China: Financial Institutions: How Far Are You From The Cyber Security Law?

Last Updated: 20 January 2017
Article by Cecilia Lou and Chen Yun

This article was written by Lou Xianying (Cecilia) (partner), Fu Guangrui (Mark) (managing associate), Gong Wenyi (assistant associate), Liang Yixuan (assistant associate) and Chen Yun (Robert) (partner).

On November 7th, 2016, China passed the Cyber Security Law (the "Cyber Security Law") of the People's Republic of China ("PRC" or "China") after three readings of its drafts. The new law is to take effect as from June 1st, 2017. Being the first legislation in the cyber security field, the Cyber Security Law may have profound impacts far beyond expectations. For this reason, an in-depth study of the Cyber Security Law along with the relevant authorities' further interpretations and practice would be necessary.

The Cyber Security Law widely applies to the construction, operation, maintenance and usage of networks within the territory of China. It lays down specific regulatory requirements on the network operation and information security that network operators should abide by. Notably, the Cyber Security Law introduces the concept of "Critical Information Infrastructure (CII)", makes specific references to the sector of the financial services under the definition of the CII, and imposes a higher level of cyber security protection obligations on the CII operators.

On one hand, most financial institutions in China use the internet for the information collection, storage, and processing in the course of offering products or services within the territory of China. Under the Cyber Security Law, these institutions are most likely to be deemed as the so-called "network operators" and therefore should be regulated by the rules applicable to "network operators". On the other hand, given the nature of financial institutions being the provider of financial services, we believe that financial institutions would be also classified as the "CII operators" that are falling within the stringent supervision regime, and are therefore required to implement the higher level of protection measures.

How would the Cyber Security Law impact the financial institutions in China? With the introduction of the Cyber Security Law, what obligations and responsibilities should the financial institutions particularly watch out for, and which new provisions worth further in-depth analysis? This article aims to sort out and respond these questions, and more issues about the Cyber Security Law will be addressed in the upcoming series of articles.

Personal information and important business data must be stored in China, and are prohibited from being stored offshore without security assessment

The Cyber Security Law explicitly requires that financial institutions and other CII operators store in China the personal information and the important business data collected and generated by them during their operations within the PRC. Failure to comply with this requirement may lead to the confiscation of illegal gains, fines, revocation of the business permit or even the business license. Persons in charge of the offending institutions are subject to fines as well. Notably, the Cyber Security Law makes an exception for the offshore storing of data – "if for the business operation it is truly necessary for the data to be stored offshore i, a security assessment must be conducted by the designated regulatory authorities". However, it is unclear in practice as to what constitutes being "for the business operation truly necessary" to transfer the data offshore. We await assessment criteria and guidelines to be further provided by the regulatory authorities.

This requirement of the Cyber Security Law coincides with the PRC's supervision strategy over financial institutions. In 2011, the People's Bank of China ("PBOC") published the "Notice on Urging Banking Financial Institutions to Strengthen the Protection of Personal Financial Information". Banks are required by the said Notice to store, process and analyze within the PRC all the personal financial information collected by them in China, and are prohibited from transferring the personal financial information out of China unless otherwise provided by law. The corresponding rules adopted by the PBOC Shanghai and Guangzhou branches provide for exceptions to this restriction – banks are allowed to transfer personal financial information to their offshore headquarters, parent banks, branches, or subsidiaries, on the condition that such data transfer, which is for the business operation purposes only, has been duly authorized by the relevant customers and the information should be kept in strict confidence.

It remains to be seen how this requirement of the Cyber Security Law would impact the current operation of the banking financial institutions in China. Considering the practical needs of sharing the personal financial information with the offshore affiliates, if foreign financial institutions in China intend to maintain their current data management mechanism, they should at least go through a "security assessment" following the "measures to be promulgated by the cyber security administration and the relevant regulatory authorities under the State Council". We advise that financial institutions in China pay closer attention to the further measures and interpretations from the regulators, and make themselves well prepared for the adjustment to the data storage and processing methods that may be required.

Financial Institutions are obligated to safeguard cyber security according to the Tiered Network Security Protection System

The Cyber Security Law introduces the concept of "Tiered Network Security Protection System", aiming to strengthen the governmental supervision over certain key sectors, including the financial services sector, on the basis of such System. Furthermore, the Cyber Security Law provides for a series of cyber security requirements that the financial institutions should abide by. For instance, financial institutions should maintain the internet logs for no less than 6 months, and must take such measures as backup and encryption of the important data. Also, financial institutions are required to appoint dedicated security management bodies and personnel that have passed certain security check.

Nevertheless, the Cyber Security Law fails to give a clear definition of the "Tiered Network Security Protection System". In fact, the Cyber Security Law neither explains the substance or the implementing rules of the System, nor categorizes the tiers of the System. Financial institutions should stay tuned for updates regarding the CII and related protection measures expected to be issued by the State Council.

Critical network equipment and dedicated network security products are subject to security verification or test; procurement of network products and services may require national security review

Pursuant to the Cyber Security Law, the critical network equipment and dedicated network security products must pass the security tests or verification by the accredited evaluation agencies before they can be made available in China market. Besides, network products and services may be subject to national security review if the financial institutions' purchase of such products and services is deemed to have an impact on China's national security.

It is true that financial institutions regularly procure equipment or software for storage, encryption and decryption of the financial data. Such equipment or software will probably fall into the category of the so-called "critical network equipment" or "dedicated network security products". Financial institutions may anticipate a specialized catalogue of approved products to be issued by the regulators, and in the future procurement should request that their suppliers furnish the relevant cyber security certificates. Furthermore, so far there is no express guideline on how to judge a network product or service to be one that may "have an impact on China's national security". Financial institutions are encouraged to keep a close eye on the regulators' interpretations in this regard.

Carry out annual review and assessment to potential cybersecurity threats

The Cyber Security Law requires that financial institutions and other CII operators, either by themselves or through third party agencies, carry out a review and an assessment of the cyber security threats at least once a year. Yet the Cyber Security Law is silent on the detailed assessment criteria and the qualifications of such agencies. It is advisable that financial institutions seek clearance from the regulatory authorities on this point.

Apart from the aforesaid regulatory requirements on the financial institutions, the Cyber Security Law also sets out a number of requirements that are generally applicable to network operators. For example, network operators must take remedial actions to address the data leakage, report the same to relevant regulatory authorities and notify the data owners. Network operators are also required to be cooperative in the cyber security checks and other law enforcers' inspections, and to provide the necessary technical support and assistance to the police and national security agencies safeguarding the national security and investigating the crimes. Financial institutions should pay enough attention to such generally applicable requirements.

It has been more than 1 year since the first draft of the Cyber Security Law was published to seek public opinions in August 2015, yet certain provisions still seem vague and leave much room for further clearance. For example, how to interpret "using the internet within the territory of the PRC" given the interconnection of internet?Do banking products such as mobile banking tokens fall into the scope of the so-called "dedicated network security products"?Another example is while the Cyber Security Law excepts the information that "is processed to prevent specific persons from being identified and is irretrievable" from the personal data collection and usage rules, is the use of such information subject to any other restriction? We will share with you more of our observations on the above in the upcoming series of articles.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions