HONG KONG INSURANCE COMPANIES GUIDANCE ON …download.microsoft.com/download/B/4/3/B4334FB1-E... ·...

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HONG KONG – INSURANCE COMPANIES

GUIDANCE ON COMPLYING WITH REGULATORY REQUIREMENTS APPLICABLE TO INSURANCE COMPANIES USING

CLOUD COMPUTING (AZURE)

Last update: November 2014

1. WHAT DOES THIS MICROSOFT GUIDANCE CONTAIN?

This guidance document provides a guide to complying with the regulatory process and requirements applicable to insurance companies (“ICs”) using

cloud computing. Note that other financial service institutions are subject to separate regulation in Hong Kong. Microsoft has prepared a guidance

document for other financial service institutions which is available on request.

Sections 2 to 6 of this guidance sets out information about the regulatory process and the regulations that apply.

Section 7 sets out questions in relation to outsourcing to a cloud services solution based on the laws, regulations and guidance that are relevant to the

use of cloud services. Although there is no requirement to complete a checklist like this one, we have received feedback from financial service institutions

that a checklist approach like this is very helpful. The checklist can be used:

(i) as a checklist for ensuring regulatory compliance with the requirements set out in the laws, regulations and guidelines (listed in Section 2); and

(ii) as a tool to aid discussions with the regulator(s) (listed in Section 3), should they wish to discuss your organization’s overall approach to

compliance with their requirements.

Annex One also contains a list of the points that ICs should “consider” when negotiating the contract for cloud computing services.

Note that this document is not intended as legal or regulatory advice and does not constitute any warranty or contractual commitment on the part of

Microsoft or its affiliates. Instead, it is intended to streamline the regulatory process for you. You should seek independent legal advice on your

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technology outsourcing project and your legal and regulatory obligations. If you have any questions, please do not hesitate to get in touch with your

Microsoft contact.

2. WHAT REGULATIONS AND GUIDANCE ARE RELEVANT?

The IA has developed a Guidance Note on Outsourcing which sets out the issues that the IA expects an IC to take into account in formulating and

monitoring outsourcing arrangements generally. The IA has not produced any specific guidance in relation to cloud services.

3. WHO IS/ARE THE RELEVANT REGULATOR(S)?

The Insurance Authority in Hong Kong (“IA”)

4. IS REGULATORY APPROVAL REQUIRED IN HONG KONG?

No.

The IA does not require ICs to obtain prior approval before engaging service providers to provide cloud services.

5. IS/ARE THERE (A) SPECIFIC FORM OR QUESTIONNAIRE(S) TO BE COMPLETED?

No.

Unlike in certain jurisdictions, such as Singapore, there are no specific forms or questionnaires that an IC must complete when considering cloud

computing solutions.

6. DOES THE REGULATOR MANDATE SPECIFIC CONTRACTUAL REQUIREMENTS THAT MUST BE ADOPTED?

No.

http://www.oci.gov.hk/download/gn14.pdf

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The IA does not specifically mandate contractual requirements that must be agreed by ICs with their service providers. However, the Guidance Note on

Outsourcing does contain a long list of matters that it says that ICs should “consider” when negotiating the contract. Appendix One contains a

comprehensive list and details of where in the Microsoft contractual documents these points are covered.

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7. CHECKLIST

Key:

In blue text, Microsoft has included template responses that would demonstrate how your proposed use of Microsoft’s services would address the point

raised in the checklist. Some points are specific to your own internal operations and processes and you will need to complete these answers as well.

In red italics, Microsoft has provided guidance to assist you with the points in the checklist.

Ref. Question/requirement Template response and guidance

A. OVERVIEW

Part IV to the IA Guidance Note on Outsourcing requires ICs to provide certain information regarding any ‘material outsourcing arrangement’1within

30 days of entering into such an agreement. This section will assist you with this process as well as providing background and context information to

the rest of this document. The details of the commencement date will be agreed in the contract.

1. Who is the Service Provider? The Service Provider is Microsoft Operations Pte Ltd, the regional licensing entity for Microsoft

Corporation, a global provider of information technology devices and services, which is publicly-listed in

the USA (NASDAQ: MSFT). Microsoft’s full company profile is available here:

https://www.microsoft.com/en-us/news/inside_ms.aspx.

2. What service is being outsourced? Through adoption of Microsoft’s “Azure” product, which is described in more detail here: Azure.

Amongst other things, the Azure service includes:

1 For the IA’s definition of ‘material outsourcing arrangement’, see section 7 below.

https://www.microsoft.com/en-us/news/inside_ms.aspx

http://azure.microsoft.com/en-us/

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Compute

Data & Storage

Networking

Identity & Access Management

IT support services.

3. Where will the outsourced services be

performed?

You may need to amend this depending on the final solution that you decide on.

Microsoft informs us that it takes a regional approach to hosting of Azure data. Microsoft is transparent

in relation to the location of our data. Microsoft data center locations are made public on the Microsoft

Trust Center.

Microsoft enables customers to select the region that it is provisioned from. Under the OST, Microsoft

commits that if a customer provisions its tenant in the United States or EU, Microsoft will store the

customer’s data at rest in the United States or EU, as applicable.

The table below will need to be amended depending on the specific solution that you are taking up.

# Locations of Data

Centre

Classification of DC: Tier I, II, III

or IV

Storing your organization’s data

(Y/N)

1.

http://azure.microsoft.com/en-us/support/trust-center/

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2.

B. OUTSOURCING POLICY

4. Prior to the outsourcing of services, an IC

should develop an outsourcing policy,

approved by the Board of Directors. The IC

should have appropriate documentation of

its outsourcing policy and ensure that

procedures are in place such that all

relevant staff of the IC are fully aware of and

comply with the outsourcing policy

IA Guidance Note on Outsourcing, Section 10 and Section 11. The IA requires that ICs have in place a

comprehensive policy on outsourcing duly approved by the board of directors of the IC. This will differ

from one organization to another but the IA expects that this will cover the following specific points:

(a) The objectives of the outsourcing and criteria for approving an outsourcing arrangement;

(b) The framework for evaluating the materiality of outsourcing arrangements;

(c) The framework for a comprehensive assessment of risks involved in outsourcing;

(d) The framework for monitoring and controlling outsourcing arrangements;

(e) The identities of the parties involved and their roles and responsibilities in approving, assessing

and monitoring the outsourcing arrangements and how those responsibilities may be delegated

and details of any authority limits; and

(f) The review mechanism to ensure the outsourcing policy and the monitoring and control

procedures are capable to accommodate changing circumstances of the IC and cater for

market, legal and regulatory developments.

5. The IC should develop a framework for

assessing the materiality of an outsourcing

arrangement. The assessment of what is

IA Guidance Note on Outsourcing, Section 13. The IA deems a “material outsourcing” to be “an

outsourcing arrangement which if disrupted or falls short of acceptable standards, would have the

potential to significantly impact on an IC’s financial position, business operation, reputation or its ability

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material may involve qualitative judgement

and depends on the circumstances of the IC

concerned.

to meet obligations or provide adequate services to policy holders or to conform with legal and

regulatory requirements.” The IA expects you to be able to demonstrate that you have considered the

materiality of the outsourcing in relation to at least the following factors:

(a) Impact on financial position, business operation and reputation of the IC if the outsourced

service is disrupted or falls short of acceptable standards;

(b) Impact on the ability of the IC to maintain adequate internal controls and comply with legal and

regulatory requirements if the outsourced service is disrupted or falls short of acceptable

standards;

(c) Cost of outsourcing as a proportion to the total operating costs of the IC; and

(d) Degree of difficulty and time required to find alternative Service Provider or to bring the

outsourced service in-house if necessary.

6. The IC should regularly conduct reviews on

the materiality of its outsourcing

arrangements. If it is reassessed to be

material, the IC should notify the IA

forthwith.

IA Guidance Note on Outsourcing, Section 13. It would be usual to undertake such a reassessment

whenever there is a change in scope or otherwise, annual reviews may be appropriate.

C. ACCOUNTABILITY

7. In any outsourcing arrangement, the Board

of Directors and management of ICs should

retain ultimate accountability for the

IA Guidance Note on Outsourcing, Section 8. We would suggest including a list, setting out the position

of the key people involved in the selection and any decision-making and approvals processes used.

Management in our organization has been involved throughout to ensure that the project aligns with our

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outsourced activity. organization’s overall business and strategic objectives. At the center of our objectives are of course

legal and regulatory compliance and customer satisfaction and these were the key objectives that

management had in mind when it considered this project. We are satisfied that this solution will ensure

legal and regulatory compliance because of the key features (including the security and regulator audit

rights) forming part of the Azure service. We are also satisfied that customer satisfaction will be

maintained because we believe that Azure will actually have some major benefits for our IT operations

and, accordingly, improve the overall service that we are able to provide to customers.

8. Outsourcing can allow management to

transfer their day-to-day managerial

responsibility, but not accountability, for an

activity or a function to a service provider.

ICs should therefore continue to retain

ultimate control of the outsourced activity.

IA Guidance Note on Outsourcing, Section 9.

The handing over of certain day to day responsibility to an outsourcing provider does present some

challenges in relation to control. Essential to us is that, despite the outsourcing, we retain control over

our own business operations, including control of who can access data and how they can use it. At a

contractual level, we have dealt with this via our contract with Microsoft, which provides us with legal

mechanisms to manage the relationship including appropriate allocation of responsibilities, oversight

and remedies. At a practical level, we have selected the Azure product since it provides us with control

over data location, authentication and advanced encryption controls. We (not Microsoft) will continue to

own and retain all rights to our data and our data will not be used for any purpose other than to provide

us with the Azure services.

D. RISK ASSESSMENT

9. The IC should ensure that the proposed

outsourcing arrangement has been subject

to a comprehensive risk assessment (in

respect of financial, operational, legal and

reputation risks and any potential losses to

IA Guidance Note on Outsourcing, Section 15. Clearly the IA expects that your organization would have

carried out a risk assessment. In summary, this would need to include:

risk identification;

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the customers in the event of a failure by

the SP to perform) and that all the risks

identified have been adequately addressed

before launch.

analysis and quantification of the potential impact and consequences of these risks;

risk mitigation and control strategy; and

ongoing risk monitoring and reporting.

Ideally this should also include all of the items listed in the next section. If you have any questions when

putting together a risk assessment, please do not hesitate to get in touch with your Microsoft contact.

Yes, led by our management we have carried out a thorough risk assessment of the move to Azure.

This risk assessment included:

[ ];

[ ]; and

[ ].

[A copy of the risk assessment can be provided to the IA upon request.]

10. Specifically, the risk assessment should cover

inter alia the following:

the impact on the IC’s risk profile (in

respect of operational, legal and

reputation risks and potential losses

to the customers in the event of a

See IA Guidance Note on Outsourcing, Section 15.

Yes, the risk assessment covered this.

Operational risk: We managed this through our choice of service provider (see for example,

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failure) of the outsourcing. question 14), the controls we have in place to manage our relationship with the service provider

(for example, our contractual agreement, service levels, access to a Microsoft technical account

manager and the regulator rights of audit and inspection that we have in place) and our own

internal controls (for example, our business continuity and disaster recovery plans).

Legal risk: We have in place with Microsoft a legally-binding agreement regarding our

respective roles and responsibilities in respect of the outsourcing. We chose Microsoft for this

project because we believe it can help us to comply with our legal obligations – for example, the

fact that Microsoft permits data audits by regulators was a key advantage over other cloud

solutions that we considered.

Reputational risk: We chose Microsoft because of its reputation in this sector. It is an industry

leader in cloud computing. Azure was built based on ISO/IEC 27001 standards and was the first

major business productivity public cloud service to have implemented the rigorous set of global

standards covering physical, logical, process and management controls.

Risk of loss to customers in the event of a failure: The outsourcing will not involve critical

functions so the risks are greatly minimized in this respect. In addition, Microsoft’s accredited

systems and processes mean that there are robust procedures in place to prevent, detect and

quickly act in relation to any service issues that do arise.

11. After ICs implement an outsourcing

arrangement (or renew or vary one), they

should regularly re-perform this

assessment.

IA Guidance Note on Outsourcing, Section 16. The IA wants an assurance that you plan to re-perform

the assessment (e.g. annually).

Yes. We will conduct regular reviews of the outsourcing [at least annually].

E. ABILITY OF THE SERVICE PROVIDER

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12. Before selecting a service provider ICs

should perform due diligence on the Service

Provider (including considering factors such

as aggregate exposure to the Service

Provider, possible conflict of interests that

may arise and price vis a vis the benefit

gained in assessing and selecting a Service

Provider).

IA Guidance on Outsourcing, Section 17.

We have undertaken a thorough due diligence of Microsoft’s processes and procedures in relation to

Azure and no concerns have arisen including as to aggregate exposure and conflicts of interest.

As part of Microsoft’s certification requirements, they are required to undergo regular independent third

party auditing and Microsoft shares with us the independent third party audit reports. Microsoft also

agrees as part of the compliance program to customer right to monitor and supervise. We are confident

that such arrangements provide us with the appropriate level of up-front and on-going assessment of

Microsoft’s ability to meet our policy, procedural, security control and regulatory requirements.

13. ICs should conduct an (at least) annual

assessment to confirm the adequacy of the

Service Provider to ascertain whether it can

continue to provide the expected level of

service.

IA Guidance Note on Outsourcing, section 18. The IA expects that you repeat your assessment of the

adequacy of the Azure solution at least once a year. If you require any input from Microsoft, please do

not hesitate to get in touch with your Microsoft contact.

14. In assessing a provider, apart from the cost

factor and quality of services ICs should

take into account the provider’s (a) financial

soundness (and ability to continue to

provide the expected level of service), (b)

reputation, experience and quality of

service, (c) managerial skills, (d) technical

capabilities, (e) operational capability and

capacity, (f) any licence, registration,

permission or authorization required by law

IA Guidance Note on Outsourcing, section 17.

(a) Financial Soundness: Microsoft Corporation is publicly-listed in the United States and is

amongst the world’s largest companies by market capitalization. Microsoft’s audited financial

statements indicate that it has been profitable for each of the past three years. Its market

capitalization is in the region of USD 280 billion. Accordingly, we have no concerns regarding its

financial strength.

(b) Reputation: Microsoft is an industry leader in cloud computing. Azure was built based on

ISO/IEC 27001 standards and was the first major business productivity public cloud service to

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to perform the outsourced service, (g)

compatibility with the IC's corporate culture

and future development strategies, (h)

familiarity with the insurance industry and (i)

capacity to keep pace with innovation in the

market.

have implemented the rigorous set of global standards covering physical, logical, process and

management controls. 40% of the world’s top brands use Azure. Some case studies are

available on the Microsoft website.

(c) Managerial skills: The fact that Microsoft already manages these services for financial

institutions in leading markets around the world and that it has achieved an ISO/IEC 27001

accreditation (which, amongst other things, assesses management controls) gives us

confidence that it has the necessary managerial skills.

(d) Technical capabilities: Microsoft’s ISO/IEC 27001 accreditation confirms that it has the

technical capability required for the service.

(e) Operational capability and capacity: Microsoft has demonstrated its operational capability

through its reputation (including the fact that 40% of the world’s top brands use Azure) and its

ISO/IEC 27001 accreditation and we have no concerns as to its operational capacity as it is one

of the largest providers of cloud computing services in the world.

(f) Licence, registration, permission or authorization required by law to perform the

outsourced service: We are not aware of any licence, registration, permission or authorization

required by the SP to perform the services that it does not already have in place. The SP is

already providing such services to numerous financial institutions around the world.

(g) Compatibility with the IC’s corporate culture and future development strategies: We are

confident that the use of Azure will align well with our corporate culture and the fact that the

service is scalable (i.e. it can be expanded or reduced to meet our demand) means that it is

compatible with our future development strategy.

(h) Familiarity with the insurance industry: FSI including insurance company customers in

http://office.microsoft.com/en-us/business/office-365-customer-stories-office-testimonials-FX103045622.aspx

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leading markets, including in the UK, France, Germany, Australia, Hong Kong, Canada, the

United States and many other countries have performed their due diligence and, working with

their regulators, are satisfied that Azure meets their respective regulatory requirements. This

gives us confidence that the service provider is able to help meet the high burden of financial

services regulation and is experienced in meeting and understanding these requirements.

Where you have taken it up you may also add: [This is further evidenced by Microsoft’s

Compliance Framework Program which shows that Microsoft has given consideration to the

unique requirements of the insurance industry (see further details below).]

(i) Capacity to keep pace with innovation in the market: Microsoft has the financial, operational

and managerial capacity to lead innovation in the cloud computing market and it has

demonstrated this to date.

F. OUTSOURCING AGREEMENT

15. An outsourcing arrangement should be

undertaken in the form of a legally binding

written agreement.


We have in place a legally binding written agreement. This is in the form of Microsoft’s Service Level

Agreement (“SLA”) and its Business and Services Agreement. Amongst other things, they provide

details of the contractual liabilities and obligations of Microsoft (one of which is a contractual uptime

guarantee for Azure).

Please find a copy of the SLA at: http://azure.microsoft.com/en-us/support/legal/sla/

Microsoft’s Business and Services Agreement (“MBSA”) is available upon request.

16. The IC should consider the following when IA Guidance Note on Outsourcing, Section 19.

http://azure.microsoft.com/en-us/support/legal/sla/

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negotiating the contract:

(a) Scope of the outsourced service;

(b) Location where the outsourced

service will be performed;

(c) Effective period of the outsourcing

arrangement;

(d) Contractual obligations and

liabilities of the IC and the Service

Provider;

(e) Performance standards to be

attained in respect of the

outsourced service. This is

particularly appropriate when the IC

has committed to a service

standard or performance pledge to

its customers;

(f) Reporting or notification

requirements that the IC may wish

to impose on the Service Provider;

(g) The way in which the IC and the

Service Provider should monitor the

Taking each of the points in turn:

(a) Scope of the outsourced service: See responses to questions 2 and 3 above. The contract

pack comprehensively sets out the scope of the arrangement and the respective commitments

of the parties. The online services are ordered under the Enterprise Enrolment (“EA”), and the

order will set out the online services and relevant prices. The services are broadly described,

along with the applicable usage rights, in the product list and the Online Services Use Rights

(“OSUR”). The services are described in detail in the service description, which is not part of the

contract. However, Microsoft makes functionality commitments to us in the FSA which is

incorporated into the contract, and as a minimum the online services will meet that commitment

during the term of the contract.

(b) Location where the outsourced service will be performed: See response to question 4

above.

(c) Effective period of the outsourcing arrangement: EAs have a three year term, and may be

renewed for a further three year term.

(d) Reporting or notification requirements that the IC may wish to impose on the Service

Provider: See response to (f) below.

(e) Performance standards: See in particular the detailed performance standards and

commitments set out in the SLA and the MBSA above. These specify clearly the performance

standards of Microsoft (for example, uptime) and other obligations of Microsoft (for example, its

obligations to provide access in the event of an audit/inspection). They also cover clearly the

issue of software and hardware ownership (the software and hardware are both owned by

Microsoft but use of the software and hardware are licensed to us as users of the Azure

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performance under the agreement

(e.g. evaluation of performance

through service delivery reports,

periodic self-certifications,

independent reviews by the IC’s or

the service provider’s auditors);

(h) Information and asset ownership

rights, information technology

security and protection of

confidential information;

(i) Rules and restrictions on sub-

contracting of the outsourced

service. The IC should retain the

ability to maintain similar control

over its outsourcing risks when a

Service Provider uses a sub-

contractor;

(j) Remedial action and escalation

process for dealing with inadequate

performance;

(k) Contingency planning of the Service

Provider to provide business

continuity for the outsourced

service).

(f) Reporting or notification requirements: As detailed below, Microsoft actually provides real

time information to us via the administrative dashboard. In our agreement with Microsoft, it

agrees that it will notify us if it becomes aware of any security incident, and will take reasonable

steps to mitigate the effects and minimize the damage resulting from the security incident.

(g) Performance monitoring: The extent of the rights to monitor performance that Microsoft

provides was a key differentiator with other service providers and a reason why we selected

Microsoft. We may monitor the performance of the online services via the administrative

dashboard, which includes information as to Microsoft compliance with its SLA commitments.

The Online Service Terms (“OST”) which is incorporated into the contract, we can review the

manner in which Microsoft provides the online services. As set out on page 13 of the OST, we

are entitled to access the Microsoft Online Information Security Policy, which is the document

where Microsoft sets out its information security management processes. Microsoft also

commits to providing the customer with a summary of Microsoft’s annual audit report, which is

performed by an independent third party and measures compliance against Microsoft’s

certifications.

(h) Information, security and protection of confidential information: The agreement ensures

that we will retain the rights in all of our intellectual property and data. MBSA clause 3 deals

with confidentiality. MBSA clause 11m states that Microsoft and the customer each commit to

comply with all applicable privacy and data protection laws and regulations. We retain the ability

to access our customer data at all times, and Microsoft will deal with customer data in

accordance with EA clause 6c(iv). In summary: following termination Microsoft will (unless

otherwise directed by the customer) delete the customer data after a 90 day retention period.

Finally, from a technical perspective the wide availability and usage of Microsoft’s products

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service;

(l) Management and approval process

for changes to the outsourcing

arrangement;

(m) Conditions under which the IC or

Service Provider can terminate the

outsourcing agreement;

(n) Termination agreement, including

intellectual property and information

rights and clarification of the

process to ensure the smooth

transfer of the outsourced service

either to another Service Provider

or back to the IC;

(o) Guarantee or indemnity from the

Service Provider (e.g. an indemnity

to the effect that any sub-

contracting by the Service Provider

of the outsourced service will be the

responsibility of the Service

provider including liability for any

failure on the part of the sub-

means that customer data can be extracted in a format that is readily reusable. Microsoft also

makes specific commitments with respect to customer data in the OST. In summary Microsoft

commits that:

Ownership of customer data remains at all times with us (see OST, page 8).

Customer data will only be used to provide the online services to us. Customer data will not be

used for any other purposes, including for advertising or other commercial purposes (see OST,

page 8).

Microsoft will not disclose customer data to law enforcement unless it is legally obliged to do so,

and only after not being able to redirect the request to the customer (see OST, page 8).

Microsoft will implement and maintain appropriate technical and organizational measures,

internal controls, and information security routines intended to protect customer data against

accidental, unauthorized or unlawful access, disclosure, alteration, loss, or destruction (see

OST, page 8 and pages 11-13 for more details).

Microsoft will notify us if it becomes aware of any security incident, and will take reasonable

steps to mitigate the effects and minimize the damage resulting from the security incident (see

OST, page 9).

Microsoft commits to reimburse our reasonable remediation costs incurred as a consequence of

a security incident involving customer data (see FSA under “Security Incident Notification”).

See also the responses further on in this document in relation to security and confidentiality.

(i) Rules and restrictions on sub-contracting: Page 9 of the OST states as follows: “Use of

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contractor;

(p) Requirement for the Service

Provide to hold relevant insurance;

(q) Mechanism to resolve disputes that

might arise under the outsourcing

arrangement;

(r) The Service Provider’s agreement

to allow the access by the auditors

and actuaries of the IC and the IA to

any books, records and information

which facilitated them to discharge

their statutory duties and

obligations;

(s) Governing law of the outsourcing

agreement. The agreement should

preferably be governed by Hong

Kong law.

Subcontractor: Microsoft may hire subcontractors to provide services on its behalf. Any such

subcontractors will be permitted to obtain Customer Data only to deliver the services Microsoft

has retained them to provide and will be prohibited from using Customer Data for any other

purpose. Microsoft remains responsible for its subcontractors’ compliance with Microsoft’s

obligations in the OST. Customer has previously consented to Microsoft’s transfer of Customer

Data to subcontractors as described in the OST.” In addition, Microsoft maintains a list of

authorized subcontractors for the online services that have access to customer data and

provides customers with a mechanism to obtain notice of any updates to that list (OST, page

11), The actual list is published on the applicable Trust Center.

(j) Remedial action and escalation process: See our response below in relation to remedial

action and escalation processes for dealing with inadequate performance.

(k) Contingency planning and business continuity: Business Continuity Management forms

part of the scope of the accreditation that Microsoft remains in relation to the online services,

and Microsoft commits to maintain a data security policy that complies with these accreditations

(see OST page 13). Business Continuity Management also forms part of the scope of

Microsoft’s annual third party compliance audit. See also our response below in relation to

contingency planning.

(l) Management and approval of change: Changes to the MBSA have to be agreed by the

parties in writing. You may also wish to consider your own internal approval/sign-off processes

for changes.

(m) Termination: EA clause 6 deals with termination, and the EA may also be terminated in

accordance with EA clause 7c. If the EA is terminated, this will terminate all products and

services, except to the extent that the customer has perpetual rights. Online services may also


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be terminated or suspended in the circumstances described in clause 7d of the EA, and as

specified in the OSUR.

(n) Termination issues and transfer: In the event of cessation, we can either move back on

premise or to an alternate Service Provider. Microsoft is contractually required to hold our data

for an agreed period to enable such transition to occur in an orderly manner. In relation to any

data and assets of ours, post termination, Microsoft uses best practice procedures and a wiping

solution that is NIST 800-88 compliant. For hard drives that can’t be wiped it uses a destruction

process that destroys it (i.e. shredding) and renders the recovery of information impossible

(e.g., disintegrate, shred, pulverize, or incinerate). The appropriate means of disposal is

determined by the asset type. Records of the destruction are retained. All Microsoft Online

Services utilize approved media storage and disposal management services. Paper documents

are destroyed by approved means at the pre-determined end-of-life cycle. Secure disposal or

re-use of equipment and disposal of media is also covered under the ISO/IEC 27001 standards

against which Microsoft is certified.

(o) Liability for sub-contracting: MBSA clause 6 deals with liability. Microsoft remains liable for

the actions and inactions of its sub-contractors. MBSA clause 5 sets out Microsoft’s obligation

to defend the regulated entity against third party infringement and breach of confidence claims.

Microsoft’s liability under clause 5 is unlimited.

(p) Insurance requirement: MBSA clause 10 deals with insurance. In practice, Microsoft

maintains self-insurance arrangements for much of the areas where third party insurance is

typically obtained. Microsoft has taken the commercial decision to take this approach, and does

not believe that this detrimentally impacts upon its customers given that Microsoft is an

extremely substantial entity.

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(q) Disputes handling: MBSA clause 11 contains provisions that describe how a dispute under the

contract is to be conducted.

(r) Auditor access: Microsoft provides extensive audit and examination rights for the IA. This is a

key differentiator as against the rights provided by other service providers and a key reason for

us deciding to use Microsoft. The OST specifies the audit and monitoring mechanisms that

Microsoft puts in place in order to verify that the online services meet appropriate security and

compliance standards. In addition, the FSA details the examination and influence rights that are

granted to the customer and IA. The “Regulator Right to Examine” sets out a process which can

culminate in the regulator’s examination of Microsoft’s premises. The customer also has the

opportunity to participate in the Microsoft Online Services Customer Compliance Program,

which is a for-fee program that facilitates the customer’s ability to (a) assess the services’

controls and effectiveness, (b) access data related to service operations, (c) maintain insight

into operational risks of the services, (d) be provided with additional notification of changes that

may materially impact Microsoft’s ability to provide the services, and (e) provide feedback on

areas for improvement in the services.

Microsoft also offers a Compliance Framework Program. If you take-up the Compliance

Framework Program, you may add this additional information about its key features: the

regulator audit/inspection right, access to Microsoft’s security policy, the right to participate at

events to discuss Microsoft’s compliance program, the right to receive audit reports and

updates on significant events, including security incidents, risk-threat evaluations and significant

changes to the business resumption and contingency plans.

(s) Governing law: Our contract with Microsoft is subject to Washington State law [upon which we

have obtained separate legal advice to ensure that we are comfortable with the protection and

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control afforded to us].

G. SUB-CONTRACTING

17. The IC should put in place adequate

procedures to control and monitor any sub-

contracting arrangements and ensure that

the Service Provider will take into account

the essential issues covered in this

document as if it was the IC concerned

when further contracting out the service.


Microsoft does use sub-contractors to provide certain ancillary assistance, but not for any critical path

roles. An up-to-date list of all subcontractors used to provide the ancillary services (including exact

services) is available at http://azure.microsoft.com/en-us/support/trust-center/.

18. The IC should incorporate in the

outsourcing agreement rules and

restrictions on sub-contracting e.g. requiring

IC’s prior consent for the sub-contracting

and making the Service Provider liable for

the capability of the sub-contractor.


Our contract with Microsoft, as detailed above, states that Microsoft remains responsible for its

subcontractors’ compliance with the contract. All subcontractors used have entered into written

agreements with Microsoft requiring that the subcontractor abide by terms no less protective than the

relevant parts of the contract we have with Microsoft. The list of all subcontractors is available for us to

see.

19. The IC should ensure that its Service

Provider would not engage in sub-

contracting arrangements which may

impede its ability to carry out the provisions

of the outsourcing agreement with the IC, in

particular, the requirements on information

confidentiality, contingency planning and


Microsoft assures us that it would not engage in sub-contracting arrangements which would impede

such ability. In particular, it assures us that it contractually obligates its subcontractors to security and

privacy standards equivalent to its own and Microsoft subcontractors only handle our data when

required to provide or maintain the services. Nothing in such arrangements would prevent obligations

that we may have in relation to contingency planning and information access rights by the regulator. In


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information access right by the regulator. particular, our contract with Microsoft states that subcontractors are prohibited from using customer data

other that for the purposes of delivering the specific services they have been retained to provide and

that any subcontractors to whom Microsoft transfers Customer Data, even those used for storage

purposes, will have entered into written agreements with Microsoft requiring that the subcontractor

abide by terms no less protective than this data and confidentiality provisions of our contract with

Microsoft.

H. CUSTOMER DATA CONFIDENTIALITY

20. ICs should ensure that the proposed

outsourcing arrangement complies with

relevant statutory requirements (e.g. the

Personal Data (Privacy) Ordinance

(“PDPO”)) and common law customer

confidentiality.


We are confident that the proposed use of Azure complies with relevant statutory requirements,

including the PDPO and common law customer confidentiality requirements.

Microsoft as an outsourcing partner is an industry leader in cloud security and implements policies and

controls on par with or better than on-premises data centers of even the most sophisticated

organizations. In relation to the PDPO, Azure includes the following features and commitments from

Microsoft to ensure compliance with the requirements of the PDPO: (i) Microsoft will not use our data for

other purposes other than providing the services; (ii) Microsoft has security policies and controls and

security measures which are verified by independent auditors. These measures include security

features on its hardware, software and physical data center, restricted physical data center access,

Azure is ISO/IEC 27001 compliant and data is encrypted via the network as it is transmitted between

data center and a user; (iii) Microsoft will inform us promptly if our data has been accessed improperly;

(iv) our data will be deleted at the end of the service term, once we have been able to take a copy of our

data as necessary.

Azure offers a wide range of data encryption capabilities up to AES-256. Options include .NET

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cryptographic services, Windows Server public key infrastructure (PKK) components, Active Directory

Rights Management Services (AD RMS), and Bitlocker for data import/export scenarios.

Networks within the Azure data centers are segmented to provide physical separation of critical back-

end servers and storage devices from the public-facing interfaces. Edge router security allows the ability

to detect intrusions and signs of vulnerability. Azure uses industry-standard transport protocols such as

SSL and TLS between user devices and Microsoft data centers, and within data centers themselves.

With virtual networks, industry standard IPsec protocol can be used to encrypt traffic between the

corporate VPN gateway and Azure. Encryption can be enabled for traffic between VMs and end users.

In addition Microsoft commits to comply with ISO/IEC 27018. In February 2015, Microsoft became the

first major cloud provider to adopt the world’s first international standard for cloud privacy, ISO/IEC

27018. The standard was developed by the International Organization for Standardization (ISO) to

establish a uniform, international approach to protecting privacy for personal data stored in the cloud.

The British Standards Institute (BSI) has now independently verified that Microsoft is aligned with the

standard’s code of practice for the protection of Personally Identifiable Information (PII) in the public

cloud. The controls set out in ISO/IEC 27018 match the protections required by the PDPO. For more

information on this, follow this link.

In choosing Microsoft, we also took into account the fact that Microsoft offers access and audit rights,

thereby allowing us to comply with our regulatory obligations in this respect.

21. ICs should have controls in place to ensure

that the requirements of customer data

confidentiality are observed and proper

safeguards are established to protect the

integrity and confidentiality of customer


As above, Microsoft as an outsourcing partner is an industry leader in cloud security and implements

policies and controls on par with or better than on-premises data centers of even the most sophisticated

organizations. Azure was built based on ISO/IEC 27001 standards, a rigorous set of global standards

http://blogs.microsoft.com/on-the-issues/2015/02/16/microsoft-adopts-first-international-cloud-privacy-standard/

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information. covering physical, logical, process and management controls. In particular:

we have contractual confidentiality terms in our agreements with Microsoft.

we would expect to have a breach of contract claim in the event of a breach of confidentiality.

data storage and processing is segregated through Active Directory structure and capabilities

specifically developed to help build, manage, and secure multi-tenant environments. Active

Directory isolates customers using security boundaries (also known as silos). This safeguards a

customer’s data so that the data cannot be accessed or compromised by other parties.

Microsoft applies strict controls over which personnel roles and personnel will be granted

access to customer data. Personnel access to the IT systems that store customer data is strictly

controlled via role-based access control (“RBAC”) and lock box processes. Access control is

an automated process that follows the separation of duties principle and the principle of

granting least privilege. This process ensures that the engineer requesting access to these IT

systems has met the eligibility requirements, such as a background screen, fingerprinting,

required security training and access approvals. In addition, the access levels are reviewed on

a periodic basis to ensure that only users who have appropriate business justification have

access to the systems.

22. ICs should notify their customers in general

terms of the possibility that their data may

be outsourced and the circumstances under

which their data may be disclosed or lost.

IA Guidance Note on Outsourcing, Section 22. Where you have existing outsourcing arrangements in

place you would already have such notifications in place. If so, contracting for 0365 should not require

additional notifications. Microsoft recommends that you seek legal advice on your privacy policies and

consent mechanisms to ensure that they do comply with applicable law. If you require any information

from Microsoft please do get in touch with your Microsoft contact.

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23. In the event of a termination of outsourcing

agreement, for whatever reason, ICs should

ensure that all customer data is either

retrieved from the service provider or

destroyed.


As detailed above, Microsoft uses best practice procedures and a wiping solution that is NIST 800-88

compliant. For hard drives that can’t be wiped it uses a destruction process that destroys it (i.e.

shredding) and renders the recovery of information impossible (e.g., disintegrate, shred, pulverize, or

incinerate). The appropriate means of disposal is determined by the asset type. Records of the

destruction are retained. All Microsoft Online Services utilize approved media storage and disposal

management services. Paper documents are destroyed by approved means at the pre-determined end-

of-life cycle. Secure disposal or re-use of equipment and disposal of media is covered under the

ISO/IEC 27001 standards against which Microsoft is certified.

24. ICs should notify the IA forthwith of any

unauthorized access or breach of

confidentiality by the Service Provider or its

sub-contractor that affects the IC or its

customers.

IA Guidance Note on Outsourcing, Section 23. This is an internal process matter. However, please note

that nothing in your contractual arrangement with Microsoft would prevent or hinder your obligation to do

so.

I. MONITORING AND CONTROL

25. ICs should have sufficient and appropriate

resources in place to monitor and control

the outsourcing arrangements at all times.

Such monitoring should cover, inter alia,

ensuring that the service is being delivered

in the manner expected and to ensure that

the provisions included in the outsourcing

IA Guidance Note on Outsourcing, Section 24 and 24(c). You may also in this context wish to refer to

any internal monitoring procedures you are putting in place.

Our IT administrators also have access to the Azure Service Health Dashboard, which provides real-

time and continuous monitoring of the Azure service. The Service Health Dashboard provides our IT

administrators with information about the current availability of each service or tool (and history of

availability status) details about service disruption or outage, scheduled maintenance times. The

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agreement are properly effected. information is provided via an RSS feed.

Amongst other things, Microsoft provides a contractual uptime guarantee for the Azure product and

covers performance monitoring and reporting requirements which enable us to monitor Microsoft’s

performance on a continuous basis against service levels.

Please find a copy of the SLA at:


26. IC should maintain a central list of the

outsourcing arrangements including the

name of the Service Provider, service

outsourced, commencement date, expiry or

renewal date, contact details or key Service

Provider personnel. The list should also

record similar information relating to any

sub-contracting arrangement of the

outsourced service.

IA Guidance Note on Outsourcing, Section 24(b). The IA is looking for assurance that you have these

records. The information we have included at the top of this document will assist with this in conjunction

with the information contained in our contractual arrangements.

27. Responsibility for monitoring the service

provider and the outsourced activity should

be assigned to staff with appropriate

expertise.

IA Guidance Note on Outsourcing, Section 24(a). If requested by IA, Microsoft would suggest that you

provide details of the relevant personnel and a brief summary of their experience.

28. The control procedures over the outsourcing

arrangement should be subject to regular

IA Guidance Note on Outsourcing, Section 21(d) and 25. The IA expects that your internal audit function

would regularly review the outsourcing arrangement so you will need to confirm this. Nothing in your


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audits by the IC (at least annually). contract with Microsoft would hinder this.

29. ICs should establish reporting procedures

which can promptly escalate problems

relating to the outsourced activity to the

attention of the management of the IC and

their service providers. The IC should then

take appropriate rectification actions

forthwith if deficiencies are identified.

IA Guidance Note on Outsourcing, Section 25. Below are details of the escalation processes that

Microsoft provides. You should add to this your own escalation processes and any commitments to

rectify issues that are identified.

Service Provider Escalation

As part of the support we receive from Microsoft we have access to a technical account manager who is

responsible for understanding our challenges and providing expertise, accelerated support and strategic

advice tailored to our organization. This includes both continuous hands-on assistance and immediate

escalation of urgent issues to speed resolution and keep mission-critical systems functioning. We are

confident that such arrangements provide us with the appropriate mechanisms for managing

performance and problems.

30. The IC should notify the IA forthwith of any

significant problem that has the potential to

materially affect its financial position,

business operation or compliance with legal

and regulatory requirements.

IA Guidance Note on Outsourcing, Section 25. The IA is looking for a commitment that you will do this.

Nothing in your contract with Microsoft would hinder you from complying with this.

J. CONTINGENCY PLANNING

31. ICs should develop a contingency plan to

ensure that its business would not be

disrupted as a result of undesired

contingencies (e.g. systems failure) of the

IA Guidance Note on Outsourcing, Section 26 and 26(b). The IA clearly expects you to have a

contingency plan in place, covering disaster recovery/business continuity. This would usually include:

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service provider. This should also include

procedures to be followed and the people

responsible for respective activities if

business continuity problems arise.

performing a business impact analysis of a disaster situation;

considering the internal mechanisms to deal with such a situation; and

considering Azure’s own disaster recovery and business continuity safeguards.

The IA also requires that you specify your internal processes in the contingency plan and set out the

people in your business who will be responsible in the event of issues arising.

The following outlines Azure’s own disaster recovery and business continuity safeguard which should

be useful to incorporate into your contingency plan:

Redundancy

Physical redundancy at server, data center, and service levels.

Data redundancy with robust failover capabilities.

Functional redundancy with offline functionality.

Resiliency

Active load balancing.

Automated failover with human backup.

Recovery testing across failure domains.

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Distributed Services

Distributed component services limit scope and impact of any failures in a component.

Directory data replicated across component services insulates one service from another in any

failure events.

Simplified operations and deployment.

Monitoring

Internal monitoring built to drive automatic recovery.

Outside-in monitoring raises alerts about incidents.

Extensive diagnostics provide logging, auditing, and granular tracing.

Simplification

Standardized hardware reduces issue isolation complexities.

Fully automated deployment models.

Standard built-in management mechanism.

Human backup

http://office.microsoft.com/en-us/business/office-365-online-service-availability-FX104028266.aspx

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Automated recovery actions with 24/7 on-call support.

Team with diverse skills on the call provides rapid response and resolution.

Continuous improvement by learning from the on-call teams.

Continuous learning

If an incident occurs, Microsoft does a thorough post-incident review every time.

Microsoft’s post-incident review consists of analysis of what happened, Microsoft’s response,

and Microsoft’s plan to prevent it in the future.

In the event the organization was affected by a service incident, Microsoft shares the post-incident

review with the organization.

32. Procedures should be in place for regular

reviews and testing of the contingency plan.


Microsoft carries out disaster recovery testing at least once per year. Please see also above for a

summary of the disaster recovery/business continuity safeguards provided as part of the Azure service.

33. Contingency arrangements in respect of

daily operational and systems problems

would normally be covered in the service

provider’s own contingency plan. ICs should

ensure that they have an adequate

understanding of their service provider’s

IA Guidance Note on Outsourcing, Section 26. The IA requirements indicate the importance of you

understanding the disaster recovery/business continuity safeguards forming part of Azure. As such, if

you have any questions about these, please do not hesitate to get in touch with your Microsoft contact.

Please see above for a summary of the disaster recovery/business continuity safeguards provided as

part of the Azure service.

http://office.microsoft.com/en-us/business/office-365-online-service-availability-FX104028266.aspx

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contingency plan and consider the

implications for their own contingency

planning in the event that an outsourced

service is interrupted due to failure of the

service provider’s system.

34. In establishing a viable contingency plan,

ICs should consider, among other things,

the availability of alternative service

providers or the possibility of bringing the

outsourced activity back in-house in an

emergency.

IA Guidance Note, Section 26(a). The IA clearly expects you to have a plan in place if you did decide to

stop using the Azure service.

To ensure control, transparency and consistency, it is necessary for the applications and services

forming part of Azure to be provided by one provider (i.e. Microsoft). Because of the due diligence and

risk management processes we have implemented we do not think that our use of Azure represents an

excessive reliance on one partner. Nonetheless, we do have in place contractual rights to exit the

arrangements with Microsoft at any time for convenience, which gives us the flexibility to move to

another provider (or to revert to a local, non-cloud based offering, such as Microsoft Office) should we

choose to do so.

K. ADDITIONAL CONCERNS IN RELATION TO OVERSEAS OUTSOURCING

35. ICs should understand the risks arising from

overseas outsourcing, taking into account

relevant aspects of an overseas country

(e.g. legal system, regulatory regime,

sophistication of technology, infrastructure

and the ability of the IC to monitor the

outsourced service and the SP).

IA Guidance Note on Outsourcing, Section 28(a).

a. Azure is hosted out of […..]. This/These location(s) has/have been vetted for

geopolitical/socioeconomic risks as set out in this checklist requirement. As part of our usual

processes, we constantly monitor the countries in which we operate In particular, we took the

following into account:.Political (i.e. cross-broader conflict, political unrest etc). Azure offers

data-location transparency so that the organizations and regulators are informed of the

jurisdiction(s) in which data is hosted. We are confident that Microsoft’s data center locations offer

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extremely stable political environments.

b. Country/socioeconomic. Azure offers data-location transparency so that the organizations and

regulators are informed of the jurisdiction(s) in which data is hosted. The centers are strategically

located around the world taking into account country and socioeconomic factors. We are confident

that Microsoft’s data center locations offer extremely stable socioeconomic environments.

c. Infrastructure/security/terrorism. Microsoft’s data centers are built to exacting standards,

designed to protect customer data from harm and unauthorized access. Data center access is

restricted 24 hours per day by job function so that only essential personnel have access. Physical

access control uses multiple authentication and security processes, including badges and smart

cards, biometric scanners, on-premises security officers, continuous video surveillance and two-

factor authentication. The data centers are monitored using motion sensors, video surveillance and

security breach alarms.

d. Environmental (i.e. earthquakes, typhoons, floods). Environmental controls have been

implemented to protect the data centers including temperature control, heating, ventilation and air-

conditioning, fire detection and suppression systems and power management systems, 24-hour

monitored physical hardware and seismically-braced racks. Microsoft Data centers are built in

seismically safe zones. These requirements are covered by Microsoft’s ISO/IEC 27001

accreditation for Azure.

e. Legal and regulatory system. We will have in place a binding negotiated contractual agreement

with Microsoft in relation to the outsourced service, giving us direct contractual rights. We also took

into account the fact that Azure was built based on ISO/IEC 27001 standards, a rigorous set of

global standards covering physical, logical, process and management controls. Finally, we took into

account the fact that Microsoft offers access and regulator audit rights thereby allowing us to comply

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with our regulatory obligations in this respect.

f. Monitoring. Our contract with Microsoft provides extensive monitoring rights for us and for the IA.

36. Right of access to customers’ data by

overseas authorities such as the police and

tax authorities. ICs should, as considered

appropriate, seek legal advice to clarify the

position. ICs should notify the IA if overseas

authorities seek access to their customers’

data.

IA Guidance Note on Outsourcing, Section 28(b). The answer to this question will depend on the region

you are in. You may wish to obtain a legal opinion from an international or other reputable legal firm in

the country where your data will be hosted on this matter.

Microsoft is transparent in relation to the location of our data. Azure is hosted out of […..]. This/These

location(s) has/have been thoroughly vetted. Microsoft data center locations are made public on the

Microsoft Trust Center. Microsoft’s data center locations are recognized as stable, safe and reliable

jurisdictions in respect of their legal systems, regulatory regimes, technology and infrastructure. The

circumstances in which the relevant local authorities may have rights to access customer information

are not considered to be unwarranted.

37. Notification to customers - ICs should

generally notify their customers of the

country in which the service provider is

located (and of any subsequent changes)

and the right of access, if any, available to

the overseas authorities.

IA Guidance Note on Outsourcing, Section 28(c). Microsoft recommends that you confirm in this section

that you have informed customers where services will be provided from (according to the specification

of your final solution with Microsoft). Microsoft also recommends that you confirm in this section that you

have informed customers of the right of access available to overseas authorities (for example in

Singapore, for the purpose of the Azure service, depending on the specification of your final solution

with Microsoft).

38. ICs should not outsource to a jurisdiction

that may hamper access to data by the IA.

They should ensure that the IA has right of

access the books and records and other

information of the IC as necessary for the IA

IA Guidance Note on Outsourcing, Section 28(d).

We will have in place a binding negotiated contractual agreement with Microsoft in relation to the

outsourced service, giving us direct contractual rights.Access to data by the IA will not be hampered in

the appropriate circumstances. There are provisions in the contract that enable the IA to carry out


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to be able to carry out its statutory

responsibilities.

inspection or examination of Microsoft’s facilities, systems, processes and data relating to the services.

This is a key advantage of the Microsoft product over competitor products, which often provide only very

limited (or no) audit and inspection rights. Where the IA wishes to access the books and records of the

IC, in the first instance the IA will be directed to the IC by Microsoft. The IC should be able to provide

the IA with access to all the books and records. Where such books and records are hosted by

Microsoft, the IC has access to these by using the services in the normal way.

39. §33 of the PDPO in respect of transfer of

personal data outside Hong Kong –

although §33 has not yet come into

operation, ICs are advised to take account

of the provisions therein and the potential

impact on their plans in respect of overseas

outsourcing.

IA Guidance Note on Outsourcing, Section 28(e). We recommend that you use option (a) OR (b) below,

depending on the specification of your final solution with Microsoft:

(a) [Azure complies with §33 of the PDPO because data is transferred to […] which has laws in place

which are substantially similar to the PDPO and Microsoft has taken precautions to ensure that the

data will not be dealt with in a manner which would breach the PDPO (see the answer to question

20 above for more details about the measures Microsoft has taken to comply with the PDPO.).]

(b) [Microsoft will not transfer our personal data outside of Hong Kong.]

40. Governing law of the outsourcing

agreement – the agreement should

preferably be governed by Hong Kong law.

IA Guidance Note on Outsourcing, Section 28(f).

Our contract with Microsoft is subject to Washington State law [upon which we have obtained separate

legal advice to ensure that we are comfortable with the protection and control afforded to us].

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ANNEX ONE

MANDATORY CONTRACTUAL REQUIREMENTS

The IA does not specifically mandate contractual requirements that must be agreed by ICs with their service providers. However, the Guidance Note on

Outsourcing does contain a long list of matters that it says that ICs should “consider” when negotiating the contract. The Annex contains a comprehensive list

and details of where in the Microsoft contractual documents these points are covered.

Key:

Where relevant, a cross-reference is included in red italics to the underlying regulation that sets out the contractual requirement.

In blue text, Microsoft has provided you with a reference to where in the agreement the contractual requirement is covered for ease of reference.

Terms used below as follows:

OST = Online Services Terms

EA = Enterprise Agreement

Enrolment = Enterprise Enrolment

FSA = Financial Services Amendment

MBSA = Microsoft Business and Services Agreement

PUR = Product Use Rights

SLA = Online Services Service Level Agreement

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Ref. Requirement Microsoft agreement reference

1. Scope of the outsourced service. Section 19(a) of the Guidance Note on Outsourcing

Yes.

The contract pack comprehensively sets out the scope of the arrangement and the respective

commitments of the parties.

The services are described, along with the applicable usage rights, in the Product List and OST

(pages 14 and 15). The services are described in detail in the Services Description, which is not

part of the contract. However, Microsoft makes a functionality commitment in the Core Features

Amendment and as a minimum the online services will meet that commitment.

2. Location where the outsourced service will be

performed.

Section 19(b) of the Guidance Note on Outsourcing.

Microsoft informs us that it takes a regional approach to hosting of Azure data. Microsoft is

transparent in relation to the location of our data. Microsoft data center locations are made public

on the Microsoft Trust Center.

Microsoft enables customers to select the region that it is provisioned from. The table below will

need to be amended depending on the specific solution that you are taking up.

# Locations of Data

Centre

Classification of DC: Tier I, II,

III or IV

Storing your organization’s

data (Y/N)

3.


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4.

Pages 9-11 of the OST contain general commitments around data location. Microsoft will ensure

that Customer Data will always be stored and processed in accordance with the EU and Swiss

Safe Harbour Frameworks as maintained by the US Government.

Microsoft also commits that Customer Data transfers out of the EU will be governed by the EU

Model Clauses set out at pages 29-33 of the OST. Also, as noted on page 11 of the OST: “Any

subcontractors to whom Microsoft transfers Customer Data, even those used for storage purposes,

will have entered into written agreements with Microsoft that are no less protective than the DPT”.

Commitments on the location of data at rest is discussed at p 9 of the OST, and may depend on

where a customer provisions its service tenancy or specify as a Geo for the online service. More

details are set out, non-contractually, at the Trust Centers for each applicable online service.

3. Effective period of the outsourcing arrangement. Section 19(c) of the Guidance Note on Outsourcing

EAs have a three year term, and may be renewed for a further three year term.

Please insert the proposed start date of the outsourcing service.

4. Contractual obligations and liabilities of the IC and

the Service Provider.

Section 19(d) of the Guidance Note on Outsourcing

Yes.

The contract pack comprehensively sets out the scope of the arrangement and the respective


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commitments of the parties.

The services are described, along with the applicable usage rights, in the Product List and OST

(pages 14 and 15). The services are described in detail in the Services Description, which is not

part of the contract. However, Microsoft makes a functionality commitment in the Core Features

Amendment and as a minimum the online services will meet that commitment.

MBSA section 6 deals with liability. MBSA section 5 sets out Microsoft’s obligation to defend the

regulated entity against third party infringement and breach of confidence claims. Microsoft’s

liability under section 5 is unlimited.

5. Performance standards to be attained in respect of

the outsourced service. This is particularly

appropriate when the IC has committed to a service

standard or performance pledge to its customers.

Section 19(e) of the Guidance Note on Outsourcing

Yes.

See in particular the detailed performance standards and commitments set out in the SLA and the

MBSA above. These specify clearly the performance standards of Microsoft (for example, uptime)

and other obligations of Microsoft (for example, its obligations to provide access in the event of an

audit/inspection).

6. Reporting or notification requirements that the IC

may wish to impose on the Service Provider.

Section 19(f) of the Guidance Note on Outsourcing

Yes.

The customer may monitor the performance of the online services via the administrative

dashboard, which includes information as to Microsoft compliance with its SLA commitments.

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In addition, Customers can review the manner in which Microsoft provides the online services. As

set out on page 13 of the OST, the customer is entitled to access the Microsoft Online Information

Security Policy, which is the document where Microsoft sets out its information security

management processes. Microsoft also commits to providing the customer with a summary of

Microsoft’s annual audit report, which is performed by an independent third party and measures

compliance against Microsoft’s certifications.

The OST specifies the audit and monitoring mechanisms that Microsoft puts in place in order to

verify that the online services meet appropriate security and compliance standards. This

commitment is reiterated in the FSA.

Clause 1f of the FSA gives the customer the opportunity to participate in the Microsoft Online

Services Customer Compliance Program, which is a for-fee program that facilitates the customer’s

ability to (a) assess the services’ controls and effectiveness, (b) access data related to service

operations, (c) maintain insight into operational risks of the services, (d) be provided with additional

notification of changes that may materially impact Microsoft’s ability to provide the services, and (e)

provide feedback on areas for improvement in the services.

7. The way in which the IC and the Service Provider

should monitor the performance under the

agreement (e.g. evaluation of performance through

service delivery reports, periodic self-certifications,

independent reviews by the IC’s or the service

provider’s auditors).

Section 19(g) of the Guidance Note on Outsourcing

Yes.

Customers can review the manner in which Microsoft provides the online services.


verify that the online services meet appropriate security and compliance standards. This

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commitment is reiterated in the FSA.

Clause 1f of the FSA gives the customer the opportunity to participate in the Microsoft Online

Services Customer Compliance Program, which is a for-fee program that facilitates the customer’s

ability to (a) assess the services’ controls and effectiveness, (b) access data related to service

operations, (c) maintain insight into operational risks of the services, (d) be provided with additional

notification of changes that may materially impact Microsoft’s ability to provide the services, and (e)

provide feedback on areas for improvement in the services.

In addition, as part of Microsoft’s certification requirements, they are required to undergo regular

independent third party auditing and Microsoft shares with us the independent third party audit

reports. Under the FSA, section 2c, Microsoft will provide to us copies of its audit reports so that

we can verify Microsoft’s compliance with its obligations.

Finally, as set out on page 13 of the OST, the customer is entitled to access the Microsoft Online

Information Security Policy, which is the document where Microsoft sets out its information security

management processes. Microsoft also commits to providing the customer with a summary of

Microsoft’s annual audit report, which is performed by an independent third party and measures

compliance against Microsoft’s certifications.

8. Information and asset ownership rights, information

technology security and protection of confidential

information.

Section 19(h) of the Guidance Note on Outsourcing

Yes.

The customer retains the ability to access its Customer Data at all times (OST, page 10), and

Microsoft will deal with Customer Data in accordance with Enrollment clause 6c(iv)and the OST.

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The Microsoft also makes specific commitments with respect to Customer Data in the OST. In

summary Microsoft commits that:

1. Ownership of Customer Data remains at all times with the customer (see OST, page 8).

2. Customer Data will only be used to provide the online services to the customer. Customer

Data will not be used for any other purposes, including for advertising or other commercial

purposes (see OST, page 8).

3. Microsoft will not disclose Customer Data to law enforcement unless it is legally obliged to do

so, and only after not being able to redirect the request to the customer (see OST, page 8).

4. Microsoft will implement and maintain appropriate technical and organizational measures,

internal controls, and information security routines intended to protect Customer Data against

accidental, unauthorized or unlawful access, disclosure, alteration, loss, or destruction (see

OST, page 8 and pages 11-13 for more details).

5. Microsoft will notify the customer if it becomes aware of any security incident, and will take

reasonable steps to mitigate the effects and minimize the damage resulting from the security

incident (see OST, page 9).

MBSA section 3 deals with confidentiality. Under this section Microsoft commits not to disclose our

confidential information (which includes our data) to third parties and to only use our confidential

information for the purposes of Microsoft’s business relationship with us. If there is a breach of

confidentiality by Microsoft, we are able to bring a claim for breach of contract against Microsoft.

9. Rules and restrictions on sub-contracting of the Section 19(i) of the Guidance Note on Outsourcing

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outsourced service. The IC should retain the ability

to maintain similar control over its outsourcing risks

when a Service Provider uses a sub-contractor.

Yes.

See page 9 of the OST, under which Microsoft is permitted to hire subcontractors.

Microsoft maintains a list of authorized subcontractors for the online services that have access to

our data and provides us with a mechanism to obtain notice of any updates to that list (OST, page

10). The actual list is published on the applicable Trust Center. If we do not approve of a

subcontractor that is added to the list, then we are entitled to terminate the affected online

services.

The confidentiality of our data is protected when Microsoft uses subcontractors because Microsoft

commits that its subcontractors “will be permitted to obtain Customer Data only to deliver the

services Microsoft has retained them to provide and will be prohibited from using Customer Data

for any other purpose” (OST, page 9).

Microsoft commits that any subcontractors to whom Microsoft transfers our data will have entered

into written agreements with Microsoft that are no less protective than the data processing terms in

the OST (OST, page 11).

Under the terms of the OST, Microsoft remains contractually responsible (and therefore liable) for

its subcontractors’ compliance with Microsoft’s obligations in the OST (OST, page 9). In addition,

Microsoft’s commitment to ISO/IEC 27018, requires Microsoft to ensure that its subcontractors are

subject to the same security controls as Microsoft is subject to. Finally, the EU Model Clauses,

which are included in the OST, require Microsoft to ensure that its subcontractors outside of

Europe comply with the same requirements as Microsoft and set out in detail how Microsoft must

achieve this.


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10. Remedial action and escalation process for dealing

with inadequate performance.

Section 19(j) of the Guidance Note on Outsourcing

Under the service credits mechanism in the SLA, we may be entitled to a service credit of up to

100% of the service charges. If a failure by Microsoft also constitutes a breach of contract to which

the service credits regime does not apply, we would of course have ordinary contractual claims

available to us too under the contract.

MBSA section 6 deals with liability and rights of action. MBSA section 11e deals with how a

dispute under the contract is to be conducted.

11. Contingency planning of the Service Provider to

provide business continuity for the outsourced

service.

Section 19(k) of the Guidance Note on Outsourcing

Yes.

Business Continuity Management forms part of the scope of the accreditation that Microsoft

remains in relation to the online services, and Microsoft commits to maintain a data security policy

that complies with these accreditations (see OST page 13). Business Continuity Management also

forms part of the scope of Microsoft’s annual third party compliance audit.

12. Management and approval process for changes to

the outsourcing arrangement.

Section 19(l) of the Guidance Note on Outsourcing

Yes.

Section 11k of the MBSA states that the contract may be amended only by a formal written

agreement signed by both parties. However,

There is minimal requirement (if any) for change management provisions for the Microsoft Azure

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services. These online services are “commodity” services and are designed to be delivered as a

standardized offering, thereby removing the requirement or need for changes or alterations to be

made at an organization level. Microsoft will manage upgrades and patches to its services and

testing for these will be carried out by Microsoft. Microsoft has its own operational change control

procedure in place. The operational change control procedure includes an assessment process of

possible changes and their impact. The testing of changes takes place in an approved non-

production environment.

13. Conditions under which the IC or Service Provider

can terminate the outsourcing agreement.

Section 19(m) of the Guidance Note on Outsourcing

Yes.

Termination rights for the Enrollment are set out in the Enrollment itself, and in section 6 of the EA.

If the Enrollment is terminated, this will terminate all products and services ordered under the

Enrollment (except to the extent that the customer has perpetual rights).

Online services may also be terminated or suspended in the circumstances described in section 6d

of the EA, and as specified in the OST, pages 5, 11 and 30.

In the event of default, the provisions of the SLA will apply to service level failures and page 9 of

the OST sets out arrangements in the event of security incidents. Other defaults are addressed in

the MBSA and EA. A termination right for cause is set out at section 6c of the EA.

The contract allows the customer to terminate the arrangement with Microsoft for convenience

(MBSA section 8) which means the customer has the right to terminate in the event of default

including change of ownership, insolvency or where there is a breach of security or confidentiality

or demonstrable deterioration in the ability of the Service Provider to perform the service as

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contracted.

Note also that customers have control over the use they make of, and data they load into, the

online service.

14. Termination agreement, including intellectual

property and information rights and clarification of

the process to ensure the smooth transfer of the

outsourced service either to another Service

Provider or back to the IC.

Section 19(n) of the Guidance Note on Outsourcing

Yes.

Microsoft contractually commits to retain our data stored in the Online Service in a limited function

account for 90 days after expiration or termination of our subscription so that we may extract the

data. After the 90 day retention period ends, Microsoft will disable our account and delete our data

(OST, page 5).MBSA section 3 deals with confidentiality.

In addition, the customer retains the ability to access its Customer Data at all times (OST, page

10), and Microsoft will deal with Customer Data in accordance with Enrollment clause 6c(iv) and

the OST. Finally, MBSA section 11m states that Microsoft and the customer each commit to

comply with all applicable privacy and data protection laws and regulations.

Note that ownership of documents, records and other data remain with the customer organization

and at no point transfer to Microsoft or anyone else, so this does not need to be addressed through

transition (see OST, page 8). As set out on page 33 of the OST, upon expiration or termination,

the customer may extract its data and the Service Provider will delete the data.

See the response above for more information about the termination rights.

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15. Guarantee or indemnity from the Service Provider,

e.g. an indemnity to the effect that any sub-

contracting by the Service Provider of the

outsourced service will be the responsibility of the

Service provider including liability for any failure on

the part of the sub-contractor.

Section 19(o) of the Guidance Note on Outsourcing

Yes.

Under the terms of the OST, Microsoft remains contractually responsible (and therefore liable) for

its subcontractors’ compliance with Microsoft’s obligations in the OST (OST, page 9).

MBSA section 6 deals with liability. Microsoft remains liable for the actions and inactions of its sub-

contractors. MBSA section 5 sets out Microsoft’s obligation to defend the regulated entity against

third party infringement and breach of confidence claims. Microsoft’s liability under section 5 is

unlimited.

16. Requirement for the Service Provide to hold relevant

insurance.

Section 19(p) of the Guidance Note on Outsourcing

Yes.

MBSA section 10 deals with insurance. In practice, Microsoft maintains self-insurance

arrangements for much of the areas where third party insurance is typically obtained. Microsoft has

taken the commercial decision to take this approach, and does not believe that this detrimentally

impacts upon its customers given that Microsoft is an extremely substantial entity.

17. Mechanism to resolve disputes that might arise

under the outsourcing arrangement.

Section 19(q) of the Guidance Note on Outsourcing

Yes.

MBSA section 11 contains provisions that describe how a dispute under the contract is to be

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conducted.

MBSA section 11e sets out the jurisdictions in which parties should bring their actions. Microsoft

must bring actions against the customer in the countries where the customer’s contracting party is

headquartered. The customer must bring actions against: (a) in Ireland if the action is against a

Microsoft affiliates in Europe; (b) in the State of Washington, if the action is against a Microsoft

affiliate outside of Europe; or (c) in the country where the Microsoft affiliate delivering the services

has its headquarters if the action is to enforce a Statement of Services.

18. The Service Provider’s agreement to allow the

access by the auditors and actuaries of the IC and

the IA to any books, records and information which

facilitated them to discharge their statutory duties

and obligations.

Section 19(r) of the Guidance Note on Outsourcing


verify that the online services meet appropriate security and compliance standards.

Clauses 1e and 1f of the FSA detail the examination and influence rights that are granted to the

customer and HKMA. Clause 1e sets out a process which can culminate in the regulator’s

examination of Microsoft’s premises.

Clause 1f gives the customer the opportunity to participate in the Microsoft Online Services

Customer Compliance Program, which is a for-fee program that facilitates the customer’s ability to

(a) assess the services’ controls and effectiveness, (b) access data related to service operations,

(c) maintain insight into operational risks of the services, (d) be provided with additional notification

of changes that may materially impact Microsoft’s ability to provide the services, and (e) provide

feedback on areas for improvement in the services.

19. Governing law of the outsourcing agreement. The

agreement should preferably be governed by Hong

Section 19(s) of the Guidance Note on Outsourcing

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Kong law. MBSA section 11h deals with what countries laws apply if there is a legal dispute.

The governing law is that of Washington, however the parties have the ability to bring proceedings

in the locations as follows:

If Microsoft brings the action, the jurisdiction will be where we are located (i.e. Hong Kong);

If we bring the action, the jurisdiction will be the state of Washington; and

Both parties can seek injunctive relief with respect to a violation of intellectual property rights

or confidentiality obligations in any appropriate jurisdiction.

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