EU - General Data Protection Regulation

23 December, 2017 - The General Data Protection Regulation- GDPR in short, is a comprehensive regulation unifying data protection in all EU countries. It has quite a broad territorial scope and will directly apply to any organization managing EU individuals’ personal data, regardless where the organization is registered.

Below is the list of changes introduced to the new GDPR:

* The new GDPR has increased territorial scope and thus, extra-territoriality shall apply:

The biggest change to the regulatory landscape of data privacy comes with the extended jurisdiction of the GDPR, as it applies to all companies processing the personal data of data subjects residing in the Union, regardless of the company’s location. Previously, territorial applicability of the directive was ambiguous and referred to data process 'in context of an establishment'. This topic has arisen in a number of high profile court cases. GPDR makes its applicability very clear - it will apply to the processing of personal data by controllers and processors in the EU, regardless of whether the processing takes place in the EU or not. The GDPR will also apply to the processing of personal data of data subjects in the EU by a controller or processor not established in the EU, where the activities relate to: offering goods or services to EU citizens (irrespective of whether payment is required) and the monitoring of behaviour that takes place within the EU. Non-EU businesses processing the data of EU citizens will also have to appoint a representative in the EU. 

* Penalties:

It appears that a three-tiered system will be used. Each tier covers a different level and type of  data breach and corresponding penalties. Under the first tier, those that intentionally or  negligently fail to respond to data subject (users) access requests promptly or charge a fee for  handling such requests, could be fined up to 0.5% of their total worldwide annual turnover.

The next tier is a fine of up to 1% of annual turnover. This could be imposed on businesses that:
* Fail to be transparent with users on their privacy practices or fail to provide users a method to access and review their personal data.
* Fail to adhere to consumer’s rights on data privacy or fail to provide users a method of updating their personal data. This also includes the “right to be forgotten” principle.
* Fail to make users’ data portable or ignore users’ objections on their personal data being used for marketing purposes.

The highest tier fine, which is up to 4% of a business’ turnover, would be handed out if the business “intentionally or negligently process[es] personal data without having a legal basis for doing so, break[s] rules on profiling, fail[s] to notify data breaches, or transfer[s] personal data outside of the EU without adequate safeguards.”

GDPR will allow consumers to file “class action” style lawsuits against data controllers who lose  personal data.

* Consent:

The conditions for consent have been strengthened, and companies will no longer be able to use long illegible terms and conditions full of legalese, as the request for consent must be given in an intelligible and easily accessible form, with the purpose for data processing attached to that consent. Consent must be clear and distinguishable from other matters and provided in an intelligible and easily accessible form, using clear and plain language. It must be as easy to withdraw consent as it is to give it.?

Rights attributable to Data-Subjects:

* Breach Notification:

Under the GDPR, breach notification will become mandatory in all member states where a data  breach is likely to “result in a risk for the rights and freedoms of individuals”. This must be done  within 72 hours of first having become aware of the    breach. Data processors will also be  required to notify their customers, the controllers, “without undue delay” after first becoming  aware of a data breach. 

* Right to Access:

Part of the expanded rights of data subjects outlined by the GDPR is the right for data subjects to obtain from the data controller confirmation as to whether or not personal data concerning them is being processed, where and for what purpose. Further, the controller shall provide a copy of the personal data, free of charge, in an electronic format. This change is a dramatic shift to data transparency and empowerment of data subjects.

* Right to be Forgotten:

Also known as Data Erasure, the right to be forgotten entitles the data subject to have the data controller erase his/her personal data, cease further dissemination of the data, and potentially have third parties halt processing of the data. The conditions for erasure, as outlined in article 17, include the data no longer being relevant to original purposes for processing, or a data subjects withdrawing consent. It should also be noted that this right requires controllers to compare the subjects' rights to "the public interest in the availability of the data" when considering such requests.

* Data Portability:

GDPR introduces data portability - the right for a data subject to receive the personal data concerning them, which they have previously provided in a 'commonly use and machine readable format' and have the right to transmit that data to another controller. 

* Privacy by Design:

Privacy by design as a concept has existed for years now, but it is only just becoming part of a legal requirement with the GDPR.  At it’s core, privacy by design calls for the inclusion of data protection from the onset of the designing of systems, rather than an addition. More specifically - 'The controller shall..implement appropriate technical and organisational an effective way.. in order to meet the requirements of this Regulation and protect the rights of data subjects'.  Article 23 calls for controllers to hold and process only the data absolutely necessary for the completion of its duties (data minimisation), as well as limiting the access to personal data to those needing to act out the processing. 

* Data Protection Officers:

Currently, controllers are required to notify their data processing activities with local DPAs, which, for multinationals, can be a bureaucratic nightmare with most Member States having different notification requirements. Under GDPR it will not be necessary to submit notifications / registrations to each local DPA of data processing activities, nor will it be a requirement to notify / obtain approval for transfers based on the Model Contract Clauses (MCCs). Instead, there will be internal record keeping requirements, as further explained below, and DPO appointment will be mandatory only for those controllers and processors whose core activities consist of processing operations which require regular and systematic monitoring of data subjects on a large scale or of special categories of data or data relating to criminal convictions and offences. Importantly, the DPO:

* Must be appointed on the basis of professional qualities and, in particular, expert knowledge on data protection law and practices
* May be a staff member or an external service provider
* Contact details must be provided to the relevant DPA
* Must be provided with appropriate resources to carry out their tasks and maintain their expert knowledge
* Must report directly to the highest level of management
* Must not carry out any other tasks that could results in a conflict of interest.

How shall the Terms and Conditions comply with the new GDPR?

* The personal data must be processed in a fair way and collected for specific purposes only.
* The personal data must be sufficient for those stated purposes and no more
* All collected personal data must be accurate and kept up to date
* The data subject (the user) must be identified only for as long as necessary unless its collected data is kept for historical, statistical or scientific research purposes
* The identity and the contact details of the data controller and of the Data Protection Officer (a new requirement set by the GDPR) must be disclosed to users
* Users must be told why their personal data is being collected
* Users must be told how long their data will be kept for
* Users must be notified of their right to request access to the data
* Users have a right to request update or removal of their personal data
* Users’ complaints can be lodged with the supervisory authority
* The contact details of the supervisory authority must be provided
* Users must be told who will receive their collected personal data

In short, the GDPR’s key implications for merchants are as follows:

Consent - Companies will have to actively get consent to store a customer’s personal data
Customer profiling - New restrictions on using data for customer profiling
Security and data breaches - Data breaches have to be reported within 72 hours of discovery
Data portability - Consumer has right to request transfer of personal data in certain circumstancesData transfer - Prohibitions on transferring data to non-EEA* countries without adequate safeguards (The EEA includes EU countries and also Iceland, Liechtenstein and Norway. It allows them to be part of the EU’s single market.
Right to be forgotten - A business must erase an individual’s personal data in certain circumstances
Security - Businesses must have security systems that are appropriate to the level of risk

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EU approves Maltese Tonnage Tax Scheme

Maltese-Shipping-Flag22 December, 2017 - In 2004, the European Commission (EC) addressed the risk of flagging out by issuing Guidelines on state aid to maritime transport which allowed member states to adopt measures to improve the fiscal climate for shipping companies. The EC now has to ensure that the favourable tax treatment towards shipping companies does not affect other sectors unrelated to maritime transport.

Under the Maltese scheme, a shipping company is taxed on the ship’s net tonnage and not the profits of the company and in particular, tonnage taxation is applied to a shipping company’s core revenue from shipping activities, ancillary revenue closely related to shipping activities (capped at 50% of a ship’s operating revenues) and revenue from towage and dredging.

If a shipping company wants to benefit from the Maltese scheme, a significant part of its fleet must fly the flag of the European Economic Area (EEA) Member State. A new entrant to the scheme must have at least 25% of its fleet subject to tonnage tax with an EEA flag.

The EC started an investigation in 2012 which focused on certain features of the scheme such as the tax exemptions applied to Maltese residents, and the broad scope of the scheme which could be extended to vessels not carrying out maritime transport activities.

The EC conditionally approved the Maltese tonnage tax scheme in a decision published on the 19th of December 2017 after Malta committed itself to introducing a number of changes to this scheme including restricting the scope of the scheme strictly to maritime transport and removing the tax exemptions which constitute state aid in order to minimize competition distortions. The EC concluded that the amended Maltese scheme would be in line with EU state aid rules as the tax relief granted is an appropriate instrument to address global competition.

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MFSA issues Discussion Paper on the Regulation of ICOs and Virtual Currencies

Cryptocurrency correct size

30 November, 2017 - The Malta Financial Services Authority (the "MFSA") has today issued a Discussion Paper on Initial Coin Offerings ("ICO"s), Virtual Currencies ("VC") and Related Service Providers in the wake of the global phenomenon of Virtual Currencies and Cryptocurrencies, their rapid evolution and the ever-increasing signs of them becoming integrated in the financial services area and other industries that make use of the sector.

The Paper proposes a policy framework for the regulation of Virtual Currencies and ICOs and other involved service providers. It also gives certain explanations, such as of ICOs, Coins and Tokens to show the public its understanding of such terms in order to be able for readers and participants to rebut any notion perceived differently.

- Initial Coin Offerings
The Paper states that the defining feature of an ICO is where propriety Coins or Tokens are issued by businesses to the public in exchange for fiat currencies or other VCs in order for business to raise funds for their projects. Investors in turn would be able to access or purchase services or products developed by the business or obtain voting rights or a share in future revenues of the venture or even exchange such Coins or Tokens into fiat or other VCs. This varies according to the features and purposes of the Tokens issued.

- Virtual Currencies
Virtual Currencies are subdivided into Coins and Tokens, with Tokens being further divided into securitised and utility tokens.
Coins, such as Bitcoin, Ether and other cryptocurrencies may be used as a payment instrument, their value being derived by supply and demand.
Tokens are virtual assets being offered through an ICO which one can acquire in turn for funding a respective project. Due to the different features attributed to different Tokens, it is ideal to further categorise Tokens into Securitised Tokens and Utility Tokens; the first being those Tokens embedding underlying assets or rights, qualifying as financial instruments; the second allowing platform or application utility rights or protocol access rights without any underlying.

The MFSA's above understanding of terms is already in line with the general understanding and other positions held by other authorites, regulators and key players such as the ESMA, the FATF and the Blockchain Policy Initiative.

The MFSA notes that certain VCs and activities fall within the scope of existing legislation, while other activies are unlikely to be caught up by the current framework and would therefore be unregulated.

With this in mind, the Paper proposes the drafting of a new act, the Virtual Currencies Act, to be drafted by the MFSA and adopted by the Maltese Parliament. The Act would include a Financial Instrument Test, through which it shall be determined whether the VC or activity constitutes a financial instrument under any other law, namely MiFID and other relevant EU legislation concerned with transferable securities, units in collective investment schemes, commodities, and financial derivatives contracts. This would see issuers required to comply with relevant legislative frameworks such as the Prospectus Directive, AIMFD and national legislation as applicable. The absence of a categorisation in this regard would mean that a VC or activity would fall under the Virtual Currencies Act.

Therefore, it would be difficult for such activity to be unregulated. The MFSA's raison d'etre is that an absence of regulation would lead to no adequate investor protection, financial market integrity and financial stability in the field, which risks a domino effect in the whole financial sector, particularly in light of this global growth and integration of VC in the Digital Currency sector.

The reader might get the impression that the Paper shows signs of caution with regards to the VC scenario, shown for instance when proposing (or in some cases reconsidering the authority's previous positions) that certain players such as Investment Services Licence Holders, Exchanges, Credit Institutions and Financial Institutions may provide services in relation to VCs only through the setting up of a subsidiary and ensuring complete segregation from their other "regular business". The relatively new character of this activity might make this position adopted by the MFSA understandable.

The Paper's final thoughts, before its concluding remarks, brings up issues of AML where it is noted that should a person, legal or individual, carry an activity requiring a licence or authorisation under any financial services law, this would place such person under the definition of "subject person" and would therefore be obliged to perform all duties required under the Protection of Money Laundering and Funding of Terrorism Regulations (PMLFTR). This would also be extended to include those persons licenced under the Virtual Currencies Act.

The MFSA's move towards proposed regulation shows that the local regulator is not shying away from welcoming technological innovation, in fact, a policy framework supporting new technologies is being preferred to a strict and tighter regime. That said, the authority is nonetheless considering it crucial for VC implementation and activity to be overseen. This is where the MFSA proposed to include another act - the Virtual Currencies Act, to encapsulate those activities which would have seeped through other regulations currently in place.

The consultation closes on the 11th January 2018, meanwhile industry participants would do well to follow any updates in the near future, particularly and hopefully, a draft Virtual Currencies Act which may dispell doubts regarding the obligations of such industry participants.

At Gonzi & Associates, Advocates, we shall continue to be active in the legal developments concerning ICOs, VCs and other related service providers and activities. For more information on this and other related matters, kindly contact us on This email address is being protected from spambots. You need JavaScript enabled to view it. at your convenience.

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