Role of Data Processing Agreements (DPAs) in Regulating Third-Party Data Sharing
As we move into an age where many businesses rely heavily on other companies for many of their day-to-day tasks, it has become increasingly common for organizations to use data processors (e.g., cloud storage providers) to help process large amounts of personal data—such as payroll, analytics, and customer support. This provides many organizations with increased efficiencies and scalability, but it also creates serious concerns regarding the protection of this data from unlawful sharing or access. To help mitigate these risks, Data Processing Agreements (DPAs) have been developed and are now legally enforceable agreements governing the sharing of personal data by third-party data processors.
A Data Processing Agreement is a legally binding agreement between a data controller (the organization that makes decisions about how to collect and use personal data) and a data processor (the organization that is responsible for processing the data on behalf of the controller). The primary purpose of a DPA is to ensure that all collected personal data is processed in compliance with all applicable data protection regulations, and that adequate measures are in place to protect the data from being misused, accessed without authority, or breached.
Defining the scope and objective of data processing activities is among the most important duties of a DPA; specifying data processed, the reason for his/her/their processing, and duration of processing activities. Through this specification of activity, the DPA is limiting the data processor from using the data provided beyond the terms agreed upon, thereby limiting the risk of unauthorized access or use of that data. This limitation on purpose is one of the primary principles of modern data protection law.
The DPA is also responsible for establishing stringent requirements on data processors with respect to maintaining security standards. The DPA will require the data processor to provide adequate technical and organizational safeguards to ensure the safety of personal data. Technical safeguards may include a variation of encryption, access controls, performing audits on a regular basis, as well as establishing response procedures in the event of a data breach. The DPA requires the data processor to immediately notify the data controller in the case of a data breach so the data controller may take immediate action to mitigate effects of the data breach and comply with notification requirements mandated by law.
The data processing agreements (DPAs) play an integral role in providing accountability and transparency. The DPA will define exactly what each party is responsible for and put into place methods of monitoring compliance. For example, a controller might require that the processor submit periodic reports on compliance or afford itself the ability to audit the processor. By providing for auditing and compliance mechanisms, the DPA helps create the necessary oversight so that data protection standards are maintained throughout the entire data processing lifecycle.
One of the key components of the DPA is that it governs the use of sub-processors by data processors. In the vast majority of instances, processors will engage additional third-party sub-processors to perform individual tasks. The DPA typically requires that the processor obtain prior written consent from the controller to engage a sub-processor, and that the sub-processor is to be bound under the same data protection obligations as the processor. This creates an unbroken chain of accountability and ensures that the standards for data protection are not lost as the data flows through the various steps in the processing chain.
DPAs are critical for organizations to meet their obligations under global data protection laws like GDPR or laws like India’s Digital Personal Data Protection Act that are emerging now which require third parties to execute DPAs when using personal data, and additionally provide minimum level of requirements including contracts. Failure to implement appropriate DPAs may expose an organization to legal liability exposure, including fines and damage to reputation.
In addition, in many cases, DPAs are drafted as generic boilerplate documents with insufficient customization, which can limit their efficacy, particularly in the context of complex data processing relationships. Organizations should ensure they carefully draft DPAs to accurately reflect the unique implementing conditions of a given data processing function and the related risks associated with such function.
In short, DPAs provide organizations with a way to effectively govern the sharing of third parties with respect to data in the modern digital ecosystem. By defining each parties role, imposing obligations related to safeguarding the data shared, establishing accountability for the processing of that data and satisfying legal requirements, DPAs allow organizations to use third parties to process personal data in a responsible fashion while effectively utilizing the expertise of the third party. As data protection continues to gain significance, well drafted DPAs will be essential for an organization to establish trust and achieve compliance in an interconnected world.
We LEGALLANDS LLP, a Legal500 ISO certified law firm provide services related to drafting Data Processing Agreements, Share-Purchase Agreements, Service Level Agreements, Company Incorporation, Joint Ventures, Merger and Acquisitions, Intellectual Property Rights (Trademark, Copyright, Patents), Technology Transfer, Contract Conveyancing and Corporate Services, International Disputes (DGFT), Internation Trade (CEPA/FTA), Sports Law, Gaming Law, and Immigration Matters.
Prerna Bhakoria is a skilled Legal Associate at LEGALLANDS LLP, in the field of Corporate Law. She holds a BBA LLB degree with a specialization in Banking and Finance from the University of Petroleum and Energy Studies (Batch 2018-2023).
Her areas of practice in Corporate Law include drafting of legal agreements, corporate compliance, client management.
