In May 2018, the General Data Protection Regulation (GDPR)
was implemented with strict policies and regulations for data protection and
privacy. As a result, this posed a significant challenge for companies in the financial industry, which already had to comply with numerous regulations. A survey
by IBM revealed that most US citizens prioritize the privacy of their data, but
only a tiny percentage fully trust companies to protect it. This article
explores the critical aspects of GDPR compliance for financial firms, its
impact on the industry, and strategies to ensure seamless compliance.
Understanding GDPR
The General Data Protection Regulation is an EU law designed
to protect the personal data of EU residents when dealing with companies
outside the European Union. While businesses within the EU must adhere to GDPR,
companies outside the EU must also align their practices with GDPR standards
when handling EU residents' data. GDPR outlines guidelines for collecting and
processing personal data, regardless of the industry. GDPR mandates that data
breaches be reported within 72 hours, adopts privacy-by-design principles, and
obtains explicit consent for processing data. Also, it appoints Data Protection
Officers in certain cases, maintains records of processing activities, implements
robust data security measures, guarantees the right to erasure, and ensures
international data transfer compliance.
Impact on Financial Services
Implementing GDPR in the financial services sector
introduced stringent requirements and regulations for banks, financial
institutions, and payment service providers (PSPs). In this context, PSPs act
as data processors, while merchants and customers are data controllers and data
subjects. GDPR considers customer data and cardholder information personal data,
requiring PSPs to handle credit card and online payment data securely when
facilitating transactions between customers and merchants. Financial
institutions must ensure GDPR compliance and adhere to relevant laws, such as
anti-money laundering (AML) regulations. Failure to comply with GDPR can cause
penalties, including fines, damages to data subjects, and disciplinary actions.
Applicability to Financial Companies
Even before GDPR, financial companies operated within a
culture of compliance, implementing robust risk management frameworks to
protect privacy and data. However, GDPR necessitates a proactive approach to
compliance. So, financial organizations operating in non-EU countries and
targeting the EU market must understand the regulatory provisions and the
impact of GDPR on their operations.
Financial companies are well-versed in collecting and
managing user data, making it relatively more accessible to fulfill GDPR
requirements for informing customers about data collection, purpose, and
processing. Nonetheless, GDPR compliance means using innovative and automated
technologies that are GDPR-compliant. Financial institutions must adapt their
data collection and management systems to handle securely and process EU citizens'
sensitive data, ensuring robust cybersecurity measures are in place.
Ensuring GDPR Compliance for Financial Firms
GDPR compliance for financial firms involves establishing
systems to securely acquire, track, and manage EU citizens' sensitive data.
Compliance efforts must encompass the customer's sensitive financial data, as
it falls under the purview of GDPR's data protection requirements. Financial
companies must inform customers about their data collection practices,
articulate the purpose of data collection, and provide transparent information
on data handling processes. Key elements of GDPR compliance for financial
institutions include:
- Obtaining explicit customer consent.
- Implementing mechanisms for data deletion upon user
request.
- Promptly reporting data breaches within 72 hours.
- Integrating privacy by design principles.
- Ensuring robust vendor management processes.
- Appointing Data Protection Officers (DPOs) when necessary.
Understanding Consent
GDPR establishes customer consent as a critical element of
data protection. Financial institutions are responsible for obtaining explicit
user consent before collecting their data. Furthermore, companies must maintain
records of consent, including details of how, when, and what information was
provided to each user.
Users retain the right to withdraw their consent at any
time. Financial organizations can build trust and demonstrate their commitment
to data privacy by prioritizing transparency and user control.
Data Deletion
Under GDPR, individuals have the right to request the
deletion of their sensitive data from financial institutions, even if it has
been shared with third-party companies. Financial firms must establish reliable
data inventories and tracking mechanisms to fulfill these requests efficiently.
These measures ensure the swift and secure removal of users' sensitive
information upon request, enhancing data protection and complying with GDPR
requirements.
Data Breaches
GDPR imposes severe penalties for data breaches, defining
them as any unauthorized access, loss, alteration, destruction, or disclosure
of personal data. Financial organizations must report such violations to the
relevant regulatory authority within 72 hours.
By promptly notifying authorities, institutions demonstrate
their commitment to data security and mitigate potential harm to individuals
affected by the breach. Adhering to robust security measures and implementing
incident response plans are essential for minimizing the risk of data breaches
and avoiding significant penalties.
Privacy by design
GDPR emphasizes the integration of data protection into the
foundation of financial institutions' policies, operations, and projects. This
principle, known as privacy by design, places full responsibility on companies
to comply with data protection requirements and demonstrate their commitment to
compliance and privacy.
Non-compliance can result in fines of up to 4% of global
revenue or €20 million, whichever is greater. By prioritizing privacy by
design, financial organizations can build a robust framework for data
protection, fostering trust and ensuring compliance with GDPR.
Vendor Management
Data is crucial in financial organizations and is often
shared through various applications and software solutions. To safeguard
customer data effectively, financial firms need to establish robust and
transparent processes for how external vendors handle customer data.
Implementing comprehensive vendor management practices,
including due diligence, contractual obligations, and regular audits, helps
ensure that data remains protected throughout the entire data lifecycle.
Data Protection Officer (DPO)
Financial organizations dealing with extensive volumes of
private data will likely require a Data Protection Officer (DPO). DPOs are
crucial in managing data protection policies and activities, providing
recommendations and assessments for improving data protection measures,
training staff, and conducting internal audits.
Their expertise helps financial firms navigate the complex
landscape of GDPR compliance, ensuring that data protection practices align
with regulatory requirements.
Complying with GDPR and Other Financial Regulations
Achieving GDPR compliance can be challenging for financial
organizations, particularly when faced with numerous requirements and tight
timelines. However, leveraging automated solutions can streamline the process.
For example, the GDPR Compliance app offered by the Zendesk help desk provides
essential maintenance features.
