Significant Data Fiduciaries Under DPDPA: Stepping Up to Added Responsibilities

While India’s Digital Personal Data Protection Act, 2023 (DPDPA) establishes baseline obligations for all entities processing personal data (‘Data Fiduciaries’), it carves out a special category for those whose data processing activities warrant heightened scrutiny. The Act empowers the Central Government to designate certain Data Fiduciaries, or classes thereof, as “Significant Data Fiduciaries” (SDFs). This designation is not merely a label; it triggers a specific set of additional, more stringent compliance requirements aimed at ensuring greater accountability and risk mitigation.

This article explains the criteria for SDF designation, details their enhanced obligations, and provides practical steps for organisations to prepare for potential SDF status.

Who Gets Designated as an SDF?

The Central Government will notify SDFs based on an assessment of relevant factors as outlined in the DPDPA. These factors include:

• Volume and Sensitivity of Personal Data Processed: Organisations handling large volumes of personal data, or data that is inherently sensitive (e.g., health information, financial data, biometric data), are prime candidates.
• Risk to the Rights of Data Principals: Activities that pose a significant risk to the rights and freedoms of individuals (Data Principals) will be a key consideration.
• Potential Impact on the Sovereignty and Integrity of India: If the data processing activities could affect national interests.
• Risk to Electoral Democracy: Processing that could influence or undermine fair electoral processes.
• Security of the State: Implications of the data processing for national security.
• Public Order: The potential impact on public order.

Considering these factors, entities such as large social media platforms, major e-commerce players, banks, telecom operators, and companies handling extensive sensitive health or biometric data are likely to be considered for SDF designation.

Key Additional Obligations for SDFs

Once designated, an SDF must comply with several extra measures, in addition to the general obligations applicable to all Data Fiduciaries, as mandated by the DPDPA. These include:

1. Appoint a Data Protection Officer (DPO):
   • Role: The DPO must represent the SDF under the Act and serve as the point of contact for the grievance redressal mechanism.
   • Location: The DPO must be based in India.
   • Reporting: Crucially, the DPO must be an individual responsible directly to the Board of Directors or an equivalent governing body of the SDF. This ensures high-level visibility and accountability for data protection matters.
2. Appoint an Independent Data Auditor:
   • Role: The SDF must engage an independent data auditor to conduct audits evaluating the SDF’s compliance with the DPDPA.
   • Independence: The auditor must be independent of the SDF’s operational functions. (Further qualifications and audit frequency/scope are likely to be detailed in the DPDP Rules).
3. Undertake Enhanced Assessments and Audits:
   • Periodic Data Protection Impact Assessment (DPIA): SDFs must regularly assess the impact of their processing activities on Data Principals’ rights. A DPIA typically involves describing these rights, the processing purposes, and assessing and managing associated risks. Draft DPDP Rules suggest an annual frequency for DPIAs and the submission of a report to the Board.
   • Periodic Audit: Conduct regular audits (likely internal, complementing the independent external audit) to ensure ongoing compliance. Draft Rules also suggest an annual frequency for these.
   • Algorithmic Diligence: SDFs must observe due diligence to verify that algorithmic software used for processing personal data is not likely to pose a risk to Data Principals’ rights.
   • Other Prescribed Measures: Implement any other measures mandated by the government, consistent with the Act.
4. Potential Cross-Border Data Transfer Restrictions: SDFs may be subject to specific government directions restricting the transfer of certain personal data (and related traffic data) outside India, based on recommendations from a yet-to-be-defined committee.

Why the Extra Scrutiny?

The rationale behind imposing stricter obligations on SDFs is clear. Entities processing personal data at a scale or sensitivity level that could have widespread impact – whether on individual rights, democratic processes, or national security – inherently require more robust internal governance, independent verification, and proactive risk management than smaller players. The SDF framework aims to impose this heightened level of accountability where it matters most, ensuring that organisations with a significant data footprint manage personal data with the utmost care and responsibility.

Preparing for Potential SDF Designation

Even if not yet designated, organisations that might fall under the SDF criteria should proactively prepare:

• Self-Assess: Evaluate your current data processing activities against the designation factors listed in the DPDPA. Do you handle large volumes of data? Is this data sensitive? Could a data breach involving your organisation have a wide-ranging impact?
• Build Internal Capacity: Begin establishing processes aligned with SDF obligations. This could include appointing an internal DPO-like role, conducting informal impact assessments, and strengthening audit readiness.
• Enhance Vendor Management: Ensure robust contracts and stringent oversight for your Data Processors, as an SDF’s accountability extends to the actions of its vendors.
• Monitor Notifications: Stay vigilant for government notifications designating specific entities or classes of entities as SDFs.

Conclusion: More Than Just a Label

Being designated a Significant Data Fiduciary under the DPDPA is far more than a mere classification; it triggers substantial, ongoing compliance duties that extend well beyond the baseline requirements for all Data Fiduciaries. These include appointing key personnel like a DPO and an Independent Data Auditor, conducting regular and rigorous assessments such as DPIAs and periodic audits, and potentially facing specific data transfer restrictions.

Organisations that anticipate falling into this category should proactively prepare for these enhanced responsibilities. By building internal capacity, strengthening governance, and understanding the heightened expectations, businesses can ensure they meet the higher bar of accountability demanded by India’s new data protection law.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. The content is based on the Digital Personal Data Protection Act, 2023, and the Draft DPDP Rules, which are subject to change. For advice on specific legal issues, please consult a qualified legal professional.