Navigating the landscape to ensure data protection
The birth of FinTech or Financial Technology can be traced back to the 1960s when traditional banking paved the way for simpler and more efficient transactions through ATMs. But when mobile banking took hold in the 21st century, it revolutionized the way people managed their finances.
But as is often the case, technological breakthroughs and digitization often come with unexpected risks. For FinTech, the rapid proliferation of mobile and online banking dramatically increased cyber security and privacy threats.
While these organizations have taken the natural step to continue creating person-centered, personalized user experiences that directly oppose and decentralize the antiquated structure of large banks, the FinTech industry has found itself fraught with privacy concerns.
With an incidence of 23% and often holding sensitive payment information, the financial industry is the most vulnerable area to phishing attacks and breaches. This keeps organizational leaders on their toes and looking for the best solutions to ensure a more secure and stronger data protection program.
To keep pace with the advancements in technologies such as blockchain, AI and cryptocurrencies, FinTech companies are overhauling their existing models to ensure compliance with global data protection regulations such as GDPR, LGPD and CCPA, in addition to sector-specific laws we will cover below. Here’s how the most forward-thinking FinTech companies are approaching compliance to protect both companies and users from privacy threats.
Integrate security into initial design
Privacy by Design is a fundamental part of modern IT, cyber security and risk management practices, requiring privacy to be an integral part of systems and technologies from the outset, rather than treating privacy issues as an afterthought.
In a nutshell, privacy is by prevention, not by help. Rather than addressing privacy concerns after the introduction of new technologies, business processes or disruptions, the Privacy by Design approach, which is one of the core principles of the EU’s GDPR, involves incorporating privacy into the initial development or conception of organizational decisions.
FinTech, more than any other industry, benefits from this approach. In addition to fostering a robust culture of privacy, implementing this approach will also ease the burden of complying with the long list of privacy regulations affecting the sector.
Define risk framework
Reducing risk management is important in FinTech companies. Adopting an end-to-end approach and prioritizing risk-based actions is critical. This involves creating and documenting a risk framework that corresponds to the regulatory and operational risks identified through a formal assessment of business risk.
Once the framework and regulatory risk processes and programs are established, the next step is to conduct regular tests to further detect risks, implement measures and ultimately mitigate them. To ensure this is deeply embedded in a company’s ethos, employees should be empowered to voice any concerns related to risk.
Develop a culture that follows the latest fintech regulations
Developing a culture that normalizes and standardizes the latest regulations is key. Below are some of the regulations and standards that every FinTech company should comply with, depending on their geographic location:
Payment Card Industry Data Security Standard (PCI DSS) – The PCI DSS protocol is the gold standard for organizations handling credit cards from major payment networks.
ISO/IEC 27001 – ISO/IEC 27001 is essential for organizations to establish a management system for information security. This enables FinTech companies to adopt a risk management process specifically tailored to their size and requirements that can be adjusted overtime.
General Data Protection Regulations (GDPR) – Known as the strictest privacy law globally. The GDPR stands out because it applies not only to organizations based in the EU, but also to companies that collect or process information related to users living in the EU.
Revised Payment Services Directive (PSD2) – This EU directive imposes measures to ensure the secure electronic initiation and processing of payments, as well as to protect customers’ financial information.
Gramm-Leach-Bliley Act (GLBA) – The GLBA is a US congressional act that strengthens competition in the financial industry by establishing a sound framework for affiliation with banks, securities firms and other financial service providers.
Ultimately, these standards and regulations are a prerequisite for securing privacy in an age where FinTech is vulnerable. To avoid legal and financial consequences, it is necessary to stay on top of all these laws.
With several state laws passed in the United States and more coming in 2023, the issue of privacy is more pressing than ever. For a traditionally regulated industry like FinTech, that means embracing the new age of compliance or potentially risking some of the gains brought about by the technological advances of recent decades.