The National Security Law, effective as of July 1, 2015, states that “(the State shall) enhance network and information security protection capabilities, strengthen innovative research, development and application of network and information technology, achieve safe and controllable network and core information technology, critical infrastructures and information systems and data in key areas”. Article 31 of the Cyber Security Law of the People's Republic of China, effective as of June 1, 2017, stipulates that “the State shall, based on the classified protection system for cyber security, focus on protecting both the key information infrastructure used for public communications and information service, energy, transport, water conservancy, finance, public services, e-government affairs and other important industries and fields and other key information infrastructure that will result in serious damage to the national security, national economy and people's livelihood and public interests if they are destroyed, there are lost functions or they are subject to data leakage”. These provisions pose new challenges to financial institutions in their protection of personal information.

Banking institutions may handle a variety of personal information, including information and data on personal ID, property, accounts, credit, transactions, etc. Each time a customer uses a credit card, withdraws money from an ATM, or purchases financial products, a record will be kept at the bank, and these records form an important basis from which  the customer’s consumption preferences and property status, etc may be inferred. If the personal information is leaked out or abused by the bank, the owner of the information may suffer financial losses, and the bank may be subjected to administrative penalty. Therefore, how to protect personal information properly and at the same time use it effectively has become a critical question to banking institutions.

Banks must collect personal information on the basis of clear notification and customer consent 

On October 10, 2016, the Business Administration Department of the People’s Bank of China (PBOC) decided to impose a fine of RMB400, 000 as administrative penalty on a national joint-stock commercial bank for breaching  the provisions on the collection of personal information of the Administrative Regulations on the Credit Reporting Industry. The principle of “clear notification and customer consent” is also reflected in the third paragraph of Article 22 of the Cyber Security Law, which states: where network products and services have the function of collecting users' information, the providers shall clearly notify their users and obtain their consent. In the case of involving users' personal information, the providers shall also comply with the provisions regarding the protection of personal information as stipulated by this Law, relevant laws and administrative regulations.

This requirement of clear notification and customer consent is in line with the PBOC’s regulatory approach to the protection of personal information. The Interim Measures for the Administration of the Basic Database of Personal Credit Information implemented as early as October 2005 already provided that except for post-loan risk management of individual loans, a commercial bank must obtain a written authorization from the inquired person before searching the person’s credit report. 

A bank may obtain a customer’s written authorization by adding relevant provisions in the customer’s application for services, such as “authorization of individual credit inquiry”, “information disclosure”, etc. For example, to get authorization of individual credit inquiry, the following wording may be used: “I am applying for such and such service with the bank, and as the service requires, I authorize the bank to collect, search for and use my credit information kept at the PBOC’s Basic Database of Personal Credit Information or any credit reporting agencies approved by the PBOC and report my credit information to them, and authorize the bank to do the following: [description of the term, use and scope of the authorization].”

In counseling banks, we have found that some banks do not enter into an information disclosure provision with their customers in the early stages of services, and hope to sign such an agreement later during post-loan stages where the work is outsourced to third parties. This is hard to do in practice.

Personal information must be effectively used in compliance with laws, regulations and covenants with customers

The US-EU Safe Harbor Framework on cross-border transfer of personal data provided that a company must inform individuals their information is being collected and how their information will be processed; the company may not transfer information to a third party without permission; the individual must be allowed access to his/her own data; the company must ensure the truthfulness and security of the data and take measures to ensure compliance with those provisions. In October 2015, however, the European Court of Justice issued a judgment declaring this framework invalid on the basis of inadequate protection of personal information.

Paragraph 1, Article 42 of the Cyber Security Law stipulates that: (a network operator) shall not provide the personal information to others without the consent of the persons whose data is collected, except where the information has been processed and cannot be recovered and thus it is impossible to match such information with specific persons. In protecting personal information, a bank must note that “the person whose data is collected” may be a direct customer or an indirect one. An “indirect customer” refers to someone who is not directly served by the bank but provides the bank with personal information as guarantor for the bank’s direct customer. Since indirect customers are also “persons whose data is collected” under Article 42, a bank must also take care to obtain authorization from them.

Sharing of customer information within a bank group

As business models transform, understanding customer needs is becoming more and more important, and the great value of personal information to a bank group is all too clear. How should a bank assist the group in which it is a member using personal information effectively in compliance with laws and regulations? 1) The bank should clearly define relevant terms in its information disclosure clause. For example, a “customer” means anyone having business dealings with the bank pursuant to relevant agreements; “personal information” means information and material acquired via non-public channels by the bank from time to time in relation to the customer and any guarantor (if applicable) and/or other relevant person or entity, including but not limited to written documents, electronic data, audio-visual materials and telephone recordings; a “member of the group” means the holding company or a company, enterprise or other entity in which it directly or indirectly invests. 2) To avoid unnecessary disputes with a customer over the bank’s use of the customer’s personal information, the bank and the customer should further agree on the reason, scope, usage, etc. for authorized inquiries, use and provision to third parties. A clause as simple as “to provide better service to the customer, personal information may be disclosed to or exchanged with other members of the group by the bank” is not desirable. 3) Take care not to take a cusomter’s general authorization as a prerequisite for the establishment of a business relationship with the customer. The suggestions above may work as references. A bank group need to choose an appropriate agreement based on its own conditions and business.

The Cyber Security Law provides another way for a group to use personal information. According to Article 42, if a piece of personal information becomes unidentifiable and irrecoverable after it is processed, it can be used by the bank even without the consent of the person from whom the original information was collected. What information is “unidentifiable” and “irrecoverable”, however, is yet to be confirmed by relevant regulatory authorities.

Domestic storage and cross-border transfer

Article 37 of the Cyber Security Law provides that: key information infrastructure operators shall store personal information and important data gathered and produced during operations within the territory of the People's Republic of China; where it is really necessary to provide such information and data to overseas parties due to business requirements, a security assessment shall be conducted in accordance with the measures formulated by the national cyberspace administration authority in concert with the relevant departments under the State Council. As early as 2011, the PBOC Circular of Banking Institutions’ Protection of Customers' Personal Financial Information stipulated that personal financial information collected within the Chinese territory must be stored, processed and analyzed in China. Except where laws and regulations or the PBOC provide otherwise, banking institutions may not provide domestic persons’ financial information to overseas parties.

Before the Cyber Security Law was issued, a foreign auto-financing company asked us: as a non-bank financial institution, can an auto-financing company transfer and store overseas the personal information that it collected within China? We believed that although the above-mentioned PBOC Circular did not apply to an auto-financing company, as a qualified financial institution, leakage of customers’ personal information would still lead to grave consequences. We suggested that this customer seek advice from the PBOC and other relevant regulatory authorities prior to cross-border personal information transfer. When the Cyber Security Law comes into effect, the question above will no longer be an issue. As for the meaning of “business requirements” in Article 37, we think that it only concerns internal processes necessary for serving the customer, and excludes third parties.

Banking institutions still have a long way to go before they can effectively protect their customers’ personal information. We will continue to keep up with regulatory changes and assist banks in their lawful collection, use, storage and transfer of the customers’ personal information.

Editor’s note: this article was simultaneously published on Chinalawinsight.com