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Compliance & symbols over a financial & accounting themed background.

How Financial Firms Can Maintain Regulatory Compliance in 2022

Technology and data compliance go beyond not storing data publicly. It’s about maintaining a balance between the accumulation of data along with its proper documentation. Financial and wealth management firms in 2022 need to maintain a virtualized environment, encrypted data, and updated software on an ongoing basis. Keeping regulatory compliance with these practices will be essential to maintaining the firm’s reputation.

Many companies have managed to do so by relying on a third party or Managed IT Services Provider (MSP). While such an approach may be costly, in the long run it allows for a more flexible IT budget, all the while still allowing complete control over data and records. That’s what has led many firms to look for solutions that will enable them to properly keep track of their data and protect it from loss or theft.

The Pandemic and Proactive Compliance

With the rise of AI, many firms in the Financial services industry are looking forward to welcoming a more streamlined approach to compliance.

Further, targeted attacks have caused firms to be more aware of their security practices. As a result, some businesses would like to see an environment where they can use artificial intelligence to identify threats and recommend solutions without alerting the attackers.

Despite the rise of cybersecurity attacks during the pandemic, we’ve got a long way to go before financial & wealth management agencies can utilize AI in such regard. Instead, they cope by employing a proactive approach to compliance. As opposed to reactive compliance, opportunistic compliance can give firms more security than they would have otherwise.

How Firms Can Maintain Data Compliance

To begin with, financial firms need to be better at collaborating with data integrity providers.

To implement a proactive approach to compliance, wealth management firms have to partner with a trusted IT provider to develop systems in place that can offer them insights and data about the potential risk to their clients. The more details that are known about a client’s risk profile, the greater chance of knowing if additional regulations are needed.

Take GDPR compliance, for example, which is a regulation that firms need to be aware of. Firms that have been lax about their GDPR compliance may end up with a fine of millions in potential revenue.

Additionally, financial firms need to ensure their technology providers can deliver them the information they need to comply with regulations.

MSP’s should also be better at documenting their policies and processes. It makes it far easier to ensure that the firm is compliant in the present and compliant in the future. Although implementing a proactive approach to compliance can be costly, it yields better results in the long run than reactive approaches do.

Furthermore, it’s not just important that IT solution providers SAY what technology they have in place and what they do, but also have the proof of these processes in place. Distinguished MSP’s like Nerds Support are audited regularly to be considered certified under various regulatory compliance standards, such as SOC Types 1 & 2. Doing so not only builds trust between a financial firm and its MSP on a personal side, but ensures data peace of mind on the business side.

In 2022, regulators will look at financial firms and expect them to be ahead of the curve for data security and integrity. As a result, financial firms will have to rely on AI, partnering with an MSP, or other methods to maintain compliance. But many are still struggling with maintaining compliance without expensive technology.

Preventing Lost Data

Data loss can be a significant hindrance when it comes to building wealth. In some cases, data loss can result from a cyber-attack. In other cases, and more often than people think, it could also be caused by human error.

The leading cause of data loss is that firms lack the proper technology safeguards and training processes in place. So the first step in implementing such a process that will help prevent data loss is to upgrade any outdated systems, or partner with an MSP that can do it for you.

Cyber Liability Insurance

Cyber liability insurance has become an essential piece of the financial and wealth management industry’s ongoing security. Financial firms need to be aware that cyber liability insurance will provide them with peace of mind should a high-level disaster ever strike, like hurricane-caused outage or a successful social engineering scam.

However, the continued growth of the financial and wealth management industry makes it imperative for firms to stay informed about the ever-changing landscape of cyber liability insurance.

In addition, financial and wealth management firms need to know that cyber liability insurance is more than just a one-time payment. Though it may seem expensive, it will prove to be priceless when it comes to helping firms mitigate a cyber-attack or natural disaster.

Employees are part of these firms, and they have essential roles to play in their organizations. This means that they need to set up an environment to protect their sensitive data from cyberattacks while still allowing them the freedom to do their jobs, whether remotely or in the office.

The Key Takeaway

In 2022, financial and wealth management firms will need to be more proactive in taking care of their data. They need to take measures to prevent data loss, and they can do so by implementing AI technologies that can protect their firms.

Firms also need to understand that cyber liability insurance will help them with more than just funding their lawsuit; it will also help them maintain their credibility as a professional business organization.

If you found what we spoke about in this article as valuable, and are looking to advance your business’ technology strategy, or want to learn more about what our IT for Financial firms solution can do to help maintain data compliance, give Nerds Support a call or contact us for a Free Consultation!

SOX 1 & 2 Financial Compliance Thumbnail

What is SOC 1 & SOC 2 Compliance?

What are SOC 1 and SOC 2 Reports ?

Service organizations, like financial and accounting firms, are required to meet compliance requirements. The two most common compliance frameworks are SOC 1 and SOC 2. But what exactly are they? More importantly, how does SOC I and SOC II work exactly?

SOC 1

Service Organization Control 1, or SOC 1, reports are for businesses that handle financial information for their clients, also known as service organizations. This report ensures that financial information is managed securely by the business itself.

In other words, SOC 1 reports assure customers that your business has the appropriate controls in place to protect their financial information. Furthermore, SOC 1 features Type 1 and Type 2 compliance reports.

This report is conducted by a third party SOC Audit service and usually applies to businesses that provide financial related services.

The SOC 1 report focuses on the service organization’s controls and key control objectives decided by the organization.

A SOC 1 report is part of the SSAE, the Statement on Standards for Attestation Engagements (SSAE) 18 AT-C Section 320. SOC 1 reports were established by the American Institute of Certified Public Accountants (AICPA).

The purpose of SOC is to evaluate service controls. However, a service organization is responsible for deciding key control objectives for the services they provide clients. Control objectives refer to business processes (controls concerning processing client information) and IT processes ( controls concerning the security of client information).

A service organization that needs a SOC 1 report can be companies that offer payroll services to clients.

Typically, Managed IT Services providers supply their customer or client with a SOC 1 report as proof that they have reliable internal controls in place.

Type I Reports vs Type II Reports

Now that we’re clear on the difference between SOC 1 and SOC 2, we can go into the types. A type 1 exam evaluates the design of controls as of a particular date.

A type II exam also evaluates design of controls, however it also includes testing operation of controls over a period of time. The type II exam covers a minimum of six months.

Type I reports

Essentially, Type I reports allow auditors to perform risk assessments and let businesses know they can perform critical assessment procedures. The report describes an organization’s system and how it works to achieve goals clients and customers. These reports also test how controls achieve specific objectives on a chosen date.

Type II

A type 2 report demonstrates the effectiveness of those controls over a period of time. Moreover, type 2 reports are a review of an organization’s internal controls over a period of 6 to 12 months and includes an in-depth review of those controls.

When an organization undergoes the audit, they are continuously audited either annually or semi-annually. Additionally, a type 2 report analyses an organization’s environment to evaluate if the organization’s internal controls design and functionality are effective.

SOC 2

The difference a SOC 2 report have from SOC 1 are that the SOC 2 report addresses an organization’s controls pertaining to operations and compliance standards. The AICPA developed Trust Service Criteria, or TSC, which determines the standards for trustworthy controls.

Things like security, integrity, availability, privacy, and confidentiality are all aspects of TSC. However, the only TSC required in SOC 2 is security.

So, if a service organization chooses, they can take a SOC 2 report that focuses solely on security or all five TSCs depending on their specific requirements for audit.

Managed IT services providers like Nerds Support can achieve a SOC 2 certification in order to properly care for and handle sensitive client data.

SOC 1 & 2 AICPA Regulations values security, privacy, confidentiality, processing integrity, and availability.

In Summary

  • SOC 1 reports deal with internal controls pertinent to the audit of a service organization’s client’s financial statements.
  • A SOC I audit allows service organizations to report and examine internal controls that pertain to its customer’s financial statements.
  • SOC 2 reports deal with  service organization’s controls pertinent to their operations and compliance. This is detailed by the AICPA’s Trust Service Criteria (TSC).
  • A SOC II audit covers a combination of five distinct criteria:  Security, availability, process integrity, confidentiality and privacy.

If you have any questions about how your business can effectively maintain data compliance, give us a call at (305) 551-2009 or email us at [email protected].

You can also get a hassle-free SOC 2 Certification using compliance automation software like Sprinto.

And for more content & news regarding Compliance, cyber security, Cloud technology and more, visit our blog!

SOX 1 & 2 Financial Compliance Leaderboard

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How Do You Make Regulatory Reporting Easier for Financial Institutions?

How Do You Make Regulatory Reporting Easier for Financial Institutions?

Financial institutions around the world are subjected to strict scrutiny to combat money laundering, tax evasion, fraud, terrorist financing, and other illegal activities. Complying with the standards set by regulatory bodies comes with its own costs, a burden that financial firms have to shoulder. It’s estimated that banks, insurance companies, brokerages, remittance firms, and other types of businesses that make up the financial sector spend more than USD 180 billion on compliance costs alone.

Despite this large spending, many establishments still fall short of meeting the guidelines set by regulatory bodies. This also comes with hefty fines. In just 10 years, financial institutions with local and international operations have accumulated a total of USD 36 billion in sanctions and fines due to non-compliance. In addition to this, brands also incur reputational damage due to getting involved in financial crimes and scandals.

This begs the question: what steps can your financial firm take to reduce the burden of regulatory reporting? At the same time, how can your company effectively protect itself from being used by criminals for illegal financial activities? Here are a few practical suggestions that can help your financial institution stay on top of the rules set by regulatory bodies:

Identify the Company’s Top Priorities for Regulatory Reporting

The first step in improving your company’s regulatory reporting process is to set goals and see how the current system you are using measures against these touchstones. Doing so will help you identify strengths and weaknesses in the process as well as choke points that should be resolved. If you’re planning on upgrading your regulatory reporting software or partnering with a managed IT services provider, this step can also help you create a detailed list of requirements that your new solution should be able to offer.

Examples of common improvements that can raise your establishment’s regulatory reporting capabilities include:

• a centralized data management system that can be readily accessed and used as a source for internal and external reporting;
• an automated end-to-end reporting system that takes care of everything from gathering data to submitting reports; and
• functionalities that allow easy visualization, prioritization, and organization of enterprise-level data, such as a depository for data quality rules.

Does your current regulatory reporting software have these tools and functions? If not, then it might be time to consider a more comprehensive and customizable solution, one that can effectively reduce the amount of work that your compliance team needs to shoulder.

Invest in Future-Proof Compliance Solutions

Financial crimes continue to evolve in an effort to foil the anti-crime measures implemented by law enforcement agencies, regulatory bodies, and financial establishments. To keep up with these changes and to remain effective in their mission, regulatory bodies are continually refining and updating the compliance rules that financial firms have to follow. This causes the cost of compliance to balloon year after year.

More than half of an average company’s compliance expenses goes to labor costs. This is because many firms find it necessary to hire specialized staff members or an IT consulting firm to ensure their company’s compliance every time regulatory bodies roll out new rules. The other half of the compliance budget is directed to technologies that can make the process more efficient.

However, many financial firms are reluctant to spend on new software for regulatory reporting, as this activity does not earn revenue for the company. At the same time, because compliance rules change every now and then, some companies are also not too keen on acquiring an expensive software that will go obsolete or need paid updates in the next few years or so.

What they may not know is that there are comprehensive reporting solutions out in the market today that automatically integrate the updated rules implemented by regulatory bodies. A solution like this can help ensure the integrity and timeliness of the reports generated by a financial establishment. It can also eliminate the need to hire specialized personnel every time regulatory bodies roll out new requirements. Moreover, because the new solution is updated automatically, companies can save on cybersecurity and what they would otherwise spend on new software or expensive updates.

In addition to savings, enterprise-wide regulatory reporting solutions offer a wide range of functionalities and customization options. This means that users can modify these solutions to suit the particular needs of their operation.

The Importance of Regulatory Reporting

Investing in regulatory reporting technologies has benefits that go beyond ensuring your company’s compliance. It’s also a solid step in protecting your company from the negative impacts of financial crime, like substantial fines and damages to one’s brand and integrity. In addition, providing your compliance team with the right tools and services will reduce the number of menial tasks that they need to accomplish. This, in turn, gives them more time and resources to ensure the quality of the reports that are submitted to regulatory bodies.

 

A pair of Nerds glasses surrounded by SOX, SOC, & FINRA compliance standards surrounded by clouds

Compliance on the Cloud 101

What is Compliance?

Compliance when dealing with cloud computing can be an issue for those using cloud storage or backup services. When you transfer data from your internal storage to a cloud provider’s you must examine how that data is stored so that you stay in compliance with laws and regulations. Financial cloud computing, for example, requires IT sox compliance to ensure quality of service.

In 2002 the Sarbanes-Oxley Act (SOX) was implemented as a response to huge accounting scandals. Companies like Enron, Global Crossing and others misled investors and cost shareholders billions of dollars. This, in turn, changed the IT world forever. What does this have to do with IT? It changed how we approach things like storage, data, security and other functions. 

Cloud computing compliance is, simply put, a principle that states a cloud based system must be compliant with standards that the cloud customer faces.

Compliance departments ensure that businesses conform to established rules and it’s important to understand, when switching over to a cloud service, how and in what ways the cloud meets compliance standards. Luckily, there are cloud providers that ensure compliance with regulations like SOX. 

If you’re in the financial services industry there are a few things to think about when considering an IT solutions cloud provider. 

How Compliance Works 

A global survey conducted by Veritas Technologies, a data management company, revealed that of the 13 countries and 1,200 businesses surveyed, 69 percent of organizations or 828, wrongfully believed that data protection, data privacy and compliance are the responsibility of the cloud service provider.

It isn’t.

When it comes to cloud compliance you need to be aware of the data you should move to the cloud and the data that should remain in house, the questions you need to ask of your cloud provider and what be written in a service-level agreement (SLA) to maintain industry compliance.

When SOX was first written, it explicitly left out how regulations should be met. This ensured that industries could adopt the most recent technology instead of having to wait for lawmakers to catch up to technology. Because of this, the cloud is a viable infrastructure for financial companies that forced to adhere to compliance rules. 

 The way IT departments store records changed due to the implementation of SOX. Regulations state what kind of information needs to be stored that relate to SOX compliance. Things like electronic records and messages, spreadsheets and emails are considered valuable and fall under the regulation.  

It’s important that you not take this for granted, and evaluate your SLA’s with the provider.

The first thing that organizations need to do is be aware of the type of services they use. There may be certain information that’s regarded as highly confidential and a company may decide to keep it on an internal network. Or if it is moved to the cloud, it’ll be a private cloud that will be hosted on the premises.

Nerds Support has a hybrid cloud in a secure location that has military grade security.

Ensuring Cloud Compliance 

Once your company has decided what information is to be transferred over to the cloud look at the contracts you have between with your cloud provider. Depending on whether the cloud is internal or external the approach will be slightly different. If it’s external, you have to make sure both you and the provider are clear about what type of data should reside on their cloud services and how they’ll protect said data. If it’s an internal cloud, are you going to have internal compliance checklist to make sure you’re within the regulatory standards?

With cloud & IT for financial services, customers and cloud providers share the responsibility to maintain compliance. It’s the duty of the organization to investigate the security policies of the vendor. 

Important questions to ask include: 

  • Where is data stored?
  • Who has access to the storage areas or data centers?
  • How is my data protected?

Compliance 101 SOX FINRA Cost Statistics

Service Organization Controls 

In some cases, companies can look at Managed IT services providers that certify compliance and chose their services without any further research. There are times, however, where a company will have to be more thorough and get involved in the cloud providers security to make sure it complies with industry standards. When it comes to SOX compliance, however, you should look for a vendor that provides you with Service Organization Controls.

This report enables user auditor to evaluate audit risks associated with the use of a financial cloud provider.   

It’s also important to establish and verify benchmarks that help check the effectiveness of the security around your data on the cloud.  Make sure your provider uses federal government guidelines for cloud security if it’s based in the US.

In order to avoid miscommunications between your cloud provider and your organization, make sure you take the time to classify the data in level of importance, delegating carefully what is suitable for the cloud and what needs to remain internally stored. Have the right contracts and go through them, establishing what will be covered under their services and how they’ll protect and back up your data. A business continuity plan is also imperative, just in case of any hiccups.

Nerds Support has cloud services that comply with financial regulations.

Contact us today to schedule a free IT assessment that can identify gaps in your IT infrastructure.

When choosing a managed service cloud provider, it's important to consider the consequences of SOC 1 & 2 compliance regulations

Why SOC Compliance Matters When Choosing An MSP

If you’re in a service industry, chances are you’ve run into the term SOC compliance. Some of you may have undergone a SOC I or SOC II compliance audit.

As remote work becomes increasingly more popular companies are choosing to adopt managed IT services and cloud based platforms.

However, even companies that undergo SOC compliance don’t consider how important it is when choosing a managed service provider.

What is SOC Compliance?

For those of you who don’t know or are wondering about SOC compliance, here’s a quick overview.

There are two main types of SOC compliance. There’s SOC I and SOC II compliance audits. There is such thing as a SOC III but it uses the same reporting as SOC II only it’s designed for public consumption.

A systems and organization Control audit I, or SOC I is a type of audit created to test the internal controls a service organization uses to protect sensitive client data. To be more specific, a SOC I audit tests the internal controls that could affect financial reports.

SOC II compliance audits were developed by the American Institute of CPA’s and exists to make sure service organizations controls like Security, integrity, confidentiality and privacy are up to standard.

Service companies like financial and CPA firms benefit from SOC compliance in the same way MSP’s do.

What are the Benefits of SOC Compliance?

A service organization goes through a lot of scrutiny in when it comes to compliance. SOC reports are among the most important pieces of information for a financial firm or CPA. They verify that the appropriate controls are in place and those controls work efficiently and securely.

For a financial firm it’s an invaluable tool and the same applies to an MSP. When you contract a Managed Services provider, you’re onboarding a new IT team. How integrated that IT team is depends on whether you choose a Co-managed plan or not. Either way, you’re making these service providers a part of your company.

Therefore, your firm is entrusting an MSP with highly confidential client information to one degree on another. That means your prospective provider should be able to comply with a SOC audit as well.

Benefits of SOC I Compliance

There has been a steady increase in SaaS adoption by a variety of industries. SaaS was predicted to grow 10.5 percent in 2020 by Gartner before the global pandemic of 2020. With companies forced to operate remotely, cloud and SaaS services became even more essential.

With a SOC I audit you can evaluate your provider’s policies and procedures, which is pivotal to running your operation. If they’re going to be the IT arm of your firm, they should be subject to the same regulations and systems checks.

Building Trust

Being able to check and validate a company’s security controls creates trust between you and your provider. A SOC I audit is proof that your MSP has the proper tools to protect both your and your client’s data.

Establishes Organization & Accountability

SOC 1 compliance audits can be costly and rigorous. However, if your MSP has multiple client organizations with a multitude of users, it can generate difficulties when keeping track of the right data. Conducting a SOC I audit provides, you the client, a report for review that saves time, money and makes your MSP’s process transparent.

Opportunities for Identifying Weaknesses and Improvement

Managed Services Providers are like any other company. Companies are subject to inefficiencies and faulty processes that can bring the quality of their services down. There are plenty of MSP’s that believe their controls and systems are enough and don’t need improving. However, as a potential client, it’s difficult to determine the security and efficiency of an MSP until something goes wrong.

An independent audit of your MSP will undoubtedly optimize your company’s internal processes because you don’t have to waste time searching for documents and paperwork if anything goes wrong. Moreover, if there are any security protocols that are not on par with SOC I standards the MSP should be proactive enough to adjust and improve where necessary.

If there is a malware attack, for example, you can rest easy knowing the proper controls are in place to prevent it from causing damage.

Cyber Security Protection

Cyber attacks have increased in both volume and breaches in the past 12 months, according to a VMware survey. 88 percent of North American respondents said they saw an increase in overall cyberattacks resulting from employees working from home. In other words, cyber protection has become more important than ever as companies learn to maneuver through a remote environment.

A SOC I audit gives you an understanding of your MSP’s business and security processes and your clients will have greater confidence in your firm. Don’t be fooled by a provider that promises complete and reliable cyber security when they’re unable to  provide evidence to support it. Ultimately, it is your firm that will end up paying for the wrong MSP’s cyber security deficiencies.