Significant Data Fiduciaries under the DPDP Act, 2023: Enhanced Compliance Obligations

Executive Summary

The Digital Personal Data Protection Act, 2023 (DPDP Act) introduces the concept of the Significant Data Fiduciary (SDF) to impose proportionate compliance obligations on entities that process personal data at a scale or sensitivity level carrying heightened risks. While all fiduciaries must comply with baseline duties such as consent, notice, and erasure, SDFs are subject to additional obligations, including:

• Appointment of a Data Protection Officer (DPO).
• Conducting Data Protection Impact Assessments (DPIAs).
• Undergoing independent audits.
• Establishing robust governance and accountability frameworks.

This article examines the statutory basis of the SDF designation, analyses each compliance requirement, provides practical expectations for businesses, compares with global frameworks, and outlines sectoral implications.

Introduction: Why Significant Data Fiduciaries?

The DPDP Act recognizes that certain fiduciaries, due to the volume and sensitivity of data processed, or their societal and democratic impact, require stricter oversight. Designating such entities as Significant Data Fiduciaries ensures that obligations are risk-based, preventing over-regulation of small entities while compelling larger or high-risk processors to adopt advanced safeguards.

Statutory Basis for Designation: The Central Government may notify any fiduciary as a Significant Data Fiduciary after considering:

• Volume and sensitivity of data processed.
• Risk of harm to data principals.
• Impact on sovereignty and integrity of India.
• Impact on democracy, electoral processes, or public order.
• Other factors the Government may deem relevant.
• This broad discretion allows regulators to target high-risk players such as banks, telecom companies, e-commerce giants, healthcare providers, social media platforms, and government contractors.

Additional Compliance Obligations for SDFs

1. Appointment of a Data Protection Officer (DPO)

Role and Expectations: The DPO must be based in India and act as the point of contact for grievance redressal and regulatory communication.

The DPO is expected to:

• Oversee internal compliance programs.
• Monitor processing activities and ensure alignment with DPDP.
• Handle rights requests from data principals.
• Serve as liaison with the Data Protection Board.

Practical Challenges: India faces a shortage of trained privacy professionals. Businesses may need to restructure governance to ensure the DPO has independence and authority. Conflict of interest risks arise if the DPO also holds operational responsibilities.

Comparison:

• GDPR requires DPOs for large-scale monitoring or sensitive data processing.
• Brazil’s LGPD also mandates a DPO but allows flexibility in structure.
• India’s requirement is stricter in mandating local presence.

2. Data Protection Impact Assessments (DPIAs)

Scope of DPIAs: Required before initiating any high-risk processing activity.

Must evaluate:

• Purpose and necessity of processing.
• Nature and scale of personal data involved.
• Risks to data principals.
• Safeguards and mitigation measures.

Practical Example: A fintech company launching an AI-driven credit scoring algorithm must conduct a DPIA to assess risks of bias, discrimination, and security vulnerabilities.

Expectations for Businesses:

• DPIAs must be documented and reviewable by regulators.
• Cross-functional teams (legal, IT, compliance, operations) must collaborate.
• Should include data flow mapping, risk scoring, and recommendations.

Comparison:

• GDPR requires DPIAs for systematic monitoring or sensitive data at scale.
• India’s regime is similar but may broaden “high-risk” to include impact on democracy and sovereignty.

3. Independent Audits

Purpose: SDFs must undergo periodic audits by independent auditors to verify compliance.

Scope: Audit scope likely to cover:

• Consent management.
• Notice practices.
• Data retention and erasure.
• Security safeguards.
• Cross-border transfer compliance.

Practical Impact:

• Large entities will need dedicated audit teams.
• Auditors may require sector-specific expertise (e.g., fintech vs. healthcare).
• Audit findings may need to be reported to the Data Protection Board.

Comparison:

• GDPR allows supervisory authorities to order audits but does not impose periodic audit obligations universally.
• India’s approach is more prescriptive, embedding audits as a standard compliance tool.

4. Enhanced Governance Frameworks

SDFs must implement comprehensive governance structures, including:

• Internal privacy policies and data handling standards.
• Regular staff training and awareness programs.
• Documentation of processing activities.
• Appointing grievance officers separate from the DPO.
• This reflects a privacy-by-design philosophy, embedding compliance into organizational culture.

Sectoral Implications and Practical Examples

Banking and Financial Services:

• Large banks processing millions of customer records will almost certainly be classified as SDFs.
• DPOs must oversee KYC data, fraud detection, and credit scoring activities.
• DPIAs required for new digital lending products.
• Independent audits will scrutinize adherence to RBI guidelines and DPDP simultaneously.

Healthcare and Health-Tech

• Hospitals and insurers processing sensitive patient data face heightened obligations.
• DPIAs may be mandatory before deploying AI diagnostic tools or telemedicine platforms.
• Independent audits will examine security of electronic health records.

 E-Commerce and Retail

• Large platforms with nationwide user bases will need SDF frameworks.
• Consent management and loyalty programs will be key audit areas.
• DPOs must ensure notices are multi-lingual and withdrawal mechanisms functional.

Social Media and Online Platforms

• Likely to be designated due to their democratic and social impact.
• DPIAs may be required before launching new algorithms or content moderation tools.
• Independent audits could examine risks of misinformation or election interference.

Government Contractors

• Private entities managing citizen databases under government contracts may be classified as SDFs.
• Obligations extend to grievance handling and secure processing.

Compliance Strategies for Potential SDFs

1. Early Governance Setup:

• Appoint a privacy officer now, even before formal designation.
• Establish reporting lines to ensure independence.

2. DPIA Playbooks

• Develop internal templates for conducting DPIAs.
• Train teams on risk identification and mitigation.

3. Audit Preparedness

• Conduct mock audits to identify gaps.
• Build relationships with certified external auditors.

4. Documentation and Accountability

• Maintain detailed logs of processing activities.
• Record decision-making processes around high-risk activities.

5. Staff Training

• Regularly train employees on consent, notice, and erasure obligations.
• Sector-specific training for fintech, healthcare, and social media teams.

Risks of Non-Compliance

• Regulatory Penalties: Fines up to ₹250 crore for breaches.
• Business Disruption: Failure to conduct DPIAs may lead to suspension of processing.
• Reputational Damage: Non-compliance by major entities will attract intense scrutiny.
• Contractual Risks: Global partners may demand proof of compliance before sharing data.

Comparison with Global Standards

• India’s SDF framework mirrors GDPR’s risk-based obligations but adds government discretion in designation.
• Unlike GDPR, India mandates local DPO presence.
• Independent audits are more prescriptive than GDPR’s model.
• Overall, India’s approach combines global best practices with a sovereignty-driven compliance philosophy.

Conclusion & Key Takeaways

The Significant Data Fiduciary regime is central to the DPDP Act’s proportional compliance approach. Entities designated as SDFs must adopt higher compliance standards to reflect their impact on privacy, democracy, and security.

Key takeaways:

• SDFs must appoint DPOs in India, conduct DPIAs, undergo independent audits, and maintain enhanced governance.
• Likely candidates include banks, insurers, healthcare providers, e-commerce platforms, social media companies, and government contractors.
• Early compliance preparation is critical, as obligations require significant cultural and operational shifts.
• Businesses should treat SDF obligations as an opportunity to build consumer trust and competitive advantage.

By embedding robust privacy governance, organizations can not only comply with the law but also position themselves as leaders in India’s evolving digital economy.

Contributed by – Aurelia Menezes