be hired by 2018, and that's just in the EU and U.S. Applied globally, the IAPP found that number looks more like 75,000. With the shortage of individuals trained to handle DPO responsibilities, it is likely that many entities will look to hire an external third-party DPO. Before hiring an external DPO, entities should consider the following issues:

Can the DPO be adequately involved with an entity’s data privacy program and do the costs justify hiring an external DPO? 

Contrary to common belief, a DPO’s duties do not solely involve responding to breach situations and cooperating with supervisory authorities. In addition, the GDPR states that a DPO’s duties are broad and include tasks such as: monitoring an entity’s compliance with GDPR; providing advice when conducting data protection impact assessments; informing the entity and its employee of data protection obligations, and cooperating with various supervisory authorities. Article 29 Working Party’s guidance on DPOs provides further clarification that a DPO should be invited to participate regularly in meetings with senior and middle management and also should be easily accessible within the organization.

Traditionally, law firms and IT consulting firms either charge by the hour or have a fixed budget (or semi-fixed budget) to provide their services. It is important to consider that certain responsibilities, such as attending meetings and monitoring an entity’s compliance with GDPR, may be extremely time consuming and expensive on a per-hour basis. Certain service providers have created a fixed-fee arrangement that may provide cost savings, but at the risk of sacrificing quality by putting less qualified and experienced individuals on certain DPO related duties. In a fixed fee or semi-fixed fee arrangement, an entity should consider the included services along with the experience of the individuals that will be performing those services.

Can the service provider act independently in performing its DPO duties?

According to GDPR Article 38(3) and Article 29 Working Party’s guidance on DPOs, a DPO must perform its duties and tasks in an independent manner. In other words, the DPO must not be instructed on how to deal with a matter and cannot be instructed to take a certain stance related to a data privacy issue. However, for many third party providers, this could be a potential issue, especially if the service provider has many engagements with the entity in question. If an entity has a close prior relationship with the service provider, the line may be easily blurred and may lead to instances where the service provider may be asked or may feel pressure to take a stance in a certain manner.

Does the DPO have other privacy, data security, or IT related engagements with the entity that could potentially create a conflict of interest?

According to GDPR Article 38(6) and Article 29 Working Party’s guidance on DPOs, a DPO is allowed to fulfill other tasks and duties. However, it requires that those tasks and duties do not result in a conflict of interest with its DPO duties. For many service providers, this can be an issue, especially if a service provider has worked with the entity’s management in designing an entity’s privacy program or assisted an entity in interpreting privacy rules and regulations. Service providers may be compelled or feel uncomfortable in making determinations that are contrary to the advice that the service provider provided in a previous engagement. In order to prevent issues of independence, U.S. publicly traded companies often use a different audit firm for Sarbanes Oxley corporate internal controls issues, as compared to general audit services. Other conflicts to consider include hiring the same external DPO as an entity’s Qualified Security Assessor under the Payment Card Industry Rules or hiring the same DPO as an entity’s security-information event-management firm.

Below is a list of questions and issues to consider prior to hiring an external DPO:

• Do you envision the external DPO being extremely hands on?
• What kind of fee engagement is the external DPO offering?
• If the fee engagement is fixed: Are the included services adequate for your organization? Are the individuals handling DPO duties qualified?
• If the fee engagement is on a per hour basis: Are the rates reasonable given the experience of the individuals performing DPO duties? Are there available discounts for a prepayment of expenses? What kind of duties do you envision the DPO handling?
• Does the DPO represent other entities in your sector?
• Does your entity have a close relationship with the external DPO that may cause independence issues?
• Has the external DPO engaged in any privacy or data security work for your entity in the past? Could that work cause a conflict of interest?

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