Compliance has become a critical concern for businesses in all industries, due to tightening regulations, higher penalties, and lower overall trust. But for financial services, the pressure is significantly more intense. When a single mistake could bring down the entire business, you cannot afford to neglect compliance.
Unfortunately, this is a complex topic and compliance is often easier said than done. To stand any chance, you will need a full understanding of which regulations your financial firm is subject to, and how you can effectively obey them.
What Is IT Compliance?
No business exists in a vacuum. Each is governed by various laws, regulations, and industry-specific standards that outline acceptable vs non-acceptable behavior. Compliance refers to your adherence to these standards. In the context of IT, this typically means obeying data privacy and cybersecurity regulations.
Do not confuse compliance with governance. You may hear these terms used interchangeably, but this is an error. They are two different but connected concepts. Governance is the set of internal policies and procedures you use to ensure compliance and productivity. Both refer to a set of rules, but governance is inside your business, while compliance is external.
Why Compliance for Financial Institutions Matters
The Cost of Non-Compliance
In this environment, the consequences of non-compliance are steeper than you might expect. Some of the most concerning include
- Fines and Audits: If word reaches the authorities that you have not fulfilled your obligations, your business could be audited and fined. Just last year, in fact, Meta received a $413 million penalty for refusing to comply with the General Data Protection Regulation (GDPR). If even a global corporation is not above the law, neither are you.
- Legal Action: Depending on the severity of your violation, additional legal action could be on the table. Affected individuals, for example, may be able to sue over the improper handling of their data. The impact of these punishments can quickly add up.
- Cyber-Attacks: Data protection laws don’t exist only to protect individuals. They also shield you from cyber threats and data breaches, which can do significant damage on their own (extended downtime, ransomware payments, and data erasure being just a few examples).
- Reputational Harm: A severe or repeated failure to protect client data will erode their trust over time. Eventually, you will develop a poor reputation that causes old clients to leave and new ones to look elsewhere. Opportunities will dry up, and your profits will suffer.
The good news is that all of these outcomes can be avoided. All you need to do is obey the law.
Some Important Regulations to Remember
Step one in achieving financial IT compliance is knowing what the rules are. While your exact requirements may vary based on factors such as the locations you operate within, here are some of the regulations that govern your industry
- The Gramm-Leach-Bliley Act (GLBA): The GLBA demands that financial institutions provide full transparency regarding the data they handle. Under this law, you must clearly explain what information you collect, who else you share it with, and how you plan to protect it.
- The Sarbanes-Oxley (SOX) Act: Introduced in 2002 after a number of public scandals involving major corporations, this Act aims to more effectively regulate a number of business operations. Of particular relevance is section 802, which sets guidelines around data retention times and accuracy.
- The GDPR: While technically an EU law, the GDPR applies to any business that holds the data of EU citizens in any capacity. This means that if you serve a customer from this location on one single occasion, you must now comply with this law. In short, the GDPR mandates transparency and responsibility, while also asserting the rights of individuals to control and delete their data at any time.
- The Payment Card Industry Data Security Standard (PCI DSS): PCI DSS is a global initiative created by several major banks to ensure that financial information is handled securely. It outlines 12 security controls designed to reduce the risk of cyber-attacks and protect sensitive information.
Adherence to these regulations is not optional. It is important to remember that there may also be state-specific compliance requirements – businesses in California, for example, are subject to the California Consumer Privacy Act (CCPA), which introduces similar protections as the GDPR. Check carefully to ensure you have a full understanding of which standards you must obey.
IT Compliance for Financial Services: 7 Important Policies
Full financial IT compliance starts with the policies you set. Here are 7 that can make a significant difference, mitigating security risks and legal issues alike:
1. Access Control and Identity Management
Controlling who has access to sensitive information is one of the easiest, most effective security measures you can implement. It works on multiple levels: first, it prevents accidental data leaks. Your staff usually mean well, but this does not necessarily mean they can be trusted. Even the smallest slip-up can result in a serious data breach.
Additionally, access controls mitigate the harm of cybersecurity risks. It does not matter as much that a threat actor has breached your intern’s account, if the intern does not have access to anything important. On the off-chance that an attack occurs, this important line of defense can make all the difference.
Key Strategies
- Use role-based access controls (RBAC). Only provide each employee with the data they need to complete their tasks. No more, no less.
- Enforce multi-factor authentication (MFA), to reduce the risk of accounts being breached. This is particularly essential for administrative accounts.
- Remove permissions the moment they are no longer needed (e.g. an employee leaves or changes roles).
2. Data Encryption
Encryption converts data into an unreadable format, protecting it from unauthorized access. Even if malicious actors successfully breach sensitive information, they will not be able to do anything with it without the correct decryption key. This is particularly effective against ransomware, and goes a long way towards achieving compliance
Key Strategies
- Encrypt data in transit and at rest.
- Handle decryption keys with care, and only give them out when absolutely necessary.
- Encrypt email communications, to prevent them from being compromised.
3. Threat Monitoring and Incident Response
Even the strongest defenses can fail. Threat actors are cunning, and it is a matter of time before they find a gap to exploit. Without visibility into your systems, or an effective response plan, your firm will be left completely vulnerable when they do.
Key Strategies
- Use AI-powered threat detection to identify anomalies that might indicate a cyber-attack.
- Create an incident response plan outlining who is responsible during an emergency, what they should do, and who should be contacted.
- Run regular tests to ensure that the incident response plan works as intended.
3. Threat Monitoring and Incident Response
Even the strongest defenses can fail. Threat actors are cunning, and it is a matter of time before they find a gap to exploit. Without visibility into your systems, or an effective response plan, your firm will be left completely vulnerable when they do.
Key Strategies
- Use AI-powered threat detection to identify anomalies that might indicate a cyber-attack.
- Create an incident response plan outlining who is responsible during an emergency, what they should do, and who should be contacted.
- Run regular tests to ensure that the incident response plan works as intended.
4. Third‑Party Risk Management
IT compliance for financial services is not only about your own systems. Many regulations explicitly hold you responsible for the actions of third-party vendors you choose to associate with. This includes service providers, software companies, and hardware suppliers. If they do not implement sufficient security measures, you may suffer the consequences.
Key Strategies
- Carefully vet out vendors to ensure they follow data security best practices.
- Require proof of compliance certifications, especially for third-parties who will be handling your data.
- Define timelines within which vendors must notify you if they experience a breach.
5. Configuration and Update Management
Many aren’t aware of just how important configurations and updates are, and thus neglect them. Even software specifically designed with security in mind can become a vulnerability if it is not managed properly. Updates introduce important patches that address known security gaps. Configuration enables many defensive measures that would otherwise go unused, further reducing your risk.
Key Strategies
- Automate software updates where possible, to ensure patches are installed promptly.
- Implement a strict schedule when automation is not an option.
- Check that all security settings have been implemented properly while rolling out any new software.
6. Data Retention, Storage, and Deletioniuà12Q B
One factor that almost every data protection law attempts to control is data retention. It is a simple fact that the more information you store, the more risk you are creating. Too much makes threat actors more likely to target you, while also increasing the amount of damage a breach would cause. Data cannot be stolen if you don’t have it in your possession.
Many aren’t aware of just how important configurations and updates are, and thus neglect them. Even software specifically designed with security in mind can become a vulnerability if it is not managed properly. Updates introduce important patches that address known security gaps. Configuration enables many defensive measures that would otherwise go unused, further reducing your risk.
Key Strategies
- Define a set retention period for data. All information should be deleted after this period, unless it is absolutely critical.
- Sort data based on its sensitivity, and set separate retention rules for each category to ensure effective protection.
- Provide full transparency to your clients regarding the type and amount of data you collect, as well as how long it is stored for.
- Introduce safe disposal procedures for unnecessary data.
7. Training & Awareness Programs
Internal policies are only as effective as the staff upholding them. If your employees do not understand what is expected of them and why, they won’t be able to effectively protect your data. In the worst-case scenario, they can even become a vulnerability in and of themselves. It is essential that staff are properly trained in compliance and cybersecurity.
Key Strategies
- Provide comprehensive cyber awareness training sessions once per year.
- Supplement these lessons with smaller refresher courses and news updates sprinkled throughout the year.
- Reinforce what employees have learned with tabletop exercises, phishing simulations, and incident response drills.
- Introduce safe disposal procedures for unnecessary data.
IT Compliance Frameworks for Financial Institutions
Compliance is complex, and can quickly become confusing if you do not start with clear goals to work towards. You might forget important regulatory requirements, miss crucial security measures, or waste money on initiatives that weren’t part of the plan. This undermines your efforts, putting your business at risk.
This is where a framework may offer significant value, by providing the structure you need to ensure success. This written document outlines the key considerations you must remember while implementing and updating policies, allowing you to remain compliant far more easily.
While there are IT compliance frameworks for financial institutions available online, it is also not particularly difficult to create your own. You only need to do this once, reusing it whenever necessary.
Creating Your Framework: What to Include
- Regulatory Requirements: Perform the necessary research to understand what is actually required of you. Make a note of this in your framework, as it will provide necessary guidance.
- Tenets: Using the information you just collected, create a set of core rules you will follow at all times to maintain compliance.
- Roles and Responsibilities: Define who is responsible for ensuring that security measures are correctly implemented, maintained, and updated in accordance with your current compliance requirements.
- Escalation Procedures: If compliance is not upheld, outline the escalation process and disciplinary actions that will be used to correct the problem.
- Documentation: Explain how compliance activities should be documented, to ensure strong IT audit preparation. Written proof of your security measures will be important in this scenario.
- Review Processes: Define the criteria by which your compliance policies will be reviewed and updated as time passes.
FAQs
Financial IT compliance policies should be updated once per year, or each time regulations change.
If you find compliance too challenging to manage on your own, consider partnering with an expert who specializes in financial services. They can provide expert guidance on how best to achieve and maintain compliance.
Start with access controls, staff training, and encryption. These measures will have the biggest impact on your data security and thus, your compliance status. All of the internal controls outlined are important, but sometimes a phased implementation is easier to manage.
You can. In fact, many of the measures provided in this article are free or low-cost to implement.
The cloud can provide additional data security, if supported by strong defenses on both your end and the service provider’s. However, it can also become an additional attack vector. If you’re concerned about cloud security, speak to an expert for more information.
Your Data is Precious - Protect It Now
Financial IT compliance should not just be a checklist you follow to avoid getting in trouble. Leveraged effectively, it presents you with a powerful means of building stronger client relationships, preventing cyber-attacks, and improving your long-term profitability. Some common-sense data protection measures now can help you avoid serious problems later. If you have been neglecting compliance, it might be time to re-examine it.
Many financial services firms struggle with their IT. Technology can be complicated at the best of times, and introducing regulations into the mix only makes it harder. To help, we’ve created a free e-book outlining how you can design a better IT infrastructure. Download it now to start moving towards a safer, more productive future.
