Every day, financial institutions face threats of data breaches, making cybersecurity a critical aspect of their operations. As technology evolves, so do the malicious tactics used by cybercriminals to exploit vulnerabilities in the financial sector. This is where compliance regulations come into play. These regulations are designed to protect sensitive financial information, mitigate cyber risks, and maintain the integrity of the financial system.

At the heart of financial compliance is the responsibility to safeguard consumer data and financial information. Financial institutions, from banks to insurance firms, collect and process vast amounts of personal and financial data, that if breached, can be a major liability to both organizations and individuals alike. This data can include everything from credit card numbers and social security details to transaction histories and insurance policies. Given the sensitivity of this information, these regulatory frameworks were developed to ensure its constant protection. 

Here’s an overview of some of the critical regulations shaping the world of finance compliance.

Sarbanes-Oxley Act (SOX)

The Sarbanes-Oxley Act (SOX), passed in 2002, was established to protect investors by improving the accuracy and reliability of corporate financial disclosures and reporting. Although the act focuses on financial transparency and corporate governance, SOX compliance is mandatory for all public companies.

A crucial part of SOX compliance is record retention. Financial and insurance companies must keep a wide range of documents, from financial statements and accounting records to emails and client information, for a specific timeframe. While SOX doesn’t dictate exactly how records should be destroyed, it stresses the importance of maintaining accurate, unaltered data, for specific lengths of time.

When it’s time to securely dispose of expired records, organizations should, at a minimum, implement a risk management  and destruction plan that falls in compliance with NIST 800-88 data disposal standards to ensure sensitive information is destroyed responsibly and in line with SOX requirements.

 Fair and Accurate Credit Transactions Act (FACTA)

The Fair and Accurate Credit Transactions Act (FACTA), enacted in 2003, is a crucial piece of legislation aimed at enhancing the accuracy, privacy, and security of consumer information. FACTA as it stands today, amended the Fair Credit Reporting Act (FCRA) and was introduced to address growing concerns about identity theft and consumer credit reporting practices. 

At its core, FACTA provides consumers with greater access to their credit reports and includes measures to assist with fraud prevention. One of its most notable impacts is allowing consumers to request a free annual credit report from each of the major credit reporting agencies, ensuring individuals can monitor their credit history and identify potential discrepancies. 

While FACTA doesn’t mandate just one specific method for disposing of consumer report information, it allows some flexibility, enabling organizations to choose their disposal method based on the sensitivity of the data and the associated costs. It is, however, recommended to follow NIST 800-88 data disposal standards for secure and compliant destruction of consumer reports.

General Data Protection Regulation (GDPR)

The European Union’s General Data Protection Regulation (GDPR) has had a profound impact on global financial institutions and their operations. GDPR focuses on data privacy within the European Union and was designed to protect the personal data of the region’s citizens from cyberattacks. Organizations that process data from EU citizens must comply with GDPR, meaning organizations with EU customers, visitors, branches, those offering goods or services in the region, and even cloud computing companies. Essentially, regardless of where the organization is located, if the data of EU residents is involved, compliance with GDPR standards and regulations is non-negotiable. 

The mandate also grants individuals the freedom to have a say in what happens with their data, giving them the right to access, correct, and destroy their data. Organizations must also implement enforce stringent security measures to protect that information from unauthorized access or breaches and maintain transparency about how data is used.  

The GDPR checklist for data controllers is a phenomenal tool designed to help keep organizations on the road towards data security compliance. More information on GDPR’s data destruction best practices can be found here.

Gramm-Leach-Bliley Act (GLBA)

The Gramm-Leach-Bliley Act (GLBA), passed in 1999, focuses on the protection of non-public personal information (NPI) in the financial services sector. The GLBA primarily governs how financial institutions handle the privacy of sensitive customer data and sets strict regulations on how that information can be collected, stored, and shared. By ensuring that businesses adopt responsible data management practices, the GLBA aims to protect consumers from financial and insurance fraud. Financial institutions, such as banks, credit unions, and insurance companies, are required to provide clear and transparent privacy policies, informing customers about the ways their information may be used or shared with third parties.

A key component of the GLBA is the Financial Privacy Rule, which outlines specific guidelines that financial institutions must follow when collecting personal data. This rule requires institutions to give customers the option to “opt-out” of having their information shared with non-affiliated third parties, thereby empowering consumers to have more control over their personal data. 

In 2021, responding to the rise in data breaches, the Federal Trade Commission strengthened data security protocols under GLBA with an updated Safeguards Rule. This rule extends to all non-bank financial institutions, including mortgage companies, car dealers, and insurance companies, ensuring customer financial data is securely protected.

One of the key requirements of the Safeguards Rule is that these institutions must implement a secure disposal policy for customer information within two years of its last use—unless retention is legally or operationally necessary. Although the rule doesn’t list a specific disposal method, following NIST 800-88 data disposal standards is widely regarded as a best practice.

Payment Card Industry Data Security Standard (PCI DSS)

The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards established by major credit card companies to protect payment card information and ensure the secure handling of credit and debit card transactions. Established in 2004 by major credit card companies, including Visa, MasterCard, and American Express, PCI DSS applies to any organization that processes, stores, or transmits payment card information. The goal of these standards is to minimize the risk of breaches, fraud, and identity theft, and quicken data breach response times by enforcing strict security practices across all entities involved in the payment process. 

PCI Requirement 3.1 specifically mandates that organizations securely dispose of cardholder data that is no longer needed, with the principle, “if you don’t need it, don’t store it.” Retaining unnecessary data creates a significant liability, and only legally required data should be kept. This applies to any organization involved in processing, storing, or transmitting payment card information—from retail businesses and payment processors to banks and card manufacturers.

While PCI DSS does not prescribe a specific method for data destruction, the consequences of non-compliance are severe. To mitigate risks, organizations should have clear policies in place for securely destroying all unnecessary data, including both hardcopy documents and electronic media like hard drives, servers, and storage devices.

For PCI DSS compliance, it’s recommended to follow NIST 800-88 data disposal standards to ensure secure and thorough destruction of cardholder data.

Conclusion

Understanding and complying with these mandates is crucial for financial institutions to navigate the complex regulatory environment. By implementing robust internal controls, risk management protocols, and staying informed about regulatory changes, organizations can uphold the principles of transparency, security, and trust that are fundamental to the industry.