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Fieldfisher
Cloud computing - More Regulation, Better Regulation?
Cloud computing is now largely mainstream, its adoption accelerated by the Covid-19 pandemic. Although not mentioned in the EU's recently -proposed AI Regulation, increasingly cloud is used for, indeed indispensable to, many AI applications, with the Regulation's impact assessment citing cloud alongside AI in relation to boosting innovation, and Annexes to the European Commission's accompanying Communication emphasising the importance of next-generation cloud and a European cloud federation.
I started researching cloud law over a decade ago. Laws have always affected cloud use indirectly, but increasingly target cloud directly. If more regulation is necessary for important policy objectives like improving security, that's understandable. But cloud regulation must take account of cloud's nature, particularly how cloud differs from classic outsourcing/sourcing: quick to access, cost-effective, flexible and scalable because it's multi-tenant, standardised, commoditised, self-service and pre-built (subcontractors engaged in a reversed direction than with traditional outsourcing), often multi-layered (SaaS built on IaaS/PaaS). It must take also account of the differences between IaaS/PaaS and SaaS, the former involving use of technology infrastructure/equipment, the latter the online use of software applications which can vary hugely in their purposes and functions.
Take data protection, although disregarding for now the political football of data location vs. intelligible access! IaaS/PaaS, and many SaaS, services are purpose-neutral. Customers decide what data to upload. Providers don't necessarily know if that includes personal data.
For instance, the UK G-Cloud framework (currently G12), intended to facilitate and encourage public sector cloud uptake, requires buyers' prior consent to subprocessors -when they're already in place under pre-built services. Also, buyers can dictate individualised security requirements, although cloud security is standardised. Indeed, cloud providers' security expertise and measures often exceed customers' – it's well-known that most cloud breaches to date, ignoring outages, have been down to customers' misconfiguration rather than providers' security failings.
Or, consider the EU NIS Directive, which directly regulates cloud services alongside online marketplaces and search engines as "digital services" (it also regulates "essential services" – basically, critical infrastructure such as transport, utilities, healthcare). "Digital services" are subject to security and incident reporting obligations, focusing mainly on service availability and business continuity for customers. IaaS and PaaS are in scope. However, it's unclear if SaaS qualifies as a "cloud computing service" under NIS, so different SaaS providers take different approaches in practice. The UK NIS regulator, the Information Commissioner, simply says SaaS services are in scope to the extent they're "scalable" and "elastic". This seems somewhat circular, as by definition all cloud services are scalable and elastic, although none are infinitely so. Yet, fines of up to £17m are possible in the UK for "digital service" security failures that significantly impact service provision.
Legal certainty is critical. How can you comply with laws if it's unclear what laws require of you? Apart from the NIS SaaS uncertainty, there's the EU P2B Regulation. IaaS/PaaS services hosting e-commerce websites selling to EU consumers could be "online intermediation services" under P2B, which requires changes to standard terms as well as policies/processes. It seems lawmakers didn't intend cloud to be in scope. But they didn't explicitly exclude cloud, resulting in uncertainties (generally, cloud providers assume it doesn't apply).
As well as taking due account of cloud's nature, regulation should be appropriate, proportionate and clear. Under the proposed NIS 2 Directive, cloud services will become "essential", subject to tougher requirements than currently. For legal certainty and consistency, let's hope lawmakers will consider specifically whether different types of cloud services should be regulated differently, and make any differences clear, before they finalise this and other future laws.
