The expected increase in uncertainty regarding energy consumption and production from intermittent distributed energy resources calls for advanced network control capabilities and (household) customer flexibility in the distribution network. Depending on the control applications deployed, grid monitoring capabilities that accurately capture the system operation state are required. In order to establish such monitoring capabilities, several technical and legal challenges relating to monitoring accuracy, user privacy, and cost efficiency need to be tackled. As these aspects have complex mutual interdependencies, a universal approach for realising distribution network monitoring is not straightforward. Therefore, this article highlights these issues and proposes a method to evaluate monitoring accuracy and the proportionality of personal data processing, and to illustrate the interdependencies between finding the legal grounds for data processing and the monitoring accuracy the processed data produces. To illustrate the method, several test cases are presented, in which the accuracy of network monitoring is assessed for different measurement configurations, followed by an analysis on the legality of the configurations.