02-18-22 | Blog Post
Top 5 Data Compliances for Financial Services
Being one of the most targeted business verticals by cybercriminals, the financial services sector is under constant pressure to protect valuable assets and avoid costly data breaches. While financial organizations spend millions of dollars every year on information security products and services, many struggle with the post-breach cleanup and long recovery times.
According to the annual Cost of a Data Breach report by Ponemon Institute, data breach costs rose from $3.86 million to a staggering $4.24 million in 2021, the highest average in 17 years. A cyber-attack compromises sensitive business data and impairs the organization’s reputation among consumers and partners.
Due to the upsurge of cloud computing, shift to IoT, big data, and mobile technologies, the need for security compliance in the financial services sector continues to intensify.
According to Verizon’s 2020 Data Breach Investigations Report, out of the 3,950 confirmed breaches, the financial and insurance sector had the most cases, and personal data was accessed in nearly 60% of all breaches.
While compliance regulations don’t pack the necessary security level to protect a financial services organization before and after a breach, they provide a baseline protection level. This post will explain five major data compliance regulations that financial services organizations should consider when handling consumer data.
What is Financial Compliance?
In its simplest terms, financial compliance refers to rules and regulations imposed on the financial sector by the government or an authoritative security body.
Financial compliance guidelines help protect clients like banking customers, shareholders, and investors from data breaches that could significantly impact their personal or professional lives. Additionally, final compliance regulations assess how private and sensitive data is stored, accessed, and shared within an organization.
Financial Data Security Regulations
Since financial institutions run on data, they have a legal and ethical obligation to protect their customers’ data. To that end, they must comply with various data protection regulations. Here are the top five data compliances financial institutions need to know about.
General Data Protection Regulation (GDPR)
To protect the personal data of individuals in the 28-member European Union countries, the GDPR was created to govern how organizations manage, store and share an individual’s private information.
The GDPR-Compliance tightens the rules of handling customer data and builds upon the 1995 EU Data Protection Directive. It governs online privacy and how personal data is managed within the EU.
The GDPR came into effect in May 2018 and requires all organizations doing business in the EU or collecting and processing information about EU citizens to comply with the regulation. Failure to comply with the GDPR will attract a maximum fine of €20 million or 4% of global revenue (whichever is greater) for all companies processing and holding the data of EU citizens. The GDPR has seven principles for data collection:
Under the GDPR, organizations must clearly define personal data, collect relevant data, and for a specific and legitimate purpose, the data must be accurate and up-to-date. Data should be processed transparently and in a way that protects the person’s.
Payment Card Industry Data Security Standard (PCI DSS)
The Payment Card Industry Data Security Standard (PCI DSS) establishes policies, procedures, and controls to protect customer information, including cardholder data. Launched in 2006, the PCI DSS standardizes how parties such as financial institutions, services providers, merchants, developers, and vendors of payment processing solutions process, store, and transmit cardholder data. To ensure compliance, PCI DSS has six goals and twelve security requirements:
Under the PCI DSS compliance mandate, all organizations and institutions that process and handle cardholder information must have and regularly maintain a firewall to prevent unauthorized access, use, or modification of cardholder data. They must also protect all systems processing cardholder information against malware and regularly update software to prevent hacking.
Deploying an intrusion detection system (IDS)
An intrusion detection system is a software or hardware-based security measure that monitors the network or system for malicious or unauthorized activities. When malicious or unauthorized activities are detected, IDS generates an alert to warn system administrators. IDS can also initiate countermeasures to thwart possible attacks when malicious or unauthorized activities are detected.
IDS plays a significant role in ensuring compliance with industry regulations such as the GDPR, PCI DSS, and HIPPA. Industry standards such as the GDPR and PCI DSS require ongoing monitoring of all systems for possible malicious activity. A network-based IDS monitors the network for possible intrusion attempts, while a host-based IDS monitors operating systems for malware or virus infections.
The Sarbanes-Oxley Act (SOX)
The Sarbanes-Oxley Act of 2002 (SOX) is a U.S. federal law enacted to protect investors from false reporting by corporations. The United States Congress passed the Act in response to several major corporate and accounting scandals, including Enron, Tyco International, Adelphia, Peregrine Systems, and WorldCom.
SOX primarily focuses on corporate accountability and increased public companies’ financial reporting transparency. The Act also establishes requirements for safeguarding confidential information when conducting an audit, public accounting firms must comply with the Act’s rules and regulations.
Section 404 (Management Assessment of Internal Controls) mandates organizations to have protective measures to safeguard the legitimacy and availability of financial records and reports. Financial institutions must fulfill several things, including:
A change management system that allows only authorized officials can make changes to programs and files .
System Organizational Control Reports (SOC) 1 & 2
Launched by the American Institute of Certified Public Accountants (AICPA), the System Organizational Controls (SOC) is a framework that gives auditors guidance for evaluating security protocols of an organization. Both help establish better security practices by organizations, and aim to address technology’s ever-expanding role in commerce.
SOC 1 report are primarily for service organizations, or businesses that handle financial information for their clients. It ensures that the proper steps to protect this data are being taken by the organization, and assures clients transacting with the organization that their financial data is protected. These reports are always conducted by a third party.
SOC 2 was launched by AICPA in 2010, and focuses mainly on technology companies, including Software as a Service (SaaS), Managed Service Providers (MSPs), data centers and other technology vendors. It consists of a comprehensive set of criteria know as Trust Services Principals, comprised of these 5 pillars:
Let Otava Help You Adhere to Financial Services Regulatory Compliance
Data compliance in the financial services sector is about protecting customer data while maintaining an industry standard of integrity. The various compliance standards for financial services play a significant role in keeping personal information safe from internal and external threats.
Organizations must be aware of the critical compliance standards implemented by financial institutions worldwide to ensure data security, minimize operational costs, and meet customer needs. Without meeting compliance standards, financial institutions risk hefty fines and a loss of customer trust.
To keep up with the ever-changing data landscape, it’s crucial for financial services companies to stay on top of these five compliance considerations. Contact Otava today to learn how we can help your company take care of these regulatory requirements.