Cloud computing is a fast-emerging, efficient and low cost alternative to more traditional data storage solutions.  But it does raise privacy concerns, particularly when personal information is transferred across borders.

No surprise then that the Law Commission discusses the issue (Chapter Ten) in the just released final report to its epic review of New Zealand's privacy laws. 

This Brief Counsel examines the current state of New Zealand law and the Commission's principal recommendations in relation to cloud computing.  We then offer some pragmatic suggestions as to how your organisation might address the perceived privacy risks.

Cloud computing is easy and low-maintenance

Imagine your business is liberated from inflexible End User Software Licences, heavy investment in IT infrastructure and large chunks of floor space devoted to all that equipment.  You no longer lose sleep over software upgrades and licence management.

Instead of installing a suite of business software on individual computers, you merely load one application that allows your workers to log into a Web-based service hosting everything you'll ever need for the job. 

Remote machines owned by another company do the heavy lifting, running everything from e-mail to customer relationship management, enterprise resource planning, and financial data management systems.

Other advantages are: on-demand scalability of highly available and reliable pooled computing resources, access to metered services from nearly anywhere, minimal administration, relocation of data from inside to outside the organisation, and tremendous time and cost savings.

But are there also extra risks

Although cloud computing will take your information offsite to data centres owned and managed by third party cloud providers, you will still be responsible under the Privacy Act for controlling access to and use of the data and for protecting the legal rights of the individuals whose information has been gathered.

This becomes more problematic when information crosses borders as the interface between different regulatory regimes can create ambiguity, uncertainty and risk.  Further, the Privacy Act and Principles, now 18 years old, have not kept pace with technological advancements beyond anything imaginable in 1993 – particularly the ability to gather, store and disseminate information about people.

Consequently, the requirements on the protection afforded to cross-border flow of sensitive data have become the focus of national and regional privacy law reform.  

The current New Zealand position

Privacy Principle 5 in the Privacy Act requires organisations holding personal information to take such security safeguards as are reasonable to ensure the information is protected against loss and unauthorised access, use, modification, or disclosure.

Section 10(1) extends that responsibility to information that your organisation transfers outside New Zealand.  In many cases, that overseas jurisdiction will have comparable privacy laws that ensure your customers' personal information is stored and used in a manner that enables your organisation to comply with the Privacy Act and Principles.

But there is a larger challenge for data processed in the cloud as it is often not possible to identify the countries in which the computers that process the data are located, or to determine whether another country's data protection laws are adequate (the best guidance we have found on the levels of data protection afforded in other countries is provided by the EU1).

Submissions reveal divided opinion

Those submissions to the Law Commission review which addressed cloud computing show that opinion is divided over whether reform is needed.

Telecom and Trade Me thought current provisions were adequate while the State Services Commission (SSC) warned against changes that would cut New Zealand off from the potential benefits of cloud computing and recommended that the Privacy Commissioner's ability to engage and co-operate with overseas data protection regulators be enhanced.

Microsoft suggested that the Privacy Commissioner have specific functions in regard to cloud computing and the need to protect personal information held in the cloud, including monitoring developments and assisting the public to make informed choices.  The Department of Internal Affairs and the Privacy Commissioner thought guidelines on cloud computing may be needed. 

The Law Commission's recommendations are that:

  • the Privacy Act be amended to make clear that any New Zealand agency which sends personal information offshore to be stored or processed on its behalf remains responsible for what happens to that information, and
  • where information is disclosed overseas, the disclosing agency must take reasonable steps to ensure the information will be subject to acceptable privacy standards.

It seems likely to us that the Privacy Commissioner will at least provide further guidance to deliver the message that the take-up of cloud services needs to be properly structured so that privacy risks are addressed.

How to minimise your risk

In the meantime, when planning, reviewing, negotiating or initiating a public cloud service outsourcing arrangement, we suggest you consider the following list of issues and precautions.

Compliance – Seek advice on, and ensure that your staff understand, your organisation's privacy obligations.  Ensure that your contract terms (both with your customers and with cloud providers) adequately meet those obligations or – at the least – that your cloud provider is able to provide reassuring responses to your due diligence questions.

Architecture – Understand the technical controls on the security and privacy of the system your cloud provider uses.

Identity and Access Management – Ensure that adequate safeguards are in place to secure authentication, authorisation, and other identity and access management functions.

Data Protection – Evaluate the suitability of the cloud provider's data management solutions for your data, and whether those meet your organisation's privacy obligations.

Availability – Ensure that critical operations can be immediately resumed in the event of a disruption or disaster and that your provider has a response plan to reinstitute all operations in a timely and organised manner.  Understand virtualisation and other software isolation techniques that the cloud provider employs.

Incident Response – Understand (and, if possible, negotiate) the contract provisions and procedures for incident response to minimise the impact of disruption or disaster on your organisation.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.