Category: Blogs – BFSI

Introduction

The Bharat BFSI sector is navigating a complex regulatory landscape, with stringent requirements for data protection and privacy. Hardware Security Modules (HSMs) are crucial for securing cryptographic keys and ensuring compliance, but they can be challenging to implement and integrate with existing systems. Mage Data offers a powerful solution that complements HSMs, simplifying compliance, enhancing security, and optimizing performance.

Understanding HSMs and Their Role

HSMs are specialized hardware devices that safeguard cryptographic keys and perform cryptographic operations within a secure, tamper-proof environment. They are essential for:

• Key Generation & Storage: Generating strong keys and storing them securely.
• Key Management: Managing the lifecycle of keys (generation, storage, distribution, and destruction).
• Cryptographic Operations: Performing encryption, decryption, digital signatures, and authentication.
• Access Control: Implementing strict access controls to prevent unauthorized use.

Organizations often face a trio of challenges when implementing HSMs

• Regulatory Complexity: Navigating the maze of data protection regulations can be daunting. GDPR, CCPA, HIPAA, PCI DSS, and various industry-specific mandates create a complex web of requirements. Data localization laws add another layer of complexity, often requiring keys to be stored within specific geographical boundaries. Keeping up with these evolving regulations and ensuring consistent compliance can be a major headache.
• Integration Complexity: Many legacy systems weren’t designed with HSMs in mind. Integrating these older systems with modern HSMs can require complex API integrations, middleware solutions, and custom development. Compatibility issues with older cryptographic libraries further complicate the process, leading to increased costs and implementation timelines.
  
  
  
  
  
• Performance Overhead: Cryptographic operations, while essential, can introduce latency. In high-volume environments, this can lead to performance bottlenecks, impacting application responsiveness and user experience. Real-time transaction signing, SSL/TLS encryption, and blockchain key management are just a few examples of workloads that can be affected by HSM latency.

Mage Data: Enhancing HSMs with Advanced Capabilities

Mage Data complements HSMs by adding a layer of advanced data security and management capabilities:

Secure Tokenization and De-tokenization:

• Mage Data leverages HSMs to protect the mapping between tokens and real data, ensuring that even if tokens are compromised, the original data remains secure.
• It provides granular control over token usage and facilitates secure de-tokenization when authorized access to the real data is required.

Controlled Access to Sensitive Data:

• Mage Data’s masking capabilities, combined with HSM access controls, enable fine-grained control over who can access sensitive data and in what form (masked or original).
• This allows for secure data sharing and collaboration while protecting sensitive information.

Performance Optimization:

• Mage Data can offload certain masking operations to the HSM, leveraging its cryptographic capabilities for enhanced performance, especially for high-volume data masking tasks.

Centralized Platform:

• Mage Data integrates with HSMs to provide a centralized platform for managing both masking policies and cryptographic keys, simplifying data security management across the organization.
  
  
  

How Mage Data Complements HSMs (with Diagram):Benefits of the Integrated Solution:

• Enhanced Security: Multi-layered protection through HSMs and Mage Data’s masking and tokenization.

• Simplified Compliance: Meeting regulatory requirements for data protection and key management.

• Optimized Performance: Efficient masking and cryptographic operations.

• Centralized Management: Streamlined administration of data security policies and keys.

• Reduced Risk: Minimizing the risk of data breaches and unauthorized access.

Conclusion:

Mage Data complements HSMs by providing advanced data security capabilities, simplifying compliance, and optimizing performance. This integrated approach enables organizations in the Bharat BFSI sector to protect their sensitive data, meet regulatory requirements, and unlock the full potential of their data assets.

It used to be—even just a few years ago—that consumer advocacy groups were complaining that legislation had not “caught up” with technology, and that huge data privacy gaps existed. But today, gaps in data privacy regulation are only half of the problem, as multiple legislative bodies have worked tirelessly to close the gaps. As financial services becomes an increasingly digital industry, finserv organizations now have to prepare for tomorrow’s regulatory landscape as well.

In particular, finserv organizations are finding that consumers of financial services themselves are sensitive to the collection and processing of their information. Fortunately, financial services ties healthcare as the most-trusted sector for data privacy, according to research from McKinsey & Company. Less fortunately, the percentage of respondents who trust data privacy practices in the financial services industry is still only 44%.

Financial institutions can keep pace with these simultaneous rises in digital banking activity and data privacy legislation by taking proactive measures:

• Commit to learning what’s protected under all relevant consumer data privacy laws.
• Consider how advances in digital banking and online payments will affect privacy concerns going forward.
• Give customers transparency regarding data collection, protection, sharing, and use.
• Implement data security and data privacy throughout the entire data lifecycle.
• Appoint chief privacy officers and give them the resources required to develop thorough privacy practices.
  
  The nature of the financial services industry makes the stakes particularly high, but a commitment to best practices instills confidence and competence

What to Know About Data Privacy in Financial Services

Individuals divulge a great deal of personal information during online transactions. This is necessary because financial services organizations must have identity proofing to tie every transaction to a valid entity. Failure to collect, confirm, and store the appropriate data increases the likelihood of fraud. The need to collect, handle, and store data creates tension, as doing so means that financial institutions absorb responsibility for data privacy and data security.

The Current State of Financial Privacy Regulation

The uncertainty around data privacy for financial services is highlighted by the sheer volume of the applicable legislation. Instead of one universal law, financial institutions are accountable to numerous regulations, especially when they operate internationally. The following are several of the most common data privacy regulations impacting the financial services industry:

• Gramm-Leach-Bliley Act (GLBA)
• Payment Card Industry Data Security Standard (PCI DSS)
• Sarbanes-Oxley Act (SOX)
• California Consumer Protection Act (CCPA)
• Payment Services Directive (PSD2)
• General Data Protection Regulation (GDPR)
• Financial Privacy Rule from the Federal Trade Commission (FTC)
• Regulations from the New York State Department of Financial Services (NYDFS)
• Consumer Data Right (Australia)
• Monetary Authority of Singapore (MAS)

The list above is a lot to absorb, but it isn’t even exhaustive. Organizations like the NYDFS and FTC work continuously to regulate financial services and products as threats and best practices evolve.

When Financial Privacy Regulations Collide

At times, consumer privacy laws seem to contradict each other. For example, the CCPA gives individuals the right to delete (or request deletion of) some of their information, but there are exceptions. One such exception occurs when financial institutions need the information in question to operate. Reconciling consumer privacy regulations and finance-specific privacy regulations—especially when one regulation supersedes another—requires constant diligence and a comprehensive data protection strategy.

Evolving Data Privacy Responsibilities in the Finance Industry

Data protection strategies must be works in progress if they’re not to become outdated. The current state of data privacy for financial services organizations doesn’t stay current for very long. Legislative bodies are creating and modifying regulations, which is far from the only concern. Data breaches, technological adoption, and data privacy best practices are evolving every bit as quickly.

4 Steps Toward Data Privacy for Financial Services Organizations

Pressing data security challenges in the financial services industry include third-party risks, data transfers, and compliance issues. A comprehensive strategy allows financial institutions to prepare, implement, and maintain an integrated data privacy platform:

1. Sensitive Data Discovery

By definition, a privacy plan can only be comprehensive when it covers all information throughout the enterprise or institution. Data discovery is a vital first step. Diligent data discovery brings hidden or forgotten information into the light.

Accurate data discovery and thoughtful data classification make privacy plans more intentional. The process answers some of the most pressing data protection questions:

• Which data is necessary, and which is best disposed of?
• Which individuals, applications, and third parties need access to data?
• How sensitive is the information retained?
• What do applications and analysts need to get from the data to operate as intended?
  
  Answers to these questions provide the visibility required to protect data as efficiently as possible.

2. Data Protection

It’s often necessary to retain sensitive information. The financial institution absorbs responsibility for data privacy and security in these cases. Techniques like encryption, tokenization, and masking anonymize data in various states and environments. Dynamic data masking, for example, protects data in use without slowing down the analytics team. Static data masking is a common choice for data at rest, or whenever it’s best to permanently replace sensitive data without the potential for re-identification (also known as de-anonymization).

To close the loop, Privacy enhancing technologies (PETs) facilitate analysis of the privacy plan itself: with data sensitivity scorecards, incremental data scanning, and audit-ready reporting. Interconnected and interdependent networks of PETs allow financial services institutions to meet their various data privacy goals and expectations.

After selecting PETs or other data protection techniques to meet all privacy requirements, it’s time to bring everything into a manageable hub.

3. Integrating Data Security and Data Privacy

Beyond well-integrated, a data security platform must be scalable enough to protect all data sources, production, and non-production environments. Bringing data privacy into a central hub makes it more difficult for anything to fall through the cracks. Such a platform ties preparation, implementation, and maintenance together.

Increased visibility, manageable breach notifications, and adequate compliance reporting take the guesswork out of data privacy. Scalable solutions and excellent knowledge of the current state of an organization’s data privacy efforts make it easier to evolve. Adapting to changing regulations doesn’t have to mean starting over.

Finally, integrated data security and data privacy platforms keep the burden of database activity monitoring to a minimum. Data subject access rights requests, alerts, and notifications appear in one central location. From there, it’s easier to add database visualization tools to help spend less time identifying priorities and more time working on them.

4. Data Privacy and Consumer Consent

Collecting and using personal data is generally prohibited unless the subject consents or the data processing is expressly allowed by regulation. Even when a financial organization has every right to collect information, it may be required to provide privacy notices. Under the GLBA, for example, organizations are required to provide notice of how they collect and use information. An organization must provide notice to the data subject even when the data processing does not require the subject’s consent.

Data Privacy Technology for the Finance Industry

Regulatory technology, or RegTech, is working behind the scenes to help financial services firms regain customer trust. Financial institutions that navigate the customer trust landscape gain competitive advantages by protecting their reputations.

Societal factors like social distancing forced banks to accelerate digital transformation plans, and RegTech offers a much-needed boost. Consumer insights and regulatory compliance are twin differentiators. Legislative bodies and individual users are most satisfied when financial institutions go above and beyond minimum requirements and invest proactively in data protection solutions.

Getting Started With Data Privacy for Financial Services

The rising legislative and market-driven demand for data privacy separates financial institutions with stringent data protection plans. A demonstrable commitment to data privacy helps organizations win trust to increase their user base, and avoid fines to protect profits. Comprehensive programs address privacy, security, and data risks as interconnected and interdependent issues. To see how data security and data privacy for financial services combine, contact Mage Data for a demo.

The Sarbanes-Oxley Act (SOX) was passed by the United States Congress in 2002 to protect the public from fraud by business entities such as corporations. The purpose of this act is to increase transparency in financial reporting with a formal system of checks and balances. SOX brings a legal obligation to what was already good business practice. Financial security controls implemented for SOX compliance have a lot in common with the best practices for data protection, which helps prevent data theft. Prioritizing cybersecurity reduces the risk of data breaches, whether by insider theft or cyberattacks.

Which Companies Need SOX Compliance?

The Sarbanes-Oxley Act applies to all publicly traded companies in the United States. It also applies to publicly traded foreign companies or wholly-owned subsidiaries that do business in the United States. Tangentially, SOX also applies to auditors and accounting firms that audit SOX-regulated entities. Finally, any private company planning an IPO should be SOX compliant before going public.
Private organizations (including companies and nonprofits) are not required to be fully SOX compliant, though they may be affected in some cases. For example, the Sarbanes-Oxley Act contains language about penalizing any organization that knowingly falsifies or destroys financial data.

Data Retention vs. Data Protection

The requirement to retain some financial data can create problems. In many applications, best practices dictate that sensitive data be deleted when no longer needed: Companies should only retain the minimum amount of sensitive data, and for the absolute minimum amount of time possible. However, data cannot be erased or destroyed if it is required to prove SOX compliance, which is where the tension occurs.

This may seem like a catch-22, but data privacy laws do account for instances when data retention is mandated by other reporting requirements. SOX does not normally contradict GDPR, CCPA, and other data privacy regulations, for example. All of these regulations exist to encourage greater accountability on the part of companies, and (despite potential challenges) policies are not drafted to create impossible situations.

Exceptions: When SOX and Data Privacy Regulations Collide

SOX typically applies to the company’s financial data, not to any individual’s personal data. However, there are areas where a company’s financial data overlaps slightly with an individual’s data. For example, companies have to retain customer invoices for five years, tax returns for seven years, and payroll records forever. This is financial data related to the company, but it is also likely to include sensitive information related to individuals.

Can Data Be Safe and Useful?

A data privacy strategy is tested in these kinds of situations, where data must be retained, but also kept completely secure. There are numerous steps to a comprehensive data protection solution. First, it is important to identify and locate all sensitive data throughout the entire enterprise. From there, a plan should be put in place for all sensitive data discovered.

At this point, it is crucial to understand the difference between data encryption, tokenization, and masking. Encryption is an excellent solution for data that will be stored for the long term. Tokenization is ideal for data that must be moved or migrated. Masking is a great way to protect sensitive data while preserving its utility. Depending on an organization’s specific needs, there are applications where all three techniques are useful (both in the context of SOX compliance as well as the broader data privacy strategy).

Benefits of SOX Compliance

Ensuring SOX compliance creates benefits that ripple across an entire organization. It leads to more consistent financial reporting, which appeals to shareholders. Beyond the benefits of superior financial reporting, compliance with SOX also reduces exposure to data breaches. Preventing cyberattacks helps reduce costs and protect the brand. Finally, SOX compliance makes it easier to navigate an audit and avoid penalties.

Penalties of SOX Non-Compliance

The penalties for SOX non-compliance can be severe, and may occur in a number of categories. There may be fines, invalidation of directors and officers (D&O) liability Insurance, and removal from public stock exchanges. Individual executives, especially CEOs and CFOs or any others who intentionally submit incorrect information during a SOX audit, may be faced with millions of dollars of fines and lengthy prison sentences.

Preparing for a SOX Compliance Audit

As with any other type of audit, the best way to prepare is to stay prepared. In the case of SOX compliance, that means conducting a thorough discovery of all sensitive data, then protecting that data appropriately. When a company is audited for SOX compliance, they must prove they’re using the relevant controls to ensure appropriate data protection and accurate financial reporting.

Key Sox Compliance Requirements

There should be no need to scramble to prepare for an audit, because the strategy should already be established and maintained. That said, there are six especially important areas to consider before a looming SOX compliance audit:

1. Section 302 – Corporate Responsibility for Financial Reports – This section states that the CEO and CFO are responsible for the accuracy, documentation, and submission of financial reports and the internal control structure to the SEC. These two executives must also establish and maintain SOX controls and validate their internal controls during the 90 days prior to their report.
2. Section 404 – Management Assessment of Internal Controls – This is considered to be among the most complicated parts of SOX compliance, and is therefore among the most expensive. All annual financial reports must include an Internal Control Report confirming that management is responsible for an adequate internal control structure, and must include management’s assessment of the effectiveness of their own control structure. This report must include any shortcomings, and the accuracy of the report must be validated by an independent auditor.
3. Section 409 – Real-Time Issuer Disclosures – Companies must immediately disclose any material changes in operations or financial condition, in order to protect investors and the general public.
4. Section 802 – Criminal Penalties for Altering Documents – Unsurprisingly, it is illegal to tamper with investigations in any way. There are penalties for any employees, accountants, or auditors who willfully violate normal procedures to influence investigations.
5. Section 806 – Employees who disclose corporate fraud are protected. Any retaliation over whistleblower complaints can lead to criminal charges.
6. Section 906 – Certifying a fraudulent or otherwise misleading financial report can carry a criminal penalty of upwards of $5 million in fines and 20 years in prison.
   The commonality between these six sections is that honesty and transparency are of utmost importance for SOX compliance. When a company has a robust security strategy and other necessary controls in place, the only thing to do for a SOX audit is to let the auditors do their jobs while you accurately report the appropriate information. The focus should be on maintaining SOX compliance at all times, rather than preparing for an upcoming or potential audit.

Data Protection for SOX Compliance and Beyond

The same capabilities a SOX auditor will look into are part of a good data protection plan anyway. Areas to consider include, but are not limited to, the following:

• Access – Is there a least permissive access model in place, such that every user has the minimum access required to do their jobs? Access should be controlled with physical controls (such as doors, badges, locking file storage) as well as technological controls (login policies, permission audits, and least privileged access).
• Change Management – Are there defined processes to install new software, add new users, modify databases, or change applications that relate to finance?
• Data Backup – Are all financial records backed up off-site in a SOX-compliant manner?
• Security – Can you demonstrate that you are protected against data breaches?

SOX provides organizations with a framework to help them manage their financial records. It is the legal minimum, however, and is not intended to be a full replacement for a thoughtful data protection plan.

The Sarbanes-Oxley Act lays out measures every company must take, and it falls upon individual business leaders to take additional steps based on their specific situations. Contact a cybersecurity partner to learn more about Data Governance, or schedule a demo to see specifically how a cybersecurity plan contributes to SOX compliance.

The industry most targeted by cybercriminals is the financial services industry. Because of the sheer volume of sensitive financial data carried by this industry, it serves as a hotspot for cyberattacks. 47.5% of financial institutions were breached in the past year, while 58.5% have experienced an advanced attack or seen signs of suspicious behavior in their infrastructure.

There are also quite a few regulations that govern this industry in specific, such as the PCI-DSS (Payment Card Industry Data Security Standard), GLBA (Gramm-Leach-Bliley Act, aka the Financial Services Modernization Act), and BCBS 239 (Basel Committee on Banking Supervision’s regulation number 239). Although the industry is heavily regulated, it has a significantly high data breach cost at $5.86 million2. So, data falling into unauthorized hands not only results in non-compliance for the organization but also puts it at financial risk due to the high cost of data breaches

Challenges

Third-party risks

The use of third-party vendors is one of the major forces behind the cybersecurity risk that threatens financial institutions3. Most organizations work with hundreds or even thousands of third parties, creating new risks that must be actively handled. The financial sector has massive third-party networks that pose new weak spots in cyber defense. In the next two years, we can expect to see an exponential rise in attacks on customers, partners, and vendors4. Without continuous monitoring and reporting, along with the use of critical tools to do so, organizations are vulnerable to data breaches and other consequences.

Data transfers (cross-border data exchanges)

The most fundamental challenge is to keep your private data private. Given that the financial sector produces and utilizes a massive amount of sensitive data, and is highly regulated, cybersecurity becomes paramount. Adequate measures are needed to protect data at rest, in use, and in motion.
Security concerns
Problems arise with data security when employees, security officials, and others tasked with protecting sensitive information fail to provide adequate security protocols. They may become careless about leaving their credentials around at home or in public places. Other issues arise when networks and web applications provided by institutions don’t have enough safeguards to keep out hackers looking to steal data.
According to SQN Banking Systems, the five biggest threats to a bank’s cybersecurity include:
• Unencrypted data
• Malware
• Non-secure third-party services
• Manipulated data
• Spoofing

Evolution of technology and the threat landscape

Technology evolves daily; what we’re using now might be obsolete in the coming year. At the same time, cybercriminals are also equipping themselves to face technological advancements head-on. Looking at the alarming number of cybercrimes in the past year, they are much advanced than the technology we are using. In such a scenario where criminals are always one step ahead of the organization, blocking threats becomes a difficult task.

Evolving customer needs and organizations

Just as technology evolves, so do organizations and the way they function. Customer needs are ever-increasing, and they want quick solutions. What customers might not realize is that appealing technology comes with its set of risks. Moreover, there probably isn’t a financial institution today that hasn’t explored digital and mobile platforms. As they continue to keep expanding and using these platforms to cater to their consumers, they’re incidentally open to cyber risk exposure. Retaining customer confidence while meeting their growing needs to newer technologies becomes a complicated process.
Remaining compliant
Alongside dealing with the challenges mentioned above, it is imperative that financial institutions also put in the effort to stay compliant with laws such as the GDPR and CCPA to avoid hefty fines and other concerns such as revenue loss, customer loss, reputation loss, and the like.

Solutions

• Monitor user activity for all actions performed on sensitive data in your enterprise.
• Choose from different methods or select a combination of techniques such as encryption, tokenization, static, and dynamic data masking to secure your data, whether it’s at rest, in use, or in motion.
• Before this step, sensitive data discovery is a must, because if you don’t know where your data is, how will you protect it?
• Deploy consistent and flexible data security approaches that protect sensitive data in high-risk applications without compromising the application architecture.
• Your data security platform should be scalable and well-integrated, which is consistent across all data sources and span both production and non-production environments.
• Finally, ensure the technology you’re implementing is well integrated with existing data protection tools for efficient compliance reporting and breach notifications.

Conclusion

If financial institutions think they can dodge cyberattacks with the help of mediocre data security strategies, recent heists would’ve proved them wrong. And despite prevention and authentication efforts, many make the mistake of thinking anomalous and unauthorized activity will cease to occur, which is unfortunately not the case. While cyber-risk is inevitable, by implementing the right tools, and a well-defined approach to cybersecurity, financial institutions can be more prepared as threats evolve.

About Mage Data

Our data and application security platform is a single integrated platform that protects sensitive data across its lifecycle, with modules for sensitive data discovery, static and dynamic data anonymization, data monitoring, and data minimization. Our solutions in data security are certified, tested, and deployed across a range of customers all over the globe. We have successfully implemented our solution in many large financial institutions – top private bank in the Dominican Republic, one of the largest Swiss Banks, a global financial services software manufacturer, the world’s largest credit rating agency, and a top commercial bank in the United Arab Emirates.

How a Swiss Bank is effectively handling data security?

A top Swiss Bank was looking to optimize costs by offshoring IT application development while ensuring compliance without compromising on sensitive data controls. This posed a need for sensitive data discovery and masking both production and non-production environments. In a highly regulated environment, they were able to deploy our product suite, a sophisticated solution that met their needs and was able to successfully achieve secure cross-border data sharing and sensitive data assessment for cloud migration and compliance.

You can download the case study here: Mage Customer Success Stories – Comprehensive Security Solution for a Top Swiss Bank

References

1) Bitdefender – Top security challenges for the Financial Services Industry in 2018
2) Ponemon Institute – Cost of a Data Breach Report, 2019
3) PwC report – Financial services technology 2020 and beyond: Embracing disruption
4) Protiviti – The Cybersecurity Imperative: Managing Cyber Risks in a World of Rapid Digital Change
5) NGDATA: The Ultimate Data Privacy Guide for Banks and Financial Institutions