On September 8, 2020, the Swiss Federal Supervisory Authority (“Swiss SA”) issued a position paper stating that Swiss companies can no longer rely on the Swiss-US Privacy Shield Framework to transfer data to the US. The Swiss SA did not revoke the Swiss-US Privacy Shield Framework because it does not have the power to do so, but it did remove the US from its list of adequate countries.

The position paper is a clear reaction to the recent ruling of the Court of Justice of the European Union (“CJEU”) in the Schrems II case and aims to bring legal certainty to Swiss companies affected by the judgment.  It is understood that EU authorities encouraged Switzerland, which is the beneficiary of an EU adequacy determination, to adopt a position more aligned with the EU’s following the judgement.

Although Switzerland is not bound by the CJEU’s judgment, the Swiss SA points out that the ruling directly affects Swiss companies receiving data from the EU. The paper mentions that Swiss companies that transfer EU-originating data onwards to the US pursuant to the Swiss-US Privacy Shield could potentially be fined in the EU for violating EU law.

The Swiss SA states that the recent CJEU’s ruling has prompted it to reassess its previous adequacy finding for the US under Swiss law. Its decision to remove the US from its list of adequate countries takes into account the deficiencies of the US system uncovered during the CJEU proceedings. The Swiss SA paper specifically mentions the insufficient limitations on the surveillance powers of US public authorities, under US law, and the lack of effective remedies for data subjects, the same flaws identified by the CJEU in Schrems II.

The Swiss SA also considers the level of protection afforded to data transfers under the Standard Contractual Clauses (“SCC”), the Swiss Outsourcing Agreement and Binding Corporate Rules. The Swiss SA concludes that these transfer mechanisms, alone, will “in many cases” not meet the transfer requirements under Swiss law, as they are unable to prevent foreign authorities from accessing personal data.

Finally, the Swiss SA provides “practical advice” to Swiss companies transferring data to non-adequate countries. Companies using SCC should carry out a risk assessment to determine whether these clauses address the data protection risks resulting from the country of destination’s laws. Where these risks cannot be addressed through additional contractual or other obligations imposed on the data importer or through technical security measures, then the SCC should not be used.

The Swiss SA states that in cases where the country of destination’s laws have precedence over any contractual controls applied by the parties to the transfer, then the only option would be to implement security measures that prevent the access to the data. The Swiss SA gives the example of transfers to non-adequate countries for the purpose of cloud hosting. If the data is transferred to servers in non-adequate countries in an encrypted from which does not allow any person at the country of destination, including the service provider, to decode the data, then the SCC could still be used. However, the Swiss SA recognizes that this level of encryption is impossible in cases where the data is transferred for purposes other than mere data storage.

The Swiss SA commits to provide further guidance on this topic once Swiss courts consider the matter or EU authorities, in the form of the European Data Protection Board, release relevant guidance.