In recent years, regulatory compliance has become an increasingly significant aspect of the financial services business.It's a trend that's only going to become worse, thanks to the rise of cloud computing, the usage of mobile apps, and the transition to IoT devices, all of which are fuelling exponential data growth.
In this guide, we’ll explore the responsibilities of bank executives related to data privacy compliance, as well as, a a high level, the main topics related to data governance.
The State of Data Privacy Compliance in Financial Services
To better understand how data privacy and regulatory compliance work in the financial services sector, it helps to understand exactly what data governance is.
What is Data Governance?
Data governance is a collection of principles, rules, and practices that assures that data is consistent and trustworthy, and that it can be relied on to drive business efforts, make choices, and power digital transformations. An effective data governance program allows you to perform these things in a repeatable, scalable, and adaptable manner as data quantities and sources increase and technology advances. In a nutshell, excellent data governance means you can trust your data today and in the future.
Data governance necessitates an organization's understanding and assessment of the regulatory, legal, and corporate best practices that their data must fulfill, as well as the establishment of rules and the use of automated and human procedures to enforce the standards. Regulatory and legal obligations are frequently the driving forces behind data governance. A governance rule, on the other hand, can be any practice that the company decides to follow. Governance typically limits where specific types of data can be held and codifies data security mechanisms like encryption and password strength. Data backups, who has access to data, and when archived data should be deleted may all be governed by governance. Organizations can also define governance goals that focus on enhancing data quality or breaking down data silos.
So how does this relate to the financial services sector? You might be surprised by how incredibly important data governance and data security is to this industry– and today’s financial business leaders can’t ignore the need for better security on a regulatory level.
What is the State of Data Privacy Compliance in the Financial Services Sector?
Maintaining the confidentiality of private client data has become critical for every company that gathers or keeps personally identifiable information. Names, addresses, and social security numbers are examples of sensitive data. However, credit cards, debit cards, and bank account numbers are examples of critical and financially sensitive data.
For daily business activities, the financial services industry operates and interacts with a substantial quantity of sensitive client and customer data. The financial services industry is one of the most common targets for data breaches because of the perceived worth of this information. Financial services corporations are 300 times more likely than other businesses to be hacked. Banks and wealth managers pay a large rprice for dealing with these assaults and their aftermath than any other industry. According to the Conference of State Bank Supervisors, more than 70%of respondents identified cybersecurity as their top worry in a study of 571 community banks in 37 states. In the wake of the pandemic, we can expect even more worrying cybersecurity statistics to come out by the end of 2022, especially in the financial sector.
[Sources if needed:https://www.bcg.com/d/press/20june2019-global-wealth-report-222692,https://www.csbs.org/newsroom/community-banker-concerns-shift-funding]
Financial service providers shouldn’t just opt for better data management practices because of the current state of the industry. There are also a growing number of global regulatory laws that target the financial industry when it comes to sensitive client data.
To better understand what financial service providers need to be compliant with, let’s break down some important regulatory mandates that affect this sector.
Data Privacy Laws such as General Data Protection Regulation (GDPR)
In 2018, the General Data Protection Regulation (GDPR) took effect. The General Data Protection Policy (GDPR) is a comprehensive EU regulation that controls online privacy and data management inside the European Union. One of GDPR's main objectives is to offer people more control over their personal data. From a corporate standpoint, it strives to harmonize the way personal data is handled between EU nations. You might be asking why GDPR is important if you don't live in the EU. Despite the fact that GDPR is an EU regulation, many of the businesses you deal with on a daily basis are affected if they have a presence in Europe. To minimize misunderstanding and extra obstacles, many multinational financial businesses have chosen to implement GDPR compliance standards across their whole organization.
The PSD2 Payment Services Directive
The PSD2 Payment Services Directive went into force in January 2018, with a September 2019 deadline for compliance. Introduced in order to boost the EU's internal market for electronic payment services. The directive establishes a comprehensive set of standards for payment services with the goal of making international payments as simple and safe as feasible across the EU. PSD2 also encourages innovation and competition by allowing non-bank entities and financial technology firms to enter the market. The PSD2 regulation includes regulatory technological criteria for robust consumer authentication as a major component. Payment service providers (such as banks or other financial institutions) are required to utilize SCA for consumers making electronic payments in order to ensure the user's safe authentication and limit the risk of fraud.
The Sarbanes-Oxley Act (SOX)
The 2002 United States approved the Sarbanes-Oxley Act was created in response to the WorldCom scandal. The statute mainly focuses on how firms store and disclose financial information in order to combat corporate fraud and corruption. While the majority of the legislation does not address cybersecurity, Section 404 of the statute does. Organizations must have mechanisms in place to ensure the validity and availability of financial data, according to this provision. Then there's Section 302, which requires the CEO and CFO of the firm to attest to the accuracy of the company's financial data. In essence, the SOX act's financial service compliance standards mandate that public corporations safeguard their financial data against manipulation. In terms of cybersecurity, this entails putting in place protections to secure financial data.
We can expect even more regulations to come into play in the coming years as data security becomes more of a focus.
Why Data Privacy Compliance in Financial Services is Crucial in 2022 and Beyond
Banks acquire and handle a great deal of personal information. When someone creates an account, you're asking them for sensitive information like their name and address, as well as their social security number. The data gathering doesn't end there. Transactional and purchase data provide rich insights that assist to flesh out consumer profiles. If financial institutions can securely use all of this acquired data, they will have an amazing chance to enhance services and make educated choices.
Customers are, of course, the top focus for bank executives. Internal and external auditors work with a variety of systems to ensure that this information is properly safeguarded. This is where the concept of data governance comes into play: Banks and financial institutions may utilize this data to enhance client confidence while still complying with regulatory requirements if they have a strong program in place.
Regulatory compliance is critical for banks, as we have stated. However, it's all too easy for banks to focus just on compliance, which may not be the greatest approach. It does, however, make sense. Regulators visit financial institutions on a regular basis, checking boxes and keeping track of their actions. However, data governance may help with more than simply keeping the auditors happy; it can also help with business efforts.
Aside from regulatory compliance, the following are some of the primary advantages of a data governance program:
- Improved Innovation. Your bank maybe considering new methods to communicate with consumers, new products, or operational changes. Perhaps your bank is considering purchasing a smaller bank or building a new branch to broaden its reach. These choices aren't made in a vacuum; senior leadership requires access to the proper facts in order to make informed judgments about how to adopt innovation and take the company ahead.The first step is to provide data access. To be trusted, this data must also fulfill quality criteria. You simply cannot depend on this information to make judgments if it contains duplicate, obsolete, or erroneous data. Everyone in the business, from analysts to senior management, should feel at ease and confident in their ability to use data. Data governance initiatives guarantee that you're offering reliable information.
- Discover Market Intelligence. Banks' senior leadership teams and Boards of Directors are constantly monitoring market changes. Your Asset-Liability Committee (ALCO) also assesses risks from a balance sheet and market perspective throughout the year. You'll require data governance if you wish to employ analytics as part of this review. You want to use as much data as possible, whether you're looking at marketshare or stock pricing.
- Improve Existing Policies andProcedures. Perhaps you already have rules and processes in place for data governance. Is it possible that they are assisting your employees? Can you quantify that impact and utilize that information to strengthen your governance? Adopting a continuous governance strategy that involves monitoring current rules to understand their actual usage and impact, as well as iterating current policies and processes, may lead to better data management and data quality.
How Can Financial Organizations Improve Their Data Security Processes?
The key to better data security in the financial sector is digital transformation. Despite its hurdles, digital transformation remains an enticing and rewarding enterprise for the financial industry, not to mention a need. It's hard not to be enticed by the possibility of harnessing cutting-edge technology to speed innovation and gain a competitive advantage. However, attempting to make broad changes to your business operations while deferring security procedures will almost always result in major problems down the road. A financial institution can take a number of proactive steps to satisfy data privacy and protection regulations.
The first step would be to establish a set of project supervision procedures and guarantee that the project is thoroughly reviewed by a privacy or legal expert. In addition, there must be clear documentation on documenting and managing the data's acquisition, storage, and usage. Much of the information gathered now may not be required in the future. As a result, financial institutions may reduce risk by gathering only the information required to service their consumers.
Writing or revising data storage and data security rules is also required. Because different types of data necessitate different storage practices, it's wise to make sure you account for them all. To control requests for data removal or transfer, a financial institution must adopt clear, consistent protocols. These should guarantee that requirements are followed as quickly as possible, and they should encompass consumer demands for data identification, removal, and transfer.
A privacy architect, who is a specialist in both privacy and technology, should be part of your organization's data protection structure. A privacy architect may evaluate your company's goals as well as the privacy laws that must be followed. Technology developments might expose your financial firm to additional hazards if you are unaware of privacy laws.
If you'd prefer to outsource your efforts, Data Sentinel is an excellent option to consider.
How Data Sentinel Can Help Financial Services Providers Improve Their Data Compliance and Governance
Data Sentinel is a data trust and compliance platform that enables organizations to monitor their data privacy, governance ,and quality in real time. Data Sentinel's deep learning discovery technology reveals the underlying nature of an organization's data across all sources and systems, monitoring, measuring, and remediating it to guarantee compliance with business policy and increasing data management privacy standards. We deal with a wide range of enterprises in a number of industries, but we specialize in financial services organizations and firms.
By working with Data Sentinel, we can help your organization (be it small or large) develop better data security processes and stay compliant with global data regulations. As a leader in the financial services sector, it’s vital to ensure your firm is focused on better security.The team at Data Sentinel will make the process of improving your company’s data governance easy, intuitive, and bespoke for your specific business model.
Get in touch with the Data Sentinel team to learn more about our unique service offering. The future of your financial services company can be that much brighter, even in the wake of a global data security crisis.