[BreachExchange] Update on China’s Cybersecurity Law

[Audrey McNeil]

http://www.lexology.com/library/detail.aspx?g=ae5842d5-31aa-447e-890b-
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The PRC Cyber Security Law (the CSL) was enacted in November 2016 and came
into force on 1 June 2017. The new law introduced a raft of measures
designed to protect the state and individuals from cyber-attacks and data
theft. These measures include placing obligations on Critical Information
Infrastructure Operators (CIIs)[1] , Network Operators[2] and providers of
network products and services to take active steps to protect computer
networks from cyber-attacks and protect personal information[3] and
important data from being stolen and/or used for unauthorized purposes.

Two key features of the CSL are:

the "data localization" requirement, which requires CIIs to store within
the territory of China any personal information collected in China; and
the obligation on providers of network products and services to obtain
security clearances for the sale of those products and services.

At the time the CSL was published, many commentators noted that the
provisions of the Law were very broadly drafted and it was unclear whether
and to what extent they would apply to businesses operating in China.

In an effort to address those concerns the Cyberspace Administration of
China has published two new sets of regulations – the "Administrative
Measures on the Security Assessment of the Overseas Transfer of Personal
Information and Important Data" and the " Measures of Security Review of
Network Products and Services" - which set out specific aspects of the CSL
in more detail. We discuss these new regulations below.

Administrative Measures on the Security Assessment of the Overseas Transfer
of Personal Information and Important Data

On 11 April 2017, the Cyberspace Administration of China published the
consultation paper of its proposed Measures on the Security Assessment of
the Overseas Transfer of Personal Information and Important Data (the
Overseas Transfer Measures).

As the title of the Overseas Transfer Measures implies, it provides further
clarification of the nature and extent of the data localization requirement
in the CSL.

Despite at the consultation stage, certain features of the Overseas
Transfer Measures are noteworthy:

the data localization requirement is extended to cover both CIIs and
Network Operators (under the CSL itself, only CIIs are subject to the data
localization requirement);
CIIs and Network Operators can transfer data out of China provided that
there is a legitimate business need and a security assessment is undertaken
prior to the transfer;
There are two types of security assessment – self-assessments and
assessments carried out by the competent authority;
A Network Operator must undertake a self-assessment before transferring
data out of the jurisdiction to determine:

That the outbound transfer is necessary;
the quantity, scope, type and sensitivity of the personal information to be
transferred;
the security measures and capabilities of the recipient of the personal
information and the cybersecurity environment of the nation where the
recipient is resident;
the risk of leakage, damage or abuse of the data once it has been
transferred;
possible risks to national security, the public interest and the
individual's rights.

A security assessment from a government authority must be obtained where:

The outbound transfer involves the personal information of over 500,000
individuals;
The data size is over 1000GB;
The transfer involves data in relation to nuclear facilities, chemistry and
biology, national defence and the military, population health,
megaprojects, the marine environment or sensitive geographic information;
The transfer involves data relating to information about the cybersecurity
of key information infrastructure such as system vulnerabilities and
security protection;
The outbound transfer of personal information and critical data is
conducted by an operator of key infrastructure;
The outbound data transfer may affect national security or the public
interest.

When transferring personal information, CIIs and Network Operators are
obliged to:

Explain the purpose, scope and content of the information;
Identify the recipient of the information and their physical location;
obtain the consent of the person to whom the personal information relates
to.

While the relaxation of the data localization requirement introduced by the
Overseas Transfer Measures will no doubt be welcomed, the obligation to
carry out a detailed self-assessment or seek an assessment from a
government authority will almost certainly increase compliance costs for
CIIs and Network Operators.

The Measures of Security Review of Network Products and Services

On 2 May 2017, the Cyberspace Administration of China published the final
version of the Measures for the Security Review of Network Products and
Services (the “Security Measures”) which subsequently came into force on 1
June 2017.

The Security Measures apply to those businesses that fall into the category
of "providers of network products and services" as defined in the CSL.

Pursuant to the Security Measures, critical network products and services
used in network and information systems relating to national security must
undergo a security review. Any network product or service purchased by
operators of key information infrastructure will also be subject to a
security review, if such product or service might affect national security.

The key test of the review is twofold: security and controllability.
Specifically, the authorities will look at the following issues:-

Security risks arising from the products and services themselves, and risks
that products and services may be illegally controlled, interfered with or
interrupted;
Security risks arising in the supply chain throughout the manufacturing,
testing, delivery and technical support of products and critical components;
Risks that product or service suppliers illegally collect, store, process
or use the user-related information while providing products or services;
Risks that product or service suppliers draw on the reliance on such
products or services by users to undermine cybersecurity and the interests
of users; and
Other risks that may jeopardize national security.

The Security Measures apply broadly to:

Key sectors such as finance, telecommunications, energy, and transport. For
these sectors, the wording of the Security Measures suggests that a
cybersecurity review will be mandatory for all pre-existing network
products or services; and
Public services and e-government, etc. For these services, a security
review must be undertaken if there are potential national-security
implications.

Commentary

The CSL is now law and imposes a wide and far reaching enforcement regime
for the protection of computer networks, personal information and important
data.

While the Overseas Transfer Measures and Security Measures add some much
needed "flesh to the bones" of the CSL, it is fair to say there is still a
significant amount of uncertainty as to how these laws will impact
businesses operating in China. As noted above, the provisions of the CSL
are broadly worded and the same is true of both the Overseas Transfer
Measures and Security Measures. This in turn creates uncertainty as to what
business may need to do to comply with the law.

At the very least, those businesses falling within the category of CIIs or
Network Operators will need to ensure that they have comprehensive
cyber-security policies in place which are actively monitored and enforced
so as to protect networks from cyber-attacks and personal information and
important data from theft and/or misuse. In cases where personal
information collected in China needs to be transferred out of the
jurisdiction, changes to standard form contracts, online order or booking
forms and consent forms may need to be made so as to comply with the
requirements of the Overseas Transfer Measures.

For providers of network products and services, an exhaustive review of
products and services may need to be undertaken to determine whether any of
those products or services will require a security clearance from the
relevant authorities under the Security Measures before they can be sold to
the public.

While it may be tempting for CIIs and Network Operators to rely on existing
data protection policies, these may not be enough to comply with the CSL.
We are already seeing clients being subject to inspections by the
authorities as to the adequacy of their data protection policies and
robustness of their computer systems. Businesses operating in China who may
fall into the category of CIIs or Network Operators would therefore be well
advised to seek advice on whether they are in compliance with the law.
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