The Importance of Compliance Regulations in the Financial Services Industry

Compliance regulations help to promote transparency and fairness in financial transactions. They keep the financial system stable and secure, providing important support for the overall economy.  

What is the Relationship Between Compliance and Cybersecurity? 

There is a close relationship between compliance and cybersecurity. Cybersecurity risks can lead to compliance problems, and compliance problems can lead to cybersecurity risks.  

In a report done by Verizon in 2020, it was discovered that over 3,950 data breaches occurred during that fiscal year. Sadly, 60% of the breaches resulted in personal data loss. Worse still is the fact that this number nearly doubled from the statistics of the previous year.  

Data breaches are costly. Not only do they injure your reputation, but they often result in fines for non-compliance that are substantial and painful.  

Compliance regulations don’t take the place of a robust cybersecurity program. They are what is known as checkmark compliance, the baseline standard that is required by law. Both are needed for the ultimate protection for you and your clients.  

What are the Most Common Regulations for the Financial Services Industry? 

Several key compliance regulations govern the work done by the financial services industry.  

  • Anti-Money Laundering (AML) regulations 

Anti-money laundering (AML) regulations are designed to prevent the illegal flow of money. These regulations require financial institutions to implement measures to identify, assess, and manage money laundering risks. This may include customer due diligence measures such as verifying customer identity and monitoring transactions for suspicious activity.  

  • The Bank Secrecy Act (BSA) 

The Bank Secrecy Act (BSA) is a federal law that requires financial institutions to keep records of certain transactions and to report any suspicious activity. The BSA is designed to help detect and prevent money laundering, terrorist financing, and other crimes.  

  • The USA PATRIOT Act 

The USA PATRIOT Act strengthens anti-money laundering (AML) regulations by requiring financial institutions to take measures to prevent, detect, and report money laundering and terrorist financing activities. These measures include customer identification and verification, transaction monitoring, and suspicious activity reporting.  

  • The Gramm-Leach-Bliley Act (GLBA) 

The Gramm-Leach-Bliley Act (GLBA) allows financial institutions to offer a wider range of products and services to their customers. However, the GLBA also imposes new requirements on financial institutions such as, the need to maintain adequate records and establish internal controls to ensure the safety and soundness of their operations.  

  • The Sarbanes-Oxley Act (SOX) 

The Sarbanes-Oxley Act (SOX) imposes new requirements on publicly traded companies, including the need to maintain accurate financial records and establish internal controls to prevent and detect fraud. The SOX also created the Public Company Accounting Oversight Board (PCAOB) to oversee the auditing of public companies. 

  • General Data Protection Regulation (GDPR) 

The General Data Protection Regulation (GDPR) is a regulation of the European Union (EU) that replaces the 1995 EU Data Protection Directive. It strengthens EU data protection rules by giving individuals more control over their personal data and establishing new rights for individuals regardless of their country of citizenship.  

In particular, the GDPR gives individuals the right to know what personal data is being collected about them, the right to have that data erased, and the right to object to its use. These rights apply regardless of whether the personal data is being processed inside or outside the EU.  

In addition, the GDPR requires companies to get explicit consent from individuals before collecting, using, or sharing their personal data. Companies that violate the GDPR can be subject to fines of up to 4% of their annual revenue or €20 million (whichever is greater). 

  • Payment Card Industry Data Security Standard (PCI DSS) 

The Payment Card Industry Data Security Standard (PCI DSS) is a set of security standards designed to protect cardholder data. The PCI DSS is administered by the Payment Card Industry Security Standards Council (PCI SSC), an organization founded by the major credit card companies.  

The PCI DSS applies to any company that stores, processes, or transmits credit card data. This includes companies that process credit card transactions, as well as companies that store credit card data in their databases.  

The PCI DSS requires companies to take steps to protect cardholder data from unauthorized access, use, disclosure, or destruction. These steps include measures such as encrypting data in transit, encrypting data at rest, and maintaining secure systems and networks.  

Violations of the PCI DSS can result in fines from the credit card companies, as well as increased transaction fees. In addition, companies that suffer a data breach may be required to undergo an independent security audit. 

  • Payment Services Directive (PSD2) 

The Payment Services Directive (PSD2) is a European Union (EU) directive that regulates payment services. The directive was designed to create a single market for payment services and to increase competition in the sector.  

The directive applies to any company that provides payment services, including banks, e-money issuers, and payment processors. Under this law, these companies are required to obtain a license from the national regulator to offer payment services.  

In addition, the directive imposes several requirements on payment service providers, including the need to implement strong customer authentication measures and to provide customers with information about their rights. Violations of the directive can result in fines of up to €10 million. 

  • California Consumer Privacy Act (CCPA) 

The California Consumer Privacy Act (CCPA) is a state law that regulates the handling of consumer data. The CCPA applies to any company that does business in California and that collects, uses, or discloses personal information.  

The CCPA provides consumers with a number of rights, including the right to know what personal information is being collected about them, the right to have that information deleted, and the right to opt out of the sale of their personal information. In addition, the law requires companies to take steps to protect consumer data from unauthorized access, use, disclosure, or destruction. 

What is the Best Way to Improve Financial Industry Regulatory Compliance? 

There are steps that can be taken to improve financial industry regulatory compliance. These include: 

  • Increasing communication and collaboration between regulators and the industry 
  • Implementing risk-based approaches to regulation 
  • Ensuring transparency around regulatory requirements 
  • Providing adequate resources for companies to comply with regulations 
  • Offering incentives for compliance 

How Does Compliance with Legislation Improve Cybersecurity for Financial Services Businesses?  

Compliance with legislation has the potential to greatly improve cybersecurity for financial services businesses. First, compliance with data protection laws can help to ensure that customer data is properly protected from unauthorized access, use, disclosure, or destruction.  

Secondly, compliance with laws on information security can help to prevent cyberattacks and to protect customers’ information. Lastly, compliance with laws on consumer protection can help to ensure that customers are treated fairly and that their rights are respected.  

By complying with all relevant legislation, financial services businesses can create a strong foundation for protecting their customers’ data and preventing cyberattacks. 

Compliance to legislative mandates and industry IT security standards is serious business.  

Our team specializes in helping financial services businesses like yours meet or exceed compliance expectations. Contact Cooperative Systems to begin a no-obligation conversation