European Commission publishes final Standard Contractual Clauses

Seven months after the European Commission published its draft new Standard Contractual Clauses for data transfers between EU and non-EU countries (the "Draft SCCs") for consultation (see our blog post here (the "Draft SCCs Blog")), they have now published a finalised set of Standard Contractual Clauses ("Final SCCs") with little fanfare (available here).

It should also be noted that alongside the Final SCCs, the European Commission have published a finalised set of non-mandatory Article 28 clauses for use between controllers and processors in the EU (see our blog post here on the draft version) in relation to which we will be publishing a follow-up shortly.

It will be mandatory, however, for organisations to implement and comply with the Final SCCs and in this blog post we consider the movement from the Draft SCCs to the Final SCCs (as well as the key points raised by them), the practical impact that this will have on organisations and the UK's position.

Key Takeaways

• The Draft SCCs and the Final SCCs - In comparison to the Draft SCCs, the Final SCCs provide some cause for hope, in particular an extended grace period of 18 months, a 3 month window during which organisations may continue to put in place the current SCCs to address international transfers of personal data, and the softening of some provisions such as the approach to challenging public authority access. However, other aspects of the Final SCCs may cause increased friction, notably a more nebulous approach to the warranty regarding impact assessments.
• Practical Considerations from the Final SCCs - The Final SCCs serve to confirm that a repapering exercise is looming for most organisations and that a re-evaluation of current agreements, training, and contracting support will be required so as to have in place mechanisms to implement agreements with appropriate iterations of the Final SCCs on an ongoing basis. Beyond this, more granular considerations including the interplay of the Final SCCs with negotiated clauses will require some more careful, context-specific scrutiny.
• The UK's Way Forward - The current SCCs will continue to apply for transfers of data from the UK to third countries while the ICO prepares a set of its own standard contractual clauses, independent of the Final SCCs. The extent to which these deviate will inform how much more complex putting in place and maintaining the necessary contractual provisions will be for organisations, particularly those with multifaceted data flows between the UK, EU and third countries.

Legal Background

Please refer to the Draft SCCs Blog for more detailed background, but by way of summary, the GDPR prohibits the transfer of personal data from the EEA to a third country or international organisation outside of the EEA unless an available condition under the GDPR is satisfied.

One of these conditions is the use of Standard Contractual Clauses ("SCCs") which are effectively a contract 'pre-approved' by the European Commission to be entered into between the data exporter and the data importer and which impose certain data protection obligations on both parties. However, the current SCCs had some issues including the fact that they were not updated when the GDPR came into force (referencing the old EU Data Protection Directive rather than GDPR) and there were only two sets of SCCs (covering transfers from one controller to another controller ("C2C") or from a controller to a processor ("C2P") which meant that they did not cover situations such as processor to processor ("P2P") or processor to controller ("P2C") transfers).

The Draft SCCs looked to address these issues, as well as the impact of the Schrems II decision (see our blog post on the Schrems II case here). The Schrems II judgment made it clear that where SCCs are being used, a level of due diligence needs to take place before any transfer can be made. This is to ensure that personal data originating in the EEA always carries with it protections which are essentially equivalent to those in the EEA. In parallel, to help data exporters in that assessment, on 10 November 2020 the EDPB issued draft guidance on how to carry out the due diligence exercise in practice (see our blog post on the draft guidance here). We are imminently expecting the finalised EDPB guidance on these supplementary measures, potentially as early as next week if the authorities are able to agree them during this month's plenary meeting on 15 June 2021.

Following a period of consultation and some delay to finalisation, the European Commission published the Final SCCs in final working documents on 4th June with publication in the Official Journal expected swiftly.

The Draft SCCs and the Final SCCs

The Final SCCs broadly adopt the same approach as the Draft SCCs, although there is some deviation both to soften provisions and provide more flexibility to organisations than originally envisioned by the Draft SCCs, although in some instances the approach has been toughened. We detail the material deviations and summarise the changes from the Draft SCCs below.

• Extended Grace Period and Limited Grandfathering Period

The Draft SCCs contemplated a one year grace period within which organisations had to ensure compliance and the Final SCCs have both extended this period and made it more nuanced by introducing a limited grandfathering period during which organisations may continue to implement the current SCCs. From the date of publication in the Official Journal (plus 20 days), organisations will now:

• • have 3 months to continue to put in place the current SCCs; and
  • have 15 months from the end of the 3 month period within which they must implement the Final SCCs and can continue to rely on the current SCCs (provided there is no change to the processing activities during this time and any necessary supplemental measures are in place).

While the extended grace period is positive in the context of the EU-US Privacy Shield being immediately invalidated as a result of the Schrems II decision and thereby requiring instant contractual and organisational remediation, the result of the Final SCCs is that organisations will still be required to re-paper their existing contracts in the medium term (by likely December 2022) and put in place mechanisms to begin incorporating the Final SCCs into new agreements in the short term (likely starting from June 2021 but by no later than September 2021) (see 'practical considerations' section below).

• Modular Structure and Scope

The Final SCCs have retained the modular format allowing for adaptation to different factual scenarios covering both C2C and C2P transfers already provided for under the current SCCs. They now also cater for P2P and P2C situations which were not provided for and enable other parties to 'dock' into the Final SCCs (of particular importance where sub-processors are introduced to a pre-existing arrangement).

Additionally the set of processor clauses required by Article 28 GDPR remains incorporated into the Final SCCs, continuing not as a separate module and explicitly prevailing over any conflicting provisions.

While elements of the modules have been somewhat rearranged, materially they provide the same flexibility, but also issues, as discussed in the 'structure' and 'scope' sections of the Draft SCCs Blog.

• Extraterritoriality

The requirement for data importers who are controllers to notify a competent EU supervisory authority (discussed in the 'extraterritoriality' section of the Draft SCCs Blog) remains but rather than the threshold being a 'significant adverse effect', this has been lowered to 'a risk to the rights and freedoms of natural persons' (with an attendant notification obligation to data subjects where there is a 'high risk'). This aligns with the thresholds in the GDPR, but arguably makes notification a more likely requirement for importers.

Additionally, the approach of the Final SCCs imposes on data importers requirements that will be familiar to those already subject to the GDPR, such as obligations of transparency, security, limits to the purpose of processing, complying with data subject rights amongst others. In binding importers to obligations similar in nature to the requirements of the GDPR, the Final SCCs can be seen as further step in extending the reach of GDPR.

• Schrems

Like the Draft SCCs, the Final SCCs to include provisions which address the challenges of the Schrems II case (discussed in the 'Schrems' section of the Draft SCCs Blog) with only minor changes made to the Final SCCs in this regard.

Perhaps most notably, however, the warranty that the parties are required to provide that they have no reason to believe that the 'laws' of the importer country prevent the importer from fulfilling its obligations under the Final SCCs, has been expanded to make reference to 'laws and practices'. The Final SCCs contain a footnote which provides some examples of the elements which may be considered as part of this impact assessment, but this more nebulous phrasing further emphasises the difficultly organisations are likely to have in being able to confidently undertake and document such an assessment and warrant such a claim.

One position that has been softened from the Draft SCCs is that the requirement on importers to exhaust all available legal remedies when challenging a public authority access request has been amended to grant the importer a degree of discretion in circumstances when it believes that there are 'reasonable grounds to consider that the request is unlawful…' and so challenge it. This caveat (underlining added) gives importers some leeway in approaching such requests.

• Liability

The more detailed liability provisions set out in the Draft SCCs remain in the Final SCCs, as does the uncapped liability position. Given the precedence taken by the Final SCCs over any other terms in an agreement to which the Final SCCs are attached, it would have been helpful if the European Commission had provided some clarity in relation to these points. Unfortunately, however, it is still unclear as to how both the detailed liability provisions and uncapped liability position set out in the Final SCCs are supposed to align with any pre-existing liability provisions set out in an agreement to which the Final SCCs are attached, especially if such pre-existing liability provisions include a cap on data protection liability, as they often do.

Absent further guidance, It would appear that attempts to limit or exclude liability would conflict with, and then be subordinate to, the approach taken by the Final SCCs.

Practical Considerations from the Final SCCs

Despite the positive and negative changes brought about by the Final SCCs, they do at least provide some clarity for organisations regarding what next steps they should take and what thinking should be done:

• In-Flight Projects

While there is a limited 3 month period within which organisations can continue to put the current SCCs in place, they will only be able to be rely on them for a further 15 months from the end of that 3 month window. As such, where the contractual arrangements for an in-flight project are likely to last beyond December 2022, it may make most sense for organisations to consider and implement the Final SCCs during this window.

For contracts with a duration likely to end before this window ends, or which will come up for renewal, then in the interests of expediency it would perhaps be preferable to implement the current SCCs at this stage and begin implementing and, where necessary, repapering the Final SCCs over the subsequent 15 months whereupon further guidance is likely to have been published and the market is more likely to have adopted a more settled approach.

• Repapering and Expertise

As noted in the 'repapering (again)' section of the Draft SCCs Blog, the Final SCCs confirm that a further, more complex repapering exercise is required.

As well as requiring organisations to analyse the perhaps thousands of contractual arrangements in place to determine the data flows and relationships between parties to replace them with the appropriate combination of Final SCC modules, organisations will also need to ensure that they have in place the appropriate expertise, support, and training to be able to begin putting in place the appropriate combinations by the end of the 3 month grandfathering period.

The earlier organisations begin to engage with the approach taken by the Final SCCs and put in place mechanisms sufficient to prepare and implement combinations of modular Final SCCs, the easier the transition will be.

• Final SCCs and Negotiated Clauses

As well as the repapering exercise (which will not be a 'rip and replace' exercise of the current SCCs to the Final SCCs), at a more granular level organisations will also need to consider the interplay between the Final SCCs and negotiated operative clauses in the main body of agreements incorporating the Final SCCs. For example:

• • Operative provisions which refer out to the Final SCCs will need to be appropriately tailored to ensure that there is no conflict in multifaceted relationships (e.g. where various parties may be acting as controllers, processors, and sub-processors in relation to different data as part of the same arrangement) to enable the operative provisions and relevant modules to align.
  • The Final SCCs contain embedded Article 28 provisions and so, where negotiated and bespoke operative Article 28 provisions are in place, ensuring alignment between them so as not to produce a conflict resulting in the inapplicability of tailored positions will be necessary to preserve commercial certainty.
  • Contradictions may also arise for which straightforward resolution may not be possible, such as the apparent conflict between uncapped liability under the Final SCCs and commonly capped negotiated positions, or where a tailored Article 28 provision cannot be aligned with those in the Final SCCs.
  • The imposition of obligations on importers will also mean that they may seek more protection from operative contractual clauses, for example the importer's transparency obligation will likely necessitate the inclusion of operative provisions to detail the responsibility between the parties of discharging such obligations (i.e. certainty of the provision of information).
  • The European Commission's decision to address P2P transfers in the Final SCCs will finally allow parties to simplify the operative clauses that controllers enter into with processors that engage subprocessors based outside of the EU. The absence of any P2P mechanism in the current SCCs has long required parties to shoehorn in the C2P clauses to address transfers between processors and subprocessors, often to unsatisfactory effect given that there is usually an absence of direct contractual nexus between controller and subprocessor. The new P2P module should serve to simplify and speed up the drafting and negotiation of these operative provisions going forward.

Where contracts are remediated, or standard template agreements will be updated, a careful approach will need to be taken to ensure regulatory compliance while also achieving an appropriate balance of commercial risk, depending on the particular factual matrix.

• The Data Importer's Position

Where a data importer contracts with an exporter on the basis of the Final SCCs, the fact that the Final SCCs impose a range of substantive obligations on importers (see 'extraterritoriality' section above) will require importers to take considerable care to determine whether they do in fact have the technical, organisational, and contractual means to satisfy the various obligations placed upon them.

The potential risks of litigation and cost of simply signing and doing what has always been done have never been higher.

The UK's Way Forward 

The ICO has stated that it has been drafting its own standard contractual clauses during the course of 2021 (with a period of consultation also expected) (the "UK SCCs"), in a process distinct from the Final SCCs. It will be interesting to see the extent to which, if at all, the UK SCCs leverage the positions in the current SCCs, Draft SCCs, and Final SCCs, or whether a completely novel route is taken.

While some mood music suggests that the UK will pursue a more relaxed, business-minded approach to data (and so the UK SCCs can perhaps be expected to impose less stringent requirements on organisations), such an approach will need to be carefully balanced against the UK's position on data vis-à-vis the EU, in particular to ensure the UK SCCs are seen as sufficiently protective if the UK is to benefit from an adequacy decision from the EU.

In addition, the ICO has also previously emphasised that international data transfers would need to account for the impact of the Schrems II decision and in their response to the UK's National Data Strategy highlighted the importance of building on the rights, principals, and protections of data which are currently in place. Therefore a novel approach or substantial deviation from the EU's approach (be that the current SCCs or Final SCCs) may be unlikely.

From a practical perspective, the Final SCCs are not currently regarded as an "adequate safeguard" for UK GDPR purposes for transfers from the UK to third countries and will therefore not be officially compliant from a UK GDPR perspective at the moment. Absent the UK SCCs and / or approval of the Final SCCs, the current SCCs may therefore continue to be relevant.

Furthermore, for organisations with data flows between the EU, UK and third countries, the implementation of a further set of standard contractual clauses which may deviate from or potentially conflict with the Final SCCs would be a headache that they could do without, with further repapering and more complex contractual arrangements to introduce and align the Final SCCs with UK SCCs potentially required. That is unless the ICO approves the Final SCCs (in addition to any UK SCCs), giving organisations the option of which set of clauses to select based on their respective data flows and contracting approach to international data transfers to third countries.

The UK's approach will therefore be important to monitor over the coming months and until such time as UK SCCs are brought into force, the current SCCs continue to remain relevant.

Conclusions

The publication of the Final SCCs provides organisations with a long-awaited update to the current SCCs and, for better or worse, provides clarity in relation to the steps and considerations that organisations will need to take if they are to continue making international transfers of personal data, as well as time (by way of the grace period and limited grandfathering period) to take these steps.

Most organisations will have been through this process before and, while it may be slightly more complex in execution, the principles of previous repapering exercises, as well as more developed processes regarding records of processing, data audits, and data mapping in the years since the GDPR came into force, should provide organisations with many of the tools needed to adopt and implement the Final SCCs (although for importers that are not used to the GDPR, the increased GDPR rigour of the Final SCCs may make this more challenging).

The most important step for organisations will be to understand the new modular approach to the Final SCCs, the most material departure from the current SCCs, as organisations will need to start the process of implementing the Final SCCs in 3 months' time. Organisations that have template agreements and processes in place which include data protection provisions incorporating the current SCCs will also need to update these template agreements and processes and provide appropriate training to those tasked with maintaining these arrangements. In the longer term, repapering will be flavour of the month once more.