Data Privacy and Banking Compliance: GDPR and Indian Laws

Data Privacy and Banking Compliance Under EU’s GDPR and Data Protection Laws in India

Summary: The rise of electronic banking has raised concerns about data privacy and triggered regulatory changes such as the EU’s General Data Protection Regulation (GDPR) and India’s Digital Personal Data Protection Act (2023). GDPR, in force since 2018, provides strict data protection standards for firms processing EU citizens’ data, including consent management, data portability and breach notifications. Failure to comply may result in serious penalties. While India’s new Act takes inspiration from the GDPR, it emphasizes data localization requiring sensitive personal data to be stored in 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 need to remain vigilant, enhance security measures, and create a culture of compliance to maintain customer trust and comply with evolving data protection standards.

LOGIN

The increase in electronic banking has made data privacy a major issue facing most financial institutions around the world. Among these, the General Data Protection Regulation (GDPR) in the European Union and the recently enacted Digital Personal Data Protection Act in India have changed the way banks manage, process and maintain customers’ personal data. This article examines these laws in detail and explores specific provisions, current compliance issues, and strategies used by various banks regarding these laws. Consequently, drawing on the stated view on the features of data protection management in the banking context, such an article aims to shed light on changes in the banking organization’s compliance with new standards on data security.
and confidentiality.

OVERVIEW OF GDPR AND DATA PROTECTION LAWS IN INDIA

GDPR, which came into force in 2018, can be defined as a broad data protection regulation for all companies that process data on EU citizens, regardless of the companies’ geographical location. GDPR requires the highest level of protection measures, such as user consent, right to erasure, right to data portability and data protection measures. The consequences of not complying with the GDPR are harsh and punitive; Potential fines of up to €20 million or 4% of worldwide turnover, whichever is greater, may be imposed. These strict blocks are particularly vital for banks as they work with large amounts of personal data and deal with the high standards of the GDPR. From India’s perspective, this trend has been met with the Digital Personal Data Protection Act, 2023, which aims to provide legal recognition for the protection of citizens’ data. Some of its provisions require data to be stored in India or a company operating in that country – data localization (Chapter 17), relevant provisions (Chapter 7) – consent management, how to obtain user consent or simply in case of data breach, banks can notify Indian authorities Provisions requiring information about. The Act also provides for a (Section 22) Data Protection Authority, also known as the DPA, which has an enforcement role in practice. Although it stems from the GDPR, Indian laws have some differences, such as restrictions on data localization and cross-border data transfer limitations (Section 17 and 18), which will indeed pose some problems for banks operating internationally.

CHALLENGES IN ADAPTING BANKING TO GDP AND INDIA DATA PROTECTION LAWS

Within these frameworks, data localization is one of the main areas that pose a significant problem for banks. GDPR allows free transfer of data within European Union Member States but regulates cross-border transfers to third countries. On the other hand, India’s data protection laws are assertive that sensitive personal data should be stored in the country; This is problematic for large banks that use cross-border data transfer. The use of two frameworks complicates the data storage and processing requirements of designated banks operating in cross-border structures and leads to increased operating costs. Some other concerns for banks include data subject rights and consent. Banks of EU countries need prior consent of the user based on data processing.
It relates to the GDPR and must act on data access or deletion requests received. Indian law has introduced similar consent-based requirements, but this shift may require more specific approaches. For banks, these regulations include not only improving consent-obtaining techniques, but also establishing methods for processing data access and deletion requests from customers. Since implementing such systems can require a lot of time and money, it can be very difficult for some banks, especially those with large amounts of data and a range of operations. The final two areas are consent and data rights management, as well as compliance.
complex field due to stringent data breach notification requirements. According to GDPR, if a data breach is detected, supervisory authorities must be contacted within a maximum of 72 hours and it is emphasized that rapid intervention is required. Although the Indian law governing data protection also provides certain procedures, it also emphasizes breach notifications. These criteria push banks to create effective notification and incident management systems and often come at a high cost in terms of cybersecurity architecture and staff development.

APPROACHES/ STRATEGIES TOWARDS ENSURING COMPLIANCE OF BANKS

Different techniques are used by banks to approach these data protection regulations. The first is the appointment of Data Protection Officers (DPOs), which is mandatory under the GDPR and preferred under Indian law. They are largely responsible for addressing policies regarding data privacy, processing requested data, and ensuring banks’ compliance with established laws. For multinational banks, the appointment of a DPO can also provide an effective means of dealing with regulators and customers in different countries. Apart from appointing DPOs, banks also appear to be investing a significant amount of money in secure data measures such as encryption and anonymisation. Encryption ensures that data is inaccessible to unauthorized individuals, while anonymization eliminates sensitive information in the event of a breach. Employee training is also important to ensure that staff are well informed about their obligations in using corporate data and to identify potential careless employees. Some of the measures taken by most of the banks we surveyed include conducting frequent audits to check potential risks, as well as conducting frequent data protection impact assessments (DPIAs).

Cross-border data flow, or international transfer of data, is another area of ​​concern, particularly regarding transfer under the GDPR. To legally transfer data outside the EU, banks are also allowed to use Standard Contractual Clauses (SCCs) and data protection agreements to assign such data. While local data protection laws exist in India, local data localization standards differ from global standards and Indian banks are in the process of adapting to the ICT framework while implementing best practices in data protection. The unified approach helps banks keep compliance risks at bay and still support their customers in running their operations worldwide.

SOLUTION

Data protection is a dynamic factor that requires institutions to be constantly vigilant, especially in the banking sector. Modern legislation, such as both GDPR and Indian data protection laws, provide detailed tools for data protection and consumer data security, but they also come with a host of obligations for banks. To get around these regulations, banks need to ensure they hire competent DPOs, improve security measures, and create effective mechanisms to manage data. With recent developments in data privacy regulations, organizations in the financial sector will need to be vigilant in creating a culture of compliance and remaining innovative in their best practices to secure customer trust in a highly regulated industry.

Notes:-

1 Regulation – 2016/679 – en – GDPR – EUR-lex, EUR (2016), (last visited 20 OCTOBER 2024).

2 Digital Personal Data Protection Act 2023 | Ministry of Electronics and Information Technology, Government of India (2023), (last visited 2 November 2024).