U.S. companies that handle data belonging to customers living in the European Union (EU) may not realize that they will be subject to the General Data Protection Regulation (GDPR) when it takes effect next year. This comprehensive law will change how firms handle personally identifiable information (PII), notify customers about breaches and transfer data.

Understanding Extraterritoriality

Although it’s been in the works since at least 2012, the EU’s digital privacy and data protection law has taken on new significance following an executive order from the U.S. government in January, according to Threatpost. A modification of the Privacy Shield agreement with EU regulators means the GDPR will include extraterritoriality, which will require U.S. firms to properly secure IP addresses and other information collected from EU citizens.

CSO Australia noted that many firms are unaware of the extraterritoriality rule, even though they may conduct e-commerce or business with customers in France, Germany and other EU member countries. Organizations that fail to comply could face huge fines of up to 4 percent of annual revenues.

Companies that formally operate in locations around the world may be quicker to recognize how extraterritoriality will change their privacy and security policies. According to a recent PwC survey, most multinational American companies have made GDPR their top focus, and 77 percent budgeted at least $1 million to comply with the law.

Preparing for the GDPR

There is still some time for organizations to get themselves ready, since the GDPR won’t take effect until May 25, 2018. However, Business & Finance suggested that IT departments should begin reviewing everything now, from defenses against external threats to the privacy and security of structured data running through enterprise resource planning systems and other applications.

Furthermore, insideBIGDATA proclaimed that all companies, from internet retailers to service providers and beyond, should build privacy by default into their systems and processes. That should help them prepare to handle GDPR mandates, such as the right to be forgotten.

As awareness of the extraterritorial nature of the law grows, expect many U.S. firms to put compliance on the front burner before it’s too late.